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Apple released its financial report after the market closed on August 1 local time. Although iPhone sales declined, its service business grew rapidly and Apple's stock price rose by about 1%.

The financial report shows that in the quarter ending at the end of June, iPhone sales fell 0.9% to $39.3 billion, and sales of service businesses including Apple Stores and Apple Music increased 14.1% to $24.2 billion, which brought the company's overall sales in the quarter to nearly 5% to $85.78 billion. Apple reported a profit of $21.45 billion for the quarter, an increase of nearly 8%.

Although the iPhone is still Apple's most important business, its share of total sales has dropped to around 46%. The service business is becoming Apple's most important growth category.

In the past quarter, Apple released the artificial intelligence (Apple Intelligence) function for the first time. Analysts expect that the launch of this function is expected to drive a rebound in iPhone demand, because only smartphones above the iPhone 15 Pro support Apple's AI function.

Apple CEO Tim Cook told investors on an earnings call Thursday that it was "too early" to tell whether Apple Intelligence would drive people to upgrade their devices, but he said the company had increased spending to prepare for the launch of the service.

Apple Chief Financial Officer Luca Maestri said that iPhone sales are still better than he expected three months ago. "The iPhone 15 series has performed well from the beginning to now, and three quarters have passed this year. It has performed better than the iPhone 14 in the previous cycle."

iPhone sales in China remain weak, with sales falling 6.5% in the past quarter. Apple's iPhone sales in China fell 8.1% in the previous quarter.

However, Maestri said that Apple's sales decline in the Chinese market was mainly due to foreign exchange factors. If foreign exchange factors are excluded, China's sales will fall by less than 3%.

Apple offered deeper discounts in China in the second quarter to counter competition from local rivals such as Huawei, with the company offering discounts of up to 2,300 yuan on some models in May.

Analyst firm Emarketer believes that while discounted iPhone prices may help boost Apple's sales this quarter, the company's future success depends on two factors: first, keeping AI development costs low, and second, ensuring that new AI features will encourage price-sensitive consumers to upgrade their devices.

Previously, analysts expected that Apple's next-generation iPhone 16 series phones would usher in a strong upgrade cycle, and the phone is expected to be launched in September this year.

Apple's research and development expenses rose 8% to $8 billion in the past quarter. Apple did not disclose how much of that money was spent on artificial intelligence, including the infrastructure needed to train and run its own large language models.

“We have significantly increased our investment in AI over the past year,” Maestri said. “We have redeployed engineering resources from other projects to AI because we recognize the necessity and importance of this new technology.”

Cook said Apple has spent more than $100 billion on research and development over the past five years. Maestri explained that despite the sometimes high costs of building and running artificial intelligence applications, the company has maintained "very good gross margins." He added that the company's operating expenses for the quarter were between $14.2 billion and $14.4 billion, with a gross margin of between 45.5% and 46.5%.

Apple and other technology companies have spread their AI infrastructure costs across their own data centers and other cloud service providers they have contracted with. Cook said: "From a data center perspective, we use a hybrid approach, with both our own data centers and partnerships. Capital expenditures will be included in the financials of our partners. This quarter, our year-on-year growth in spending on AI and Apple Intelligence will definitely be reflected in the results."

Maestri expects Apple to maintain its current growth level in the next quarter. Apple also said it spent $32 billion on dividends and stock buybacks during the quarter.

In terms of regulation, Apple faces three investigations in the EU related to the Digital Markets Act (DMA), which requires large technology companies to ensure a fair competitive environment for competitors and provide users with more choices. In the United States, the U.S. Department of Justice also accused Apple of monopolizing the smartphone market and raising prices in March this year.