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Oct 20, 2014 7:32 PM

Record iPhone sales drive Apple's 3Q beat

The Associated Press

SAN FRANCISCO (AP) The iPhone again proved to be the engine behind Apple's blockbuster financial performance, driving quarterly results well past expectations.

Excitement for the new iPhone 6 and 6 Plus models sparked sales of 39.3 million iPhones in the last quarter a record for the months of July through September and made up for more disappointing sales of the company's iPad tablets.

"Those are Picasso-like numbers," said FBR Capital Markets analyst Daniel Ives, referring to the iPhone, which contributed $23.7 billion in sales, or more than half of the company's $42.1 billion in quarterly revenue. He said the new iPhone models are "what's going to put fuel in Apple's growth engine."

Apple said iPhone sales rose 21 percent over the same period a year earlier. By contrast, iPad revenue fell 14 percent, to $5.3 billion for the quarter. While analysts have reported an industry-wide decline in tablet sales, the iPad figures were still lower than Wall Street had expected.

The company said it expects total revenue, from all products, of between $63.5 billion and $66.5 billion during the quarter that ends in December. That suggests Apple will likely beat the expectations of analysts, who were forecasting $63.7 billion in holiday-quarter sales, according to FactSet.

Apple began selling its latest iPhones just one month ago. CEO Tim Cook told analysts on a conference call that the company is struggling to keep up with demand for the new models, which feature a larger screen and other new features.

"At this point, we're selling everything that we make," he said, although he added that he expects supply will catch up with demand in coming weeks. "It's a good problem to have."

Cook also noted that Apple has only begun selling the new iPhone in China in recent days, so the numbers for last quarter don't reflect sales in that huge market. And he said he believes the company's new digital payment system, Apple Pay, which launched Monday, is a "killer feature" that will persuade more consumers to buy the latest iPhone models.

Apple's signature smartphone has contributed the bulk of the company's revenue and profit in recent quarters. In an interview, Chief Financial Officer Luca Maestri said the company's strongest growth rate in seven quarters is also a reflection of strong demand for Mac computers and its online app store.

Maestri and Cook both professed not to be worried about the decline in iPad sales. Apple is counting on interest in new iPad models coming out this week and a partnership with IBM, which will create new tablet software for business users, to help shore up tablet sales in the coming month.

Ives said there are signs the tablet market may be saturated, and that some customers are opting for iPhones instead, especially with the larger-screen iPhone 6 Plus on the market. "Going forward, you're going to see more diminished growth for tablets," he predicted.

Cook said he's not concerned if some customers decide to buy Mac computers or iPhones instead of iPads. "At the end of the day, what matters to us is that customers come into our ecosystem," added Maestri.

Apple's profit rose more than 12 percent for the three months that ended Sept. 27 to $8.47 billion, or $1.42 per share. Total sales also climbed over 12 percent year-over-year, to $42.12 billion. Both measures topped the $1.31 a share on $40 billion in revenue expected by analysts.

Apple's stock closed Monday at $99.76, and rose less than 2 percent in after-hours trading. Shares have surged more than 35 percent this year, when adjusted for a seven-to-one stock split earlier this year. The stock is off slightly since hitting an all-time adjusted high of $103.30 last month.


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