SAN FRANCISCO — On Thursday, Apple revealed a slight decrease in iPhone sales during the holiday quarter, indicating a slow start to the company’s efforts to keep up with other major technology firms in the race to make artificial intelligence accessible to a wider audience.
The approximate 1% decline in iPhone revenue compared to the same quarter last year was not entirely surprising. This downturn can be attributed to the timing of the first software update that enabled AI functionalities for the device, which was only released just before Halloween. Additionally, the availability of these features is still limited in many regions outside the United States.
Among the key markets awaiting Apple’s AI enhancements is China, where the company has experienced dwindling sales. Although CEO Tim Cook did not specifically mention China during a conference call with investors, he did announce that a software update to roll out AI features to more European countries, as well as Japan and Korea, is set for April.
Despite the lower iPhone sales, Apple managed to record a modest overall revenue growth during the past quarter. The company’s earnings hit $36.3 billion, or $2.40 per share, marking a 7% increase from the previous year’s figures. Overall revenue also showed a slight increase of 4%, reaching $124.3 billion.
The reported iPhone revenue stood at $69.1 billion, but Apple’s revenue from China decreased to $18.5 billion, reflecting an 11% year-over-year drop. This decline in the Chinese market was partly due to the iPhone losing market share as domestic competitors have become increasingly competitive. According to research firm International Data Corp, Apple’s iPhone shipments in China fell nearly 10%, while local brands like Huawei and Xiaomi saw their shipments increase by over 20%.
Analyst Logan Purk from Edward Jones noted in a research assessment that, despite potential risks in China, the allure of Apple products as luxury items combined with anticipated AI advancements could help stabilize demand.
The holiday results indicated that the anticipated impact of AI integration in iPhones and other Apple products may not significantly boost the company’s recent sluggish performance, contrary to initial investor expectations when Cook unveiled new AI technologies last June.
The initial excitement that AI-enhanced devices would persuade consumers to upgrade their smartphones was a significant factor behind a 30% rise in Apple’s stock last year. However, the realization that an increase in consumer demand may take longer than anticipated has led to a 5% decline in Apple’s stock during the first month of this year. Following the earnings announcement, the stock experiences a slight dip in extended trading but later rebounded, rising over 3% after Cook reported a record number of iPhone upgrades.
“I feel very optimistic about our product pipeline,” Cook remarked during the call, adding that he believes there is substantial room for innovation in smartphones.
Management’s forecast for revenues suggested expectations that would either meet or surpass analysts’ projections for the January-March quarter, enhancing investor confidence in the company’s future.
Concerns regarding Apple’s declining iPhone sales unfold amid broader skepticism on whether AI advancements will be as profitable for U.S. technology companies as previously anticipated, especially after a Chinese startup, DeepSeek, introduced a version of the technology at a significantly lower cost than expected.
In contrast to other tech giants such as Microsoft, Alphabet (Google’s parent company), and Meta Platforms (parent company of Facebook), Apple has not heavily invested in AI technologies, contributing to perceptions of it being a laggard in this sector. However, this cautious approach may yield advantages if the cost reductions achieved by startups like DeepSeek gain traction in the industry.
Apple’s services sector remains the most lucrative aspect of the company outside of iPhone revenue, bringing in $26.3 billion last quarter, reflecting a 14% increase compared to the previous year. While the services division has enjoyed consistent growth, it notably benefits from a deal with Google, which designates the search engine as the default option on Apple devices—an arrangement that may soon be scrutinized due to antitrust allegations against Google.
