Apple sees another record holiday, leaning on IPhone for growth


Apple Inc. said it will have another record holiday, fueled by enduring demand for the iPhone. The Cupertino, California-based company said sales in the quarter ending in December will be $75.5 billion (AED277 billion) to $77.5 billion (AED284.6 billion), topping last year’s record. Chief Executive Officer Tim Cook attributed the forecast to customers upgrading to the latest iPhone models, converts switching over from Android handsets and continued growth in China. Apple’s sheer size means growth is tougher to achieve. As iPad tablet sales decline and adoption of Apple Watch remains modest, the company’s expansion has become increasingly dependent on demand for new iPhones. While the results won’t put to rest concerns that Apple’s business may be nearing its peak, it showed the company is still able to wring more from its most important product. “IPhone dominates the results, but it’s doing good enough to deliver growth for the company,” said Walt Piecyk, an analyst at BTIG LLC. “The concern was growth would be ending.” Apple shares were little changed in extended trading, after falling less than 1% to $114.55 at the close in New York. Rising Profit Apple included its holiday outlook in results for the fiscal fourth quarter, which ended on Sept. 26. For that period, net income rose 31% to $11.1 billion, or $1.96 a share, while sales climbed 22% to $51.5 billion, the company said Tuesday in a statement. Analysts had predicted earnings of $1.88 a share on sales of $51 billion. The company had $205.7 billion in cash and investments on its balance sheet at the end of the quarter. Gross margin, a measure of profitability, widened to 39.9%. Apple’s success largely hinges on the iPhone. Defying a broader slowdown in the global smartphone market, the company sold 48 million handsets last quarter, up 22% from a year earlier. The device generated sales of $32.2 billion, making it bigger than Microsoft Corp. and Facebook Inc.’s quarterly businesses combined. Introduced on Sept. 25, the newest models - - iPhone 6S and 6S Plus -- come with an improved camera, faster processor and new 3D Touch screens. For the all of fiscal 2015, Apple reported total sales of $233.7 billion. Net income grew 35% to $53.4 billion for the year. IPad’s Decline Smartphone sales have helped Apple make up for falling demand for the iPad. Shipments of the tablet fell 20% to 9.88 million units in the recent quarter, the seventh straight decline. Apple didn’t break out unit sales for Apple Watch, but analysts estimated the company sold 3.8 million in the quarter. Mac purchases rose to 5.71 million, compared with an average projection of 5.6 million. The company is facing tough comparisons with last year’s holiday quarter, when the long-anticipated debut of bigger-screen iPhones led to record sales, said Alex Gauna, an analyst at JMP Securities in San Francisco, who recommends buying the stock. Last year, revenue jumped 30% during the holiday rush. After reporting sales rose more than 20% for the past four quarters, analysts predict Apple won’t top 10% growth through at least 2017. “The law of large numbers is working against them as they get bigger,” Gauna said. “It gets harder to show growth.” Luca Maestri, Apple’s chief financial officer, said Apple isn’t concerned about slowing growth and that changes in foreign-exchange rates weighed on the company’s results and sales forecast. “When you look at the type of revenue growth we had throughout 2015, it’s difficult to repeat those types of numbers, but given our size we feel very good about our prospects for the future,” he said in an interview. Two Approaches Two schools of thought have emerged around Apple’s business. To skeptics, the company has largely run out of new geographic regions to introduce the iPhone, and without new hit products, it’s reaching the limits. Others argue Apple has room to grow because it can still gain market share in the global smartphone market, and that add-on services such as Apple Music and Apple Pay will boost revenue. “The debate is going to rage on,” said Gauna, who sides with those optimistic about the company’s future. Cook is banking on China to add new customers. Last quarter, the company generated $12.5 billion in revenue in the region, including Taiwan and Hong Kong, almost double the year- earlier sales, yet down 5.4% from the third quarter. Cook, who visited China last week, said economic challenges facing China haven’t hurt Apple and that the world’s most populous country will eventually be the company’s biggest market. The company will have 40 stores in the region by next year, up from 25 now, Cook said. "I wouldn’t know there are any economic issues in China," Cook said. Apple TV, IPads Apple refreshed its product lineup to take advantage of the year-end holiday rush. The company generates more revenue and profit during this period than any other quarter in the year. In addition to the new iPhones, the company remodeled the Apple TV set-top box and updated the iMac with sharper screens. A new bigger-screen iPad also is being introduced. Apple’s shares have fallen more than 12% since its last earnings report in July amid concerns about slowing growth. The stock’s performance shows the fickle nature of Wall Street. While Apple is the world’s most valuable company, and has a balance sheet that other companies envy, many investors make decisions largely based on the outlook for future growth. Apple faced a similar challenge in 2013, when sales slowed amid competition from Samsung Electronics Co. “They get graded on a curve,” JMP’s Gauna said. “In technology, there are the quick and the dead, so Apple needs to be on the side of the quick.” (By Adam Satariano/Bloomberg)

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