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Apple’s AirPods Pro, services deliver a record holiday for the iPhone maker – CNET

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Apple CEO Tim Cook has been moving the company into new areas like services and wearables. 

Connie Guglielmo/CNET

Apple on Tuesday reported an all-time record quarter for revenue and earnings — and it’s partly thanks to its newest AirPods and its services business. 

The company credited its services and wearables business, as well as its newest iPhones, for the performance. Both sales and earnings in the three months ended Dec. 28 were well above Wall Street forecasts. Apple also provided a revenue forecast for the current quarter, which ends in March, that’s better than analysts projections. 

“We are thrilled to report Apple’s highest quarterly revenue ever, fueled by strong demand for our iPhone 11 and iPhone 11 Pro models, and all-time records for services and wearables,” Apple CEO Tim Cook said in a press release. He noted that there are now over 1.5 billion Apple devices actively used around the world, up from 1.4 billion at the end of fiscal 2018.

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The period marks a sharp turnaround for Apple. A year ago, Cook warned that Apple’s fiscal 2019 first-quarter revenue would be weaker than previously expected because of lower demand in China. The warning from Apple, one of the most valuable and profitable companies in the world, was a rare occurrence that hadn’t happened in at least 15 years. 

Since that time, Apple’s stock has more than doubled, and the company has regained much of its lost luster. Its newest iPhones from September have proven popular with buyers. (Apple no longer breaks out unit sales of its devices, so it’s unclear just how popular they’ve been.) While the iPhone remains Apple’s biggest moneymaker, the company has been steadily diversifying its operations into new services and products. That includes the $4.99-per-month Apple TV Plus service that went live Nov. 1 and Apple’s AirPods Pro, which were hard to find during the key holiday shopping season. 

Apple’s AirPods have become hugely popular since the wireless earbuds first hit the market in December 2016. The latest model, AirPods Pro, went on sale in October for $249, $90 more than the original version. 

“As a result of Apple disclosing virtually nothing about their financials, we believe AirPods are probably the most underappreciated part of Apple’s business today,” Bernstein analyst Toni Sacconaghi noted ahead of Apple’s earnings release. He believes AirPods generated about $6 billion in revenue in 2019, nearly double 2018’s level.  

Soaring iPhones, services and wearables

Apple no longer breaks out unit sales for its devices, but it said overall iPhone revenue climbed 7.6% to $55.96 billion. The December quarter marks the first full period of sales for Apple’s newest iPhones, the 11, 11 Pro and 11 Pro Max. The fiscal first quarter is Apple’s biggest of the year, thanks to the new phones. 

“iPhone 11 was our top-selling model every week of the December quarter and the three new models were our three most popular iPhones,” Cook said Tuesday during a call with analysts. 

Apple’s services revenue soared 17% to $12.7 billion, largely thanks to the App Store. On New Year’s Day, customers spent $386 million in the App Store, Cook said, up 20% from the previous year. He noted that Apple TV Plus was “off to a rousing start” but didn’t give details about subscribers.

“We see great promise for these recently launched services, and we’re optimistic about what we have in the pipeline for each of them,” he said.

Sales from Apple wearables, home and accessories business jumped 37% to $10 billion. The wearables business alone is the size of a Fortune 150 company, Cook said. “Demand for AirPods continues to be phenomenal,” he said, and Apple Watch recorded all-time record revenue in the first quarter. That came despite supply shortages for the AirPods Pro and Apple Watch Series 3, which indicates Apple’s two-year-old smartwatch may have been the most popular model during the holiday season. 

Mac and iPad sales both declined from the previous year. 

Apple’s Q1

Apple reported net income of $22.2 billion, or $4.99 a share, up from $19.97 billion, or $4.18, a share a year ago. Analysts expected Apple to report fiscal first-quarter earnings of $4.55 a share, according to a poll by Yahoo Finance.

The company also reported revenue of $91.82 billion, up 8.9% from the previous year and above the $88.5 billion expected by analysts. 

For the March quarter, Apple said it expects to record revenue of $63 billion to $67 billion. Analysts expect Apple to report sales of $62.45 billion, according to a poll by Yahoo Finance. 

Analysts expect 2020’s iPhones, likely launching in September, to help the new, super-fast 5G wireless networks become mainstream. And Apple could introduce an updated version of its petite iPhone SE as soon as the March quarter. It also likely will keep pushing with its services business, especially Apple TV Plus, which is free for a year for people who buy a new Apple device.

Apple shares closed Tuesday at $317.69, up 2.8% from the previous day. The amount gave Apple a market value of $1.39 trillion. Shares rose another 2.3% in after-hours trading to $324.90.

“We believe by the end of 2021 Apple has potential to be the first $2 trillion valuation given the 5G tailwinds and services momentum potential over the coming years,” Wedbush analyst Daniel Ives noted. 

Originally published at 1:44 p.m. PT
Update at 2:25 p.m. PT: Adds comments from conference call. 

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