Apple tops Wall Street expectations on record iPhone revenue, China sales surge

Apple's 5G iPhone 12 and iPhone 11 are seen at an Apple Store in Shanghai, China, Oct 23, 2020. PHOTO: REUTERS

SAN FRANCISCO (REUTERS) - Apple on Wednesday (Jan 27) reported holiday quarter sales and profits that beat Wall Street expectations, as new 5G iPhones helped push handset revenue to a new record and sparked a 57 per cent rise in China sales.

Apple shipped its iPhone 12 lineup several weeks later than usual, but an expanded number of models and new look appear to have tapped into pent up demand for upgrades, especially in China.

The company also posted strong sales of its Mac laptops and iPads in the quarter, driven by consumers working, learning and playing from home during the pandemic.

Apple's revenue for the quarter ended Dec 26 rose 21 per cent to US$111.44 billion (S$148 billion). Earnings per share rose to US$1.68 from US$1.25.

Analysts had expected US$103.28 billion and US$1.41 per share, according to IBES data from Refinitiv.

Sales of iPhones were US$65.60 billion, compared with estimates of US$59.80 billion and beating Apple's previous quarterly all-time high of US$61.58 billion in iPhone sales for the first quarter of fiscal 2018.

Shares of Apple were down slightly in after-hours trade following the report but have risen nearly 12 per cent since Jan 15.

The results come as investors have spent the past year rethinking Apple's valuation. Apple's shares often traded at lower price-to-earnings ratios than its rivals due to Apple's dependence on the iPhone. But those ratios have risen over the past year, as have valuations of other major tech firms.

Apple, the biggest US listed public company by market capitalisation with a value of US$2.4 trillion, has thrived through a pandemic that forced it to shutter many of its stores but prompted many consumers to buy or upgrade devices.

Apple chief executive officer Tim Cook told Reuters in an interview that the company now has an active installed base of 1.65 billion devices, compared with 1.5 billion devices a year ago.

Cook also said Apple now has an installed base of more than one billion iPhones, an increase over the 900 million the company most recently disclosed in 2019.

The pandemic's travel restrictions disrupted Apple's product development cycle, with a late launch of its 5G devices temporarily wiping as much as US$100 billion from its market capitalisation in October.

But even then, Cook and others were optimistic that the phones would become strong sellers, citing early sales data in China. The prediction proved correct, with fiscal first-quarter sales in China rising 57 per cent to US$21.31 billion, compared with US$13.58 billion a year earlier.

"We had two of the top three selling smartphones in urban China," Cook told Reuters in an interview, adding that many of the company's other products and services also sold well.

Cook said that Apple gained iPhone sales in China both from customers switching from rival Android devices as well as existing customers upgrading devices, but said "upgraders in particular set an all-time record in China."

Mac sales reached US$8.68 billion, in line with analyst expectations of US$8.69 billion. Apple in November released its first laptop and desktop computers with processor chips of its own design, breaking a nearly 15-year partnership with Intel Corp.

Sales of iPads were US$8.44 billion compared with analyst expectations of US$7.46 billion.

Cook told Reuters that sales of Macs, iPads and the iPhone 12 Pro model all ran into "supply constraints."

He said that"semiconductors are very tight" but that other areas of the supply chain contributed to the constraints as well.

The company's services business, which includes its new Apple One bundle of television, music and cloud storage services, had US$15.76 billion in revenue, compared with analyst estimates of US$14.80 billion.

Cook told Reuters that Apple has 620 million paying subscribers on its platform, ahead of its goal to have 600 million subscribers by the end of 2020.

The services segment also includes sales from Apple's App Store, whose billing practices have become a flashpoint of conflict with "Fortnite" creator Epic Games and whose privacy rules have ticked off a public spat with Facebook Inc.

Apple's wearables and accessories segment, which includes the Apple Watch and AirPods product lines, hit US$12.97 billion in revenue, versus analyst estimates of US$11.96 billion.

Apple in December released the AirPods Max, a US$550 set of over-ear wireless headphones, with shipment dates stretching months into the future within hours of the product's launch. Cook said short supplies of the AirPods Max could continue into the company's current fiscal second quarter.

Apple on Wednesday also declared a dividend of 20.5 cents per share. Chief financial officer Luca Maestri told Reuters that relative weakness in the value of the US dollar added about 100 basis points to Apple's fiscal first-quarter revenue but did not have an impact on the company's gross margins.

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