Apple's Holiday Quarter Broke Years-Long Streak Of Revenue Declines But China Slowdown Overshadowed Even Its Record Service Revenue

Apple Inc AAPL reported its fourth earnings last week. Although slumping demand for smartphones didn’t bring down its earnings, weak demand in China overshadowed its first sales growth in a year that came as a result of record service revenue. In addition, Microsoft Corporation MSFT dethroned Apple as the world’s most valuable company in January as it hit the $3 trillion market capitalization while Apple’s slipped below this milestone. Microsoft also reported its strongest profit growth in more than two years as it continues to infuse AI across its business and offerings. 

Fourth Quarter Highlights

Apple posted revenue grew 2% YoY to $119.6 billion, topping Wall Street expectations of $117.91 billion. Apple also reported record earnings per share of $2.18, also topping $2.11 that analysts had predicted. Net income rose 13% to $34 billion.

Net iPhone sales grew almost 6% YoY to $69.7 billion while global iPad sales dropped to $7 billion, down from $9 billion reported for 2022’s comparable quarter.

While sales in Europe and Japan rose, revenue in China slumped 13% YoY to $20.8 billion. Demand in China has slowed more than expected in response to rising competition from Huawei as well as Beijing restriction on its products. According to Counterpoint Research, overall China smartphone sales grew 6.6% and although Apple maintained its leadership with 20.2% market share, its sales dropped 9% while Huawei experienced a sales rise of as much as 71%. 

But the services segment that houses its App Store, iCloud, Apple Pay and Apple TV, continues to be a rising star as its revenue grew 11% YoY to 23.1 billion.

The iPhone might no longer be the best indicator of Apple’s health…

Services were undoubtedly the star of the latest quarterly report that came one day after Apple’s biggest product launch in about a decade- the Vision Pro headset. Priced at $3,499, Apple spent an estimated $100 billion to develop this product it hopes to become the must-have piece of home electronics. More importantly, this product is the ultimate opportunity for Tim Cook to make his own Apple legacy.  

Moreover, Apple splurged on its AppleTV+ content and it has scored it as many as 13 Academy Award nominations, with ten of them being for the Killers of The Flower Moon. But, this is kind of expected as Apple built its biggest movie industry bet with the all-time-great director, screenwriter and producer, Mr. Martin Scorsese.

Apple posted strong numbers and it showed that services continue to grow and become a bigger part of the tech giant’s business, but China is a lingering concern. In response to this slowdown in China, Apple even offered a rare discount for its latest iPhone in January. Cook also confirmed that generative AI software features are coming on Apple’s iOS and other platforms later this year, which is only to be expected considering that Microsoft, Google and Samsung’s latest figures were fueled by such enhancements. But considering that Apple is known for being secretive about its next moves, Cook’s confirmation and tease could mean that Apple’s AI plans are ambitious, to say the least. After all, there’s nothing artificial about AI and generative AI’s business potential nor the the latest figures that Microsoft and Google posted, and this is just the beginning of a new era that is in the making.

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