iPhone boom sees Apple almost double profits

Unexpected hike in iPhone sales sees Apple post another stunning quarter of profits

Reuters Stewart Mitchell
25 Apr 2012

Apple has recorded another stellar quarter, blowing away Wall Street expectations through stronger-than-expected demand for the iPhone, especially in China where sales jumped five-fold.

While iPad sales were lighter than expected, the overall results sent the company's stock up 7%, recouping some losses from the past two weeks that had stemmed from concerns about weakening sales growth for iPhones.

The company posted profits of $11.6bn for the first three months of the year, 94% higher than the same period last year.

Apple sold 35.1 million iPhones - which accounts for about half its revenue – in the quarter to March, outpacing the 30 million or so expected by Wall Street analysts.

Apple has executed very well. But you are starting to see the iPad reach some sort of saturation with the current product

Some investors had feared intensifying competition from Android phones might eat into Apple's profit margins and market share, but the brand continued to dominate. "That shows Apple is able to maintain its pricing without compromising on growth," said Morningstar analyst Michael Holt.

"There are lower-priced alternatives from the Android world that are becoming more compelling. The concern was that Apple might sell more older models to be more competitive. That would have shown up in the gross margin. But aggregate gross margin and average revenue per device show that this hasn't happened."

According to Apple itself, the profit on iPhones should remain strong as carriers were willing to subsidise handsets because iPhone owners were generally more loyal than others.

Responding to concerns that wireless carriers may reduce subsidies for the iPhone, thereby lowering Apple's profit margin, chief executive Tim Cook said the subsidies weren't large anyway, compared with what carriers can recoup from consumers over a 24-month contract.

The so-called churn, or rate that customers switch from the iPhone to other models, is the lowest of any phone they sell, which has a "significant, direct financial benefit to the carrier," Cook added.

iPad saturation?

Apple sold 11.8 million iPads, the latest version of which hit store shelves in mid-March. That compared with the average forecast of up to 13 million.

"There's no doubt looking in the last quarter and the Christmas season, Apple has executed very well. But you are starting to see the iPad reach some sort of saturation with the current product," said Patrick Becker, a principal at Becker Capital Management.

"These are the transitions you start to have without coming out with a brand new device. They have been extremely successful at bringing out new categories and it is new products that will drive up the stock price."

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