Apple Achieves Record Profit Amidst Dip in iPhone Sales

MeasureKit, an app, exhibits the wireframe model and facial information that the iPhone X grants developers access to. (Photo by Jhaan Elker/The Washington Post)

Even with a drop in handset sales, Apple announced a record-breaking profit during the crucial holiday period.

Apple disclosed sales of 77.3 million iPhones, approximately 1% below the previous year's numbers and significantly under analyst projections of 80 to 83 million units.

Priced at $999, the device aimed to create a premium iPhone segment and drive fresh expansion in Apple's core business. Boasting facial recognition and a bezel-less display, Apple marketed the phone as an innovative leap beyond its typical annual upgrades.

“We are delighted to announce the largest quarter in Apple’s history, driven by widespread growth and record revenue from a new iPhone series. iPhone X exceeded our forecasts and has been our best-selling iPhone model weekly since its November launch,” stated Tim Cook, Apple's CEO.

Although Apple posted $88.3 billion in revenue and $20 billion in profit, doubts remain about sustaining this profit pace. The firm forecasted revenue of $60 to $62 billion for the upcoming quarter—below analyst estimates.

Apple's outlook could suggest lower-than-expected phone sales next quarter. However, Daniel Ives of GBH Insights noted in a research memo that increased phone prices and encouraging indicators like China's growth will help Apple navigate short-term challenges and "emerge as a stronger fundamental narrative by the end of 2018."

Apple's smartphone business has not contracted since 2016, when it experienced its first annual sales decline since the iPhone's introduction in 2007. Over the last few years, Apple has been persistently concerned that the iPhone, responsible for nearly 70% of its revenue, is no longer expanding as rapidly.

Decelerating growth is a widespread issue in the smartphone industry, as consumers hold onto their devices for longer. Verizon, for instance, noted a lack of upgrade activity during the holiday season due to this pattern.

Geoffrey A. Fowler of The Post swapped his iPhone 6 battery via Apple's new replacement initiative. Did the effort pay off? We address that and other top queries. (Jhaan Elker, Geoffrey Fowler/The Washington Post)

Yet even as fewer consumers purchase new devices, the iPhone X softened the impact on Apple's revenue growth due to the higher revenue per unit last quarter. The average iPhone selling price reached $796, surpassing analyst predictions of approximately $750.

When questioned if Apple's battery replacement program, initiated after acknowledging it slowed devices with aging batteries, might further discourage new purchases, Cook replied, "It's not something we obsess over." He mentioned that Apple now estimates 1.3 billion global iPhone users.

Apple faces litigation and governmental investigation for failing to inform iPhone owners about the battery situation. On Tuesday, Apple stated it is "responding to inquiries" from authorities, but did not directly verify reports of probes by the Department of Justice and the Securities and Exchange Commission.

On Thursday, Apple leaders also highlighted achievements in non-iPhone ventures. The services segment, encompassing the App Store, expanded 18% to $8.5 billion in revenue. Cook additionally noted that the Apple Watch had its best quarter, though no precise figures were provided.

The iPad, which faced difficulties in recent years, also recorded its third consecutive quarter of growth.

Apple further emphasized ongoing investment in emerging tech fields like augmented reality.

Analysts remarked that Apple must address changes in consumer tech trends as smartphones lose their appeal as must-have items.

Investing in Apple is "a wager on the firm's capacity to shift from its current iPhone ecosystem to an augmented reality-centric platform down the road," said Gene Munster, a prominent Apple analyst and co-founder of Loup Ventures, in an investor email following the earnings release.

Apple shares surged over 3% in after-hours trading, reaching $173.55.