By Daisuke Wakabayashi
Apple Inc. surpassed even the most bullish Wall Street
expectations for its holiday quarter with an improbable trifecta:
selling more iPhones at higher prices--and earning more on each
sale.
The Cupertino, Calif., company said it sold 74.5 million iPhones
in the quarter, 46% above a year earlier, while lifting the average
selling price of the devices by $50 from the prior year. The total
equates to more than 34,000 phones an hour, around the clock.
"Demand for iPhone was staggering," Apple Chief Executive Tim
Cook told analysts. "This volume is hard to comprehend."
Results were fueled by Apple's two new larger-display phones,
the iPhone 6 and iPhone 6 Plus, which made their debut in
September, after years in which Apple ceded the large smartphone
market to rivals. Apple encountered supply shortages for weeks in
traditional strongholds like the U.S., as well as faster-growing
markets like China.
Apple had predicted that the new iPhones would prompt many
existing customers to upgrade. Mr. Cook said in an interview that
Apple also is luring customers from smartphone manufacturers that
use Google Inc.'s Android operating system.
"We brought on more new people to iPhone than ever before," Mr.
Cook said. "Many of those are switching from Android, and we
couldn't be happier about that."
Apple posted net of $18.0 billion for its fiscal first quarter
ended Dec. 27, up 38% from $13.1 billion in the same period a year
earlier. That is more than 435 of the companies in the S&P 500
index each made in total profits since 2009, according to S&P
Capital IQ.
Earnings per share rose more sharply, up 48% to $3.06 from a
split-adjusted $2.07, because of Apple's share buyback program.
Revenue increased 30% to $74.6 billion from $57.6 billion.
The results soared past analysts' expectations. Analysts polled
by Thomson Reuters estimated that Apple would post earnings of
$2.60 a share on revenue of $67.7 billion.
Now, the question is whether the strong iPhone 6 and iPhone 6
Plus sales reflected a one-time boost from pent-up demand for a
bigger-display phone or whether Apple can maintain momentum with
the next batch of iPhones and new products such as the Apple
Watch.
Mr. Cook said the company in April plans to start shipping Apple
Watch, its first all-new product since the iPad in 2010. He didn't
provide more details on the watch, only to say that development is
progressing on schedule.
For the quarter ending in March, Apple expects revenue of
between $52 billion and $55 billion with a gross margin of between
38.5% and 39.5% of revenue. Analysts had been forecasting revenue
for the current quarter of $53.8 billion and a gross margin of
38.7%, according to Thomson Reuters.
Over the past year, Apple shares have surged 40% due in part to
expectations of strong demand for the bigger phones.
Apple shares rose about 5.5% in late trading. Its shares were
off $3.96 to $109.14 in 4 p.m. Nasdaq trading before disclosing the
quarterly results.
Strong iPhone sales helped Apple claw back market share that it
gave up to Samsung Electronics Co. in the past three years. Mr.
Cook said iPhone supply finally caught up with demand earlier this
month, meaning that the company experienced shortages for the
entire quarter.
Analysts estimate Samsung shipped 78 million smartphones in the
third quarter. It reports fourth-quarter results on Thursday,
though the company doesn't disclose smartphone sales.
Apple's average selling price for its iPhone rose to $687 in the
quarter compared with $637 in the year-ago period. Consumers
typically pay far less because of carrier subsidies tied to service
contracts.
The iPhone 6 Plus costs $100 more than Apple's previous high-end
model, and Apple is enticing consumers to upgrade to more expensive
models with greater memory.
Apple's performance was especially impressive in China, where
researcher Canalys estimates it was the top smartphone seller
during the quarter. For greater China, which includes Taiwan and
Hong Kong, Apple said revenue rose 70% during the quarter, to $16.1
billion. That moved the region close to overtaking Europe as
Apple's second-biggest market. Apple said iPhone sales doubled in
mainland China even though its newest models didn't reach that
country until mid-October.
Apple said its gross margin, a closely watched indicator
measuring the percentage of revenue that remains after
manufacturing costs, was 39.9% in the December quarter, up from
37.9% a year earlier. In October, Apple had forecast gross margin
of between 37.5% and 38.5% for the quarter.
Apple's iPhone sales provided cover for another sluggish quarter
for the iPad. Apple said it sold 21.4 million iPads during the
December period, down 18% from a year earlier.
On the other hand, sales of its Macintosh personal computers
rose 14% over a year earlier to 5.5 million units. It has gained
market share consistently against PC rivals in recent quarters.
Research firm IDC said industrywide PC shipments declined 2.4%
during the fourth quarter. Competing researcher Gartner said
quarterly PC shipments rose 1%.
Apple said its mobile payments service got off to strong start.
Apple Pay, which allows consumers to wave an iPhone near a wireless
reader, accounts for two of every three dollars spent via
contactless payments on Visa, MasterCard or American Express, the
company said. It didn't break out Apple Pay in its results.
One drag on Apple's results is the strong U.S. dollar. Apple
finance chief Luca Maestri called recent currency moves
"unprecedented," and said the impact this quarter would be greater
than in the December period.
Apple said the dollar's appreciation shaved four percentage
points off revenue growth in its last quarter. A strong dollar
hurts Apple by making its products more expensive in other
currencies and reduces the value of profit when the money is
converted to dollars. Microsoft Corp. expects the strong dollar to
shave four percentage points off its revenue growth rate in the
current quarter.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
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