An earlier version of this story misstated Apple’s services revenue growth. It was 18%.
Apple Inc. gave an upbeat holiday forecast Wednesday even as the company saw iPhone revenue sink for the fourth quarter in a row.
The company AAPL, -0.01% handily topped expectations with its fiscal fourth-quarter report, posting revenue of $64 billion, up from $62.9 billion a year earlier, and above the $63 billion that analysts surveyed by FactSet had been forecasting. Net income dropped to $13.7 billion from $14.1 billion, but on a per-share basis, earnings rose to $3.05 from $2.91. Analysts were modeling $2.83 in earnings per share.
For more coverage of Apple’s earnings and conference call, see our live blog recap
Though management gave some cheery indications about Apple’s iPhone lineup, including that the iPhone 11 has been the best-selling model since its mid-September launch, the real stars of Apple’s quarter were other areas of the business. The company’s wearables, home and accessories unit saw revenue jump 54% to $6.5 billion, while services revenue climbed 18% to $12.5 billion. Both topped the consensus view.
Apple disclosed that about three-quarters of Apple Watch purchases during the quarter were to those who had never owned one before, suggesting that there’s still room for Apple to drive further penetration. Management is also optimistic about its new noise-cancelling AirPods, which are expected to mainly appeal to current AirPod owners, at least at first. Apple historically hasn’t broken out the numerical performance of either of these product lines and declined to do so again during Wednesday’s earnings call.
Strength in those areas helped make up for continued declines in the iPhone business. Apple’s numbers for the September quarter contained a few weeks of iPhone 11 sales, as all three of the company’s new devices became available for pre-order on Sept. 13 and officially went on sale Sept. 20. Revenue from iPhones fell to $33.4 billion from $37.2 billion a year before, though the figure came in ahead of the $32.8 billion that analysts were expecting.
Chief Executive Tim Cook told analysts on the earnings call that the company’s pricing moves “have been smart and well-received and do show a level of elasticity,” but that consumers are also attracted to the feature improvements in Apple’s new devices.
The key metric heading into Apple’s report was its December-quarter outlook, which gives a fuller glimpse into how Apple expects the iPhone 11 family to perform, especially heading into the crucial holiday season. Management gave a revenue forecast of $85.5 billion to $89.5 billion for the fiscal first quarter, whereas analysts were calling for $86.7 billion.
Chief Financial Officer Luca Maestri defended Apple’s outlook to an analyst who asked on the call about the magnitude of growth that the forecast implies. Bernstein’s Toni Sacconaghi flagged that the midpoint of Apple’s forecast calls for almost 37% sequential growth, whereas Apple has historically shown revenue increases of 50% or more. But Maestri said that the outlook models an acceleration of growth “from the performance that we’ve seen during the course of fiscal 2019” and flagged about $1.1 billion in negative foreign-exchange impacts.
Shares have gained 54% so far this year, as the Dow Jones Industrial Average DJIA, +0.43%, of which Apple is a component, has climbed 17%.