SAN FRANCISCO – Apple reported a deepening slump in China during the holiday quarter, even as total iPhone sales were stronger than expected and the company returned to its first revenue growth in a year. 

Sales in China dropped 13 per cent to US$20.8 billion (S$27.8 billion) in the first quarter ended Dec 30, 2023, Apple said on Feb 1.

That fell far short of the US$23.5 billion predicted by analysts and was Apple’s weakest December quarter in the Asian nation since the first period of 2020.

“We are not happy with the decline, but we know China is the most competitive market in the world,” chief financial officer Luca Maestri said in an interview with Bloomberg Television.

Apple shares dropped more than 3 per cent in extended trading after the report was released.

Apple is contending with cooling consumer spending in China and widening government bans of foreign technology.

The struggles overshadowed an overall revenue gain of 2.1 per cent to US$119.6 billion.

With the growth, Apple avoided posting a fifth straight quarter of declines – a streak that would have been its worst since a tailspin in the 1990s.

The iPhone was a bright spot during the period, exceeding analysts’ estimates. 

The earnings report also comes on the eve of Apple launching the Vision Pro headset. The device vaults the company into its first major new category since 2015 while steering Apple into unfamiliar terrain: virtual and augmented reality.

The US$3,499 headset lets people watch 3D videos, play games and conduct more immersive meetings.

Chief executive Tim Cook also said that Apple will make an announcement in 2024 on artificial intelligence features, confirming earlier reports by Bloomberg.

With Apple’s tech peers pouring money into AI right now, investors have been eagerly awaiting an update from the company on this topic. 

First-quarter profit climbed 1 per cent to US$2.18 a share, topping estimates of US$2.11.

The iPhone, Apple’s biggest moneymaker, brought in revenue of US$69.7 billion, compared with an average projection of US$68.6 billion.

The latest model, the iPhone 15, was a more significant upgrade than some previous iterations.

The company also had an easier time getting the product to consumers than during the holidays of 2022, when Covid-19 lockdowns in China trigged supply chain snags.

There were no such hiccups this time around.

Apple’s services segment, which includes the App Store and streaming platforms, continued to outpace other divisions. It brought in US$23.1 billion during the holiday period, up 11 per cent from a year earlier.

As Apple forewarned in November, the iPad was a weak seller during the holidays. Its revenue declined 25 per cent to US$7.02 billion.

It did not help that Apple did not release any new models in the last calendar year – the first time that has happened since the iPad debuted in 2010.

But the company is preparing to unveil a bunch of new iPads as early as March, Bloomberg News has reported. 

Apple refreshed its computer line-up in October with three new MacBook Pro models and a new iMac – powered by speedier M3 chips.

That helped sales grow slightly to US$7.78 billion. 

Revenue from the company’s Wearables, Home and Accessories segment – which includes the Apple Watch, AirPods and its TV set-top box – fell 11 per cent to US$11.95 billion.

Those products did not get significant upgrades in 2023, which may have hampered sales.

Apple also was hit with a US ban on sales of its latest smartwatches over a patent dispute, but that played out after the Christmas shopping season. The company ultimately had to pull a blood-oxygen feature from the devices. 

More broadly, Apple is facing one of the most tumultuous periods since Mr Cook became CEO more than a decade ago.

It is under more regulatory pressure than ever, with new European Union laws forcing it to change its App Store policies.

And even with the sales growth in the last quarter, many of its biggest markets are maturing.

Though the Vision Pro could open up a new opportunity, the first version of the product is probably too costly and cumbersome for most consumers. BLOOMBERG