Apple’s fourth-quarter results exceeded expectations, yet the company underwhelmed in China and offered a disappointing revenue forecast for the upcoming quarter. Despite a 6% year-on-year revenue increase to $94.93 billion, iPhone sales grew by only 5.5%. A significant drop in earnings per share to 97 cents was attributed to a one-time tax charge. Analysts anticipated higher growth, particularly in iPhone sales, while concerns linger about Apple’s competitive positioning in China and the rollout of its AI features.
(BFM Bourse) – Apple, the Cupertino-based company, released its fourth-quarter results on Thursday evening, which generally surpassed expectations. However, the company faced disappointments in China and provided an uninspiring revenue forecast for the upcoming quarter.
The report delivered by Apple on Thursday night is unlikely to be remembered in Wall Street history. Following the announcement of its fourth-quarter 2023-2024 results, which ended in late September, the company seems to be feeling the impact.
On Friday, Apple’s stock fell by 1% in pre-market trading, continuing a decline of 1.8% observed the previous day.
The fourth quarter proved to be somewhat unique for Apple. As is customary, the Cupertino firm launched a new device during this period: the iPhone 16. However, this new smartphone, designed to leverage generative artificial intelligence (AI) features, is expected to realize its full commercial potential only after the launch of ‘Apple Intelligence,’ Apple’s generative AI, which debuted just a few days ago in the U.S. and is set to arrive in the European Union by April next year.
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Weakness in China
‘Given the staggered release of Apple Intelligence, we anticipate an increase in iPhone demand following its initial launch at the end of October,’ Bank of America recently noted.
In the fourth quarter, Apple still recorded a 6% year-on-year revenue growth, totaling a record $94.93 billion, with iPhone sales alone increasing by 5.5% to $46.222 billion.
Apple’s earnings per share (EPS) for the period dropped to $0.97, down from $1.46 a year prior. This decline was mainly due to an unusual item: the company included a $10 billion tax charge related to the repayment of illegal subsidies to Ireland. Excluding this impact, the EPS would have been reported at $1.64, reflecting a 12% increase, Apple clarified.
The group’s results exceeded analysts’ expectations. According to a consensus from LSEG cited by CNBC, they projected total revenues of $94.58 billion, iPhone revenues of $45.47 billion, and an EPS, excluding the Irish subsidies repayment, of $1.60.
While these figures are noteworthy, a closer look reveals some concerns. Apple’s revenue from ‘Greater China’ (comprising mainland China, Taiwan, and Hong Kong) disappointed with a revenue decline of 0.3% to €15.03 billion, whereas analysts had anticipated $15.8 billion, as reported by Bloomberg.
It’s important to note that Apple’s revenue in China is particularly monitored by investors due to fierce competition from local rivals, like Huawei, and regulatory pressures from local authorities—some agencies have even banned their employees from using foreign phones at work.
Disappointing Outlook
Another disappointing aspect stems from the company’s outlook. In a conference call with analysts, CFO Luca Maestri—who held his last conference in this role—indicated that Apple expects overall revenue growth for the first quarter of its 2024-2025 fiscal year to be in the ‘low to mid-single digits,’ specifically between 1% and 4%. However, Wedbush analysts were anticipating a higher growth rate of 7% for this quarter.
‘Nevertheless, we believe that the implicit growth in iPhone sales will outpace overall revenue growth, meaning iPhone revenue for the December quarter should align with market expectations, growing around 5%,’ stated Dan Ives, a Wedbush analyst.
Maestri also mentioned that Apple’s services division (which includes the Apple Store) is expected to see an over 10% increase in the fourth quarter.
The upcoming quarter will be critical for Apple, as it will provide the first evaluation of the commercial success of Apple Intelligence through iPhone sales, even though new AI capabilities will roll out gradually in the coming months.
Earlier this year, concerns had mounted regarding Apple’s ability to pivot towards AI. However, these anxieties were significantly eased in June when the company unveiled Apple Intelligence during an event. Nonetheless, investors are still looking for concrete evidence of the Cupertino firm’s successful strategy.
‘The gradual rollout of Apple Intelligence is expected to yield a strong December quarter and robust results for both the March and June quarters, which bodes well for the fiscal year 2024-2025,’ according to Dan Ives, who expresses greater confidence in Apple’s AI strategy following these results.