Apple posts record quarterly earnings on soaring iPhone sales

Apple sold nearly 74.5 million iPhones during the last three months of 2014

Apple Inc.'s decision last year to enlarge the iPhone screen fattened the company's wallet too.

The Cupertino, Calif., company sold nearly 74.5 million iPhones during the last three months of 2014 — more than in all of fiscal year 2011 — powering a quarter of record sales and profit that soared past Wall Street expectations.

"We see that we're appealing to new customers and people switching from Android," Apple Chief Executive Tim Cook said on an earnings call Tuesday. "We're very bullish on the product."

Though Apple ramped up production of its new big-screened iPhone 6 and 6 Plus faster than for any previous model, January marked the first month it's kept pace with demand. Total quarterly sales of the iPhone exceeded $50 billion for the first time. The average selling price, boosted by the $749 sticker on the iPhone 6 Plus, surged $50 during the past year to $687.

Cook also announced that the Apple Watch would begin shipping in April. An "impressive" number of companies are producing apps that run on the watch with "some incredible innovation coming out of there," he said. Pricing details on the Internet-connected wrist piece remain unknown beyond $349 for the basic model.

"We're going to be thrilled to start shipping it because we got a lot of customers that are wanting to get one," Cook said.

Financial analysts don't expect it to be a big moneymaker for Apple initially, but it could fill in where the iPad and iPod have tumbled.

Apple sold 18% fewer iPads from October through December than in the same period in 2013. Cook offered investors a reason to remain optimistic, noting that about 80% of tablet commerce occurs on an iPad. Apple takes a cut of some of those transactions, though such revenue has grown only modestly.

IPod sales figures are no longer clear, now folded into a new category that includes Apple TV and Beats Electronics products. The "other products" category saw revenue decline 5% last quarter compared with the year-earlier period.

But it was the iPhone's stellar performance that dominated Apple discussion Tuesday.

Analysts had expected an effortless toppling of the previous quarterly sales record of 51 million iPhones, set during the 2013 holiday quarter — especially after it sold 10 million during the first three days on the market in late September. But faster production on the new models with 4.7-inch and 5.5-inch screens and strong demand in emerging countries such as Brazil and China helped it sell several more million phones than it had forecast.

And Cook expects strong sales to continue because there's no shortage of potential customers.

The percentage of people who have upgraded to the iPhone 6 is "in the teens," Cook said. He also noted that the rate of people switching from Android smartphones to Apple is the highest that the company has seen in at least three years.

Alex Gauna, senior analyst and managing director at JMP Securities, said the data are making a strong case that Apple hasn't peaked.

"You can still buy this stock," he said. "There's more to come from this astounding profitability."

Apple posted a profit for the October-December quarter of $18 billion, up almost 38% from a year earlier, as it recorded its highest operating margin in 10 quarters. Revenue came in at $74.6 billion, which included the first full quarter of iPhone 6 and 6 Plus sales.

The Greater China region's revenue contribution rose 70% year-over-year to $16.1 billion. But challenges are in sight abroad. Like many U.S. companies, the strong U.S. dollar is taking a bite. Apple said last quarter's revenue would have been more than $2 billion higher under stable currency. Chinese-based smartphone maker Xiaomi looms as a threat. On Tuesday, Xiaomi's new Mi Note phone reportedly sold out in an Apple-like mere minutes.

Some analysts maintain that Apple is a momentum stock that can't possibly keep up the pace unless the company produces new blockbuster products, such as a device tied to televisions. But most had expected a strong quarter. Shares of Apple rose more than 5%, to above $115, after hours.

paresh.dave@latimes.com

Twitter: @peard33

Times staff writer Andrea Chang in Cupertino contributed to this report.

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