Apple reported its most significant quarterly decline in iPhone sales since the onset of the pandemic, intensifying pressure on the tech giant to innovate its products with more artificial intelligence.
The 10% year-over-year drop in iPhone sales for the January-March period signals a weakness in a product that drives most of Apple’s revenue. This decline represents the largest drop in iPhone sales since the July-September period in 2020 when production delays due to pandemic-related factory closures led to a delayed release of that year's model. This recent downturn in iPhone sales was the primary factor behind Apple’s 4% revenue decline from last year to $90.8 billion, marking the fifth consecutive quarter of revenue decline.
Apple's profit for the past quarter totaled $23.64 billion, or $1.53 per share, a 2% decrease from last year. However, both Apple's revenue and earnings per share slightly exceeded analysts' projections, according to FactSet Research. Apple also forecasted a modest rise in revenue for the April-June quarter compared to a year ago, which would end the recent streak of revenue decline.
Part of the decline in iPhone sales during the first three months of the year can be attributed to a significant increase in sales during the same period last year when Apple said it was meeting pent-up demand caused by pandemic-related shipment delays
Despite its recent challenges, Apple remains one of the world’s most prosperous companies. The Cupertino, California-based company underscored this by announcing a 4% increase in its quarterly dividend to 25 cents per share. It also committed to spending $110 billion buying back its own stock, a move that investors welcomed but which may lead to criticism that Apple is prioritizing Wall Street over innovation.
Buoyed by the increased dividend and stock repurchase commitment, Apple's shares rose nearly 7% in extended trading after the news was announced. The stock price has fallen 10% so far this year, erasing about $300 billion in stockholder wealth.
While investors have been disappointed by weakening iPhone sales, there are also concerns that Apple may be losing its edge in artificial intelligence technology to other tech giants such as Microsoft and Google, which are making rapid advancements in AI that are expected to reshape the industry.
Apple is expected to unveil more AI services in June during an annual conference showcasing the next version of its software for the iPhone and Mac computers. CEO Tim Cook emphasized the company's belief in the transformative power of AI and its advantages in this new era, promising more details will be announced soon.
Weak sales in China were again a factor in the latest quarter, with revenue in that region falling 8% from last year to $16.37 billion as rival smartphone makers gained ground in one of the company’s largest markets. However, analysts had expected an even larger sales decline, providing investors with some relief.
Apple had some bright spots in the past quarter, particularly in its services division, which saw its revenue rise by 14% from the year before to $23.87 billion. The division benefits significantly from a lucrative deal that designates Google as the default search engine on the iPhone, as well as from commissions collected on digital transactions within iPhone apps.
This revenue source is under scrutiny in a U.S. Justice Department lawsuit alleging that Apple is running an illegal monopoly that stifles competition to the detriment of consumers. European regulators are also pushing Apple to allow more alternatives to its proprietary iPhone app store as part of the Digital Markets Act.