*

Early iPhone 16 sales grew faster than iPhone 15 sales,

says CEO

Tim Cook

*

Apple's ( AAPL ) AI strategy includes new iPhone 16 features

*

Apple's ( AAPL ) services, Mac, iPad, and wearables sales missed

analyst

expectations

*

Payments for property and equipment rise $2.91 billion

from

previous quarter

(Adds analyst comment in paragraph 11, adds graphics)

By Stephen Nellis

Oct 31 (Reuters) - Apple ( AAPL ) beat Wall Street sales

and profit expectations on Thursday for its fiscal fourth

quarter, bolstered by strong early sales of iPhone 16, a set of

phones designed for new AI features that was released near the

end of the quarter.

Apple ( AAPL ) said sales were $94.93 billion, ahead of Wall Street

targets of $94.58 billion, according to LSEG. Earnings of

$1.64 per share, excluding a massive one-time tax charge in the

European Union, topped analyst expectations of $1.60 per share.

Sales of its iPhone, the company's main product, were up

5.5% to $46.22 billion, compared with analyst estimates of

$45.47 billion. Other product lines missed expectations and the

China sales total was less than Wall Street expected, all of

which helped send shares down 1.4% in extended trading.

Apple's ( AAPL ) fourth quarter ended Sept. 28, meaning it reflects

only a few days of sales of its iPhone 16 series that went on

sale Sept. 20. Apple ( AAPL ) Chief Executive Tim Cook told Reuters that

iPhone 16 sales grew faster than iPhone 15 sales did a year

earlier, with both phones on sale for the same number of days in

the fourth quarter.

Cook also said Apple ( AAPL ) customers are downloading a new version

of its iPhone operating system with what it calls Apple

Intelligence features at twice the rate they had the year

before.

"We've had great feedback from customers and developers

already," Cook said. "We're off to a good start."

Investors will be listening closely to a 5 p.m. ET (2100

GMT) conference call where Apple ( AAPL ) executives will outline

expectations for the fiscal first quarter, which encompasses

holiday sales in the U.S., Europe and several other markets.

The rollout of Apple's ( AAPL ) artificial-intelligence strategy, which

it revealed this year, hinges on how well its new phones sell.

Rather than introduce AI in a standalone app or service,

Apple ( AAPL ) has sprinkled Apple Intelligence throughout its most

recent operating systems as new features, such as the ability to

help re-write an email in a more professional tone. Those

features will mostly be available on iPhone 16 models, which

feature more powerful computing chips, although the pro versions

of the iPhone 15 both work with Apple Intelligence.

While some of those Apple Intelligence features arrived this

week, others have been delayed, which has led some Wall Street

analysts to wonder whether consumers will be slower to upgrade

their devices this year while flagship software features trickle

out.

"Apple ( AAPL ) will need to introduce the new AI features soon in

order to drive holiday sales," said Gil Luria, head of

technology research at D.A. Davidson. "If iPhone growth

continues to accelerate, that will translate not only to higher

margins, but also to faster growth in related products such as

wearables and services."

The early iPhone 16 results on Thursday could allay some of

those concerns. IPhone sales helped steady Apple's ( AAPL )

fourth-quarter sales in China, which were down less than 1% to

$15.03 billion overall. Analysts were expecting China sales of

$15.78 billion on average, according to data from Visible Alpha.

SPENDING RISES

Apple's rivals Microsoft ( MSFT ) and Meta both said

this week they expect continued increases in spending to support

their AI strategies. Apple ( AAPL ) said payments for property and

equipment - a measure of its capital expenditures - were up

$2.91 billion from the previous quarter to $9.45 billion.

Apple's ( AAPL ) lower spending comes in part because it uses

third-party data centers for some AI work. Some aspects of Apple

Intelligence do rely on Apple's ( AAPL ) own data centers, but the

company is using its own in-house chips to power those features.

"There would be some (financial) benefit to us by using our

own silicon, obviously, but that's not the reason we're doing

it. We're doing it because we can provide the same standard of

privacy and security that we can provide on device," Cook said.

Sales in Apple's ( AAPL ) services business, which includes iCloud

storage and Apple Music, were $24.97 billion, compared with

analyst expectations of $25.28 billion, according to LSEG. Mac

and iPad sales were $7.74 billion and $6.95 billion,

respectively, compared to estimates of $7.82 billion and $7.09

billion, according to LSEG data.

Sales in Apple's ( AAPL ) home and wearables business, which includes

its Apple Watch and AirPods devices, fell to $9.04 billion,

compared with estimates of $9.2 billion, according to LSEG.

Earnings per share were 97 cents including the charge

related to a one-time multi-billion-euro European tax payment.