Apple reports its third consecutive quarter of revenue decline – here’s how experts see it

Apple Inc (NASDAQ: AAPL) just reported its financial results for the third quarter that topped Street estimates. Shares up still trading down in extended hours.  

Services revenue stood out this quarter

The tech behemoth attributed strength in its recently concluded quarter primarily to services revenue that went up a better-than-expected 8.0% to $21.21 billion. CEO Tim Cook told CNBC following the release:

Advertising has definitely accelerated from before, and the App Store has definitely accelerated from before.

He dubbed the recently unveiled Vision Pro mixed reality headset a scion of Apple’s years-long focus on artificial intelligence and confirmed that the multinational will continue to invest in AI moving forward.

Apple Inc was recently reported working on a ChatGPT rival (read more).

iPhone revenue missed Street estimates

On the downside, though, iPhone, which typically tends to be its strongest segment, came in down 2.0% on a year-over-year basis.  

The handset generated $39.67 billion in revenue in Q3 versus $39.91 billion expected. Still, Angelo Zino of CFRA Research said today on CNBC’s “Closing Bell: Overtime”:

June quarter is typically the trough of the iPhone cycle. So, it tends to matter a lot less. We do expect them to at least imply their guidance towards a return to growth in September quarter.

His “buy” rating on the Apple stock comes with a price target of $220 that suggests about a 20% upside from here.

iPad revenue tanked 20%

Apple noted a 7.0% hit to its Mac revenue as well in the third quarter that printed at $6.84 billion. But that still topped $6.62 billion that analysts had called for.

Things were worse in the iPad segment, though. The tablet PCs brought in $5.79 billion – down 20% from a year ago and well below the $6.41 billion consensus. According to Scott Kessler – the Global Sector Lead at Third Bridge:

I think people have recognised that there are some continuing hardware headwinds. But they are really focused on the next iPhone – the announcement coming perhaps next month.

A positive in the earnings print was China sales that saw a “definite acceleration” and printed at $15.76 billion – up 8.0% versus the same quarter last year. At writing, Apple stock is up 50% year-to-date.

Other notable figures in Apple’s Q3 earnings

Earned $19.88 billion versus the year-ago $19.44 billion

EPS declined from $1.20 to $1.26 as per the press release

Revenue ticked down 1.0% year-on-year to $81.80 billion

Consensus was $1.19 a share on $81.69 billion in revenue

Other products revenue went up a less-than-expected 2.0%

Apple improved gross margin in the third quarter by 30 basis points to 44.5%. Sharing his view on the iPhone maker, Wedbush Securities analyst Dan Ives said on CNBC’s “Closing Bell”:

As we go into next year, if services uptick and we believe you’ll get back to double digits growth on services, we could be looking potentially $1.5 trillion in services valuation, what I believe could ultimately be $100 billion annual revenue. And then, 25% of 1.2 billion have not upgraded their iPhone in four plus years. The pent-up demand continues to be the story.