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Originally published July 22, 2014 at 7:35 PM | Page modified July 23, 2014 at 7:10 AM

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Mac, China sales power Apple profit ahead of larger iPhone

For Apple, slightly disappointing sales of iPhones and iPads were offset by an increase in Mac sales and a boost from recent sales in China. And the company may have a winner if it introduces a larger iPhone as anticipated.

The New York Times


SAN FRANCISCO — For Apple, the iPhone continues to be the device that makes the company tick.

While top rivals like Samsung are starting to show weakness in phone sales, Apple sold 35.2 million iPhones in the third fiscal quarter, up 13 percent from the period a year ago. The total was slightly below the estimates of analysts, who had expected 36 million iPhones to be sold.

But for Apple, slightly disappointing analysts on iPhone sales does not appear to be cause for alarm. The company, which is based in Cupertino, Calif., reported profit of $7.75 billion in the quarter that ended June 28, up from $6.9 billion in the quarter a year earlier.

Revenue was $37.43 billion, up from $35.32 billion in the quarter a year ago. Wall Street analysts had expected revenue of $37.93 billion, according to a survey of analysts by Thomson Reuters.

Healthy sales of Macs also helped fuel the growth, the company said. Apple reported selling 4.4 million Macs, up from 3.8 million in the same quarter last year, beating analysts’ expectations of about 3.9 million.

The strong iPhone sales, thanks in part to a recent distribution deal with China Mobile, offset other, more disappointing results from Apple’s other signature product, the iPad. The company sold 13.3 million iPads, down 9 percent from the year-ago quarter. Analysts had predicted it would sell an average of 14.4 million.

But a small dip in iPad sales is not so bad if iPhone sales are up. Apple’s gross profit margin was 39.4 percent, up 2.5 percentage points from the quarter a year ago. Apple makes more money on each iPhone than it does on each iPad, so when sales momentum shifts away from the iPad toward the iPhone, profit margins are better.

And unlike Samsung, which is having a difficult time fending off low-cost competition from companies like Xiaomi and Huawei, sales in China gave Apple a big boost over the quarter. Apple’s revenue in China grew 28 percent from a year ago.

In fact, the importance of China would be an impetus for Apple to develop a lower-cost, big-screen iPhone to target the Asian region, said Ben Bajarin, a consumer technology analyst for Creative Strategies.

IDC, the research firm, estimates that at least 20 percent of all smartphones shipped last year in China were 5 inches or larger. It predicts that number will balloon to 50 percent by 2017.

“Positioning a lower-cost iPhone that’s in the larger screen size would fit Asia’s trend perfectly,” Bajarin said.

And that is what Apple intends to do in the fall, according to a person briefed on Apple’s product plans who spoke on the condition of anonymity because the plans were private. Analysts expect Apple to release two sizes — a model with a screen that measures 4.7 inches diagonally and the other at 5.5 inches.

Still, the excitement over the iPhone was tempered somewhat by iPad results.

“iPad sales met our expectations, but we realize they didn’t meet many of yours,” Tim Cook, Apple’s chief executive, told analysts on the company’s financial earnings call.

Shares of Apple were down about half a percentage point in after-hour trading Tuesday evening.

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