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Apple’s wearables and services drive revenue as iPhone sags 

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Via Financial Times

Apple offered sceptics some proof on Wednesday that it can thrive in a future already saturated with iPhones by posting strong sales of accessories such as watches and headphones and offering bullish guidance for the holiday season.

The California tech group reported $64bn in revenue for the three months to September 30, up 2 per cent from a year ago, even as smartphone and Mac sales both declined.

That was ahead of the median Wall Street estimate for $62.9bn, driven led by 54 per cent growth in the group’s increasingly prized Wearables division — comprising watches, headphones and other accessories — to $6.5bn.

Earnings per share rose 4 per cent to a record $3.03, also well ahead of expectations of $2.84 a share. Net income, however, fell 3 per cent to $13.7bn as operating costs rose from $8bn to $8.7bn.

Tim Cook, chief executive, called the quarter “remarkable” and said Apple’s growth outside of the iPhone was running at a 17 per cent rate.

Apple gave a bullish outlook for the holiday quarter just beginning, projecting between $85.5bn and $89.5bn in sales, in line with forecasts of $86.8bn. This gives Apple a chance to beat its best-ever quarter of $88.3bn.

The fourth-quarter earnings said little about sales of Apple’s refreshed line-up of iPhones, led by the “Pro” series with triple-lens cameras, as they were released with only nine days to go in the quarter. But the solid forecast implies optimism for smartphone sales as well as its Series 5 Apple Watch and the new noise-cancelling AirPods Pro wireless headphones.

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Yoram Wurmser, analyst at eMarketer, said the projections imply Apple was not concerned with the impact of new trade tariffs that took effect on some products in September.

Indeed, Mr Cook seemed nonplussed by the tariffs. “In general my view is very positive with how things are going,” he said of the US-China trade battle. “The tone has changed significantly.”

Luca Maestri, chief financial officer, spent more time with analysts discussing foreign exchange headwinds, which held back last quarter’s revenues by $1bn, he said.

Apple’s stock rose as much as 3 per cent in after-hours trading, returning to a high it achieved earlier this week and solidifying it as the world’s largest public company, now worth $1.1tn.

Dan Ives, Wedbush analyst, said “there were no blemishes” in the earnings despite Apple briefly becoming “the poster child of the US/China trade battle” when it removed a crowdsourcing tool from the App Store used by pro-democracy protesters in Hong Kong.

Mr Maestri said Apple repurchased $18bn of its stock in the quarter and told the Financial Times he believed the company remained undervalued.

“We see great value in our stock,” he said. “Our multiples compared to some other technology companies — even compared to the market — we believe there is a lot of value there.”

Apple recorded iPhone sales down 9 per cent in the past quarter to $33.4bn, while Mac sales fell 5 per cent to $7bn.

But overall revenues rose as Services, the unit encompassing the App Store, warranties and licensing deals, hit a record $12.5bn in revenues, up 18 per cent from a year ago. Sales of iPads were up 17 per cent to $4.7bn.

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Mr Maestri called services “the highlight”, with double-digit percentage growth in all major geographic areas and Apple well on track to have more than 500m paying subscribers to one of its array of offerings by 2020.

Analysts were no less enthused. Francisco Jeronimo, an analyst at IDC, said that in a quarter dominated by trade wars and fierce competition from rivals, Apple was demonstrating the strength of its hardware-service-software ecosystem.

“Although Apple faces challenges from its biggest source of revenue — the iPhone — these are solid results,” he said.

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