Apple’s iPhone 16 is displayed in an Apple Store in Pittsburgh on Jan. 12. Associated Press

SAN FRANCISCO — Apple on Thursday disclosed its iPhone sales dipped slightly during the holiday-season quarter, signaling a sluggish start to the trendsetting company’s effort to catch up to the rest of Big Tech in the race to bring artificial intelligence to the masses.

The iPhone’s roughly 1% drop in revenue from the previous year’s October-December period wasn’t entirely unexpected, given the first software update enabling the device’s AI features didn’t arrive until just before Halloween, and the technology still isn’t available in many markets outside the U.S.

The countries still awaiting Apple’s AI suite include China, a key market where the company continued to lose ground. Although he didn't mention China, Apple CEO Tim Cook told investors on a conference call that a software upgrade enabling the AI features in more European markets, as well as Japan and Korea will be rolling out in April.

But in the past quarter Apple also was only able to eke out a modest revenue gain across its entire business, although the results came in ahead of the analyst projections that guide investors. The Cupertino, California, company earned $36.3 billion, or $2.40 per share, a 7% increase from the previous year. Revenue edged up from the previous year by 4% to $124.3 billion.

Those numbers included iPhone revenue of $69.1 billion. In China, Apple’s total revenue registered $18.5 billion, an 11% decrease from the previous year.

Part of that erosion in China reflected the iPhone’s shrinking market share in that country, where homegrown companies have been making more headway. Apple’s iPhone year-over-year shipments in China declined nearly 10% in the most recent quarter, while native companies Huawei and Xiaomi posted year-over-year increases of more than 20%, according to the research firm International Data Corp.

“While China is a potential risk, we think the appeal of Apple products as a luxury product and the potential of AI innovations will keep demand steady in the country,” Edward Jones analyst Logan Purk wrote in a research note assessing the company's quarterly report.

The holiday-season results served to confirm bringing AI to the iPhone and Apple’s other products may not boost the company’s recently lackluster growth as much as investors initially thought it might after Cook unveiled the technology before a rapt crowd last June.

The anticipation that an AI-infused iPhone would prod hordes of consumers to ditch their current devices and splurge on an upgrade is the main reason Apple’s stock price surged by 30% last year. But the sinking realization that an uptick in demand may take longer than expected has caused Apple’s shares to backtrack by 5% during the first month of the new year. The stock initially slipped slightly in extended trading after the numbers came out, but later reversed course and rose by more than 3% after Cook said Apple is seeing a record number of people upgrading their iPhones.

“I could not feel more optimistic about our product pipeline,” Cook said during the conference call. “So I think there’s a lot of a lot of innovation left on the smartphone.”

A management forecast calling for revenue that will at least match or exceed analyst projections for the January-March quarter also seemed to bolster investor confidence in the company.

The concerns hovering around Apple's weakening iPhone sales come against broader worries about whether AI will be as lucrative for U.S. tech companies as once envisioned after Chinese startup DeepSeek released a version of the technology that was built at a far lower cost than had been previously thought possible.

Unlike tech peers such as Microsoft, Google corporate parent Alphabet Inc. and Facebook corporate parent Meta Platforms, Apple hasn’t been investing as heavily in AI – one of the reasons it has been seen as an industry laggard. But that restraint could work to its advantage if DeepSeek’s early breakthroughs in driving down AI costs gains momentum.

Apple’s services division remained the company’s biggest moneymaker outside the iPhone, with revenue of $26.3 billion in the past quarter, a 14% increase from the previous year. Although the services division has been thriving for years, it generates more than $20 billion annually by locking in Google as the automatic search engine on the iPhone and other products. That deal is now under threat of being banned as part of the proposed punishment for Google’s search engine being declared an illegal monopoly.