Apple reports declining sales and profits due to iPhone difficulties in China

The difficulties for Apple have piled up. In recent months it has been sued by the Justice Department, fined by European regulators and challenged by the resurgence of a Chinese smartphone competitor.

The company added to the list of its problems on Thursday, signaling that its business was in crisis.

Apple said sales fell by 4 percent to $90.8 billion for the three months ended in March. Revenue from iPhones, iPads and wearables like the Apple Watch fell from the same quarter last year, while sales of software and services increased. Profit fell 2% to $23.64 billion, Apple's first quarterly decline in a year.

Apple's struggles were most concerning in China, the world's second-largest smartphone market, where sales fell 8%. The iPhone's popularity has declined since Huawei, which the Trump administration banned from working with U.S. technology companies, introduced a new smartphone with 5G capabilities last year. According to Counterpoint, a technology research firm, the share of Apple smartphones sold in China fell 4% last quarter.

Apple shares rose 3.5% as results slightly beat Wall Street forecasts for quarterly sales and profits and were better than feared in China. The company said it will buy back $110 billion in stock and that its sales are expected to increase in the current quarter.

The poor results contrasted with the strong performances of other large technology companies. In the past two weeks, Amazon reported that its quarterly profits had tripled, Microsoft increased its quarterly cloud computing sales by a third, and Alphabet, Google's parent company, announced it would pay its first dividend.

These companies' sales have increased in part due to their investments in generative artificial intelligence. The technology, capable of writing essays and software code, is technology that Apple has not yet incorporated into its products. Investors are hoping that things will change in June, when Apple holds its annual developer conference and reveals its latest software.

“This is an indicative stock that is going through a volatile period,” said Scott Acheychek, chief operating officer of REX Shares, a provider of exchange-traded funds. “Apple needs a win to change this narrative, and if they can get an AI segment on their devices, this could be it. The question is: what is their path forward?”

Apple's business continues to be supported by success in selling apps and services to customers. With its 2.2 billion devices in use worldwide, the company has sold more than a billion subscriptions for everything from dating apps like Tinder to its own services like Apple Music. Sales of software and services increased 14% to $23.9 billion in the latest quarter.

But the App Store, which is one of the most important pieces of the company's services business, is challenged by regulators around the world. The store is the only way to distribute apps on iPhones, and Apple collects a 30% commission on each app sold.

On March 4, the European Commission fined Apple 1.8 billion euros ($1.95 billion) for hindering competition by preventing music streaming rivals from offering users promotions and subscription upgrades. The commission is also investigating Apple for potential violations of a new competition law that requires the company to allow competing app stores and alternative payment systems.

Next week, a federal judge will hold a hearing to determine whether Apple is subverting a 2021 court order to allow alternative ways to pay for services in apps. Apple said developers could use other payment systems but would have to pay a 27% fee. Epic Games and other companies said the commission violated the court's ruling.

Analysts don't expect the regulatory challenges to hurt Apple's business. But they were a distraction from the company's efforts to focus customers' attention on its devices.

In January, Apple began selling an augmented reality headset, the Vision Pro. The device, which costs $3,500, contributed slightly to the company's sales in the period, analysts said. It is not expected to be purchased in large quantities for at least four years.

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