Apple Inc. AAPL -0.60% signaled that the historic rise in sales it has achieved during the pandemic is set to continue, addressing a key investor concern as the company reported a profit that more than doubled to a record high for the first three months of the year.
New, more expensive models of the iPhone 12 have been a hit with customers, and revenue from Mac computers and iPads also rose during the quarter on strong demand from employees and students conducting their work at home.
Apple’s fiscal second-quarter results set new highs in what could be a record-setting year for profit and revenue. Analysts predict full-year profit will exceed $70 billion, nearly a third more than last year.
Apple shares jumped 4% in after-hours trading Wednesday in New York.
The Cupertino, Calif. company reported a profit of $23.6 billion in the latest quarter as revenue rose 54% to $89.6 billion, far exceeding Wall Street expectations. The company also announced a 7% increase to its cash dividend to 22 cents a share and that the board had authorized an increase of $90 billion to an existing share-repurchase program.
“We feel very good, given the results we’ve had in the first half of our fiscal year,” Apple finance chief Luca Maestri said in an interview. “And clearly as economies start to reopen, particularly those economies where there are enough vaccines, obviously we think that should be a positive.”
While work-from-home trends helped Apple’s performance, Mr. Maestri said the company may see continued benefits from a hybrid work model. A return to more normal conditions could also boost other business lines, such as from an increase in the purchase of AppleCare, an extended warranty service the company offers, and advertising, which were negatively affected by the Covid-19 pandemic.
“It was obviously more difficult for us to sell iPhones and watches—that typically require a lot of interactions of our customers, particularly in the retail stores and in the carrier stores,” he said. “So that may provide an offset.”
After a year of hype about the potential for the iPhone 12 and a rapid rise in the company’s shares, Apple is one of a number of companies that investors are closely watching to see whether historic, pandemic-induced business success can continue.
Shares in Google parent Alphabet Inc. GOOG 3.16% and Facebook Inc. FB 1.16% rose after they reported earnings this week. The results, which were buoyed by an increase in digital ad spending, outstripped analyst expectations. Still, investors have been underwhelmed in some cases when company results failed to signal momentum in earnings after the pandemic. Microsoft Corp. MSFT -2.83% shares retreated Tuesday after the company said its quarterly sales rose 19%.
Apple’s revenue results beat estimates from analysts surveyed by FactSet by 16% while profit was 42% better than expected.
Investors like Dan Morgan were looking for signs of continued growth, even as the tech sector struggles with a microchip shortage and other uncertainties tied to the coronavirus pandemic. “The market always looks six months ahead,” said Mr. Morgan, a senior portfolio manager who focuses on technology at Synovus Trust Co., which counts Apple among its largest holdings.
Apple was able to avoid a microprocessor shortage in the March period. But Mr. Maestri cautioned, during a public conference call, that a shortage would contribute to a decline in revenue in the current quarter steeper than the typical falloff following the March period. Supply constraints will primarily affect Macs and iPads.
Apple still expects “strong double-digit” revenue growth from the year-earlier quarter, he said. The company stopped providing detailed guidance about coming quarters last year, as Covid-19 upended daily life around the world and initially sent markets falling amid fears of a global recession.
Apple and Its Rivals
“This was a pretty unbelievable quarter,” Katy Huberty, an analyst for Morgan Stanley, told Apple executives on the call. “And investors are going to ask about the sustainability of current demand trends, especially as you lap some of the benefits from Covid.”
During the call, Chief Executive Tim Cook said there was still room for iPhone growth with the newly introduced 5G cellular version of the device. “The 5G cycle is important and we’re in the early days.”
The real engine of 2021 is the latest iPhone: Overall iPhone revenue for the March quarter rose 65% to $47.9 billion. Analysts had expected a 42% rise.
Higher-end versions of the iPhone 12 appear to be providing a boost. The average retail price in the U.S. during the past three months rose $52 to $847 from a year earlier, according to data from Consumer Intelligence Research Partners LLC, which surveys buyers.
The most expensive version, the iPhone 12 Pro Max with a 6.7 inch display that starts at $1,099, saw its share grow to 20% of sales from 13% a year earlier, the survey found.
The addition of faster 5G cellular connections to this year’s phone was expected to help Apple in China where competitors had beaten Mr. Cook to market with more-advanced phones. Greater China sales in the latest quarter nearly doubled to $17.7 billion.
Apple and other tech giants have benefited as students and workers stuck at home turned to their products in record numbers, pushing share prices to new heights. Apple’s stock almost doubled last year. Its current valuation, as a measure of its price-to-earnings ratio, is the highest since December 2007, according to FactSet.
Much of the growth last year was fueled in unexpected places. Apple saw record demand for Mac computers and an 11% rise in iPad tablet sales. That growth continued in the March period. On Wednesday, Apple said Mac sales rose 70% to $9.1 billion and iPads increased 79% to $7.8 billion. That beat analyst expectations for increases of 27% and 29%, respectively.
SHARE YOUR THOUGHTS
What do you typically find most meaningful in Apple’s quarterly reports? Join the conversation below.
Even as the world’s biggest tech companies continue to post record results, they remain in the crosshairs of regulators and investigators who are scrutinizing how they wield market power. Apple’s strength in the market is being questioned by smaller tech companies.
Apple this week rolled out software changes to iPhones and iPads to make it harder for apps to track users across the internet, a measure touted by Mr. Cook as a consumer safeguard. Facebook and others have questioned Apple’s motives in the matter.
Apple is on the eve of going to trial in federal court to defend itself against claims by the maker of the popular videogame “Fortnite” that the iPhone company is engaged in anticompetitive behavior in its app store. Apple has denied wrongdoing. Observers are also watching for regulators in the European Union to reveal results soon of their investigations into claims of Apple’s monopoly behavior. Apple has said the complaints are baseless and defended its role in promoting businesses on its App Store.
Write to Tim Higgins at Tim.Higgins@WSJ.com
Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8