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Apple highlights services revenue and future bets as iPhone sales decline

Apple share price up on strong performance in services and investments in augmented reality and artificial intelligence, despite 27% year-on-year decline in quarterly profit

Apple highlighted services revenue growth, investments in augmented reality and artificial intelligence, and record App Store sales, but reported declines in iPhone sales and overall revenue for the quarter ending 25 June 2016.

Revenue for the quarter was $42.4bn, down 15% compared with the same quarter a year ago and below the $50bn to $53bn range forecast at the start of the quarter.

Net income for the quarter was down 27% to $7.8bn as iPhone sales fell for the second quarter in a row, down 21% on the last quarter and 15% on the same quarter a year ago, resulting in a 23% drop in revenue.

The company’s iPad sales declined 9% but revenue was still up 7% compared with the same period a year ago, while Mac sales declined 11%, resulting in a 13% fall in revenue.

But services revenue, which includes Internet Services, AppleCare, Apple Pay, licensing and other services, was up 19% to $5.97bn.

Despite the overall decline in revenue for the quarter, Apple’s share price rose by more than 6.5% in after-hours trading because the results were better than investors had expected.

Analysts said separating services from devices in Apple’s financial reporting for the first time is a shrewd move because it shows the company can still make more money from people who are not upgrading their devices.

“We are pleased to report third-quarter results that reflect stronger customer demand and business performance than we anticipated at the start of the quarter,” said Tim Cook, Apple’s CEO.

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“We had a very successful launch of iPhone SE and we are thrilled by customers’ and developers’ response to software and services we previewed at WWDC [Apple’s Worldwide Developers Conference] in June.”

Cook also sought to assure investors that Apple is preparing for the next evolution of mobile technology, reports Reuters, by saying the company is investing in augmented reality and artificial intelligence.

He said artificial intelligence and augmented reality will only reinforce the importance of the iPhone, adding that Apple is working to make sure its products work well with third-party products, such as Pokemon Go.

Luca Maestri, Apple’s chief financial officer, highlighted the services growth and the fact that App Store revenue was the highest ever.

“We returned over $13bn to investors through share repurchases and dividends, and we have now completed almost $177bn of our $250bn capital return programme,” he said.

Apple said it expects revenue of between $45.5bn and $47.5bn in the next quarter, an increase of between 7% and 12% on the last quarter, but a decline of between 8% and 12% compared with the same period a year ago.

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