TECHNOLOGY

Apple’s Earnings Surge, as iPhone Sales Jump and China Business Rises

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Shoppers waiting for a new Apple store to open in Hangzhou, China, last week. Reuters 
Apple’s growth engine has now shifted unmistakably to China.
The company said on Monday that quarterly iPhone sales in greater China, which includes mainland China, Hong Kong and Taiwan, had surpassed those in Apple’s home market, the United States, for the first time.
While Apple did not disclose specific numbers, the performance powered the company’s revenue, with sales in greater China rising 71 percent to $16.8 billion in the fiscal second quarter compared with the same period last year. Revenue from greater China also exceeded that from Europe for the first time.
The China results punctuated another strong quarter for Apple. In total, revenue climbed 27 percent to $58 billion, up from $45.6 billion last year, the company said in its earnings report. Profit was $13.6 billion, up from $10.2 billion a year ago.
“Everything you look at in China was extremely good,” Timothy D. Cook, Apple’s chief executive, told analysts in the company’s earnings call. “We’re really proud of the results there and continue to invest in the country.”
Apple’s stock price over the last six months.
Apple has long laid the groundwork to reap big sales in China, and revenue growth from the region has steadily gained momentum. The company in late 2013 struck an important deal to sell iPhones through China Mobile, the world’s largest phone carrier. Apple is also expanding its operations in the region, with 21 retail stores and plans to increase that number to 40 by mid-2016.
Add to all that the fact that the Chinese New Year holiday, typically a big retail season, was in February. The latest iPhones also have much bigger screens than past models, another feature that has been especially popular in China.
Jan Dawson, an independent technology analyst for Jackdaw Research, said Apple’s performance in China highlighted its advantages against other American technology companies.
“It’s hugely important because it shows that Apple continues to be the only major U.S. tech company that is really succeeding in China, in contrast to Google, Microsoft and Amazon,” Mr. Dawson said.
Over all, Apple sold 61.2 million iPhones in the quarter, beating analysts’ estimates of roughly 60 million phones. That also far exceeded the 43.7 million iPhones that Apple sold in the period a year ago. Analysts had anticipated that iPhone sales would increase sharply, largely because of the company’s growing presence in greater China. Apple also said it was seeing a higher rate of people switching to iPhones from Android smartphones.
Sales of Apple’s iPad declined for the fifth quarter in a row, however. The company sold 12.6 million iPads, compared with 16.4 million tablets a year ago. Over the last year, Apple’s tablet sales have steadily shrunk, partly because people do not upgrade those devices as frequently as they do smartphones. In addition, as smartphone screen sizes increase, some consumers question whether they need both a tablet and a phone.
In an interview, Luca Maestri, Apple’s chief financial officer, said the company was nonetheless happy with the iPad’s performance because the tablet continued to top customer satisfaction ratings.
Workers prepare a new Apple store in Hangzhou, China in January. Apple plans to keep expanding its Chinese retail presence. Chance Chan/Reuters 
Apple also sold 4.6 million Mac computers in the quarter, up from 4.1 million a year ago. Mr. Cook said Mac sales in China rose 31 percent from a year ago.
Apple reported earnings after releasing its Apple Watch, which began shipping to customers in nine countries on Friday. On the earnings call, Mr. Cook said that consumer demand was exceeding initial supply, but that he expected Apple to be able to offer the watch in additional countries by late June.
Mr. Cook said Apple was especially happy with the progress in software applications available for the Apple Watch. The App Store now has more than 3,500 apps compatible with the watch, much higher than the 500 apps initially available for the iPhone when the App Store opened in 2008.
“We couldn’t be happier about how things are going,” Mr. Cook said about apps for the watch, adding that customer response so far seemed to be “100 percent positive.”
Analysts’ expectations for the watch are modest compared to Apple’s other blockbuster products. Toni Sacconaghi, a financial analyst for Sanford C. Bernstein, estimates that Apple will sell 7.5 million watches in the second half of Apple’s fiscal year, a much smaller number than the tens of millions of iPhones that sell each quarter.
The watch is Apple’s first brand-new hardware product under Mr. Cook, who took the reins in 2011, and Mr. Sacconaghi said investors would increasingly be looking at whether the wearable device would become Apple’s next big business.
“The iPhone is not going to grow this rate forever in China or globally,” he said. “What’s next, given that Mac is small and iPad is declining?”
It is unlikely that Apple will share sales figures for the watch soon. In a previous earnings call, Mr. Cook said the company would report watch sales in a group with other products, rather than breaking it out into a separate category, to obscure its performance against competitors.
Apple on Monday also said it increased its capital return program by 50 percent, to $200 billion in cash by the end of March 2017. Apple is increasing its share repurchases to $140 billion from $90 billion, and is also raising its dividend to shareholders. The company’s cash and securities pile stood at $193.5 billion as of the end of the quarter.
A version of this article appears in print on April 28, 2015, on page B1 of the New York edition with the headline: China Becomes Apple’s Hottest iPhone Market. Order Reprints|  Today's Paper|Subscribe