AAPL Apple Inc

By Tim Higgins 

Apple Inc. finished 2020 with its most profitable quarter ever, fueled by an uptick in higher-end iPhone sales and a pandemic-induced surge in demand for its laptops and tablets.

All together, the Cupertino, Calif., company generated $111.4 billion in quarterly sales, an all-time high and the first time it has topped $100 billion in quarterly revenue. Profit rose 29% to $28.76 billion in the three months ended in December, its fiscal first quarter. On a per-share basis, Apple said it earned $1.68, exceeding the $1.41 predicted by analysts in a FactSet survey.

The results arrived Wednesday during the biggest week for corporate earnings this quarter and on the same day Tesla Inc. and Facebook Inc. posted closely watched profits. Facebook reported record net income but also warned that uncertainty from regulatory probes and ad-targeting limits could create business headwinds. Tesla posted its sixth-straight quarter of profits but fell in after-market trading after noting its bottom line was weighed down by supply chain costs and preparations for updated vehicles.

"We could not be more optimistic," Apple Chief Executive Tim Cook said in an interview about the company's product lineup.

Apple shares rose 81% in 2020 and are up about 7% this year through Wednesday's close on investor enthusiasm around its latest iPhone and heightened spending on its products from consumers working, going to school and seeking entertainment while stuck at home. It is one of a number of tech companies whose outsize performance contrasts with the millions of Americans out of work amid the global pandemic.

The holiday quarter is always a closely watched period for Apple, accounting for about 30% of its annual sales. This time around, however, it takes on greater emphasis with the arrival of the iPhone 12 that some analysts and investors were betting would trigger a record boom similar to when the first large-screen iPhone was introduced in 2014. That bet, however, was thrown into question with the spread of the coronavirus last year.

The initial outbreak in China delayed the production of the flagship phone and pushed back its launch to October from its typical September debut. Some versions of the new phone didn't start shipping to customers until November, cutting down the number of weeks Apple typically has in the period to capture sales ahead of Christmas.

Those delays had created some uncertainty about how strong of a period Apple could report. "There is one school of thought that because of the delayed launch and some supply constraints, the iPhone units may be on the low side," said Mark Stoeckle, chief executive of Adams Funds, which counts Apple among its largest holdings. "Although we view this as a possibility, what we believe strongly is that the iPhone 12 will be very successful in 2021."

The results were achieved despite supply chain issues. In the interview, Mr. Cook said the iPhone 12 should be in balance this quarter, while he doesn't expect iPad issues to be resolved this quarter.

Katy Huberty, a Morgan Stanley analyst, is among the more bullish, calling the iPhone introduction in a note to investors last week "Apple's most successful product launch in the last five years."

Despite the delay, analysts on average had predicted that revenue would rise to $102.8 billion. While Apple no longer breaks out unit sales, analysts say revenue was likely helped by demand for the higher-end models of the new smartphone. Mr. Cook said iPhone results were helped by the iPhone 12s.

For the iPhone 12, Apple introduced four versions of the lineup, including a new mini version with a starting price of $699, which was the same cost as the larger iPhone 11 a year earlier. The comparably sized iPhone 12 costs about $100 more than its predecessor, and the biggest and most expensive iPhone 12 Max begins at $1,099.

In the U.S., the average retail price of the iPhone rose to $873 from $809 a year ago, driven by buyers gravitating to the more expensive versions, according to a survey of customers by Consumer Intelligence Research Partners LLC. The improvements in pricing follow a trend under Mr. Cook to boost the average selling price of iPhones, squeezing more profit out of the devices as unit sales have fallen from a peak of 231 million in fiscal 2015.

iPhone revenue rose 17% to $65.6 billion in the December quarter. That growth was slower than in other parts of Apple's business, which helped boost its results in recent quarters amid declining iPhone sales. Sales increases of 21% for the Mac lineup and 41% for iPads helped generate the record results. Laptop sales were helped by the arrival of the company's new in-house chip, dubbed, the M1, according to Mr. Cook.

Another closely watched metric, Apple's service business, which has taken on increased importance in recent years, rose 24%.

Investors on Wednesday were looking for signs that the new iPhone has legs. Analysts predict sales will rise to $74 billion in the current quarter, up almost 30% compared with a year ago. Normally, a closely watched part of Apple's quarterly reporting is its sales guidance, but such forecasts were scrapped last year amid the uncertainty around Covid-19. Apple hasn't said when it might return to such disclosures.

The potential for the October-to-December quarter has long excited analysts and investors who had bet that pent-up demand for a technologically improved iPhone would spur a buying surge. The latest iPhone has the capability of accessing the next-generation cellular network, dubbed 5G, which promises faster internet speeds.

The new iPhone helped sales rise 57% in China, which has a more developed 5G network.

Cellular carriers have used the arrival of a 5G iPhone to try to poach new customers. But it is unclear whether that is happening. Verizon Communications Inc., the largest U.S. cellphone carrier, on Tuesday reported fourth-quarter results that showed fewer new customers than analysts had expected. Still, executives said they remained optimistic about the year ahead.

The lack of killer new programs to take advantage of that 5G speed and a limited network raised questions among some analysts about the true interest of the feature as a selling point for the pricey new phones.

Of the iPhone buyers in Consumer Intelligence's survey, only seven mentioned 5G. Most said they were motivated in buying the new iPhone because of problems with their previous phone or because of general motivations around upgrading.

(Dow Jones & Co., publisher of The Wall Street Journal, has a commercial agreement to supply news through Apple services.)

Write to Tim Higgins at Tim.Higgins@WSJ.com

(END) Dow Jones Newswires

January 27, 2021 18:08 ET (23:08 GMT)

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