Apple stock tumbles 2% on tepid Q4 revenue forecast amid intense competition in China market

Apple Inc., heading into its most critical sales period of the year, sparked fresh concerns about revenue growth and lingering weakness in an intensely competitive Chinese market. Following the company’s quarterly earnings report, Apple said that sales in the December period will rise by a percentage in the low-to-middle single digits. Analysts had been projecting a seven per cent increase. 

The company also posted a decline in China revenue last quarter, falling short of estimates. The broader picture shows a company still trying to rebound from one of the longest sales slumps in its history. Revenue had declined four straight quarters in fiscal 2023 and only returned solidly in the past two quarters. 

Apple remains the most valuable company on Earth, but it has had to contend with a sluggish smartphone market, more competition in China, and regulatory scrutiny worldwide. The concerns weighed on the company’s share prices, sending them down as much as 2.5 per cent in New York on Friday. The stock had been up 17 per cent this year through Thursday’s close, fueled by optimism about Apple’s artificial intelligence prospects.

Overall revenue edged past Wall Street projections last quarter — helped by global iPhone demand — but the results show that the company is still struggling in a key market. Apple competes with local brands in China, serving as its main manufacturing hub. Revenue in the region fell slightly from a year earlier to $15 billion in the fourth fiscal quarter, which ended September 28. Analysts had estimated $15.8 billion. 

Chief Executive Officer Tim Cook said the iPhone grew in every geographic market, signalling that the rest of the company’s product lineup may have been the issue in China, its biggest source of revenue after the Americas and Europe.

Total sales rose 6.1 per cent to $94.9 billion, compared with an average estimate of $94.4 billion. Apple said earnings were 97 cents a share, though they would have been $1.64 without a one-time charge related to a European General Court decision.

The Cupertino, California-based company introduced the iPhone 16 in September, helping spur upgrades. It also updated Apple Watches and released new AirPods. Those consumer devices account for the majority of the company’s revenue. 

Investors have been betting that Apple Intelligence — the company’s new suite of AI features — will help fuel device sales. However, the software debuted weeks after the iPhone went on sale, and many of its biggest features are still months away.

Apple previously signalled that sales growth would be about five per cent, with its services business performing particularly well. Revenue from that division did reach a record high in the period, climbing to $25 billion. But that was just short of the $25.3 billion Wall Street predicted.

On a conference call with analysts, Chief Financial Officer Luca Maestri said that services revenue would grow in the double digits in the December quarter, similar to the fiscal 2024 rate. Cook paid tribute to the departing CFO, who is moving to a smaller role. Thursday’s call will be his last, as Deputy Kevan Parekh will replace him. 

Revenue from the iPhone came in at $46.2 billion, beating estimates of $45 billion. That’s up 5.5 per cent from a year earlier. The business may get another boost in 2025 when it plans to release a new low-end iPhone SE with Apple Intelligence and make more significant hardware changes to its flagship models.

But other product divisions fell short of analysts’ estimates last quarter. That included the iPad business and Apple’s wearables division.

The Mac generated $7.74 billion in revenue, which aligns with projections. Apple hadn’t released major updates to the Mac lineup until the current quarter, beyond refreshing the MacBook Air with an M3 chip earlier this year. 

This week, Apple added the M4 chip line to the iMac, Mac mini, and MacBook Pro—a trio that should set up the Mac for a successful holiday period. Next year, Bloomberg News has reported that Apple plans to bring the M4 chip—a processor designed to speed up AI processing—to the MacBook Air, Mac Studio, and Mac Pro. 

The iPad line chalked up sales of $6.95 billion, missing the $7.07 billion projection. After roughly 18 months without any changes, Apple overhauled the iPad this year, revamping the iPad Pro with the M4 chip and releasing a larger version of the iPad Air. Earlier this month, Apple refreshed the iPad mini with a new chip and support for Apple Intelligence, but sales of that product weren’t included in the fiscal fourth quarter.

Apple is planning to give the iPad another boost in the first half of next year when it rolls out a new low-end model aimed at students. In September, the company refreshed its Wearables, Home, and Accessories lineup with the rollout of the Apple Watch Series 10 and a new black version of the Ultra 2 watch. It also debuted a pair of AirPods 4 models.

But those relatively modest changes didn’t bring a major sales surge. The segment brought in $9.04, down three per cent from a year earlier. Analysts estimated $9.17 billion. Cook visited China earlier this month, promising future cooperation and further investment. Apple has yet to announce plans to roll out Apple Intelligence in the region and is seeking local partners to bring the functionality to its users there.

Homegrown Chinese brands such as Vivo have gained ground in the country. Meanwhile, restrictions on the use of foreign technology at Chinese government offices have spread over the past year. More broadly, Apple Intelligence remains a question mark for the company. Only a sliver of the platform’s features have been delivered so far, so it’s hard to tell how much they will drive demand in the long run. 

In December, Apple will integrate OpenAI’s ChatGPT into the software and introduce features for editing images with generative AI. An overhaul of the Siri digital assistant won’t be available until next year. Though Apple’s services business has been a bright spot, it has its own challenges. 

The App Store is under fire worldwide, including in the EU, where new regulations have forced policy changes. Apple now allows third-party app stores and payment methods in the region, which could weigh on revenue. 

Apple also has struggled to find one of its famous “next big things” — a major new category that can fuel growth. The Vision Pro headset debuted in February and is a niche product. And the company cancelled plans to develop a car that same month. But Apple is making a fresh run at the smart home market — with devices that will feature robotics and AI — and it’s working to create more affordable headsets.