Apple Finds Strength In India As Overall Sales Fall For Second Straight Quarter

This is the third time in a decade that the iPhone maker has posted back-to-back quarters of falling revenue. The tech giant’s revenue for the three months ended April 1 was $94.8 billion, down 3% from the year-earlier period. Net income dropped 3% year-over-year to $24.2 billion. Apple exceeded analyst expectations, according to FactSet, of $92.9 billion in sales and $22.6 billion in net income for its fiscal second quarter.

Apple Chief Financial Officer Luca Maestri said in an interview that the company experienced a difficult environment for consumer demand as reflected in declining Mac and iPad sales, but the iPhone did particularly well in developing markets.

“The iPhone is truly a global product and we’re doing well in emerging markets right now," Mr. Maestri said. “That has helped us offset some macroeconomic challenges."

In particular, Apple logged strong iPhone growth in places such as India, Indonesia, Latin America and the Middle East, Mr. Maestri said. He noted Apple is doing well in places like India in part because of its recent investments in the country, with new retail stores and focus on building up the app-developer community there. Apple’s installment plans and trade-in programs are making its products more accessible in these countries.

Mr. Maestri said foreign exchange rates continued to challenge the company and that the company grew in constant currency terms.

Last month, Apple opened its first retail store in India, which could help accelerate new iPhone demand for the year, analysts said. The company is looking to India as a potential major location for further diversifying its supply chain away from China. Apple’s main manufacturing partner, Foxconn Technology Group, also is considering a major expansion into India, The Wall Street Journal recently reported.

“The emerging market was a great driver, especially with the dollar weakening the way it has," said Hal Eddins, vice president at Apple investor Capital Investment Companies. “The upside overseas is really, really good."

On a call with analysts, Apple Chief Executive Tim Cook said: “What I do see in India is a lot of people entering the middle class, and I’m hopeful that we can convince some number of them to buy an iPhone."

IPhone sales grew about 1.5% to $51.3 billion, well ahead of the $48.7 billion analysts were expecting. Sales for Apple’s flagship product have surged as consumer demand continues to gravitate toward the company’s most-expensive phone, the iPhone 14 Pro Max, accounting for 24% of all iPhone sales, according to Consumer Intelligence Research Partners. The iPhone 14 Pro followed closely behind, with 22% of all sales for the quarter, the research firm found.

Premium iPhone Pro sales are crucial to Apple’s strategy in recent years of driving revenue growth while shipment growth has slowed. Demand for Pro models has helped elevate the average selling price of the iPhone to $988 in the January-through-March quarter from $802 in the same 2019 quarter, according to Consumer Intelligence Research Partners.

Even amid Mr. Maestri’s warning on consumer demand, some Apple investors took the results as a positive sign about broad economic sentiment.

“Apple has such a broad base with users that you get a good handle of what consumer electronics are like," said Dan Morgan, a senior portfolio manager at Synovus Trust, an Apple investor. “With Apple’s strong iPhone revenue, I have to say that the consumer is not dead."

The company’s shares rose about 2% in aftermarket trading. Apple said it boosted the dividend by 4% and that its board authorized an additional $90 billion in buybacks. Apple repurchased $89.4 billion in stock in the fiscal year that ended in September and paid investors $14.8 billion in dividends, according to FactSet.

Apple is the last of the major Western technology companies to report earnings. Last week, investors warmly greeted modest results from most of the company’s peers, reflecting renewed market interest in big tech firms. Facebook’s Meta Platforms showed signs of improvement in digital advertising. Google-owner Alphabet reported a drop in ad sales, while Microsoft saw cooling corporate demand for its cloud services. Shares rose sharply for all three companies as they exceeded analyst forecasts.

Apple has largely been able to avoid some of the larger macroeconomic uncertainty coming out of the pandemic that hit its big tech rivals.

“Apple has become a significant bellwether for what’s going on in the economy, both domestically and globally," said Trip Miller, managing partner at Apple investor Gullane Capital Partners.

In Apple’s first quarter, which ended Dec. 31, the company struggled to keep up with demand for its iPhone 14 Pro models as its supply chain in China was hit by disruptions. Revenue fell 5% year-over-year for the period, its first decline in nearly four years. Analysts expected much of that unfulfilled demand for the latest premium iPhones to have shifted to the quarter ended April 1.

For the fiscal second quarter, Apple’s services business grew about 5.5%, in line with expectations but a slower rate of increase as analysts said the company faced a weaker digital advertising market and less spending on mobile videogaming.

Next month, Apple will host its annual developer conference, where it is expected to announce new software for its devices, including a potential journaling app for users to keep track of their daily lives, the Journal recently reported.

On the call with analysts, Mr. Cook was asked about the excitement surrounding advances in so-called generative artificial intelligence driven by OpenAI’s ChatGPT, which allows users to converse with an AI chatbot in humanlike ways.

“I do think it’s very important to be deliberate and thoughtful in how you approach these things, and there’s a number of issues that need to be sorted," said Mr. Cook. “But the potential is certainly very interesting."

At the developer conference, Apple is poised to unveil its first new major product in nearly a decade: a headset that merges virtual and augmented reality into one device. The product isn’t expected to be a major financial contributor in the near future, analysts said.