The difficulties have been accumulating for Apple. In recent months, it has been sued by the Justice Department, fined by European regulators and questioned over the resurgence of a Chinese smartphone competitor.
On Thursday, the company added to its list of problems the news that its business was in crisis.
Apple said sales fell 4 percent to $90.8 billion for the three months ending in March. Revenue from iPhones, iPads and wearable devices like the Apple Watch declined from the same quarter last year, while sales of software and services rose. Profits fell 2 percent to $23.64 billion, Apple's first quarterly decline in a year.
Apple's struggles were most concerning in China, the world's second-largest smartphone market, where sales fell 8 percent. The popularity of the iPhone has declined there since Huawei, which the Trump administration banned from working with American technology companies, last year unveiled a new smartphone with 5G capabilities. Last quarter, Apple's share of smartphones sold in China fell 4 percent, according to Counterpoint, a technology research firm.
Apple shares rose 6.5 percent as the results slightly exceeded Wall Street's predictions for quarterly sales and profits and were better in China than feared. The company said it would buy back $110 billion in stock and that its sales were on track to increase in the current quarter.
The poor results contrasted with the good results of other large technology companies. Over the past two weeks, amazon reported its quarterly profits had tripled, Microsoft increased quarterly cloud computing sales by a third, and Alphabet, Google's parent company, announced it would pay its first dividend.
Those companies' sales have accelerated in part because of their investments in generative artificial intelligence. The technology, which can write essays and software code, is one that Apple has not yet incorporated into its products. Investors hope that will change in June, when Apple holds its annual developers conference and reveals its newest software.
“This is a leading stock that is going through a volatile time,” said Scott Aceychek, chief operating officer of REX Shares, a provider of exchange-traded funds. “Apple needs a win to change this narrative, and if they can incorporate a segment of ai into their devices, that could be the end. The question is: what is the way forward?”
During a call with analysts, Apple CEO Tim Cook tried to assure investors that Apple believed in the promise of generative ai. He said the company was making significant investments in the technology and would soon share news about its developments with customers.
“We have advantages that will differentiate us in this new era, including Apple's unique combination of hardware, software and integrated services,” Cook said. He said the company would lean on its custom chips and look to provide a solution that protects customer privacy.
Apple's business continues to be driven by its success in selling applications and services to its customers. Across its 2.2 billion devices in use worldwide, the company has sold more than one billion subscriptions for everything from dating apps like Tinder to its own services like Apple Music. Sales of software and services rose 14 percent to $23.9 billion last quarter, he said.
But the App Store, which is one of the most important pieces of the company's services business, is being questioned by regulators around the world. The store is the only way to distribute apps on iPhones, and Apple charges a 30 percent commission for each app sold.
On March 4, the European Commission fined Apple 1.8 billion euros ($1.95 billion) for thwarting competition by preventing its music streaming rivals from offering users promotions and subscription upgrades. The commission is also investigating Apple for possible violations of a new competition law that requires the company to allow competing app stores and alternative payment systems.
Next week, a federal judge will hold a hearing to determine whether Apple is subverting a 2021 court order to allow alternative ways to pay for in-app services. Apple said developers could use other payment systems but would have to pay a 27 percent commission. Epic Games and other companies said the fee violated the court ruling.
Analysts do not expect the regulatory challenges to hurt Apple's business. But they have been a distraction from the company's efforts to focus customer attention on its devices.
In January, Apple began selling an augmented reality headset, the Vision Pro. The device, which costs $3,500, contributed a small amount to the company's sales in the period, analysts said. It is not expected to be purchased in large quantities for at least four years.
