Facing cold sales pressure in China, Apple's Q3 revenue and EPS exceeded expectations, waiting for AI to drive the "upgrade wave"

According to the financial news app Zhitong Finance, on Friday morning Beijing time, Apple (AAPL.US) announced its performance for the third quarter of the 2024 fiscal year ending on June 29. The data shows that the company's total sales increased by 5% year-on-year to $85.8 billion, exceeding the market's expectation of $84.5 billion; earnings per share were $1.40, surpassing the market's expectation of $1.35. This sales period is usually one of the slowest for Apple as many consumers are waiting for the next generation iPhone to be launched in the fall.

However, sales from China decreased by 6.5% to $14.7 billion, lower than analysts' previous estimate of $15.3 billion.

Despite the overall rebound in sales for the third quarter and surpassing market expectations, the decline in sales in China has once again raised concerns about Apple losing its edge in one of its most important overseas markets. The company faces more intense competition in the Chinese market.

Apple attributed the decline in sales in China mainly to the impact of the strong US dollar, stating that its core business in China is actually healthier than before. Three months ago, executives stated that the slowdown in sales was not so much due to poor iPhone performance but rather weak sales of other products.

Apple's CFO Luca Maestri said, "We do recognize that the competition in the smartphone market is very intense, but we believe that we are doing quite well in the overall economic context."

Apple stated that the sales growth for the September quarter will be similar to the third quarter, around 5%. Wall Street expects a growth rate of 4%. Executives mentioned on the conference call that the highlight of this period will be the services business, with a growth rate reaching double digits.

Apple emerges from sales slump

The tech giant is also counting on a new artificial intelligence (AI) feature called Apple Intelligence to help stimulate demand for its latest devices.

Performance of Apple's Major Businesses

By business segment, sales of Apple's flagship product iPhone were $39.3 billion, a 0.9% year-on-year decrease, but still better than market expectations. Three months ago, the company refused to predict the sales of the iPhone for the June quarter, indicating its uncertainty about the volatile smartphone market.

The services business, including the App Store, Apple Music, and the TV+ streaming platform, continues to be a driver of Apple's performance growth. Sales for this business in the last quarter were $24.2 billion, a 14% year-on-year increase. The market had slightly lower expectations than $24 billion.

However, this business still faces pressure from regulatory authorities seeking reforms for the App Store, as they view it as an anti-competitive force in the industry. This could ultimately limit Apple's ability to generate revenue from subscriptions and app downloads iPhone and Service Business Sales

The iPad business benefited from the long-awaited release of new models. After a poor performance in the tablet product line, the company launched significant upgrades in May. The new products include the higher-priced iPad Pro with the M4 chip and the faster and larger-screen iPad Air.

Sales of iPad products increased by 24% year-on-year to $7.16 billion, exceeding market expectations of $6.6 billion. Apple had previously stated that it expected double-digit percentage growth for iPads in the June quarter - an easily achievable target. For months, some customers and schools have been delaying purchases to wait for the new iPad models to be released.

Maestri stated, "About half of the customers purchasing iPads are new users."

In addition to the new iPad Pro and iPad Air, Apple is also developing entry-level iPads and iPad minis with faster processors. This may stimulate more upgrades when they are released in the coming months.

Apple showcased new artificial intelligence features at its developer conference in June and released the first version of its artificial intelligence feature, Apple Intelligence, at the end of July. However, this technology - to be used for iPhone, iPad, and Mac - is expected to be released to consumers in October. Apart from stimulating demand for compatible devices, Apple has not yet explained how it plans to generate revenue from these features.

CEO Tim Cook stated in a statement, "We are very excited to share these tools with users, and we will continue to invest heavily in innovations that enrich users' lives."

Driven by back-to-school shopping season, Mac sales increased by 2.5% year-on-year to $7.01 billion, in line with Wall Street's expectations.

Wearable device business, Mac, and iPad sales

Since the end of last year, Apple has not made significant changes to its Mac computers, but in March of this year, it equipped the MacBook Air laptops with the M3 chip. Later this year, as Apple transitions to the more powerful M4 chip, the computer product line may receive a boost. It is reported that Apple plans to equip each Mac product line with this new processor to better handle artificial intelligence tasks Wearable devices, home, and accessories business, including AirPods and Apple Watch, continue to struggle. The business's revenue decreased by 2.3% year-on-year to $8.1 billion, but still better than the market's expected $7.8 billion.

Apple made only minor changes to its latest smartwatch series, as a patent dispute forced them to remove the blood oxygen monitoring feature from some models. The company has also not updated its AirPods for several quarters.

However, reinforcements are on the way: Apple plans to equip some watch models with larger displays this fall, while improving the mid-range AirPods.

The upcoming iPhone 16 series should trigger a wave of demand. But the new models will not have significant design changes. Apple's marketing for the iPhone 16 will focus more on support for Apple Intelligence, faster processors, adding operation buttons to lower-end models, and adding camera control buttons to the latest Pro models.

As of the time of writing, Apple's stock rose by 0.54% after hours, to $219.53. The stock has risen by 14% year-to-date as investors anticipate new artificial intelligence technology to boost sales