Apple CEO Tim Cook promises iPhone sales will rebound after AI features were slow to roll out

Apple shares rose in after-market trading on Thursday after the company forecast higher sales than Wall Street expected, a sign the company expects iPhone sales to recover as it rolls out artificial intelligence features.

Apple executives said they expect sales for the current quarter to rise in the low- to mid-single digit range. After accounting for a 2.5 percentage point impact from foreign exchange rates, that forecast appeared to beat the 5% rise to $95.3 billion expected by analysts for the quarter that will end in March, according to data from LSEG.

Apple shares rose more than 2% after the forecast.

For the just-ended fiscal first quarter, Apple beat Wall Street’s quarterly profit estimates, but iPhone sales and China revenue for the holiday quarter were weak due to stiff Chinese competition and a slow rollout of artificial intelligence features.

The company’s overall sales and profits were boosted by stronger-than-expected sales of iPads and Macs, where new chips helped persuade customers to upgrade.

Chief Financial Officer Kevan Parekh told analysts gross margins in the current fiscal second quarter will be between 46.5% and 47.5%, with the top end of the range beating estimates of 47.01%, according to LSEG data.

“The guidance management provided on the call exceeded expectations, as the iPhone gains momentum and Apple gets past a tough quarter in China,” said Gil Luria, managing director at D.A. Davidson.

In the just-ended quarter, iPhone sales dropped slightly to $69.14 billion, compared with the $71.03 billion that analysts were expecting, according to LSEG data. Greater China sales dropped to $18.51 billion, compared with $20.82 billion a year earlier and below the $21.33 billion that a Visible Alpha survey of five analysts expected.

Total sales of $124.30 billion for the fiscal first quarter ended Dec. 28 inched past Wall Street’s target of $124.12 billion, according to LSEG, while earnings per share of $2.40 comfortably beat the consensus target of $2.35.

The iPhone maker has positioned AI as a set of new capabilities and features such as drafting emails and transcribing phone calls, but the company is rolling the features out over time and has not yet secured a local partner in China to release them.

In an interview, Apple CEO Tim Cook said AI features, called Apple Intelligence, are driving sales of the company’s new devices.

“We saw that in markets where we have rolled out Apple Intelligence, the year-over-year performance on the iPhone 16 family was stronger than those where Apple Intelligence was not available,” Cook said.

While Cook said Apple Intelligence is coming in new languages such as French and German in April, he said there is no timeline for when it will become available in China.

“We continue to work with the regulators and will release it as soon as we can,” Cook said.

Cook told Reuters that about half of Apple’s 11% decline in China revenues was attributable to changes in how much inventory the company’s resellers held.

Mac sales during the last quarter benefited from a new lineup of Mac Minis, iMacs and MacBook Pros with a new M4 chip. Apple Intelligence features are more widely available on Apple’s Macs and iPads because their larger size means they have more powerful chips.

“The silicon makes it perfect for running AI workloads, and so I assume that that’s a very key compelling reason for people to upgrade,” Cook said.

Apple’s Mac and iPad sales hit $8.99 billion and $8.09 billion respectively, above estimates of $7.96 billion and $7.32 billion, according to LSEG data.

Apple said its services business, which includes iCloud storage and its streaming music and video services, hit $26.34 billion in sales, up 13.9% from the previous year and above estimates of $26.09 billion, according to LSEG data.

“While the company’s cautious approach to AI rollout has drawn criticism, robust services growth and ecosystem expansion are providing crucial momentum to help ease its continued iPhone struggles in China,” said Emarketer analyst Jacob Bourne.

The firm’s wearables segment, which includes the Apple Watch and AirPods lines, had $11.75 billion in sales, compared with analyst expectations of $12.01 billion, according to LSEG data.