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Apple iPhone sales miss estimates, but people are buying the most expensive model

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Emojis are shown on an Apple iPhone X.
(Chris J Ratcliffe / AFP/Getty Images)
Bloomberg

Apple Inc. quelled concern over lackluster iPhone demand with results showing that when consumers buy the phone, they’re willing to pay up for the most expensive model.

Apple shares rose 3.6% in extended trading Thursday after closing at $167.78.

The average selling price for the iPhone, Apple’s most important gadget, was $796 last quarter, which included the crucial holiday shopping season. That was up from less than $700 a year earlier, and it suggests that people are gravitating toward the iPhone X, which starts at $999. The metric reassured investors who were initially spooked when Apple forecast lower-than-expected revenue in the current quarter and reported total iPhone holiday sales that missed analysts’ estimates.

Apple said revenue in the current quarter, which ends in March, will be $60 billion to $62 billion. Analysts were looking for $65.9 billion on average, according to data compiled by Bloomberg. For the final quarter of 2017, Apple sold 77.3 million iPhones, down 1% from a year earlier and below analysts’ projections of 80.2 million.

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That capped a flurry of reports indicating that Apple was cutting orders to suppliers and that consumers were holding off buying iPhones, especially in China, where rivals are undercutting Apple on price.

If Apple sells fewer new handsets, it has to work harder to sell related services, accessories and other devices. It also leaves less time for the Cupertino, Calif., company to create its next big hit, be it in wearable technology, augmented reality or transportation. However, strong sales of the iPhone X help Apple with these future projects because the devices are capable of running the latest software and services — augmented reality features in particular.

Apple sold 5.1 million Macs last quarter with revenue of $6.9 billion, indicating 5% year-over-year declines. The iPad business continued to grow, with the company selling 13.2 million iPads and posting revenue of $5.9 billion. iPad unit sales grew by 1%, while revenue climbed 6%, suggesting more customers bought the costlier iPad Pro models.

For services, which includes Apple Music, movie rentals, app downloads, cloud storage upgrades and digital books, Apple reported revenue of $8.5 billion, up 18% from last year’s $7.2 billion.

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The results show Apple is successfully continuing its march to services revenue of roughly $50 billion by 2021. Last year, the segment generated $30 billion in sales. In early January, Apple said customers of its App Store, just one component of the services business, spent more than $890 million in the seven days that started Christmas Eve.

Apple’s “other products” division generated fiscal first-quarter revenue of $5.5 billion on strong sales of the latest Apple TV set-top box, continued popularity of the AirPods headphones and a growing interest in the Apple Watch due to recent models with cellular connectivity.

This segment saw revenue jump 36%, the largest year-over-year increase among Apple product divisions. Apple Chief Executive Tim Cook said this was the fourth consecutive quarter of more than 50% growth for the Apple Watch.

The other products business has swelled in recent years and would rank roughly 220 on the Fortune 500 if it were an independent company. It could see further gains in the March quarter due to the release of the HomePod wireless speaker.

Gurman writes for Bloomberg.


UPDATES:

4:00 p.m.: This article was updated throughout with additional details.

This article was originally published at 1:50 p.m.

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