Apple beats earnings estimates, issues healthy forecast
Apple defied skeptics with its quarterly earnings on Tuesday, boosted by surging sales in China. Apple executives think the company's iPhone sales will continue to grow in the next quarter.
Ringo H.W. Chiu
Defying Wall Street skeptics, Apple says it plans to keep setting records for selling more iPhones around the world.
The giant tech company reported another quarter of record earnings on Tuesday, boosted by surging sales in China. And in a crucial indicator, Apple forecast healthy iPhone sales during the upcoming holidays.
Apple's stock rose slightly after the company issued its report, then settled near the day's closing price of $114.55. Analysts said the forecast eased investor concerns that Apple's holiday sales might fall short of last year's phenomenal levels.
Consumer demand for smartphones is slowing worldwide, according to independent researchers, who say the combined sales of all brands are slowing because most people in developed nations already own a smartphone. That's prompted many analysts to question whether Apple can continue to sell iPhones at an ever-growing pace.
But Apple said it sold 48 million iPhones in the three months ending Sept. 26, 22 percent more than it sold a year earlier. The company's forecast for the current quarter, ending in December, suggests it will slightly surpass last year's record for selling 74.5 million iPhones during the crucial holiday season.
"We think we can grow iPhone (sales) during the December quarter," Chief Financial Officer Luca Maestri told The Associated Press.
On a conference call with analysts, CEO Tim Cook cited strong response to the company's latest iPhone models, the 6S and 6S Plus, which went on sale two days before the end of the last quarter. He also said Apple is seeing record numbers of people switching from phones made by rivals. And he added that large numbers of current iPhone owners still own older models, making them likely to upgrade in coming months.
Those factors should drive iPhone sales beyond the next quarter, Cook said, in response to analysts who suggested demand may still slow after December.
Apple's stock has been dogged for months by worries that the company might have difficulty maintaining its torrid growth. While it remains the world's biggest corporation, by market value, Apple's share price has been off about 15 percent from a mid-July peak of $132.97.
Apple relies heavily on iPhone sales, which contribute more than two-thirds of its revenue. Sales skyrocketed last year after the company introduced new iPhone models with bigger screens in September 2014. But analysts have questioned whether the company could duplicate that success.
Last year's iPhone 6 and 6 Plus tapped into strong demand from consumers who had envied the larger screens offered by Apple's competitors. While this year's new "S'' models have additional features, they're not as dramatically different from last year's iPhones.
"The iPhone 6 was such a blockbuster launch," said analyst Angelo Zino of S&P Capital IQ, adding that investors are "cautious about whether that momentum can continue."
Apple sold a staggering 74.5 million iPhones during the December quarter in 2014, or 46% more than a year earlier. Analysts surveyed by FactSet have been forecasting sales of 76 million in the current period. That's a huge number, but one that represents a much smaller increase over last year.
The company said it expects overall revenue of $75.5 billion to $77.5 billion in this year's December quarter. The midpoint of that range is slightly lower than the $76.8 billion that analysts expected. But Piper Jaffray's Gene Munster said in an email: "We view this as a relief, given investors were bracing" for lower iPhone sales.
Apple said its net income for the quarter ended Sept. 26 was $11.1 billion, up 30 percent from a year earlier, while revenue rose 22 percent to $51.5 billion. Earnings amounted to $1.96 cents a share.
Analysts surveyed by FactSet expected Apple to report revenue of $50.9 billion and adjusted earnings of $1.89 a share.
The results underscored the growing importance of China to Apple's future. The company reported $12.5 billion in revenue from China, Hong Kong and Taiwan, representing 24 percent of Apple's total sales and a 99 percent increase in last year's revenue from the region — despite other indicators that China's overall economy is slowing.
While smartphone sales are slowing globally, Apple has strengthened the iPhone's appeal to upscale buyers by offering premium features like better cameras and faster processors, said Gartner analyst Brian Blau. It's also introduced new services like Apple Music and Apple Pay that are intended to make the iPhone more useful.
Critics say Apple has struggled to match the iPhone's runaway success with other products. While the iPad was initially a hot product, sales have declined in recent quarters. And while Maestri said sales of the new Apple Watch are growing, he declined to disclose specific figures.