Apple is expected to announce on Thursday that it has
experienced a return to revenue growth in the third quarter of its fiscal year.
This growth can be attributed to the company regaining customers in China
through significant discounts on iPhones and increased sales of high-margin
iPads due to a revamped design.
Sales of the iPhone, which make up almost half of Apple's
revenue, are projected to have decreased by 2.2% in the quarter ending in June,
a notable improvement from the 10.5% decline in the previous quarter, as
reported by LSEG data.
The analysts’ consensus is that the iPhone’s performance may
be improving.
Analysts anticipate a robust upgrade cycle for the iPhone 16
series, which is expected to launch in September, following Apple's
announcement in June regarding its plans to integrate AI features into its
devices.
In response to the competitive pressure from a revitalized
Huawei in China, Apple had implemented discounts of up to 2,300 yuan ($317) on
certain iPhone models in May.
This strategy contributed to a reduction in the decline of
iPhone sales in China, which fell by 3.1% during the April-June quarter, as
reported by IDC, compared to a 6.6% decrease in the first quarter of the year.
"The company's fate is turning around in the
region," said CFRA Research analyst Angelo Zino, adding that Apple's AI
plans should appeal to customers in the feature-sensitive market.
Following a period of trailing competitors Microsoft and
Alphabet's Google in the artificial intelligence sector, Apple, headquartered
in Cupertino, California, has announced its intention to integrate OpenAI's
ChatGPT into its devices and enhance its application suite, including Siri,
with innovative "Apple Intelligence" technology.
This announcement has enabled Apple to reclaim its status as
the world's most valuable company, a title it briefly ceded to Microsoft.
Over the past three months, Apple's stock has appreciated by
nearly 30%, although a recent market downturn, primarily affecting large-cap
stocks, has resulted in a decline of more than 7% from its peak on July 15.
"Apple's AI strategy announcements were very well
received globally and helped improve the declining consumer perception of the
brand and generate excitement," said Nabila Popal, research director with
IDC's Worldwide Tracker team.
"I won't be surprised if there was a spike in iPhone 15
Pro and Pro Max models in the April-June quarter - that are Apple Intelligence
ready," Popal added.
Apple's revenue is projected to have increased by 3.3% in
the third quarter compared to the same period last year, following a 4.3%
decrease in the second quarter.
Sales of the iPad are anticipated to have surged by 14.1%,
marking the highest growth rate since the holiday quarter of 2022, attributed
to the introduction of a new AI-centric iPad Pro and a larger iPad Air in May,
aimed at revitalizing a product line that had experienced stagnation over the
past two years.
Mac sales are expected to have risen by 2.6%, while the
wearables and accessories segment likely continued to face challenges,
experiencing a decline of 6%.
The services division, which encompasses the App Store and
subscription offerings such as Apple TV and Music, is expected to have expanded
by 13.2%.
The segment has experienced growth that surpasses the
performance of the company's core hardware business in recent years, with the
services division now representing over 25% of Apple's total revenue.
Nevertheless, the future prospects for this division have been complicated by
regulatory oversight.
The European Union's antitrust authority has charged the
Apple App Store with violations of the Digital Markets Act (DMA), which
mandates that major technology firms maintain fair competition for their rivals
and provide users with greater options. Additionally, the company is currently
subject to three separate investigations under the DMA.
"Apple's services business has been a key part of the
bull thesis on the stock. Its growth is particularly important given the very
high marginal contribution of the business," Bernstein analyst Toni
Sacconaghi said.