Apple posts record quarter as iPhone sales make a comeback

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It appears iPhone sales really are on the mend.

Apple posted record earnings for the last three months of 2019 on the back of the iPhone’s resurgence. Written off as a fading giant whose best days were behind it, iPhone sales proved it still has some gas left in the tank.

With the iPhone 11, Apple returned to basics, producing its cheapest phone in years with a stellar camera and some improvements over the somewhat derided iPhone XR that preceded it. The iPhone 11 was Apple’s bestselling smartphone during the last three months of 2019, CEO Tim Cook said on a conference call with investors.

That helped overall iPhone sales grow by nearly 8% to $56 billion in the quarter. It didn’t quite hit a record (in the three months ending in December 2017, Apple sold $61 billion worth of iPhones), but it was a robust turnaround for a product that was in a serious slump: IPhone sales had fallen in each of the previous four quarters.

“In 2019, the story was really Apple’s efforts to diversify its business from the iPhone,” D.A. Davidson, senior analyst Tom Forte, told CNN Business Tuesday. “In the December quarter and calendar 2020, it’s really a story of the resurgence of the iPhone, or the iPhone exceeding expectations.”

However, Forte cautioned that Apple could struggle to maintain its stock momentum this year. The iPhone 11, he said, “had the lowest expectations of any iPhone ever.” But this year, when Apple is widely anticipated to release 5G-enabled phones, expectations are much higher.

“The additional upside in the stock is clear. The ability to execute on it, to be determined,” Forte said.

Services: the iPhone hedge Apple didn’t need last quarter

Although iPhones still make up the majority of Apple’s overall revenue, massive growth in its services and wearables segments of its business also contributed to the successful quarter. Those divisions are widely heralded as the future of the company, because the cell phone market is so saturated that Apple can’t expect iPhone sales growth every quarter.

Apple’s services segment, which includes Apple TV+, Apple Music, iCloud and Apple Care, among other products, grew 17% to $12.7 billion in the quarter.

The company now has 450 million paid subscriptions across its services platforms. It increased its target for full-year paid subscription numbers to 600 million by the end of 2020, “given the tremendous momentum we’re experiencing in services,” CFO Luca Maestri said on the call.

The company did not, however, break out subscriber numbers for Apple TV+, which launched in November. Cook did say that the service was off to “a rousing start.”

Airpods and the Apple Watch were hot holiday items

Sales in the wearables division, which includes Airpods and the Apple Watch, grew 37% in the quarter. Three quarters of those who bought Apple Watches during the three months did so for the first time, Cook said on the call.

“It’s still very much selling to new customers at this point,” Cook said.

By the (big) numbers

Overall, Apple posted record quarterly revenue of $91.8 billion, up 9% from the same period last year. It earned $22.2 billion in net income, the biggest quarterly profit for any American company in history.

Apple’s stock rose as much as 2.7% in after-hours trading Tuesday, after already having closed the day up 2.8%.

A complicated story in China

The stakes were high for Apple’s performance in China this quarter.

China makes up around 15% of Apple’s overall revenue, but iPhone sales in the market tumbled last year.

But in the holiday quarter, Apple’s sales in the region returned to growth. The iPhone, wearables and services segments all increased by double digits, Cook said Tuesday, adding that “the iPhone 11 is doing particularly well there.”

It would be a notable turn of events, if not for the rapidly increasing spread of coronavirus throughout China, and elsewhere around the world. Fears about the disease have forced companies operating in the country to take action.

Cook said Apple is “working very closely with our team and our partners in the affected areas, and we have limited travel to business-critical situations as of last week.” He added that the company has closed one store in the city of Wuhan, the epicenter of the virus, has shortened operating hours at other stores and is deep cleaning them and performing temperature checks on employees.

But the virus could take a toll on Apple’s performance in China, which it acknowledged by providing a wider range than usual for its revenue projections for the current quarter. Apple also has manufacturing centers in Wuhan and elsewhere in China.

“In and of itself the return to growth in China is very impressive,” Forte said. “Were it not for the coronavirus, the sustainability of [its performance in China] would not be called into question … It’s an important risk that investors need to monitor.”

By Clare Duffy, CNN Business

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