Apple's latest earnings blow-out shows iPhone is still the engine behind company's success

Economic Indicators Associated Press

The iPhone is still the engine behind Apple's phenomenal success, even as its new smartwatch has gotten much of the attention in recent weeks.

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While skeptics question whether the company's future is tied too much to one product, the iPhone's popularity was the reason Apple turned in another blow-out financial report Monday. The results far surpassed most analysts' expectations for the first three months of the year, when sales traditionally fall from their holiday-season peak.

Apple sold more than 61 million iPhones in the quarter, accounting for more than two-thirds of its $58 billion in revenue for the quarter and the lion's share of its $13.6 billion in profit. As expected, the numbers were down from the previous quarter, when holiday shoppers snapped up a record 74 million of Apple's new iPhone 6, 6 Plus and older models. But it was a 40 percent increase over the number of iPhones sold in the first three months of 2014.

"We're seeing great results all over the world," Apple chief financial officer Luca Maestri told The Associated Press, adding that iPhone sales grew 72 percent in China, where the company has big hopes for expansion.

Other products played a much smaller role. Revenue from Mac computers rose 2 percent from a year earlier, to $5.6 billion, while iPad revenue fell 29 percent, to $5.4 billion — continuing a steady decline in tablet sales. Apple didn't report any results for the new Apple Watch, which it began selling this month, after the quarter ended. Maestri said customer response had been "positive." Analysts estimate about 2 million have sold to date, suggesting early demand is healthy but not of blockbuster proportions.

The iPhone is another story. Since it began offering models with bigger screens last fall, Apple has vied with South Korea's Samsung for the No. 1 position in the global smartphone market. By some estimates, Apple outsold Samsung in the quarter that ended in December, and analysts will be watching closely when Samsung reports its latest results this week.

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Apple also announced an expansion of its effort to return more of its sizable cash war chest to investors. The company said it will raise its quarterly dividend by 11 percent, to 52 cents a share, and has increased a $90 billion stock buyback program to $140 billion. In total, the company said the program will return $200 billion to investors by the end of March 2017.

As iPhone sales have surged, so has Apple's stock. Apple shares have gained more than 50 percent over the last year, making it the world's most valuable company. The stock closed Monday at $132.65, up 1.8 percent for the day, and was rising in late trading.

The iPhone isn't just Apple's "dominant product," said Frank Gillett, a tech industry analyst at Forrester Research. "It's more than anything else what's driving the success of their company."

Market researchers, however, expect growth in the world smartphone market will slow this year, particularly at the higher price range where Apple competes, as most consumers in developed countries have already bought one. That could make it difficult for Apple to maintain its recent pace.

"They're extremely dependent on the iPhone," said investment Colin Gillis at BGC Partners. "At some point, the market dynamics change," he said, adding that "the question is what could replace the iPhone" if sales begin to slow.

Apple CEO Tim Cook has said he's optimistic about new markets such as China, where Apple has made a strong showing against Samsung and China's Xiaomi. And even if Apple is increasingly selling new iPhones to people who are simply upgrading older models, "that's still a pretty healthy market," said Gartner analyst Van Baker, noting that more than 700 million iPhones have been sold since the first model was introduced in 2007.

Maestri also stressed the potential for new products like Apple Watch and Apple Pay, the company's mobile payment service. While these currently provide minimal revenue, analysts say they have big potential. And they are designed to work closely with the iPhone, which means each may bolster the other's popularity in the future, Gillett said.