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Apple profits rise as services arm surpasses 1bn users

Apple proved resilient in its latest quarter as the number of paying subscribers for its array of digital services crossed 1bn users worldwide, helping to lift profits from a year ago even as total revenue declined.

The world’s largest company by market value said on Thursday that total revenue fell 1 per cent to $81.8bn in the quarter that ended in June, a third straight year-on-year fall but slightly ahead of forecasts at $81.7bn, according to Refinitiv.

However net profit rose 2.3 per cent to $19.9bn, well ahead of Wall Street estimates that it would slip 3.6 per cent to $18.7bn. Earnings per share also jumped 5 per cent to $1.26, ahead of forecasts for $1.20.

Revenue at Apple’s services division, which derives from App Store sales and digital offerings including iCloud and Apple Music, rose 8 per cent from a year ago to a record high of $21.2bn, as the number of subscribers rose by 150mn. Investors expected a 5 per cent rise to $20.8bn.

Services have hefty profit margins of more than 70 per cent, roughly double that of Apple’s hardware division. The unit’s outperformance was largely responsible for Apple’s higher profit in the quarter.

Finance chief Luca Maestri told the Financial Times that the total number of subscribers was “double the number that we had just three years ago”.

He added: “The services business is important in many ways for us. It strengthens our ecosystem [and] it’s important because it makes the business overall business less dependent on the performance of our products.”

Sales of iPhones, Macs and iPads were all lower than a year ago, led by iPad sales falling by 20 per cent. Sales of the iPhone, which accounts for 48 per cent of revenues, fell 2.4 per cent. Sales of wearables, such as AirPods and the Apple Watch, rose 2.5 per cent.

Revenue in the greater China region grew by 7.9 per cent to $15.8bn, mitigating a 5.6 per cent decline in the Americas, Apple’s largest market, which brought in $35.4bn.

Apple had struggled in the previous two quarters, owing to a mix of “significant” supply chain disruptions in China during the December quarter and a “tougher” macro environment in the March period, including international revenues that were pulled down by a strong dollar. In May, chief executive Tim Cook referred to a “parade of horribles” but also touted but the company’s resilience.

Maestri said the worst was over, though foreign exchange headwinds did bring revenue down by 4 percentage points. “We didn’t have any silicon shortages, and thankfully we didn’t have any Covid disruptions either.”

He would not comment on the outlook for the current quarter. Apple has declined to give quarterly guidance since the outbreak of Covid-19.

Shares of Apple, which have soared more than 50 per cent this year to take its valuation above $3tn, fell 0.6 per cent in after-market trading.

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