In Q3, Apple reported a drop in iPhone sales, leading to a sales slump that is expected to continue into the current quarter.

Despite beating Wall Street’s sales and profit targets for the fiscal third quarter, Apple’s shares fell about 2% due to weaker-than-expected iPhone sales. The company’s services segment performed well, driven by Apple TV+ and strong sales in China.

Apple’s next big product, the Vision Pro mixed-reality headset announced in June, is yet to reach consumers, adding to the pressure as the iPhone battles against Android rivals in a mature market.

In response to the competitive landscape and the need for innovation, Apple’s CEO Tim Cook revealed an increase in research and development (R&D) spending, primarily focusing on generative artificial intelligence. This field is also driving spending at other major technology companies. The company is researching a wide range of AI technologies and plans to integrate AI features into its products, including real-time voicemail transcription for iPhones starting this autumn.

While iPhone sales in China outperformed the overall market decline, Apple’s sales forecast for the fiscal fourth quarter is below analyst expectations. The services segment and wearables business, including Apple Watch and AirPods, continue to be bright spots for the company.

Despite challenges in the smartphone market, Apple remains committed to innovation and product enrichment with the integration of AI technologies into its offerings. Investors are now closely watching for potential announcements related to the Vision Pro mixed-reality headset and other AI-related developments during the earnings call.