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Apple returns to growth on iPhone rebound

Apple returned to increasing revenue in the holiday quarter and said the growth rate could accelerate in the coming months, as iPhone sales rebounded strongly in North America, western Europe and Japan.

However, despite forecasting revenues to grow as much as 6 per cent in the current quarter, its outlook fell just short of Wall Street’s estimates amid continuing sales declines in China and foreign currency headwinds.

Apple sold 78.3m iPhones in the quarter ending in December, up 5 per cent year on year and better than most analysts expected. Total revenues were up 3 per cent to $78.4bn, a new all-time high for Apple and exceeding both its own and Wall Street’s forecasts. Earnings grew 2.4 per cent to $3.36 per share, while net income fell by 2.6 per cent to $17.9bn.

“We sold more iPhones than ever before and set all-time revenue records for iPhone, Services, Mac and Apple Watch,” said Tim Cook, Apple’s chief executive, in a statement. “Revenue from Services grew strongly over last year, led by record customer activity on the App Store, and we are very excited about the products in our pipeline.”

For the quarter ending in March, Apple said revenues would be between $51.5bn and $53.5bn, compared with Wall Street’s consensus estimates of $54bn, while gross margin was in line with analysts’ forecasts at 38-39 per cent.

The tech heavyweight’s shares jumped about 3 per cent in after-hours trading.

In an interview, Apple’s finance chief, Luca Maestri, said that the iPhone had seen “double digit unit growth” in the US, Canada, all of western Europe, Japan and Australia, while overall sales in Greater China, which includes Hong Kong, fell by 12 per cent. Mr Maestri said Apple was “​happy​ ​with​ ​the​ ​result” given the rate of decline had moderated from the second half of last year. In mainland​ China, ​revenue​ ​was​ ​flat​ ​year-on-year ​and​ ​up​ ​in​ ​constant​ ​currency​ ​terms, he added.

The popularity of the iPhone 7 Plus boosted the smartphone’s average selling price to $694 in the last quarter, even though supplies were outstripped by demand until this month.

“We were a bit surprised by the mix of the 7 Plus,” Mr Maestri said. “We could have sold more.”

Apple plans to double the size of its services business within the next four years, turning revenues from the App Store, iCloud and its Music and video services into a nearly $50bn a year business by 2021.

Services were the fastest-growing revenue line in Apple’s December quarter, rising 18 per cent year on year to $7.2bn, setting a new all-time record for the company. In its last financial year, ending in December, services revenue grew 22 per cent to $24.3bn.

Mr Maestri said the services division would become “the size of a standalone Fortune 100 company” this year.

We​ ​have​ ​a​ ​goal​ ​to​ ​double​ ​the​ ​size​ ​of​ ​the services​ business​ ​over​ ​the​ ​next​ ​four ​years. We​ ​have​ ​a​ ​lot​ ​of​ ​momentum​ ​and​ ​plenty​ ​of​ ​opportunity.

“We​ ​have​ ​a​ ​goal​ ​to​ ​double​ ​the​ ​size​ ​of​ ​the services​ business​ ​over​ ​the​ ​next​ ​four ​years,” he said. “​We​ ​have​ ​a​ ​lot​ ​of​ ​momentum​ ​and​ ​plenty​ ​of​ ​opportunity.”

Apple Watch saw the “best quarter we’ve ever had” in the three months to December, Mr Maestri said.

However, total revenues from “other products”, which includes Watch, Beats headphones, iPods and other accessories, fell by 8 per cent in the last quarter to $4bn.

Analysts at RBC Capital Markets said in a note on Tuesday: “We think the upside to the December quarter results, driven by strong iPhone units, better gross margins and improved performance in China, should help calm investor concerns as we look forward to the iPhone 8 supercycle,” in a reference to the anticipated launch of a significantly upgraded iPhone later this year.

“While the March quarter guide is modestly below the street on revenue and EPS, we think this was largely expected from investors and to some extent, given the upside to the December quarter, the March quarter guide will be viewed as likely conservative.”

Via FT