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Apple's iPhone X to bring company a very merry holiday

Apple's results and forecast also suggest iPhone 8 sales weren't as bad as expected.

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Apple's iPhone X hits stores Friday. 

Sarah Tew/CNET

OK, so how well did those new iPhones really do?

That's mostly what we're obsessed with as Apple posted its fiscal fourth-quarter results Thursday.

Despite fears that iPhone 8 sales were off to a bumpy start, Apple reported a better-than-expected fourth quarter, with earnings and revenue topping analysts' forecasts. Apple also said overall revenue for the next quarter likely would be stronger than analysts' projections, indicating healthy demand for the iPhone X, which comes out Friday.

"As we approach the holiday season, we expect it to be our biggest quarter ever," Apple CEO Tim Cook said during a call with analysts. 

Shares rose 3.5 percent, to $171.59, in after-hours trading. 

Apple sold 46.7 million iPhones in the period, up 2.6 percent from the previous year. Overall, analysts expected Apple to sell 46.5 million iPhones in the quarter, according to the firm Bernstein. 

The hiccup here is that the numbers don't show how well all of the new iPhones performed. Typically, the company releases its newest iPhones in September, and the quarter benefits from the first weeks of sales. This year, though, Apple has two separate releases: the iPhone 8 and 8 Plus on Sept. 22 and the iPhone X on Friday. 

It's the forecast for a strong holiday season that indicates the iPhone X will drive sales then.

The device, arriving a decade after the first iPhone, marks the first major smartphone redesign by Apple in years. It ditches the home button in favor of Face ID and sports a more vibrant OLED display that stretches across the entire front of the phone. It also costs more, with the 64GB version starting at $999 versus $699 for the lowest-end iPhone 8 and $799 for the iPhone 8 Plus.

The newly designed iPhone can't come soon enough. More than two-thirds of Apple's sales come from its popular smartphone, but iPhone sales dropped for the first time last year. The overall smartphone market also has been slowing down.

iPhone X demand

The iPhone X may be the hottest device Apple has ever sold. Customers scooped up 25 percent more units in the first four days of preorders than the previous record holder, the iPhone 6, according to data from Slice Intelligence. But supply is believed to be even lower than in years past, where eager iPhone fans had to wait about a month for a device. Currently, the wait for an online order is five to six weeks. Nov. 3 availability for the iPhone X disappeared almost as soon as preorders began Oct. 27.

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3:07

Analysts asked Cook multiple times about how iPhone X preorders compared to the iPhone 8. The CEO brushed off the question each time, saying he was "not going to talk about mix."

Still, Cook sought to alleviate some fears that people were seeking out older iPhones during the quarter instead of buying the iPhone 8. Apple's average selling price for iPhones during the quarter was $618 versus analysts' expectations for $638, which indicated it sold a lot of cheaper devices. 

Cook noted the iPhone 8 and 8 Plus "instantly became our two most popular iPhone models and have been every week since then." He also said he couldn't predict when Apple could make enough iPhone X models to meet demand. 

"We're really happy that we're able to increase week by week what we're outputting," Cook said. "I can't predict at this point when that balance will happen."

To get a sense of how the iPhone X will perform, analysts looked to Apple's forecast for the current first quarter. The period, which includes the key holiday season, is typically Apple's largest. Analysts expect Apple to sell 81 million iPhones in the period, according to Bernstein analyst Toni Sacconaghi. Apple's previous record was 78.3 million in the first quarter of 2017.

"Apple's commentary on iPhone X availability and expected timeframe to achieve supply/demand balance, as well as on initial demand/orders will be critical," Sacconaghi noted.

Apple said first-quarter revenue would jump to $84 billion to $87 billion, up from $78.4 billion a year earlier. That compared with analyst expectations for $85.31 billion, according to Yahoo Finance.

Q4 by the numbers

Apple's net income rose to $10.7 billion, or $2.07 a share, from $9 billion, or $1.67 a share. Analysts had expected earnings of $1.87 a share, according to Yahoo Finance.

Apple's revenue climbed 12 percent to a record $52.6 billion, compared with analyst expectations for $50.8 billion, according to Yahoo Finance.

Notably, Apple now has $268.9 billion in cash, with most of that held overseas. Cook on Wednesday during a TV interview called for tax reform that would let him bring Apple's cash back to the US.  

iPad sales continued their rebound in the quarter. Apple sold 10.3 million units, up 11 percent from a year ago. The third quarter marked the first time iPad unit sales rose after 13 consecutive quarters of declines. 

June's Worldwide Developers Conference featured a new 10.5-inch iPad Pro that's sized in between the two existing professional-level tablets. Apple also introduced new iMacs and MacBooks at its developer confab.

The company said Thursday that it sold 5.4 million Macs, up 10 percent from the previous year.  

The services business also continued to grow, with revenue up 34 percent from the previous year to $8.5 billion. Apple likes to tout the strength of that business, which includes its $10-a-month Apple Music subscription, iCloud storage, iTunes music and its cut of revenue from the App Store. Unlike the ups and downs of hardware sales, it tends to grow as more people use more Apple products.

And sales of its "other products," which include the Apple Watch, AirPods, Beats headphones and other accessories, rose 36 percent to $3.2 billion. Apple doesn't detail individual sales but noted revenue from all of its wearables jumped 75 percent from the previous year.

"The biggest standouts for me were that every single product and service line was up, including iPads, which had been challenged," Moor Insights & Strategy analyst Patrick Moorhead said.  

Update, 3:15 p.m. PT: Added comments from an analyst and Tim Cook. 

Correction, Nov. 3 at 12:45 p.m. PT: To revise Slice Intelligence market data on iPhone X preorders.

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