With iPhone sales and profits sliding, Apple has sought to highlight its growth in services as it seeks to reduce dependence on its main cash driver.
In its quarterly update, Apple said profits slumped 27 per cent from a year ago to USD 7.8 billion on a sharp drop in iPhone sales.
Apple sold 40.4 million iPhones in the quarter ending June 25, down 15 per cent from a year earlier, highlighting concerns over growth for the company's iconic smartphone.
It was the second straight quarter of slumping iPhone sales for the company, which until then had seen uninterrupted growth.
Overall revenue was down 15 per cent from a year ago at USD 42.4 billion for Apple, which is the world's most valuable company.
Chief executive Tim Cook said the results showed "stronger customer demand and business performance than we anticipated at the start of the quarter."
Investors appeared to be reassured by the results, which were generally better than expected.
Apple shares rose 6.1 per cent in after-hours trade to USD 102.61.
The results underscored the challenges for Apple, which has built a huge business around the iPhone but is unlikely to see continued growth, due to a saturated smartphone market and increased competition.
The company said its iPad unit sales meanwhile fell nine percent from a year ago, but revenues rose due to the launch of higher-priced tablets. Mac sales were down 11 per cent.
Apple said its services revenue rose 19 per cent year-over-year.
"The growth was broad-based with App Store revenue up 37 per cent to an all-time high," Cook said in a conference call.
Cook said the company has seen success with its lower-priced iPhone SE launched earlier this year, aiming to win over more cost-conscious customers.
"We had a very successful global launch of iPhone SE and demand outstripped supply throughout the quarter," Cook said.
"Our sales data tells us that the iPhone SE is popular in both emerging and developed markets."
Apple's report showed a sharp drop in revenue from China, which reverses gains since it began selling its iPhones there.
Revenue from "Greater China" slumped 33 per cent from a year ago to USD 8.8 billion.
"China was a major letdown and I'm anxious to get more details as to what specifically drove the declines," said Patrick Moorhead of Moor Insights & Strategy.
"Samsung and Huawei are much more competitive now versus a year ago and the Chinese economy is not doing well at all, all potentially contributing to the decline. Apple is clearly investing in India to diversify their emerging region performance."
Some analysts say Apple needs to move quickly to diversify its product base to keep growing.
