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Investments in generative AI leads to rising costs for Apple, Tim Cook says 'we're investing a lot'

Apple shares drop 2% as sales slump predicted to continue, despite beating analyst predictions in Q3.

(FILES) This illustration photo taken on May 24, 2021 shows the Apple stock market ticker symbol AAPL displayed on an iPhone screen and reflected in the logo of an iMac computer in Los Angeles. Apple reported modestly higher quarterly profits August 3 despite another dip in revenues, as a record performance in services offset lower iPhone sales. Profits for Apple's third fiscal quarter were $19.9 billion, up 2.3 percent from the year-ago period. Revenues again declined, this time by 1.4 percent. (Photo by Chris Delmas / AFP) (AFP)Premium
(FILES) This illustration photo taken on May 24, 2021 shows the Apple stock market ticker symbol AAPL displayed on an iPhone screen and reflected in the logo of an iMac computer in Los Angeles. Apple reported modestly higher quarterly profits August 3 despite another dip in revenues, as a record performance in services offset lower iPhone sales. Profits for Apple's third fiscal quarter were $19.9 billion, up 2.3 percent from the year-ago period. Revenues again declined, this time by 1.4 percent. (Photo by Chris Delmas / AFP) (AFP)

Apple shares went down by around 2 percent after the company predicted that the sales slump could continue in the current quarter. The downfall in share prices comes despite the company beating many analyst predictions for sales and profit targets in the third quarter.

Also Read: Apple is testing its own AI chatbot 'Apple GPT' to catch OpenAI

The Cupertino-based company said Thursday that revenue for the quarter ended July 1 fell 1.4 percent to about $81.8 billion, while earnings per share rose 5 percent to $1.26, Reuters reported. The revenue and profitability figures are higher than analysts' expectations of $81.69 billion and $1.19 per share.

While Apple's most celebrated device, the iPhone, has seen weaker-than-expected sales that have underwhelmed investors, growth in China and strong sales in the services segment like Apple TV have helped offset some of those numbers. Apple executives have also claimed that iPhone sales are expected to rise in the fourth quarter.

Apple CFO Luca Maestri says that the iPhone maker is expecting a year-over-year revenue performance in the company's fourth fiscal that ends in September on the back of growth in its services segment that includes products like AppleTV, iPad, Mac sales. Apple has projected its gross profit margin for the September quarter to be around 44 to 45 percent.

Also Read| Apple Q2 results: Profit up 2.3%, iPhone sales drop 2.4%

The tech giant is in a precarious position where the iPhone appears to be facing stiff competition in an increasingly mature smartphone market, while the company's new innovative product - the Vision Pro mixed reality headset - is yet to get into the hands of customers.

AI development leads to rise in spending for Apple: 

Apple has seen its research and development spending go to $22.61 billion in the current fiscal year which is around $3.12 billion more than the last year combined. The increase in R&D spending has been linked to work on generative AI technology by the company, Reuters reported quoting Apple CEO Tim Cook. 

"We've been doing research across a wide range of AI technologies, including generative AI, for years. We're going to continue investing and innovating and responsibly advancing our products with these technologies to help enrich people's lives," Tim Cook told Reuters. 

"Obviously, we're investing a lot, and it is showing up in the R&D spending that you're looking at." the Apple CEO added. 

(With inputs from Reuters)

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Published: 04 Aug 2023, 07:54 AM IST
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