iPhone Demand Charges Apple's Results -- Update

Apple Inc. extended its year-long rebound in the latest quarter thanks to rising iPhone demand, and the tech giant projected record revenue in the current quarter driven by sales of its highest-priced iPhone model ever.

Shipments of the company's flagship product rose 2.6% from a year earlier to 46.7 million units. Demand for the iPhone, which accounts for about two-thirds of total sales, along with an upturn in sales of Mac computers and iPad tablets helped Apple deliver its fourth consecutive quarterly increase in revenue and third quarterly increase in profit. Sales in China, a critical market for Apple, rose for the first time since early 2016.

Consistent revenue gains, combined with anticipation for a jump in iPhone sales in 2018, have helped send Apple's stock up about 50% over the past year and pushed its market value to more than $860 billion, following a steep decline in 2016 because of weak China revenue and iPhone 6s sales.

Still, questions remain about Apple's future. The iPhone 8 and 8 Plus, which started shipping to customers Sept. 22, helped boost revenue in the September quarter but had the weakest initial sales of any new iPhone in years, according to estimates by market research firms. The iPhone X, which ships Friday, has been dogged by production challenges that delayed manufacturing at least one month and hounded by questions its $999 price tag.

Apple Chief Executive Tim Cook said the iPhone 8 and 8 Plus have outsold other models since shipping in September but added that he has never expected sales to exceed initial sales of last year's iPhone 7 and 7 Plus because it is releasing three phones this year. He said that Apple had earlier planned to release the iPhone X even later than Nov. 2, but decided to "be very bold and do it sooner." He declined to offer specifics.

"The ramp, especially considering how advanced the product is, is going well," Mr. Cook said in an interview. "Obviously, if it wasn't, we wouldn't be able to guide" for record revenue for the current quarter.

Apple expects revenue of $84 billion to $87 billion in the current quarter, far above the company's previous record of $78.35 billion in the final three months of 2016.

For its fiscal fourth quarter ending Sept. 30, Apple's revenue rose 12% to $52.58 billion and profit jumped 19% to $10.71 billion, or $2.07 a share, from $9.01 billion, or $1.67 a share, in the same period a year earlier. Analysts polled by Thomson Reuters had expected earnings of $1.87 a share.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

Apple expects revenue of $84 billion to $87 billion in the current quarter, far above the company's previous record of $78.35 billion in the final three months of 2016.

"Apple has moved past that funk," said Michael Frazier, president of Bedell Frazier Investment Counselling, which manages about $500 million and counts Apple among its largest holdings. "Things are back on track."

China has posed the biggest test for Apple. The iPhone, which surged in sales in 2015 behind the iPhone 6, declined in market share during the September quarter to 8.5% from 10% a year earlier as low-cost, Chinese smartphone makers gained, according to Counterpoint Research.

Still, revenue from Greater China -- which had declined each of the previous six quarters -- rose 12% in the latest period to $9.8 billion.

Tarun Pathak, Counterpoint's associate director, said he expects demand for the X model among China's 100 million iPhone users to be strong enough to lift volumes and sales in the quarters ahead.

Supply-chain issues have caused analysts to lower iPhone X sales projections for the critical holiday sales period this year by as much as half, according to market research firm Strategy Analytics, which cut its own projections to less than 30 million units from 60 million earlier this year.

While some investors worry the delay could lead some Apple customers to buy a cheaper, $699 iPhone 8 or $549 iPhone 7, few said they fear Apple will lose sales to rivals like Samsung Electronics Co. About 95% of iPhone owners who plan to buy a new device say they will buy another iPhone, according to UBS, much higher than the 53% of Samsung customers who say they plan to buy another device from the South Korean phone maker.

Apple's services business -- which includes the App Store and its music and payment services -- delivered another strong quarter of double-digit growth, surging 34% to $8.5 billion.

Mr. Cook said the company now has 210 million subscriptions to Apple and third-party services, an increase of 25 million over the past 90 days. Apple typically collects a 15% fee on subscriptions for products like Netflix and HBO if users sign up through its App Store.

Sales of Mac computers jumped 25% in the quarter to $7.17 billion, capping the product lines' best year ever. Shipments of the iPad -- which rose in the June quarter for the first time in more than three years -- rose 11% to 10.3 million units in the latest period.

Mr. Cook wants more consumers to see the iPad as a laptop replacement, and the company has begun driving that message across the U.S. education system. Last month it announced an agreement with the Ohio State University to provide incoming freshmen with an iPad Pro. Those devices won't ship until next year, and he said he expects other schools to follow.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

November 02, 2017 17:03 ET (21:03 GMT)