Over the past few years, Apple CEO Tim Cook and his team have been adding new businesses, like smartwatches and a Netflix-like video streaming service, to offset slowing sales of the iPhone. But in the latest holiday quarter, the push to diversify was nearly irrelevant as iPhone sales experienced a renaissance.
iPhone revenue jumped 8%, versus an average growth of less than 1% for the same quarter in the prior four years, the company said on Tuesday. Revenue for the unit reached a record $56 billion, more than investors had expected.
The iPhone rebound helped increase Apple’s total sales by 9% to a record $91.8 billion. On average, analysts had forecast far lower overall sales of $88.4 billion.
“Our record performance was fueled by iPhone,” Cook told investors on a conference call after the results came out.
The latest iPhone sales results are a big change from a year ago, when revenue from the unit plunged 16% to $52 billion. Cook also pointed to the “double digit” rate of growth in Apple’s other businesses.
In aftermarket trading on Tuesday, Apple’s stock price rose 1% to $321.70, extending a long winning streak. Over the past three months, Apple’s shares have soared nearly 30% while over the past year they’ve nearly doubled.
Analysts agreed with Cook that iPhone sales were key to the most recent quarter. “This was a strong quarter for Apple, primarily driven by strong sales of the iPhone 11 lineup,” eMarketer analyst Yoram Wurmser noted.
“Whilst many are talking of services as the key growth driver for Apple, hardware continues to drive the bulk of both revenue and profit as Apple pushes its widest and most compelling set of products in years,” Dominic Sunnebo, director of consumer insights at Kantar, wrote after the results came out.
Apple anticipated the iPhone slowdown several years ago and, in response, began emphasizing other businesses, like its app store, cloud services, and content services including Apple Music. Last year, Cook pushed Apple even deeper into services, adding gaming and video streaming along with its own credit card in partnership with Goldman Sachs.
Cook didn’t disclose actual numbers for Apple’s the two newest services, saying only that the gaming was “fast off the blocks” and that Apple TV+ was “off to a rousing start.”
“We see great promise for these recently launched services,” he added.
Several key moves helped bolster iPhone sales compared to prior years. In its three phones last year, Apple focused on improving the cameras, in contrast to 2018, when the camera in the cheapest model, the iPhone XR, was lower quality. Apple also trimmed the prices for some iPhones compared to 2018 models. And ahead of the holiday season, the company pitched generous trade-in offers, sometimes through on-phone notifications. Trade-ins doubled in the quarter compared to the same period a year earlier.
Services revenue grew 17%, meeting Apple’s internal benchmarks, Cook said, but less than analysts had hoped. For example, services revenue of $12.7 billion was less than the $14 billion expected by Creative Strategies analyst Tim Bajarin.
Wearables, which includes the Apple Watch, headphones, and earphones, showed stronger growth. Sales in the division rose 37% to $10 billion, fueled by the popularity of the new AirPods Pro, which cost almost $250 a pair.
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