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iPhone Sales Rebound in Holiday Quarter, Apple Posts Record Sales but Declining Profits

Call it the Note 7 rebound: Apple sold more iPhones during its most recent quarter than during the same quarter a year ago, returning to growth after several quarters of declining sales. Sales were up 5 percent, to a total of 78.3 million devices sold during the quarter.

Apple made these announcements as part of its fiscal Q1 2017 earnings release.

The company generated $78.4 billion in revenue during the holiday quarter, compared to $75.9 billion a year ago. The company’s net income for the quarter was $17.9 billion, compared to $18.4 billion during the previous year. This equals earnings per diluted share of $3.36, compared to $3.28 a year ago.

Analysts had expected earnings per share of $3.22 and revenue of $77.4 billion.

“We’re thrilled to report that our holiday quarter results generated Apple’s highest quarterly revenue ever, and broke multiple records along the way. We sold more iPhones than ever before and set all-time revenue records for iPhone, Services, Mac and Apple Watch,” said Apple CEO Tim Cook in the earnings release.

The return to growth for iPhone sales is significant as a major revenue driver for the company: iPhones accounted for more than 70 percent of all of Apple’s revenue during the quarter. iPhone sales declined over several quarters for the first time in the company’s history in 2016. 

Decline of iPhone sales also put more pressure on the company to unveil the next big thing, especially as both iPad and Macintosh sales have been declining for some time.

What’s more, it doesn’t look like either the Apple Watch or Apple TV are going to be this next big thing any time soon. Apple hasn’t broken out sales of either product, and instead lumps revenue for both up with sales of iPods, Beats headphones, dongles and other products. This “other” category declined during Apple’s most recent quarter, accounting for a total of $4 billion in revenue, compared to $4.3 billion a year ago.

That’s especially significant because Apple executives have gone out of their way to cast Apple Watch as a success story. On Tuesday, Cook said that Apple Watch was one of the products breaking “all-time revenue records” for the company.

Given the grouping of the two products, one has to assume that Apple TV sales were disappointing. “We are pleased with how that platform has come along,” Cook said Tuesday without specifically commenting on unit sales. He added that the company still had “planned more” for Apple TV.

There’s one other area in which Apple actually is growing: The company generated $7.2 billion with services during the quarter, compared to $6 billion a year ago. This includes both App Store transactions as well as subscription revenue generated with Apple Music.

Apple CFO Luca Maestri said during the company’s earnings call Tuesday that Apple’s services business alone is now the size of a Fortune 100 company, and estimated that Apple will be able to grow this business by 100 percent in the next four years.

To get there, Apple may also spend more money on original video. “We have put our toe int he water with doing some original content for Apple music,” Cook said Tuesday. Those efforts would roll out in the coming months, giving the company a chance to learn. “We will go from there,” he said.

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