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iPhone boom sees Apple almost double profits

iPhone 4S

By Reuters and Stewart Mitchell

Posted on 25 Apr 2012 at 08:24

Apple has recorded another stellar quarter, blowing away Wall Street expectations through stronger-than-expected demand for the iPhone, especially in China where sales jumped five-fold.

While iPad sales were lighter than expected, the overall results sent the company's stock up 7%, recouping some losses from the past two weeks that had stemmed from concerns about weakening sales growth for iPhones.

The company posted profits of $11.6bn for the first three months of the year, 94% higher than the same period last year.

Apple sold 35.1 million iPhones - which accounts for about half its revenue – in the quarter to March, outpacing the 30 million or so expected by Wall Street analysts.

Apple has executed very well. But you are starting to see the iPad reach some sort of saturation with the current product

Some investors had feared intensifying competition from Android phones might eat into Apple's profit margins and market share, but the brand continued to dominate. "That shows Apple is able to maintain its pricing without compromising on growth," said Morningstar analyst Michael Holt.

"There are lower-priced alternatives from the Android world that are becoming more compelling. The concern was that Apple might sell more older models to be more competitive. That would have shown up in the gross margin. But aggregate gross margin and average revenue per device show that this hasn't happened."

According to Apple itself, the profit on iPhones should remain strong as carriers were willing to subsidise handsets because iPhone owners were generally more loyal than others.

Responding to concerns that wireless carriers may reduce subsidies for the iPhone, thereby lowering Apple's profit margin, chief executive Tim Cook said the subsidies weren't large anyway, compared with what carriers can recoup from consumers over a 24-month contract.

The so-called churn, or rate that customers switch from the iPhone to other models, is the lowest of any phone they sell, which has a "significant, direct financial benefit to the carrier," Cook added.

iPad saturation?

Apple sold 11.8 million iPads, the latest version of which hit store shelves in mid-March. That compared with the average forecast of up to 13 million.

"There's no doubt looking in the last quarter and the Christmas season, Apple has executed very well. But you are starting to see the iPad reach some sort of saturation with the current product," said Patrick Becker, a principal at Becker Capital Management.

"These are the transitions you start to have without coming out with a brand new device. They have been extremely successful at bringing out new categories and it is new products that will drive up the stock price."

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User comments

Astonishing

"The company posted profits of $11.6bn for the first three months of the year"

That is unbelievable.

Maybe they can afford to give their slave workers a extra fiver in their "wage" packet...

By bronven on 25 Apr 2012

I'm an Android user (old Dell Streak) and will switch to the iPhone 5 (or whatever it's called) IF they make the screen 4".

By bigrob14 on 25 Apr 2012

Saturation...

Interesting to read that in last-but-one paragraph about market saturation.

I was wondering if it will be like the mobile phone networks in the 90s here in the UK? They ramped up significantly until they hit saturation of 80% of the UK population (which is pretty good). Now all that happens is churn when people switch from one network to another.

I can see the same happening with iPhones and certainly iPads. People would like to upgrade if they could afford it, but the reality is that the devices are so expensive, that Apple are shooting themselves in the foot.

When I see people commuting and they have an iPad or iPhone, there are still an awful lot of iPad 1, iPhone 3GS still floating about.

If the devices still work, then why not keep on using them? That was always the case & ethos with iMacs and MacBooks...

I've got an iPhone 4 now which is almost 2 years old. It gets the odd slowdown, but otherwise it suits my needs (and I drive it pretty hard with the different apps I use).

By mrmmm on 25 Apr 2012

Wow, you wouldn't have thought there were enough suckers *cough* sorry, people left in the world to carry on buying their products!

By Grunthos on 25 Apr 2012

@Grunthos

Ha ha, grow up.

By kingjulian on 25 Apr 2012

@kingjulian

But he's quite correct.

By qpw3141 on 25 Apr 2012

bump

By qpw3141 on 25 Apr 2012

@Kingjulian

Like qpw3141 said, Grunthos does have a good point.

My Nokia N8 is a year old, and I am not going to replace it until it craps out on me (it almost did last week when I broke the LCD screen, but I bought a new screen off eBay and replaced the old one).

I also have a HP HDX 18, which is probably 3 years old - I'm going to keep it until this craps out on me.

By rjd83 on 26 Apr 2012

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