Apple offers modest growth outlook after iPhone sales help beat profit expectations

Apple’s (AAPL.O), opens new tab AI-enhanced iPhone made a strong start, pushing quarterly sales ahead of Wall Street expectations, but a modest revenue forecast raised questions about whether that momentum will hold over the holiday sales season.

A decline in China sales during the fourth quarter also concerned some analysts and investors, helping send shares down 1.4% in after-hours trade, despite surprisingly large overall profit and revenue in that period.

Chief Financial Officer Luca Maestri told analysts during a conference call that Apple expects overall revenue to “grow low to mid single digits” during its fiscal first quarter, which ends in December. Analysts had expected revenue growth of 6.65% to $127.53 billion during the quarter, according to LSEG data.

Apple did say it expects double-digit growth in its services business in its first quarter, leading some analysts to ask executives during a call if overall hardware revenue might decline.

Executives did not address that question, or give any indication of how the iPhone might fare, including in China, where Apple’s new AI features are not available. Apple has not said when they will be available.

Prior to management’s call with analysts, Tom Forte, an analyst at Maxim Group, attributed Apple’s share drop to fourth-quarter China sales coming in below expectations.

“We see the potential for sustained weakness in China,” he said.

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Apple said overall fourth-quarter sales were $94.93 billion, ahead of Wall Street targets of $94.58 billion, according to LSEG. Earnings of $1.64 per share, excluding a massive one-time tax charge in the European Union, topped analyst expectations of $1.60 per share.

Fourth-quarter sales of Apple’s iPhone, the company’s main product, were up 5.5% to $46.22 billion, compared with analyst estimates of $45.47 billion. Other product lines missed expectations.

Apple’s fourth quarter ended Sept. 28, meaning it reflects only a few days of sales of its iPhone 16 series that went on sale Sept. 20. Apple Chief Executive Tim Cook told Reuters that iPhone 16 sales grew faster than iPhone 15 sales did a year earlier, with both phones on sale for the same number of days in the fourth quarter.

Cook also said Apple customers are downloading a new version of its iPhone operating system with what it calls Apple Intelligence features at twice the rate they had the year before.

“We’ve had great feedback from customers and developers already,” Cook said. “We’re off to a good start.”