By Daisuke Wakabayashi
Apple Inc. said its quarterly profit surged 38%, boosted again
by strong demand for the company's latest iPhones and robust growth
in China where sales more than doubled.
Still, shares of Apple--up 39% over the past year--slid 6.7% to
$122 in after-hours trading as the company's revenue outlook for
the current quarter fell short of Wall Street expectations.
The company said Tuesday that it sold 47.5 million iPhones in
the three months ended June 27, an increase of about 35% from a
year earlier and more than double the tally from four years ago.
The strong sales come in a traditionally weaker quarter for iPhones
as consumers hold off on purchasing new models until the fall when
Apple typically introduces them.
Apple continues to show it can defy the sales-growth slowdown in
the smartphone industry, riding a wave of momentum from its last
iPhones released last September. The iPhone 6 and 6 Plus with
larger displays has sparked a considerable upgrade from existing
iPhone customers, while attracting defectors from smartphones
running Google Inc.'s Android software and enticing new users in
markets such as China where Apple has struggled in the past.
"The gap is widening between us and our competitors," Apple
Chief Executive Tim Cook said in an interview with The Wall Street
Journal, noting that the company had the highest rate of switchers
from Android phones ever during the quarter.
The iPhone also has propelled Apple's earnings to record levels
and overshadows the rest of its businesses. While Apple has
refreshed several product lines in the past year and introduced an
entirely new category with a smartwatch, the iPhone accounts for an
increasingly larger share of Apple's revenue.
In the latest quarter, iPhone sales made up about 63% of Apple's
overall sales, compared with 53% in the year-ago period and less
than half three years ago.
Apple's profit in the third quarter was $10.7 billion, up from
$7.74 billion in the year-ago period. Earnings per share rose more
sharply, to $1.85 from a split-adjusted $1.28, because the
company's stock-repurchase program reduced the share count.
Revenue rose 33% to $49.61 billion from the year-ago period.
Sales of iPhones rose 59% to $31.37 billion as the average selling
price increased by more than $100 to $662.42.
Analysts polled by Thomson Reuters estimated that Apple would
post earnings of $1.81 a share on revenue of $49.43 billion.
Apple's gross margin--a closely watched measure of profitability
reflecting the percentage of revenue that remains after
manufacturing costs--was 39.7%, above its estimated range of 38.5%
to 39.5%.
For the current quarter, Apple said it expects a gross margin of
between 38.5% and 39.5%. It sees revenue coming in between $49
billion and $51 billion; the average analyst estimate was for
revenue of $51.13 billion.
During the June quarter, Apple started shipping Apple Watch, the
company's first all-new hardware product since it introduced the
iPad in 2010. Apple didn't provide a breakdown of the Watch's
sales, lumping the product's sales in with the iPod, Apple TV and
Beats accessories in the "other products" category.
Sales of that segment rose 49% to $2.64 billion.
Mr. Cook said the Watch's sales beat the company's own internal
projection, although he didn't provide those estimates. He said the
"sell-through" of the Watch was better than the iPad and iPhone at
the same period of time. He also noted the Watch is still only
available in 680 retail locations, or less than 1% of the locations
where the iPhone is sold.
In contrast to the iPhone's success, iPad sales continued to
slump. Apple's tablet sales fell about 18% in unit terms, marking a
sixth straight quarter of year-over-year declines. The iPad and
tablet computers, in general, are facing an existential crisis:
They are not quite as essential as the smartphone but not quite as
functional as a notebook computer. What's more, early iPad users
don't see a huge reason to upgrade to more recent models.
Apple has struck deals with International Business Machines
Corp. and other companies to position the iPad as a device for the
workplace. So far, those efforts have done little to stem the
iPad's slide.
Another bright spot is the Mac business. Apple said Mac sales
rose 9% in units, compared with a 9.5% decline in shipments for PCs
globally in the second quarter, according to research firm Gartner.
While still one of the smaller players in terms of shipments, Apple
has steadily gained market share on competitors.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com
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