Sales Drop in Apple’s Third Quarter but Top Wall Street Expectations

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The iPhone maker’s recent quarter benefited from strong sales in its App Store and other services businesses.

By Tripp Mickle

Reporting from San Francisco

The smartphone industry is in a tailspin, with unit sales falling for two straight years, but Apple has escaped the worst of the downturn because wealthy customers continue buying pricey iPhones.

The world’s most valuable tech company, which relies on the iPhone for half its sales, reported on Thursday that revenue fell 1 percent, to $81.8 billion, during the three months that ended in June. Profit increased 2 percent, to $19.88 billion.

While Apple did not experience the rapid growth that investors have come to expect over the years, and the sales decline was the third of its fiscal year, the company narrowly exceeded Wall Street expectations for sales and profit for the quarter.

Apple’s financial results were the latest indication that tech’s biggest companies have found their footing after last year’s downturn. Last week, Facebook’s parent company, Meta, and Google’s parent company, Alphabet, reported double-digit growth in profits driven by a rebound in digital ad sales. Microsoft posted a record quarterly profit behind a surge in cloud-computing sales, and Amazon on Thursday posted nearly twice the profit expected by Wall Street.

The tech industry limped through much of 2022 because of weak digital ad, e-commerce and computer sales. The downturn led Meta, Alphabet, Microsoft and Amazon to lay off thousands of workers and spurred companies across Silicon Valley to cut back on perks such as free laundry services for employees.

Though Apple avoided layoffs, it is now dealing with how much the pandemic turbocharged its business. Sales of iPads and Macs exploded as people began working from home, but new purchases of tablets and computers have sputtered over the past year. In the latest quarter, iPad sales decreased 20 percent, to $5.79 billion, and Mac sales declined 7 percent, to $6.84 billion, the company said.

Apple’s share price fell about 2 percent in after-hours trading after the company projected that sales in the current quarter would be similar to the April-to-June period, as accelerating iPhone and software sales are offset by double-digit declines in sales of Macs and iPads.

Apple continues to be buoyed by the resilience of its iPhone business. While smartphone rivals Samsung and Vivo have experienced sharp declines in sales of low-priced phones, Apple has increased its market share and expanded its sales in emerging markets and China. The company is benefiting as tech-savvy customers with deeper pockets opt to spend more on phones with sophisticated features. Monthly payment plans make it easier to pay for those devices.

In the June quarter, the company made $39.67 billion from iPhone sales, down 2 percent from a year earlier. In China, where total smartphone industry sales fell 4 percent during the quarter to their lowest levels since 2014, iPhone sales increased 7 percent, according to Counterpoint Research, a technology research firm. That helped Apple post 8 percent sales growth in China, bucking the broader malaise buffeting the world’s second-largest economy.

“We’ve done a really good job with affordability programs around the world,” said Luca Maestri, Apple’s chief financial officer, during a call with analysts. “The majority of iPhones are sold using some kind of a program, trade-ins, installments, some kind of financing.”

The company weathered declines in sales of its devices with continued growth in App Store and watch sales. The company’s services business, which includes subscriptions to Apple Music, App Store sales and Apple Pay, posted $21.21 billion in sales, an 8 percent increase from a year earlier. The wearables business, which includes the Apple Watch and AirPods, reported that sales rose 2 percent, to $8.28 billion.

Apple will continue to lean on its existing businesses for the bulk of sales in the coming years. In June, the company unveiled its first major new product since 2014: high-tech goggles that blend the real world with virtual reality. But the $3,500 device, the Vision Pro, won’t go on sale until next year. Analysts project that Apple will sell fewer than half a million units, a small fraction of the roughly 200 million iPhones that it sells annually.

In the absence of a major new revenue stream, the company has focused on boosting sales in developing markets. It opened its first stores in India in April and welcomed crowds of eager shoppers. Its sales there have doubled in recent quarters from last year, as more and more Indians buy higher-priced phones. The rise in sales puts Apple in a position to capitalize on a market that is predicted to have a billion smartphone users by 2026.

“While I’m pleased with our growth there, we still have a very, very modest and low share of the smartphone market,” said Tim Cook, Apple’s chief executive, during the call with analysts. “It’s a huge opportunity for us.”

Apple is expected to unveil a new iPhone in September, as well as updated models of the Apple Watch. Wall Street and industry analysts who track the company’s supply chain are not expecting any significant design changes or new features. Richard Kramer, partner at Arete Research, a stock research firm, said the 16-year-old iPhone had entered a phase where improvements were becoming “incrementally incremental.”

Tripp Mickle covers technology from San Francisco, including Apple and other companies. Previously, he spent eight years at The Wall Street Journal reporting on Apple, Google, bourbon and beer. More about Tripp Mickle