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Apple Q4 2014 earnings: revenue surges on huge iPhone 6 sales

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New phone means new money for Apple — lots of it

Apple, once the darling of Wall Street with a ballooning stock price, has disappointed investors in recent quarters with slowdown on its growth. But this quarter, it surprised with a blowout, posting earnings of $8.5 billion on revenue of $42.1 billion, thanks in no small part to its latest iPhones, which broke early sales records.

The numbers came in far above Apple's own guidance for the quarter. The company was expecting between $37 to $40 billion in revenue with a gross margin of 37 to 38 percent. Wall Street analysts, on average, were expecting Apple to report earnings on the higher end of that spectrum, at earnings of $1.31 per share on revenue of $39.85 billion, up about 11 percent and 6.3 percent from the same quarter last year, respectively.

Only nine days of iPhone 6 sales included here

This was a huge quarter for iPhones, with the first nine days of iPhone 6 and iPhone 6 Plus sales tacking onto Apple's numbers, though not the biggest. Apple said it sold 39.2 million phones, up big from the 33.8 million iPhones it sold during the same quarter last year.

"Demand has been staggering," Apple CEO Tim Cook told Wall Street analysts on a call following the results, adding that the sales were "markedly higher" in every country where it sold the iPhone 5S last year.

Expectations for iPhone sales were running high ahead of Apple's numbers report, in no small part because of statements made by Cook. When trotting out the new iPads last week, he called the new iPhones the "fastest-selling" in the product's history, though he didn't offer firm numbers beyond the 10 million the company said it sold during the first weekend the new devices became available. "The first 30 days, we have set a new high-water mark for the most orders taken. And I don't mean by a little. By a lot, a whole lot," Cook said.

The bigger question has been how the iPad would fare, and the answer is not well. Apple sold 12.3 million iPads, down from the 13.1 million that were expected, and even more from the 14.1 million the company sold during the same time last year.

iPad sales came up short

This is typically not a great quarter for the tablet, despite a potential bump from back to school buyers. Consumers have learned to expect a new iPad every year, just like iPhones, and iPods before that. On top of that, iPad sales were down year over year during the last two quarters, and have shown little few signs of growth, short of during Apple's holiday quarter, which is going on right now and brought in record sales last year. Speaking to analysts, Apple's CFO Luca Maestri said the numbers were "consistent with our expectations" and that there was actually growth in places like Japan, where iPad sales were up 43 percent from the same time last year.

Cook added to that, saying that there was still growth left for the iPad. "I view it as a speed bump, not a huge issue. That said, we want to grow. We don’t like negative numbers on these things," Cook told analysts. "Over the long arc of time, my own judgement is that iPad has a great future."

Unlike the iPad, the Macs had a landmark quarter, continuing to grow, despite the rest of the industry shrinking. A report from IDC earlier this month showed worldwide PC sales contracting, yet Apple moved into the top five for the first time with a reported 8.9 percent growth, year over year. Apple's numbers verified that, with the company reporting sales of 5.52 million Macs, way up from the 4.85 million that were expected, and setting a new all-time record during a quarter. Much of that growth came from emerging markets, Maestri told analysts.

iPod stock
The iPod is no longer its own product category

Still in freefall were iPods. Apple sold 2.6 million iPods, down 24 percent from the 3.5 million the company sold during the same time last year. That shouldn't be too much of a surprise though, given that Apple hasn't really updated its iPods since the end of 2012. Speaking to analysts today, Apple noted that the iPod was no longer its own product category. Instead, it will be lumped in with sales of the Apple Watch when it goes on sale, along with the Apple TV and Beats accessories.

"We looked at current revenue and decided that we would lump everything that wasn't a Mac, or an iPad, or an iPhone, or a service in one kind of category," Cook told analysts. "In the future, we might decide something different."

Looking ahead, Wall Street analysts, polled by Yahoo, expect Apple to report earnings of $2.40 per share on revenue of $65.52 billion. That would be the company's highest revenue ever, fueled by sales of the new iPhones and iPads. In its own forecast, Apple said it expects revenue to fall somewhere in the middle of that, between $63.5 and $66.5 billion, with a gross margin between 37.5 and 38.5 percent.

It's been a very busy time for Apple

It's been an extremely busy month and a half in the lead up to Apple reporting its numbers. The company announced and shipped the iPhone 6 and 6 Plus, previewed the Apple Watch, and just last week debuted new iPads and Mac desktops. But short of the iPhone, sales of those new products have no impact on this quarter, which ended September 27th. It's the same story with the Apple Pay platform, which was demoed alongside the iPhone 6 and 6 Plus last month, but didn't go live until today. Apple's getting a cut from each transaction people are making when buying things from merchants, adding yet another revenue stream and one that could help it in the quarters when not as many people are buying phones and tablets.

Not one to shy away from promising that more good things are on the way, Cook said there are still things to look forward in the company's 2015 pipeline, but that the company's been pretty busy lately.

"We’ve already announced two new categories in the past 90 days," Cook fired back at an analyst question about what was next. "To the degree I can keep it in the cone of silence, I will."

Update October 20th, 6:02PM: with details from the earnings call with analysts.