Apple iPhone Sales Top Record 51 Million in FQ1

Apple (AAPL) sold a record 51 million iPhones in its fiscal Q1 as the vendor posted a 5.7 percent sales gain to $57.6 billion and earnings of $14.50 per diluted share, a 5 percent jump, amid flat year-over-year net income of $13.1 billion. The vendor beat Wall Street estimates in both sales and per-share earnings by a significant amount—analysts’ projections had Apple coming in at about $58 billion in sales with a $14.07 per share profit.

Prior to the December quarter, Apple had posted three periods in a row of negative earning growth.

Apple’s stores remain a strong point for the vendor, with quarterly revenue improving by 9 percent year over year to $7 billion. The retail segment alone accounted for some $1.7 billion in sales for the period. Apple opened four new stores and remodeled another six outlets, ending the period averaging $16.7 million in per-store sales, up 2.4 percent from last year.

While Apple’s iPhone unit sales jumped 6.7 percent and its iPad totals spiked 13.5 percent from a year ago to 26 million units, the iPhone figure still fell short of analysts’ projections of 54.7 million units, raising questions about where Apple goes from here with its flagship mobile product.

In other words, is Apple still a growth company? Even in light of its landmark deal with China Mobile earlier this month, Apple posted a wary outlook for its FQ2, projecting revenue in the $42 billion to $44 billion range, essentially flat from last year but a shortfall from analysts’ projections of $46.1 billion for the period.

Among other factors, Apple blamed an expected increase in channel inventory and lower iPod sales for the tepid forecast. Not wanting to incur the same iPhone product shortages it suffered in December 2012, the vendor said it increased channel inventory both for the iPhone and iPad in this December.

“No technology company has ever generated that much revenue in a single quarter, and we’re especially pleased to have generated that record despite foreign exchange headwinds, the year-over-year decline in iPod sales, and the higher revenue deferral rates from iOS devices and Macs that we discussed last quarter,” said Peter Oppenheimer, Apple CFO, on an earnings call. He said absent those hurdles, Apple would have posted an additional $2.5 billion in sales.

That sounds rosy but does Apple have cause to worry over how much fuel remains in the tank for the iPhone? The vendor faces more competition than ever before, with a horde of competitors entering the arena with low-cost devices, particularly in emerging segments, taking advantage of the super saturation of Apple’s sales sweet spot at the high end of the market.

“If you look at the emerging markets, which is one of the things that I’ve alluded to that we have to grow in these areas and grow at reasonable amounts,” said Tim Cook, Apple chief executive.

He pointed to 67 percent year-over-year iPhone unit growth in Latin America, 65 percent in EMEA, 40 percent in Japan, 115 percent in Central and Eastern Europe, and a 20 percent increase in China without the China Mobile agreement. Apple posted lower-than-expected sales in North America for the period, a result Cook blamed on supply shortages and changes in carrier upgrade plans.

Is the crux of Apple’s argument that the strength of the brand worldwide more than makes up for substantial price differences introduced by its competitors? Or is Apple contending that the brand’s force can carve out a position at the high end of the market in emerging segments that will stave off competitors?

It’s not clear whether Cook believes the North America sales slip is temporary, as he said, or that it indicates a more permanent problem. If it’s the latter, how Apple times the introduction of new technology, particularly its long-rumored iWatch, could become equally as important as the device itself.

As a side note, Apple, which is getting some public push from $3.6 billion activist shareholder Carl Icahn to expand its stock buyback program to boost the vendor’s stock price, declared a cash dividend of $3.05 a share and said it had returned more than $43 billion in payments to date.