Apple Inc. snapped out of three straight quarters of falling revenue as strong demand for the iPhone 7 raised investors’ hopes that the technology giant is emerging from its roughest period since it reinvented the market for mobile devices.
Sales of the new smartphone model, which Apple unveiled in September, propelled total iPhone shipments 5% higher to a record during the three months through December. iPhones, which account for two-thirds of Apple’s sales, helped boost total revenue 3% to a record $78.4 billion.
Apple’s services business—which includes its App Store sales and its music and payments services—continued to boom. Revenue in that segment jumped 18% from a year ago to $7.2 billion, making it bigger than many large companies. It had nearly three times the sales of Netflix Inc. during the same period.
Apple Chief Executive Tim Cook said in an interview he expects services revenue to double over the next four years.
“There’s a lot to feel great about,” Mr. Cook said.
Apple’s shares rose more than 3% after normal trading hours Tuesday to more than $125 each. The stock is now only about 6% off its all-time closing high of $133 reached in February 2015, after having fallen to about $90 last May.
“If they’re an eight-cylinder sports car, then they’re firing on seven out of eight cylinders which is very, very impressive in the context of expectations,” said David Rolfe, chief investment officer at Wedgewood Partners Inc., a St. Louis firm that counts Apple as its largest holding.
Still, the results overall showed that Apple continues to struggle to regain the type of momentum that made it the world’s most valuable company. The iPhone 7, while it helped results, didn’t spark the double-digit increase in overall sales of iPhones that previous new models did in their first full quarter on the market. Unit shipments of the iPhone jumped 46% in the October-December quarter of 2014 after the launch of the iPhone 6, for example.
Apple’s China business remains a soft spot, though it showed signs of stabilizing. Competition in that market, long a growth driver, has intensified and Apple lost market share to less expensive smartphones from local rivals like Oppo Electronics and Huawei Technologies Co.
Sales in Greater China, the world’s largest smartphone market, fell 12% to $16.2 billion in the quarter, Apple said. Executives blamed part of that on currency effects and pointed to positives such as services sales.
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