Ho-hum iPhone sales good enough to pump Apple profits

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Apple’s financial results are closely tied to how well its latest iPhone has sold. This time around it’s the iPhone 6S.


James Martin/CNET

Those worries about waning consumer interest in smartphones seem a bit premature. At least for Apple.

The Cupertino, California, tech titan said Tuesday it sold 48 million iPhones in the fiscal fourth quarter. Sure, it wasn’t as much as some expected, but it was enough to propel its earnings and revenue above Wall Street expectations.

Apple added more reassurances that consumers will still be buying its products in the holiday season. It projected December quarter revenue in line with forecasts, and CEO Tim Cook said during a conference call with analysts that he expects iPhone revenue and unit sales to rise in the period.

He cited a record number of users switching from Android phones to iPhones, strong sales in China and other emerging markets and a growing enterprise business, which totaled $25 billion during the fiscal year.

“These trends are not one quarter things,” Cook said in response to analyst concerns that Apple’s sales could slow in future periods.

Piper Jaffray analyst Gene Munster called the forecast for the first quarter “a relief given investors were bracing for the start of the (iPhone) 6S cycle to be down meaningfully.”

Apple’s shares initially rose about 3 percent in after-hours trading before ending about flat with Tuesday’s closing price.

While iPhone sales rose 22 percent from last year, the number of units fell slightly below the 48.72 million estimated by analysts polled by Fortune.

The iPhone has been Apple’s biggest moneymaker for years, but it has become even more important since last year’s introduction of the iPhone 6 and 6 Plus. Consumers have scooped up the company’s first big-screen smartphones, and they have become Apple’s best-selling products of all time. They helped Apple report the highest quarterly profit of any public company — ever — three quarters ago.

The hope for Apple and its investors is the iPhone 6S surpasses that performance, but there’s a concern that it won’t live up to its predecessor.

Apple’s iPhone dependence

Preorders for the iPhone 6S and its larger sibling, the 6S Plus, started September 12, and the smartphones hit the market two weeks later. Both devices look the same as last year’s iPhone 6 and 6 Plus and add features that are less apparent at first glance. One major new feature, 3D Touch, lets users perform different actions based on how hard the display is pressed. Even without major design changes, consumers have scooped up millions of the new iPhones, buying 13 million the first weekend they were available.

The fourth quarter included only a couple of weeks of iPhone preorders. The fiscal first quarter, traditionally Apple’s biggest of the year, will be the true measure of how the iPhone 6S is doing.

Apple on Tuesday projected revenue of $75.5 billion to $77.5 billion for the December period, up from the $74.6 billion Apple reported in the same period a year ago. Analysts polled by Thomson Reuters most recently forecast revenue of $77.2 billion. Apple doesn’t provide estimates for iPhone sales in future quarters, but it’s easy to draw conclusions from its revenue forecast because the smartphone now represents about two-thirds of its sales.

The expected sales increase, while not better than analysts projections, alleviated fears Apple would post its first revenue decline in a decade.

A big reason for the iPhone’s recent strong sales is China. The country surpassed the US to become Apple’s biggest iPhone market in the March quarter. But China could become less of a sure bet for Apple if the region’s economy slows and demand starts to dry up.

Apple reported its fourth-quarter revenue in Greater China, which includes mainland China, Taiwan and Hong Kong, nearly doubled to $12.5 billion from a year ago. It slid about 5 percent from the fiscal third quarter.

Cook said while China economy isn’t growing as fast as before, Apple’s not seeing any impact. “You really can’t tell a difference if you look at our daily and weekly numbers,” he said. “We’re investing for the decades ahead.”

Overall, Apple’s revenue for the period ended September 26 climbed 22 percent to $51.5 billion. When Apple provided its forecast for the period in July, the figure was slightly below what analysts expected. Wall Street most recently anticipated sales of $51.1 billion, according to a poll by Thomson Reuters.

Net income rose $11.1 billion, or $1.96 a share, from $8.5 billion, or $1.42 a share, a year earlier. Analysts had expected earnings of $1.88 a share.

Another iPad drop

Apple’s iPad business continued its free fall during the quarter. Sales dropped 20 percent from the previous year to 9.9 million units, the seventh time in a row that sales have fallen from the previous year. Analysts polled by Fortune had expected Apple to sell 10.2 million iPads.

Apple’s newest tablet, the 12.9-inch iPad Pro, hits the market next month. The device starts at $799 and comes with an optional $169 keyboard and a $99 stylus called the Apple Pencil. Apple hopes the iPad Pro appeals to business users and other professionals looking to do more with their tablets than just consume media.

Mac sales set a record. Sales rose 3.4 percent to 5.7 million units, in line with the forecast of analysts polled by Fortune. Apple’s computer business has been doing well while rivals struggle, but tech research firms Gartner and IDC earlier this month said Apple’s Mac business likely posted its slowest growth rate in two years. Still, Apple occupies a larger slice of the computer market overall than in the past. The overall PC market suffered an 11 percent decline during the quarter, which IDC said was worse than previously expected.

As expected, Apple didn’t break out Apple Watch sales figures. The company lumps the device in with “other products” like iPods. Revenue for that segment grew 61 percent from the previous year to $3.05 billion. Analysts polled by Fortune recently estimated Apple sold 3.95 million Apple Watches in the quarter.

“Sales of Apple Watch were also up sequentially and were ahead of our expectations,” Cook said during a conference call with analysts.

While the Apple Watch can’t match the iPhone in sales, it’s an important new market as Apple tries to become less reliant on its smartphone.

Apple Watch gets big changes in Watch OS…

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