Apple Joins The Increased AI Spending Trend But As Always, With A Unique Take

On Thursday, Apple Inc AAPL posted its third quarter financials, revealing a YoY decline in iPhone sales and falling short of expectations in China. 

Although Apple CEO Tim Cook also acknowledged the rising costs of AI investments, the rise in Apple’s capital expenditure is tiny compared to its mega-cap tech peers, such as Microsoft Corporation MSFT, Google-parent Alphabet GOOGGOOGL and Meta Platforms META, and they are also growing at a much slower rate. When it comes to AI and a new era that is unfolding, Apple has a unique take on, as always.

Fiscal Third Quarter Highlights

For the quarter ended on June 29th, Apple reported revenue grew 5% YoY to $85.5 billion, surpassing LSEG’s estimate of $84.53 billion. Revenue out of Greater China was $14.7 billion, a drop compared to last year’s comparable quarter when the region brought in $15.2 billion. Bloomberg were anticipating revenue of $15.2 billion. iPhone remained the main revenue driver, making as much as 45% of total sales. But sales did slightly decline, more precisely 1% YoY to $39.2 billion, but still surpassing LSEG’s estimate of $38.81 billion. Services revenue that includes revenue from Google hit $24.2 billion as it grew 14% YoY and also topped LSEG’s consensus estimate of $24.01 billion.

iPad showed the strongest growth of almost 24% YoY as it brought in $7.16 billion, topping LSEG’s consensus estimate of  $6.61 billion estimated.

Wearables sales, however, declined to $8.1 billion but still topped LSEG’s consensus estimate of $7.79 billion .

Mac revenue grew about 2% YoY to $7.01 billion which came slightly short of LSEG’s estimate of $7.02 billion.

As for the bottom line, Apple posted a net income of $21.45 billion and  earnings per share of $1.40.

A Different AI Game

Meta CEO Mark Zuckerberg decided to play the game by increasing spending to avoid risking being left behind. With the AI spending spree, Zuckerberg also wants to ensure its big tech peers like Apple don’t fully control the next tech era if it turns out to be AI. On the other hand, Apple is playing a different game. Unlike Amazon, Google and Microsoft, Apple doesn’t have a cloud business with which it rents out infrastructure to companies. Last week, Apple released the first version of its suite of AI features. 

It plans to roll out its highly anticipated Apple Intelligence software to U.S. English users in the fall. Next year, it will "proceed with more functionality, more features, and more languages and regions. The new software is expected to trigger a fresh iPhone sales supercycle and boost Apple’s bottom line as  the new software will only be compatible with iPhone 15 Pro and newer phones that will force iPhone owners of pre-15 models to upgrade if they want their hands on Apple’s newest development.

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