Apple’s Holiday Quarter Surprises Wall Street

January 31, 2017, 9:38 PM UTC

Apple reported a bigger-than-expected rise in iPhone sales for the holiday quarter, driven by strong demand for the latest version of its flagship smartphone.

Shares of the world’s most valuable listed company were up 2.6% at $124.50 in after-hours trading on Tuesday.

Apple sold 78.29 million iPhones in the first quarter ended Dec. 31, up from 74.78 million last year, marking the first quarterly growth in iPhone sales in a year.

Analysts on average had estimated iPhone sales of 77.42 million, according to research firm FactSet StreetAccount.

The results, which reflected the first full quarter of iPhone 7 sales, come at a time when global demand for smartphones is slowing and cheaper Android alternatives are flooding the market.

Revenue in the Greater China region fell 11.6% to $16.23 billion, highlighting Apple’s struggles in a hotly contested smartphone market.

The company also forecast revenue of between $51.5 billion and $53.5 billion for the current quarter. Analysts, on average, had expected revenue of $53.79 billion, according to Thomson Reuters I/B/E/S.

Apple Chief Financial Officer Luca Maestri said that a stronger dollar hurt the company’s revenue forecast.

Analysts on average expect the company to sell 53.43 million iPhones in the current quarter, according to FactSet.

The company is heavily dependent on the success of iPhones, which account for 69.4% of its total revenue.

Analysts and investors have already set their sights on Apple’s 10th-anniversary iPhone, which is expected to feature better touchscreen technology, wireless charging and a shift to OLED display.

Apple’s services business – which includes the App Store, Apple Pay and iCloud – recorded a 18.4% growth in revenue to $7.17 billion, helped by the popularity of games, including Pokemon Go and Super Mario Run, and increased revenue from subscriptions.

Cowen & Co and Mizuho Securities had expected revenue of about $7 billion, while FactSet had forecast $6.91 billion.

Analysts expect growing revenue from Apple’s services segment to help offset declining hardware sales as the smart phone market matures.

The company’s net income fell to $17.89 billion, or $3.36 per share, in the quarter from $18.36 billion, or $3.28 per share a year earlier. Analysts on average had expected $3.12 per share.

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Revenue rose 3.3% to $78.35 billion in the quarter.

Analysts had expected revenue of $77.25 billion, according to Thomson Reuters I/B/E/S.

Up to Tuesday’s close, Apple’s shares have gained 14.7% since mid-November, compared with the 5.3% rise in the Dow Jones Industrial Average.

Correction: An earlier version of this story gave an incorrect calculation for the percent of Apple’s revenue that comes from iPhone sales. It is 69.4%, not 40.8%.

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