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Apple Smashes Q1 Earnings Forecast on iPhone Demand, China Boost, Defying Chip Shortage

Apple crushed Street forecasts in its December quarter earnings, notching more than $123 billion in global sales despite supply chain disruptions and chip shortages.

Updated at 5:05 pm EST

Apple  (AAPL) - Get Apple Inc. Report posted stronger-than-expected first quarter earnings Thursday as a surge in iPhone demand, particularly in China, offset concerns for supply chain disruptions and chip shortages. 

Apple said profits for the three months ending in December, the tech giant's fiscal first quarter, were pegged at $34.6 billion, or $2.10 per share, up 25% from the same period last year and firmly ahead of the Street consensus forecast of $1.89 per share. Group revenues, Apple said, rose 11.2% from last year to $123.95 billion, against comfortably topping analysts' estimates of an $118.67 billion tally - and even more impressive given that the group had warned the supply chain disruptions and chip shortages would take more than $6 billion from the holiday quarter sales tally.

Apple said iPhone revenues rose 9.2% from last year to $71.63 billion, well ahead of the $67 billion Street forecast, while the company's gross margin improved by 160 basis points from the September quarter to 42.8%

Greater China revenues, Apple said, rose 21% from last year's pandemic recovery period to $25.78 billion, while overall services revenues rose 23.9% to $19.52 billion as the company's installed base of devices topped 1.65 billion.

“This quarter’s record results were made possible by our most innovative lineup of products and services ever,” said CEO Tim Cook. “We are gratified to see the response from customers around the world at a time when staying connected has never been more important."

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"We are doing all we can to help build a better world — making progress toward our goal of becoming carbon neutral across our supply chain and products by 2030, and pushing forward with our work in education and racial equity and justice,” he added.  

Apple shares were marked 5% higher in extended hours trading immediately following the earnings release to indicate a Friday opening bell price of $167.10 each.

Net sales for the Mac were up 25% to $10.85 billion, while wearable, home and accessories sales, which include the AppleWatch, rose 13.3% to $14.7 billion.

The only product line to record a sales decline were iPads, with revenues down 14.1% to $7.25 billion, owing to chip supply constraints.

The Nikkei business newspaper said in early November that iPad production runs are about half of their normal pace over the past two months, owing to Apple's decision to prioritize chips for its new iPhone 13.

Earlier this week, market tracking data from Counterpoint Research said Apple was the top-selling smartphone vendor in China, the world's biggest handset market, over the three months ending in December, with sales boosted by a post-pandemic rebound in demand and the release of its signature iPhone 13 earlier in the autumn.

Apple's smartphone market share, Counterpoint said, reached a record high 23% as unit sales rose 32% from the year-prior period.

Apple launched its new iPhone 13 in late September with a base price of $799, while unveiling higher-priced versions including the iPhone 13 Pro and iPhone 13 Max,