Surprise, iPhone Sales Still Strong As Apple Beats Estimates

A Boost From China and Emerging Markets Lifts Revenues, Despite Tablet Woes

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This was meant to be Apple's death toll. The hardware giant was widely expected to post its first decline in revenues in 11 years today, as rivals like Samsung expanded and smartphone sales in the U.S. show signs of saturation.

But with its second quarter fiscal earnings, the Cupertino company silenced its critics.

Apple's Fifth Avenue store in New York City.
Apple's Fifth Avenue store in New York City. Credit: Apple

Apple posted revenues of $45.6 billion and a quarterly net profit of $10.2 billion, and set sales records across several emerging markets. Analysts surveyed by Thomson Reuters pegged revenues at $43.54 billion. On January 27th, Apple projected revenue between $42 billion and $44 billion for the quarter, following its pattern of setting a low bar and beating it.

In its statement, Apple also announced its awaited 7-for-1 stock split and a plan for increased share buybacks and dividends. While iPhone sales beat analysts' expectations, iPad sales fell below them. Apple shares fell by 1.3% in after-hours trading.

For its rosier figures, the company's flagship smartphone led the way. Apple sold 43.7 million iPhones in the quarter, six million more than analysts expected.

"iPhone was key in driving our stronger than expected results," Apple CEO Tim Cook said during the earnings call. Mr. Cook called the quarter "our strongest non-holiday ever." And he stressed the iPhone's penetration into new markets, including China, where the device's sales increased by 28%, according to the company. China Mobile, the world's largest carrier, began supplying iPhones in January.

"We established a new all-time record for total iPhone sales in the BRIC countries [Brazil, Russia, India and China]," Mr. Cook said.

Half of all new iPhone owners registered during the quarter were first-time users, according to the company. Some of those users were purchased the less expensive 4S model, although Mr. Cook stressed that it was a low percentage of quarterly sales.

Apple also emphasized the uptick in cash from its mobile-app store. Its expansion China, Mr. Cook said on the earnings call, was in the "triple digits."

Tablet slump
Tablet sales, however, were not as bright. For the quarter, 16.35 million iPad were sold; analysts expected 19.7 million units. The figures marked a 16% drop from the quarter last year.

Apple cast the decline primarily as an issue of backlogged inventory. Mr. Cook reiterated that iPad was the "fastest-growing product in Apple history" during questions on the earnings call and noted the potential for the device in enterprise sales.

"We continue to believe that the tablet market will suprpass the PC market in the next few years," Mr. Cook said. Later, he added: "I am very bullish on iPad."

The company briefly discussed developments with its other existing products, including Macs, which shipped 4.1 million units, and iTunes accounts.

But on its much-anticipated product debuts, Apple was silent. The company has not released a new product in four years; in the dearth, a frenzy of rumors have emerged about its potential foray into wearables and television. Mr. Cook noted that new products were in the works, as he did last year. But he offered nothing more. "We're not ready yet to pull the string on the curtain," he said.

The company projected revenues for next quarter between $36 billion and $38 billion.

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