Apple earnings preview: AI-powered iPhone sales take centre stage

Apple will report its fourth-quarter earnings for fiscal year 2024 after US markets close on 31 October.

iPhone sales remain a crucial metric for investors assessing the company's market valuation. Apple has integrated artificial intelligence (AI) into its recently launched iOS 18.1, which is anticipated to boost handset sales.

Demand is expected to rebound in China, a key driver of the company's growth in the September quarter. In addition, another major segment, Apple Services, is expected to maintain steady growth.

Josh Gilbert, Market Analyst at eToro, said: "Apple intelligence will feature heavily, I'd expect to hear plenty of commentary on the call surrounding that."

He added: "Apple Services remains a big part of the business. Offers great margins and has been growing at a great pace as well."   

Apple's shares have risen by 25% this year, reaching an all-time high last week following data that revealed a significant rebound in iPhone sales in China during the July to September period.

AI-powered iPhones could drive growth, particularly in China

Apple launched iOS 18.1, featuring its AI-based Apple Intelligence, which enables various new functions such as enhanced writing tools, photo editing, and summarised notifications. iOS 18.1, which powers the recently unveiled iPhone 16 series, is critical for bolstering sales of the latest handsets.

The AI-supported features are available on the iPhone 15 Pro, iPhone 15 Pro Max, and iPhone 16 models, and are expected to drive demand as customers upgrade their devices.

According to a Bloomberg report, sales of the iPhone 16 in China rose by 20% in the first three weeks of its release, compared to its predecessor.

The data indicates that consumers are increasingly opting for higher-end models, with sales of the Pro and Pro Max versions up 44% compared with the same period last year.

Analysts from Wedbush Securities noted in a report: "China sales for iPhone 16 will show a strong rebound over the next year with the beginning of this AI-driven super cycle." China, the world's largest smartphone market, accounts for approximately 17% of Apple's total revenue.

Research firm IDC reported that iPhone shipments to China represented 15.6% of the market in the September quarter, making Apple the second-largest market player behind Vivo, which held an 18.6% share, with Huawei close behind at 15.3%.

Apple continues to face stiff competition from local smartphone makers like Huawei, Xiaomi, and Vivo.

In the June quarter, Apple lost market share in China due to fierce competition and reduced consumer spending, causing it to fall out of the top five smartphone sellers in the country, while local rivals Vivo and Xiaomi recorded double-digit growth.

Forecasts

According to analysts from LSEG, Apple is expected to report revenue of $94.58bn (€87.42bn), marking a 5.7% year-on-year increase - the largest annual growth in two years.

Earnings per share are forecast to be $1.48 (€1.37), a modest 1% increase from the previous year.

iPhone sales are expected to grow by 3.8%, with revenue from Greater China anticipated to rise by 6.6% year-on-year.

iPad revenue is projected to continue its upward trend, increasing by 10%, following a 24% surge in the previous quarter due to new model releases.

Service sales, which include revenue from the App Store, Apple Pay, Apple TV+, Apple Music, Apple Arcade, and iCloud, are forecast to grow by 13%, slightly down from the 14% growth seen in the June quarter.

Apple's services division remains the company's most profitable segment, contributing between 25-30% of overall revenue, and is regarded as a key performance indicator in Apple's earnings reports.