Apple reports $7.7-bn profit on strong iPhone sales

Written by New York Times | San Francisco | Updated: Jul 24 2014, 07:43am hrs
For Apple, the iPhone continues to be the device that makes the

company tick.

While top rivals like Samsung are starting to show weakness in phone sales, Apple sold 35.2 million iPhones in the third fiscal quarter, up 13 percent from the period a year ago. The total was slightly below the estimates of analysts, who had expected 36 million iPhones

to be sold.

But for Apple, slightly disappointing analysts on iPhone sales does not appear to be cause for alarm. The company reported profit of $7.75 billion in the quarter that ended June 28, up from $6.9 billion in the quarter a year

earlier.

Revenue was $37.43 billion, up from $35.32 billion in the quarter a year ago. Wall Street analysts had expected revenue of $37.93 billion, according to a survey of analysts by Thomson Reuters.

Healthy sales of Macs also helped fuel the growth, the company said. Apple reported selling 4.4 million Macs, up from 3.8 million in the same quarter last year, beating analysts expectations of about 3.9 million.

The strong iPhone sales, thanks in part to a recent distribution deal with China Mobile, offset other, more disappointing results from Apples other signature product, the iPad. The company sold 13.3 million iPads, down 9% from the year-ago quarter. Analysts had predicted it would sell an average of 14.4 million.

But a small dip in iPad sales is not so bad if iPhone sales are up. Apples gross profit margin was 39.4%, up 2.5 percentage points from the quarter a year ago. Apple makes more money on each iPhone than it does on each iPad, so when sales momentum shifts away from the iPad toward the iPhone, profit margins are

better.

And unlike Samsung, which is having a difficult time fending off low-cost competition from companies like Xiaomi and Huawei, sales in China gave Apple a big boost over the quarter. Apples revenue in China grew 28% from a year ago. China is an increasingly vital market for the company, especially now that the smartphone markets in the US and parts of Europe have become saturated.

In fact, the importance of China would be an impetus for Apple to develop a lower-cost, big-screen iPhone to target the Asian region, said Ben Bajarin, a consumer technology analyst for Creative Strategies. IDC, the research firm, estimates that at least 20% of all smartphones shipped last year in China were five inches or larger.

It predicts that number will balloon to 50% by 2017.