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Apple on Thursday announced that it its third-quarter financials beat Wall Street expectations, as its overall revenue ticked up 5%. iPad, which had languished in recent years, saw the biggest category increase for the quarter, up from $5.8 billion to $7.2 billion year-over-year. Tablet sales, fueled by the line’s largest refresh in years, helped counter slowed iPhone revenue, which dropped from $39.7 billion to $39.3 billion year on year.
In spite of a drop for the quarter, iPhone remained Apple’s most important category by a wide margin, followed by service, which includes software offerings like iCloud, Apple TV+ and Apple Music. That category continued to grow, up to $24.2 billion from $21.2 billion over the same three-month period last year.
Much of the iPhone slowdown can be attributed to the greater China region. Overall, the region dropped from $15.8 billion to $14.7 billion for the quarter. Canalys figures from last week show a marked decline in iPhone sales, down 6.7% from 10.4 million to 9.7 million for the quarter, Reuters reported.
The drop in Apple’s third-largest region (behind the Americas and Europe) had a clear impact on the company’s bottom line. The company aggressively discounted iPhone prices in China starting in May, as competition intensified from domestic rivals. The strategy resulted in strong iPhone sales that month, up close to 40% from a year prior.
Huawei had previously been sidelined by U.S. sanctions that cut off access to software and components from companies like Google and Qualcomm. After turning in-house to produce its own chips as well as an Android alternative, the company has seen a sizable rebound in its home country.
Canalys figures show a 41% year-over-year growth spurt for the quarter, as the Huawei topped Apple’s overall sales China sales at 10.6 million for the quarter.
Q3 marked the second consecutive quarter decline for global iPhone sales. The news puts additional pressure on the generative AI strategy that the company laid out at WWDC in June.
In an interview with CNBC, CEO Tim Cook noted that the company has invested a good portion of resources into growing Apple Intelligence.
“What we’ve done is we’ve redeployed a lot of people on to AI that were working on other things,” the executive noted. “From a data center point of view, as you know, we have a hybrid approach. So we both have our own and we partner with people. And so that capex would be in the partners’ financials, and we would be paying expense.”
Some of those resources reportedly arrived after Apple closed the door on its autonomous electric car effort, Project Titan.
