Apple on Thursday reported a 10% drop in iPhone sales for the second fiscal quarter, down from $51.33 billion to $45.96 billion, year over year. The slowdown was fueled, in part, by an 8% decline in China.
Apple’s slow adoption of AI versus rivals like Google and Microsoft likely played a role in consumers’ decision to hold off on buying a new iPhone. Apple has promised some big announcements on that front (likely at WWDC in June), but the iPhone 16 itself likely won’t arrive until the fall.
“Please note, as we described on the last call in the March quarter a year ago, we were able to replenish iPhone channel inventory and fulfill significant pent-up demand from the COVID-19-related supply disruptions on the iPhone 14 pro and 14 Pro. Max,” CEO Tim Cook explained on an earnings call. “We estimate this one-time impact to be $5 billion over last year’s March quarter revenue. If we deduct this from last year’s results, our company’s total revenue for the March quarter this year would have increased.”
However, despite these dire hardware figures, the company managed to beat Wall Street expectations and the stock rallied more than 6% after hours, fueled by both service revenue growth and a massive $110 billion stock market — a jump from last year’s $90 billion market.
Services, which includes offerings like iCloud, Apple TV+ and Apple Music, grew 14% for the year. Apple has long expected a slowdown in hardware sales, and its growing focus on subscription services has helped offset some of that loss.
“We expect our services business to grow by double digits at a rate similar to the growth we reported for the first half of the fiscal year,” CFO Luca Maestri scored on the call. He added that “the iPad should get into the double digits.”
The company is expected to launch two new iPads at a standalone event next week. The fact that the company hasn’t refreshed its tablet lineup since 2022 no doubt contributed to its own drop in sales from $6.67 billion to $5.56 billion, year-over-year. At Tuesday’s event, Apple is also expected to announce along with the M4 chip — the latest addition to the Apple Silicon lineup. The company’s chip progress, however, will soon be challenged by Microsoft’s efforts in the space, which are expected to be unveiled at the Build conference in late May. More material is also likely to be released for its annual Worldwide Developers Conference in June.
Apple does not break down the Vision Pro numbers. Instead, those numbers are included in Wearables, Home, and Accessories — a list that also includes devices like the Apple Watch, AirPods, and HomePods. However, most reports point to worse than expected sales. The company still tried to put a positive spin on the arrival of the headphones.
“During the quarter, we were excited to launch Apple Vision Pro and show the world the possibilities that spatial computing unlocks,” Cook noted in an announcement. “We’re also looking forward to an exciting product announcement next week and an incredible Worldwide Developers Conference next month.”
In February, Cook sought to address concern that the company was lagging behind Google and Microsoft, noting that it would have more information on its AI efforts “later this year.” While the topic will undoubtedly be the focus of the iPad event, it seems likely that the company is saving the big news for WWDC in June. Meanwhile, reports have surfaced that Apple is set to integrate both OpenAI’s ChatGPT and Google’s Gemini into future iPhones.
“I don’t want to preempt our announcements, obviously,” Cook said in response to a question on the matter during tonight’s call. “I would just say that we see genetic AI as a very key opportunity for our products. And we believe we have advantages that set us apart there. And so we’ll be talking more about that as we go through the next few weeks.”
