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Strong Revival in iPhone Sales Helps Apple Defy Wall Street

Strong Revival in iPhone Sales Helps Apple Defy Wall Street
Boosting revenues with a strong showing for its new, top-of-the-line iPhone 7 Plus and beating out rival Samsung in units shipped for the holiday quarter, Apple Inc reclaimed the throne as the world's top smartphone seller for the first time in five years on Tuesday.
Sending Apple Inc.’s shares up 3 percent in after-hours trading, the iPhone sales numbers, and a profit of almost $18 billion, both handily beat Wall Street expectations.
However the strong U.S. dollar, which hurts companies like Apple that sell a majority of their products overseas, by forcing them to raise prices, which depresses unit sales, or sacrifice margins, was the main reason for the company tempering the gains by Apple and presenting a cautious outlook for the current quarter.
Up from 74.78 million the year before, Apple sold 78.29 million iPhones in the fiscal first quarter ended Dec. 31. According to research firm FactSet StreetAccount, analysts on average had expected 77.42 million.
According to tech data firm Strategy Analytics, for the first time since the fourth quarter of 2011, Apple shipments beat Samsung Electronics' 77.5 million smartphone sales in the quarter.
At a time when global demand for smartphones is slowing and cheaper Android alternatives are flooding the market, the results provide some relief to the company and reflect the first full quarter of iPhone 7 sales.
iPhones account for more than two-thirds of its total revenue and Apple is heavily dependent on its success.
Expected to feature better touchscreen technology, wireless charging and a shift to a higher-resolution OLED display, analysts and investors have already set their sights on Apple's 10th-anniversary iPhone.
Demand was especially high for the larger iPhone 7 Plus in the fiscal first quarter, Apple Chief Executive Tim Cook said.
Helped by the popularity of games, including Pokemon Go and Super Mario Run, and increased revenue from subscriptions, revenue in the services business - which includes the App Store, Apple Pay and iCloud - jumped 18.4 percent to $7.17 billion.
He was optimistic there would be changes to the corporate tax reform this year that would allow Apple to bring more than $200 billion in offshore cash back to the United States and that , Cook, who met with lawmakers in Washington last week, said.
"What we would do with it, let's wait and see," Cook told analysts in response to a question. "We are always looking at acquisitions... There's not a size we wouldn't do just based on the size of it. It's more about the strategic value."
As Apple TV struggles to set itself apart from competitors and its plans to enter the autonomous driving market take shape, Apple is still looking for major new sources of growth. While not providing any numbers, Apple Watch sales set a record last quarter, the company said.
As the smartphone market mature, growth in services will help offset declining hardware sales, analysts expect. The extra cost of new features like the OLED screens while still meeting an overall gross margin target of between 38 percent and 39 percent could be offset by the services business which also has gross margins that are higher than Apple's overall company average.
"That's a very high-margin business that is helping Apple navigate its innovation," said Anil Doradla, an analyst with William Blair & Co.
He expects services revenue to double in the next four years as the installed base of iPhones and iPads continues to grow, Cook said on Tuesday.

Christopher J. Mitchell

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