Apple reported a difficult set of fiscal Q3 results with a third consecutive dip in revenue but weakness in the smartphone market was offset by a strong performance from services.

Overall revenue was down 1.4 per cent to $81.8 billion, with product sales declining 4.4 per cent to $60.6 billion and services growing 8.2 per cent to $21.1 billion.

During fiscal Q3 (ending July 1,), iPhone revenue slipped 2 per cent to $39.7 billion. Mac sales fell 7 per cent to $6.8 billion and iPad turnover dropped 20 per cent to $5.8 billion.

CFO Luca Maestri said it reached the milestone of 1 billion paid subscriptions on its services platform, up by 150 million over the last 12 months and nearly double the number of paid subscriptions three years ago. Services grew revenues by 8 per cent YoY with operating margins of 71 per cent.

Analyst Dr Richard Windsor noted: “It is worth remembering that a big portion of the services business is extended warranties and insurance (Apple Care) which I have long suspected is the source of the very high profitability of this division.”

By region, revenue fell 5.6 per cent in the Americas to $35.4 billion, 11.5 per cent to $4.8 billion in Japan and 8.5 per cent to $5.6 billion in the rest of Asia Pacific. Greater China and Europe bucked the downward trend, rising 7.9 per cent to $15.8 billion and 4.7 per cent $20.2 billion, respectively.

In an earnings call, Maestri said while the iPhone and services performance is forecast to accelerate from the June quarter, “we expect the revenue for both Mac and iPad to decline by double digits year-over-year”.

Net profit in fiscal Q3 rose 2.3 per cent to $19.9 billion.

AI investment
CEO Tim Cook told Reuters its investment in generative AI boosted overall R&D spending, which reached $22.6 billon for the first nine months of its fiscal year, up nearly 16 per cent year-on-year.

On the call he said Apple has been doing research across a wide range of AI technologies, including generative AI, for years. “We’re going to continue investing and innovating, and responsibly advancing our products with these technologies”, adding it views AI and machine learning “as core fundamental technologies that are integral to virtually every product that we build”.

Forex hit
Cook said the company “continued to face an uneven macroeconomic environment”, noting excluding a 4 percentage points foreign exchange hit, overall revenue increased. “On a constant currency basis, iPhone revenue grew.”

He said it had strong results in emerging markets, driven by robust sales of iPhones, with total revenue records in India, Indonesia, Mexico, the Philippines, Poland, Saudi Arabia, Turkey and the UAE.

Weathering well
“Apple is weathering the difficult environment extremely well and is doing so by continuing to eat away at Android in emerging markets,” summarised Windsor.

“Both China and India are top of the hit list but there is only so far that Apple can penetrate these markets given the relatively high price of its products. Instead, what is more likely is that penetration grows via the second-hand market where Apple can monetise these users via the services division.”