Leave it to Apple to see the positive side to its results, with iPhone sales down 10% over the last year.

Apple today (May 2) announced its financial results for the fiscal year ended March 31, with cell phone sales for the three months ended March 30 totaling $45.96 billion, down from $51.3 billion in the same period last year. This decline in iPhone sales dragged down Apple's total quarterly sales, which fell 4% overall to $90.8 billion.

However, Apple executives were quick to point out that there was a major asterisk in the year-over-year decline in the iPhone business. Last year's numbers were inflated because supply chain delays pushed many iPhone 14 sales from the holiday season into the March quarter. Apple estimates this had a $5 billion impact on Apple's numbers. Given this impact, iPhone sales were likely flat year over year, Chief Financial Officer Luca Maestri told Wall Street analysts.

In its earnings report, Apple found several other reasons for optimism amid slowing iPhone sales. The number of actively installed devices reached an all-time high during the quarter, which likely helped Apple's services business post record sales of just under $23.9 billion. After all, every iPhone out there is generating recurring revenue from subscriptions to Apple Music, Apple Arcade, Apple TV Plus, etc.

"The iPhone 15 family continues to be very popular with customers," Maestri said.

"It is clear that the iPhone 15 has not sparked a major boom in upgrades, at least compared to some past releases of Apple phones.

Part of that trend is outside of Apple's control. People have been waiting a long time to upgrade their phones. Whether it is due to the high cost of recent phones or an unwillingness to cycle through technology as quickly as before, you see some people holding out for three years or more before they consider a new phone.

Still, something seems to be happening with the iPhone. Last week, Consumer Intelligence Research Partners released a report showing that the iPhone's activation share has dropped from 40% to 33% over the past year. The research firm noted that Apple continues to enjoy a large smartphone install base, but competitors are eating into that share.

That may be because Apple's recent iPhone updates, including the iPhone 15 series, have not offered enough change to convince those reluctant to upgrade to a new phone. Apple's strategy of more strongly differentiating the standard and Pro models may be having an impact here as well. While this move has certainly convinced shoppers to pay more for the richer features of the iPhone 15 Pro or iPhone 15 Pro Max, it may have come at the expense of the iPhone 15 and its less impressive upgrades.

The iPhone 16 could address that in a way by ending Apple's practice of using different chipsets in the Pro and standard models. iPhone 15 currently runs on the older A16 Bionic, and both iPhone 15 Pro devices are turned to the more powerful A17 Pro silicon. However, according to one rumor, all four iPhone 16 models will have the A18 chipset, even if the iPhone 16 Pro will be more powerful.

Apple could ace the competition in the form of incorporating more AI features into its devices. According to multiple rumors, AI is a major focus of the company's upcoming iOS 18 software release, and the iPhone software will likely see a preview during next month's WWDC event.

It is unclear exactly what type of AI features will be included in the iPhone, but it is reported that playlists could be automatically generated in Music and web pages could be summarized in Safari. Whatever the final features will be, they will make significant use of generative AI, given that Apple continues to hint at its efforts in that area.

"We see significant opportunities for generative AI in all of our devices," CEO Tim Cook responded when asked about Apple's AI plans for the iPhone.

WWDC 2024 will take place on June 10 and will see a preview of iOS 18. It is likely too late to help current iPhones, although Apple's iPhone 15 models should be able to upgrade to the new software by fall. In his guidance for the upcoming quarter, Apple's Maestri noted that overall company revenues will grow again, with the iPad and Services divisions each contributing to growth. iPhone is a marked departure from Maestri's forecast, suggesting that it will be difficult to predict the iPhone's prospects .

"We continue to feel very bullish about the opportunities in generative AI. We are making significant investments and look forward to sharing some very exciting things with our customers in the near future," Cook said.

In other words, watch this space, especially if you are interested in a future iPhone.