Apple’s Forecast for Holiday Quarter Exceeds Estimates

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Apple iPhone 6 Sales Launch
An Apple employee greets a customer during the sales launch for the iPhone 6 and iPhone 6 Plus at the Apple Inc. store in Palo Alto, California, U.S., on Sept. 19, 2014. Photographer: David Paul Morris/Bloomberg

Apple Inc. is projecting a happy holiday season.

New larger-screened iPhones are set to help boost sales by at least 10 percent during the crucial holiday quarter, the Cupertino, California-based company said in a statement today. Revenue in the current period will be $63.5 billion to $66.5 billion, just topping the $63.5 billion estimated on average by analysts, according to data compiled by Bloomberg.

The October-through-December period is the biggest test yet of Tim Cook’s ability to roll out breakthrough new products since becoming Apple’s chief executive officer in 2011. He’s counting on updated versions of the iPhone and iPad to help revive sales while he pushes Apple into new categories, including mobile payments with a service dubbed Apple Pay that debuted today. A smartwatch called Apple Watch is also slated to arrive next year.

“The guidance looks very strong,” Alex Gauna, an analyst with JMP Securities LLC, said in an interview. “How good beyond the already good -- that’s going to be one of the key questions we’re going to be asking ourselves.”

Investor optimism about the new products has boosted Apple’s shares more than 24 percent this year. The stock rose in extended trading after closing at $99.76 in New York.

Profit, Revenue

“When we look at the response from customers and from the press about the new products that we have announced -- and we’ve launched a lot of new products in the last six weeks -- they’ve been consistently very, very positive for us,” Apple Chief Financial Officer Luca Maestri said in an interview.

For the fiscal fourth quarter ended Sept. 27, Apple’s net income rose to $8.47 billion, or $1.42 a share, from $7.51 billion, or $1.18 a share, a year ago. Sales were $42.1 billion, up 12 percent from $37.5 billion a year earlier. Analysts had projected profit of $1.30 a share on sales of $39.91 billion.

The results give a peek into how the introductions of the new bigger-screen iPhone 6 and 6 Plus have gone after becoming available on Sept. 19. Apple has said it sold more than 10 million of the devices in their debut weekend, yet the rollout was marred by snafus with updates to the iOS 8 mobile-operating system and some user complaints that the 6 Plus would bend when sat upon.

IPhone sales for the fourth quarter, including more than a week of the new iPhone 6 and 6 Plus on store shelves, were 39.3 million, up 16 percent from a year ago and more than the 38 million predicted by analysts on average in a Bloomberg survey.

Order Backlog

Apple finished the quarter with a backlog of orders, Maestri said, adding that production of the 6 Plus is increasing every week. IPhone demand is so strong that supply has fallen below the company’s inventory target of four to six weeks, Maestri said.

“Today demand is far outstripping supply,” Cook said on a conference call. “It’s unclear, looking at the data, when supply will catch up with demand.”

The new iPhones also debuted in China on Oct. 17, where demand has “been really off the charts, it’s been really, really good,” Maestri said.

IPad Sales

IPad sales were less stellar. The company sold 12.3 million of the tablets in the fiscal fourth quarter, below an estimated 13 million units projected by analysts and down 13 percent from a year ago, according to data compiled by Bloomberg. It was the third consecutive quarter that iPad sales declined.

“I view it as a speed bump, not a huge issue,” Cook said on the conference call. “I’m very bullish where we can take iPad over time so we’re continuing to invest in the product pipeline.”

He added that Mac sales, which rose 21 percent in unit terms, reflect strong back-to-school demand.

Apple finished the quarter with a gross margin, or the percentage of revenue left after subtracting production costs, of 38 percent compared with 37 percent a year earlier. The company forecast a gross margin of 37.5 percent to 38.5 percent for this quarter.

Following the unveiling of the new iPhones last month, investor expectations for Apple have only grown. Activist investor Carl Icahn is also turning up the pressure on Cook, saying Apple’s shares should be trading at more than twice their current value and indicating he believes the world’s most valuable company should be worth more than $1 trillion based upon the potential for the new iPhones, iPads and other products in the near future.

Investor Scrutiny

“Expectations for Apple always are high,” said Tim Bajarin, president of Creative Strategies Inc., who’s bullish about the potential for the new iPhones to give the company a record quarter. “As long as they can deliver, they’ll sell as many as they can make in this quarter.”

Having new iPhones and iPads on store shelves is crucial for Apple. During the holiday season, consumer spending on electronics in the U.S. is anticipated to increase 2.5 percent to $33.8 billion, the highest level since the Consumer Electronics Association began tracking it in 1994. The top items on technology wish lists, according to the group’s annual Holiday Purchase Pattern Study, are tablets.

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