Apple fails to impress as China sales slow

Apple reported its fiscal first-quarter earnings, delivering results that slightly exceeded expectations but failed to impress investors, particularly due to weaker-than-expected iPhone sales in China. Revenue for the quarter came in at $124.3 billion, a 4% year-over-year increase and just above the $124.1 billion consensus estimate. Earnings per share were $2.40, topping estimates of $2.35 and improving from $2.18 in the same period last year. However, despite the headline beats, the stock struggled to hold early gains.

Weak China iPhone Sales Weigh on Results

One of the biggest takeaways from the report was Apple’s underperformance in Greater China, where revenue fell 11% year-over-year to $18.51 billion, significantly below the $21.57 billion analyst forecast. This marks the steepest decline in China sales since last year’s first quarter when revenue dropped 12.9%.

CEO Tim Cook acknowledged the challenges in China, attributing part of the decline to changes in channel inventory and the absence of Apple Intelligence in the region. Currently, the AI-powered Apple Intelligence suite is only available in select English-speaking countries, and Cook suggested that iPhone demand was noticeably stronger in those markets. Furthermore, he pointed to a recently announced national subsidy in China that could help stimulate demand for Apple products in future quarters.

Performance Across Key Segments

Beyond China, Apple’s other revenue categories performed relatively well. Product revenue totaled $97.96 billion, up 1.6% year-over-year but slightly below the $98.02 billion estimate. iPhone revenue was a key weak spot, declining 0.8% to $69.14 billion and missing the $71.04 billion consensus. This represented the largest iPhone sales shortfall versus estimates in two years.

On a positive note, Mac revenue surged 16% to $8.99 billion, well ahead of the $7.94 billion estimate. iPad sales also showed strength, rising 15% to $8.09 billion and topping the $7.35 billion forecast. Cook credited the strong performance to excitement around new product launches, including updated MacBooks, iMacs, and the iPad Mini.

The company’s high-margin Services division, which includes subscriptions, warranties, and licensing deals, continued to be a major profit driver. Services revenue grew 14% year-over-year to $26.34 billion, surpassing the $26.1 billion estimate. Apple now boasts over 1 billion paid subscriptions across its ecosystem, reflecting continued growth in recurring revenue.

Wearables, home, and accessories revenue declined 1.7% to $11.75 billion, slightly missing expectations of $11.95 billion. The category, which includes Apple Watch, AirPods, and Beats products, saw a modest slowdown, though Vision Pro sales were not yet reflected in the quarter’s results.

Key Financial Metrics and Stock Reaction

Apple’s gross margin came in at $58.28 billion, a 6.2% year-over-year increase and slightly above the $57.98 billion estimate. Operating expenses totaled $15.44 billion, rising 6.6% year-over-year and coming in slightly above the $15.34 billion forecast. The company’s cash and cash equivalents fell 26% year-over-year to $30.3 billion, well below the $36.45 billion estimate, as Apple continued aggressive buybacks and dividend payments.

The stock initially jumped to $239 following the earnings release but quickly ran into resistance at that level, which aligns with its 50-day moving average. Shares subsequently pulled back but held support above the 20-day moving average at $235. Given Apple’s roughly 10% rally heading into earnings, the results were not strong enough to push the stock higher, leaving it in a consolidation phase. Investors will likely await additional commentary from management before determining the next move.

Outlook and Investor Considerations

Apple executives typically provide some insight into the current quarter’s trends during their earnings call, and Wall Street is watching closely for guidance. Analysts are forecasting $95.46 billion in revenue and $1.66 in EPS for the March quarter, and any deviation from those expectations could influence the stock’s near-term trajectory.

The key levels for traders to watch remain $239 on the upside and $235 as support. With Apple Intelligence still unavailable in China and broader macroeconomic concerns persisting, the company will need to deliver a compelling narrative on its future growth drivers to sustain investor confidence. For now, shares are likely to trade within a tight range as the market digests the latest results.