- Apple beats earnings and revenue forecasts for seventh quarter in a row
- Shares fall as revenue growth guidance looks pedestrian
- The company has started to roll out AI capabilities to core products
- China sales remain sluggish but pockets of good news in the country
“Apple is at a major turning point in its career,” says Dan Coatsworth, investment analyst at AJ Bell.
“The roll-out of its AI-powered Apple Intelligence service could be a powerful catalyst to encourage consumers to upgrade products such as phones and laptops. Unfortunately, mass upgrades won’t happen overnight as the service is only being rolled out on a phased basis. That means the market is judging Apple more on what it’s doing today, not what it could do tomorrow, and the pace of growth isn’t strong enough to excite.
“Its shares fell in pre-market trading following its latest results as guidance for low to mid-single digit revenue growth in its first quarter was less than the 6.65% growth forecast by analysts. That has caused investors to question if Apple has lost its bite.
“It is late to the party with AI and the pace of hardware innovation feels pedestrian compared to previous decades. China also remains problematic for the country as sales weakness persists.
“China issues are not unique to Apple as plenty of other companies reliant on consumer spending have experienced pain, such as Estée Lauder, Burberry and LVMH. However, direct competition from the likes of phone makers Huawei and Xiaomi is keeping Apple’s management on their toes.
“It’s not all bad news in China. Its installed base of active devices has reached an all-time high in the country, and it is attracting a large number of new customers via Mac, iPad and Watch – rather than simply relying on the iPhone.
What happens next for the company?
“Apple needs to give consumers a reason to buy its products and technological innovation is the answer. For all the criticism around its latest results, it’s clear the business has been busy laying the foundations for future growth.
“Each of its core products has a trick up its sleeve to win over the consumer. More powerful chips mean faster processing for its laptops; its watches are now thinner and more sophisticated; AirPods now have active noise cancellation and can be used as hearing aids; iPads have become more compact and powerful; and iPhones have better cameras and longer lasting batteries. Most of these core products are now rolling out AI capabilities, which makes things really exciting for Apple in terms of driving sales.
“Chief executive Tim Cook sees Apple Intelligence as a ‘compelling upgrade reason’ and it’s surprising that the market hasn’t latched on to this point. Apple is now giving consumers a solid reason to want to get the latest models of its phones and laptops. Perhaps what’s making investors cautious is the slow roll-out pace of Apple Intelligence. Historically, Apple would have flicked the switched globally. This time, it is slowly introducing the service on a territory-by-territory basis. It might take at least another quarter to see if the AI facility is compelling enough to boost sales.”
