Apple  forecasted a sales slump into the current quarter on Thursday, sending shares lower despite exceeding Wall Street sales and profit targets in the fiscal third quarter.

Strength in services drove the profit beat in the most recent quarter, but weaker-than-expected iPhone sales disappointed investors. Executives predicted that iPhone sales would increase in the fourth quarter, but did not specify how much.

Apple is in a difficult position, with its entrenched iPhone fighting for market share against Android rivals in a mature market, while its next big product, the Vision Pro mixed-reality headset announced in June, is still not in consumers’ hands, Reuters reported.

Apple’s fiscal third-quarter sales fell 1.4 percent to $81.8 billion, while earnings per share increased 5 percent to $1.26. According to Refinitiv IBES data, this surpassed analyst expectations of $81.69 billion and $1.19 per share.

Weaker iPhone sales were offset by strong sales in the services segment, which includes Apple TV+, and sales in China, which increased 8 percent year over year.

Apple Chief Financial Officer Luca Maestri stated that the company expects a year-over-year revenue drop in the fiscal fourth quarter ending in September, similar to the drop reported on Thursday.

That sales forecast is below analyst expectations of roughly flat fiscal fourth-quarter sales of $90.19 billion, according to Refinitiv data.

Apple Chief Executive Officer Tim Cook told Reuters in an interview that the increased R&D spending was in part driven by work on generative artificial intelligence, the same field that is driving spending at other big technology companies.

“We’ve been doing research across a wide range of AI technologies, including generative AI, for years. We’re going to continue investing and innovating and responsibly advancing our products with these technologies to help enrich people’s lives,” Cook said.

“Obviously, we’re investing a lot, and it is showing up in the R&D spending that you’re looking at,” he added.

Overall smartphone sales declined 8 percent in China in the calendar second quarter to their lowest levels since 2014, according to Counterpoint Research. By contrast, Cook told Reuters that Apple’s iPhone sales in China grew by “double digits” and that sales were also high in other segments in China. That helped Apple push sales in its greater China region to $15.76 billion, from $14.60 billion in last year’s same quarter.

Cook said Apple now has 1 billion subscribers on its platform, which includes both Apple services and third-party apps, up from 975 million a quarter ago. The company’s wearables business, which includes the Apple Watch and AirPods, had revenue of $8.28 billion, compared with analyst estimates of $8.39 billion, according to Refinitiv data.

Mac and iPad sales were $6.84 billion and $5.79 billion, respectively, compared with analyst estimates of $6.62 billion and $6.41 billion, according to Refinitiv data.