Apple Tops Sales Estimates on Services Surge, IPhone Gains

(Bloomberg) -- Apple Inc. reported revenue and profit that beat analysts' estimates and projected continued sales momentum, calming concern about demand for the iPhone, its most-important product.

The Cupertino, California-based company also raised its dividend, unveiled a new $100 billion share buyback and said services sales jumped 31 percent.

Apple shares rose 3 percent in extended trading, after closing at $169.10 in New York on Tuesday. The stock had fallen in recent weeks on concern about demand for the flagship iPhone X. Apple suppliers also climbed following the results.

Apple revenue rose 16 percent to $61.1 billion in the fiscal second quarter. That was the fastest growth in more than two years. Profit came in at $2.73 a share, the company said Tuesday in a statement. Analysts expected sales of $60.9 billion and earnings per share of $2.64, according to data compiled by Bloomberg.

Fiscal third-quarter revenue will be $51.5 billion to $53.5 billion, also ahead of Wall Street forecasts.

"The guidance for the third quarter alleviates investor concerns on iPhone shipments," said Shannon Cross of Cross Research. "It was a solid quarter."

Apple sold 52.2 million iPhones in the fiscal second quarter, up 2.9 percent from a year earlier. Analysts had projected of 52.3 million, on average, although some investors expected fewer units. The average selling price was $728, versus analysts' expectations of $740. That suggested the flagship iPhone X didn't perform as well as some anticipated when it launched last year.

Earlier this year, Chief Financial Officer Luca Maestri said iPhone revenue would grow by at least 10 percent year-over-year in the fiscal second quarter. Apple easily hit that goal, with 14 percent iPhone revenue growth in the period.

Concern about the iPhone business was fanned by suppliers that recently reported weak demand for high-end handsets, another sign the smartphone boom that made Apple the most-valuable company is ebbing. It has also been under pressure in China, where some consumers are shunning pricey iPhones and local rivals like Oppo and Vivo are grabbing market share. Tuesday's report eased these fears, with China revenue rising 21 percent year-over-year.

While the iPhone X is one of the top smartphones on the market, the device's $999 starting price was too much for some consumers. However, Apple offers an increasingly broad array of other iPhones to suit different budgets. And it's working on a new lower-cost model that has iPhone X features like 3-D facial recognition and an edge-to-edge screen.

Apple Chief Executive Officer Tim Cook highlighted strong revenue growth from iPhones, services and wearable devices like the Apple Watch. He was unconcerned about the high price of the iPhone X. "It's priced for the value that it is, an incredible product with lots of leading edge innovations that sets us up for the next decade," Cook said in an interview. Maestri said the iPhone X was the top-selling model in the quarter.

Even as questions have swirled about iPhone demand, Apple continues to generate mountains of cash, and other businesses, such as services and wearable devices, are growing strongly.

On Tuesday, the company committed to spend an additional $100 billion on share repurchases. That comes on top of an existing $210 billion buyback program to be completed during the fiscal third quarter. Apple also increased its quarterly dividend to 73 cents a share from 63 cents.

Apple reported record services revenue of $9.2 billion, easily beating analysts' forecasts. The App Store, Apple Music, iCloud storage and Apple Pay all generated record sales, Cook said. The company is expanding these offerings with original videos and a news subscription service. Apple has said services will be a $50 billion annual business by 2021.

The CFO said Apple now has 270 million paid subscribers across applications and its own services, up by 100 million from the same period a year earlier.

The company's Other Products segment continued to see strong growth with revenue up 38 percent to $3.95 billion. The category includes AirPods headphones, the Apple Watch, Apple TV, and the HomePod. Cook noted that sales of wearable devices jumped almost 50 percent, year-over-year.

Apple Watch sales have been driven by strong demand for new models with cellular connectivity. Thus far, however, the HomePod has lagged rivals like Amazon.com Inc.'s Echo speakers. Apple is developing new AirPods and over-the-ear wireless headphones, Bloomberg News has reported.

Apple said it sold 9.1 million iPads in the quarter, up from the 8.9 million in the year-ago period. In March, Apple launched an updated $329 iPad geared toward students. It's also working on an upgraded Pro model with facial recognition for later this year, which could prop up sales of the device.

While iPads dominate the tablet market, many consumers don't see the need to update these as frequently as smartphones.

Apple sold 4.1 million Macs, down from 4.2 million units sold in the year-ago quarter. Apple hasn't updated its Mac line this year, but is working on a new low-cost laptop, Bloomberg News reported earlier this year.

--With assistance from Ian King Jeran Wittenstein and Emily Chang

To contact the reporter on this story: Mark Gurman in San Francisco at mgurman1@bloomberg.net.

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net, Alistair Barr, Andrew Pollack

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