In an unexpected turn, Apple reported China sales that fell short of Wall Street targets, overshadowing the company's overall sales and profit that exceeded analysts' projections. The lackluster performance in China comes despite the strong growth of iPhone sales, which stood out as a key driver for Apple's success.

Apple's Chief Financial Officer, Luca Maestri, explained that the upcoming quarter's revenue is expected to be lower compared to the same period last year. This is due to the absence of a post-COVID sales boost of approximately $5 billion. When excluding this one-off gain, both the total revenue and iPhone revenue for the quarter would be similar to the previous year.

While Wall Street analysts anticipated sales just below $96 billion, representing a slight year-over-year increase, Apple's forecast was approximately $90 billion, $5 billion lower than the previous year's figure. Following the news, Apple's shares were down by 3% in after-hours trading.

Despite the disappointment in China, Apple's overall fiscal first-quarter sales showed a promising 2% rise after four consecutive quarters of declines. This growth was primarily attributed to the success of its iPhone 15 lineup, which includes devices capable of capturing three-dimensional video for the upcoming Vision Pro headset.

Apple's total installed base of devices has also reached a significant milestone, surpassing 2.2 billion compared to 2 billion a year ago. The company's CEO, Tim Cook, expressed satisfaction with the 6% growth in iPhone revenue, particularly in emerging markets outside of China. He acknowledged that the Chinese market remains highly competitive but emphasized that the iPhone continues to perform well in other regions.

Sales in mainland China, accounting for currency exchange rates, experienced a "mid-single digits" decline in the quarter. However, Apple's installed base of iPhones in China is currently at an all-time high. The company reported sales of $20.82 billion in China, falling short of analyst estimates of $23.53 billion.

Analysts are raising concerns about Apple's signature device facing increasing competition in China, where it has fallen out of favor in government offices. Counterpoint Research revealed a decline in China iPhone unit shipments during the quarter, as consumers turned their attention to alternative folding phones and domestic competitor Huawei's flagship device powered by a Chinese-made chip.

In contrast, Apple's sales in the rest of Asia, excluding China and Japan, reached $10.16 billion, surpassing analyst estimates of $9.75 billion. Notably, South Korea, known as the home of Apple's rival Samsung Electronics, witnessed all-time high iPhone sales.

While the company's services business, which includes Apple TV+, music, iCloud storage, and the App Store, saw an 11% increase in sales to $23.12 billion, it slightly missed analyst expectations of $23.35 billion. This segment is regarded as a crucial driver of growth for Apple.

Apple also faces challenges, as a new law in Europe effective from March will allow developers to bypass paying commissions to Apple and introduce alternative app stores on the iPhone. This has implications for the company's App Store revenue.

Apple's Mac sales for the first quarter were in line with expectations, reaching $7.78 billion, while iPad sales declined by 25% to $7.02 billion, falling short of estimates. The wearables segment, which includes AirPods and Apple Watch sales, generated $11.95 billion, slightly exceeding expectations.

The legal dispute with medical device maker Masimo over certain Apple Watch models had a brief impact on sales. However, Apple quickly complied with legal rulings by removing the blood-oxygen monitoring features from the devices.

While Apple's overall performance in the first quarter showcased growth in key areas, such as the iPhone segment, the disappointment in China sales has raised concerns among analysts. Investors and industry experts will closely monitor Apple's strategies to address the challenges of China's smartphone market and navigate the evolving global technological landscape.