Photo credit: Reuters

As Apple Inc. approaches its crucial sales period, concerns have emerged about its revenue growth and ongoing challenges in the competitive Chinese market.

Following its latest earnings report, Apple announced that total sales for the December period will increase by a percentage in the low-to-middle single digits. This falls short of analysts' projections of a 7 percent rise. The company's revenue from China also declined last quarter, missing estimates.

Apple is striving to recover from a prolonged sales slump, with four consecutive quarters of declining revenue in fiscal 2023 before a solid rebound in the past two quarters. Although Apple remains the most valuable company globally, it faces a sluggish smartphone market, increased competition in China, and global regulatory scrutiny.

These concerns impacted Apple's shares, which dropped about 2 percent in late trading. Despite this, the stock had risen 17 percent this year, driven by optimism about Apple's artificial intelligence prospects.

While overall revenue slightly exceeded Wall Street expectations last quarter, driven by global iPhone demand, Apple continues to face challenges in key markets. The company competes with local brands in China, its primary manufacturing hub, where revenue fell slightly from the previous year to $15 billion in the fourth fiscal quarter, below analysts' estimates of $15.8 billion.

Apple's CEO Tim Cook noted that iPhone sales grew in every geographic market, suggesting that other product lines may be the issue in China, its largest revenue source after the Americas and Europe.

Total sales increased by 6.1 percent to $94.9 billion, surpassing the average estimate of $94.4 billion. Earnings were 97 cents per share, though they would have been $1.64 without a one-time charge related to a European General Court decision.

In September, Apple introduced the iPhone 16, spurring upgrades. The company also updated Apple Watches and released new AirPods. These consumer devices account for the majority of Apple's revenue.

Investors are banking on Apple Intelligence, the company's new suite of AI features, to boost device sales. However, the software debuted weeks after the iPhone's release, and many of its key features are still months away.

Apple had previously indicated that sales growth would be around 5 percent, with its services business performing particularly well. Revenue from that division reached a record high of $25 billion but fell short of Wall Street's $25.3 billion prediction.

On a conference call with analysts, CFO Luca Maestri said services revenue would grow in double digits in the December quarter, similar to the fiscal 2024 rate. Maestri will step down from his role, with deputy CFO Kevan Parekh set to replace him.

iPhone revenue was $46.2 billion, beating estimates of $45 billion, up 5.5 percent from the previous year. Apple plans to release a new low-end iPhone SE with Apple Intelligence in 2025, along with significant hardware changes to its flagship models.

Other product divisions missed analysts' estimates last quarter, including the iPad business and Apple's wearables division.

Mac revenue was $7.74 billion, aligning with projections. Apple had not released major Mac updates until the current quarter, aside from refreshing the MacBook Air with an M3 chip earlier this year.

The iPad line generated $6.95 billion in sales, missing the $7.07 billion projection. After an 18-month gap without updates, Apple revamped the iPad Pro with the M4 chip and introduced a larger iPad Air. Recently, Apple refreshed the iPad mini with a new chip and support for Apple Intelligence, but those sales were not included in the fiscal fourth quarter.

Apple plans to boost the iPad lineup in the first half of next year with a new low-end model aimed at students.

In September, Apple refreshed its Wearables, Home, and Accessories lineup with the Apple Watch Series 10 and a new black version of the Ultra 2 watch. The company also released AirPods 4 models.

However, these changes did not result in a significant sales increase. The segment generated $9.04 billion, down 3 percent from the previous year, missing analysts' estimates of $9.17 billion.

Cook recently visited China, promising future cooperation and further investment in the country. Apple has yet to announce plans to roll out Apple Intelligence in China and is seeking local partners to bring the functionality to its users.

Chinese brands like Vivo have gained market share, and restrictions on foreign technology use in Chinese government offices have increased over the past year.

Overall, Apple Intelligence remains a wildcard for the company. Only a few features have been delivered so far, making it difficult to gauge long-term demand.

In December, Apple will integrate OpenAI's ChatGPT into its software and introduce generative AI features for editing images. An overhaul of the Siri digital assistant is expected next year.

Despite the success of its services business, Apple faces challenges. The App Store is under scrutiny in various regions, including the EU, where new regulations have prompted policy changes. Apple now allows third-party app stores and payment methods in the EU, potentially impacting revenue.

Apple has also struggled to find its next major growth driver. The Vision Pro headset, introduced in February, has remained a niche product, and the company canceled plans for a car project the same month.

However, Apple is making a renewed effort in the smart home market with devices featuring robotics and AI, and is working to develop more affordable headsets.

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