Apple holiday season tops projections as iPhone bounces back

SAN FRANCISCO (AP) – Apple is still reaping huge profits from the iPhone while mining more moneymaking opportunities from the growing popularity of its smartwatch, digital services and wireless earbuds.

That combination produced a banner holiday season for a company whose fortunes appeared to be sliding just a year ago amid declining sales for the iPhone, its marquee product for the past decade.

Apple’s fiscal first-quarter results, released on Tuesday, provided the latest proof that the fears hanging over the consumer electronics icon might have been unfounded.

Apple’s profit and revenue for the October-December period topped analysts’ projections, providing another boost to a stock that has more than doubled in less than 13 months.

The shares surged more than one per cent to USD322.14 in extended trading after the numbers came out. That’s up from USD142 in January 2019 after Apple warned that consumers weren’t buying as many new iPhones as they once were, especially in China, the company’s biggest market outside the United States (US) and Europe. China is also where Apple makes most of its iPhones and several other products.

A deadly viral outbreak in China, which has curtailed travel and threatens the world economy, looms as a potential concern for Apple. But investors for now are focussing on what looks like an even more prosperous road ahead for a company that turned a USD55 billion profit in its past fiscal year.

A selection of iPhones displayed at an Apple store in suburban Boston. PHOTO: AP

In a conference call on Tuesday, CEO Tim Cook said the coronavirus outbreak has already caused some of Apple’s suppliers in China to delay reopening their factories closed for the Lunar New Year holiday from the end of this month until February 10. And some stores in China selling Apple products already have temporarily closed or reduced their operating hours because fewer customers are shopping as virus worries escalate.

“The situation is emerging and we’re still gathering lots of data points and monitoring it very closely,” Cook said. Apple got off to a fast start for fiscal 2020, with a first-quarter profit of USD22.2 billion, or USD4.99 per share, on revenue of USD91.8 billion. Analysts polled by FactSet had predicted earnings of USD4.54 per share on revenue of USD88.5 billion.

As usual, the iPhone remained Apple’s marquee attraction. Boosted by the release of the iPhone 11 heading into the holiday season, the product generated sales of USD56 billion, an eight per cent increase from the previous year’s disappointing showing.

Besides rolling out high-end phones with more cameras and a starting price of USD1,000, Apple sold a more basic model starting at USD700 — a USD50 drop from a comparable version released in 2018.

Apple’s division that includes its app store, product warranties, music streaming and a new Netflix-like video service delivered revenue of USD12.7 billion, up 17 per cent from the previous year. Apple is hoping its service division will produce revenue of at least USD50 billion this year, doubling its output in just four years.

The services division is feeding into all iPhones, iPads, Macs and other Apple products already being used, which the company said on Tuesday now totals 1.5 billion devices, up by 100 million from the previous year.

“We see this as a powerful testament to the satisfaction, engagement and loyalty of our customers — and a great driver of our growth across the board,” Cook said.

The Apple TV Plus video streaming service, which Apple launched amid great fanfare in October, is supposed to help that cause, but it may not be a huge contributor this year. That’s because Apple is initially selling it for just USD5 per month to help drum up interest. That’s less than half the price of Netflix’s most popular plan.

What’s more, Apple is giving away a free year of Apple TV Plus to anyone who buys a new iPhone or several other devices, a promotion that means tens of millions of people aren’t paying anything for the service yet. Apple hasn’t released subscription numbers for the video service.

Meanwhile, the Apple Watch, which the company began selling nearly five years ago, continued to gain new converts, and the latest version of its wireless earbuds, AirPods, emerged as a hot commodity during the holiday season.

Apple introduced the AirPods after removing the headphone jack from the iPhone in 2016, but the product picked up more momentum in October with a next-generation set designed to fit better in people’s ears. That version, called AirPods Pro, proved so popular that Apple had trouble keeping it in stock. The AirPods Pro also cost more at USD250, compared with USD160 to USD200 for the previous models.

All those factors helped Apple’s “wearables, home and accessories” category garner sales totalling USD10 billion in the past quarter, a 37 per cent increase from the previous year. That prompted Cook to hail it as a “blowout” quarter for the wearables and accessories division, which is now Apple’s fastest growing category.