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Apple’s revenue growth clouded by worries about China slowdown

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Apple’s revenue returned to growth during the holiday period, beating analysts’ expectations with a boost from its services division and solid iPhone sales, but ongoing concerns about declining sales in China made investors wary.

Apple’s revenues were $119.6bn for the quarter to the end of December, up 2 per cent from the same period in the previous year and beating consensus estimates of $118.3bn, according to S&P Capital IQ. That breaks a four-quarter streak of declining revenue.

Chief executive Tim Cook credited iPhone sales, which rose 6 per cent to $69.7bn, and an “all-time revenue record in services”, as the number of active Apple devices surpassed 2.2bn.

Apple’s services business, which includes the App Store, iCloud, Apple Pay and Apple TV, recorded $23.1bn in revenue for the quarter, up 11 per cent from $20.7bn the year before, continuing to increase its share of the company’s business.

But sales to greater China were down at $20.8bn compared with $24bn for the same quarter the prior year. That reflected pressure from resurgent competitor Huawei, as well as restrictions Beijing has reportedly imposed on Apple products in some government agencies amid geopolitical tensions with Washington.

Apple chief financial officer Luca Maestri played down the decline in China sales, blaming it in part on a stronger dollar. He said the installed base of iPhones in the country hit a new all-time record, and the company had “solid growth on upgraders on a year-over-year basis”.

Nevertheless, “investors are skittish on what came out of China”, said Dave Wagner at Aptus Capital Advisors. “Stating that it’s not as bad as you think, and that it’s only in the single digits when you account for currency — investors just are not believing that right now.”

Other headwinds, Wagner noted, included heightened global regulatory scrutiny of the company and its ongoing patent fight with Masimo over the Apple Watch, which led to a temporary ban on US sales.

“It’s overall strong numbers, but China is a lingering worry, and the growth numbers in China did not put to rest the concerns,” said Daniel Ives at Wedbush Securities.

Net income in the quarter was $33.9bn, from $30bn a year ago. Diluted earnings per share were $2.18, up 16 per cent year over year.

Investor attention has been focused on how hardware sales have held up, after the company launched the iPhone 15 in September. In January, Barclays and Piper Sandler downgraded their ratings on Apple stock citing concerns about weaker demand for the iPhone in 2024.

Samsung and Google have released handsets with new generative artificial intelligence capabilities, leading to expectations that Apple will soon respond with similar features on its own devices to prompt consumers to upgrade and stay in its ecosystem.

Apple shares are up about 28 per cent over the past 12 months. It was recently overtaken by Microsoft as the world’s most valuable company, as its market cap slipped below $3tn.

The results come the day before Apple’s new Vision Pro mixed reality headset goes on sale in the US, its biggest product launch in almost a decade.

Maestri told the Financial Times the Vision Pro would have 600 apps specifically designed to use the mixed reality capabilities of the headset, with more than 1mn apps in total.

“The level of customer enthusiasm and developer enthusiasm is very strong,” Maestri said. “All the premises are very good.”

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