Apple (AAPL) announced its third quarter earnings after the bell on Thursday beating analysts' expectations on the top and bottom lines, despite a year-over-year decline in iPhone sales.

Wall Street was closely watching Apple's performance in China, one of its most important markets, as the company has fought to regain market share from homegrown rivals including Huawei. The announcement also comes as Apple prepares to launch its next iPhone in September.

For the quarter Apple saw earnings per share (EPS) of $1.40 on revenue of $85.5 billion, analysts were anticipating EPS of $1.35 and revenue of $84.4 billion, according to estimates compiled by Bloomberg. Apple saw EPS of $1.26 and revenue of $81.7 billion in the same period last year.

Shares of Apple are up some 18.6% year to date despite a difficult start to the year, thanks, in part, to the impact of the company’s Worldwide Developer Conference in May where it showed off its Apple Intelligence software.

But the big question on investors’ minds was whether iPhone sales rose or fell in China. Apple has been contending with slowing phone sales in the region, with the company noting an 8% decline in sales in the second quarter

Apple saw revenue out of Greater China top out at $14.7 billion. Analysts surveyed by Bloomberg were expecting revenue of $15.2 billion. Apple reported China revenue of $15.7 billion in the same quarter last year. Overall iPhone sales hit $39.2 billion versus expectations of $38.9 billion, falling short of the $39.6 billion Apple saw in Q3 2023.

Despite the miss, Apple's Luca Maestri told Yahoo Finance's Josh Lipton that the company's sales are generally improving in the region. What's more, Maestri said Apple is seeing record upgrades in the country.

Services revenue hit $24.2 billion. Wall Street was anticipating revenue in the segment of $23.9 billion. Apple's iPad sales topped $7.1 billion compared to the $6.6 billion analysts were anticipating, on the strength of the company's new iPad Pro line.

Mac revenue reached $7 billion, climbing above the $6.8 billion the segment saw last year. Wearables sales, however, declined to $8 billion from the $8.2 billion Apple reported last year.

Apple is also preparing to launch its highly anticipated Apple Intelligence software later this fall. The software, which is powered by Apple’s generative AI technology, is set to hit iPhones, iPads, and Macs sometime in October, according to Bloomberg's Mark Gurman.

Analysts are torn on the potential impact of Apple Intelligence on iPhone sales in the year ahead, with some saying the software will kick off a fresh iPhone sales supercycle and others laying out more bearish expectations for the technology’s effect on Apple’s bottom line.

Importantly, Apple Intelligence is only compatible with iPhone 15 Pro and newer phones, which all but guarantees that any users desperate the get their hands on the technology will have upgrade to a new, more powerful phone as soon as it’s available.

Either way, if Apple is going to turn Apple Intelligence into a hit, it’s going to need to ensure it has the capabilities that get customers excited to dive into the offering.

Email Daniel Howley at [email protected]. Follow him on Twitter at @DanielHowley.

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