Apple’s holiday iPhone sales surge despite supply shortages

Apple shook off supply shortages that have curtailed production of iPhones and other popular devices to deliver its most profitable holiday season yet.

The results posted Thursday for the final three months of 2021 help illustrate why Apple is looking even stronger at the tail end of the pandemic than when the crisis began two years ago.

At that point, Apple's iPhone sales had been flagging as consumers began holding on to their older devices for longer periods. But now the Cupertino, California, company can't seem to keep up with the steadily surging demand for a device that has become even more crucial in the burgeoning era of remote work.

"IPhone has never been more popular," Apple CEO Tim Cook crowed during a conference call with analysts. The company's Mac computers and, to a lesser extent, iPads also continue to proliferate. With the iPhone leading the way, Apple disclosed it now has more than 1.8 billion devices worldwide now in use.

Apple's inability to fully satisfy the voracious appetite for iPhones stems from a pandemic-driven shortage of computer chips that's affecting the production of everything from automobiles to medical devices.

But Apple so far has navigated the shortfalls "in almost Teflon-like fashion," Wedbush Securities analyst Daniel Ives said in a Thursday research note. That deft management enabled Apple to report iPhone sales of $71.63 billion for the October-December period, a 9% increase from the same time in the previous year.

Its shares gained more than 5% in Thursday's extended trading after the Apple's fiscal first-quarter numbers came out.

The supply issues looming around Apple's devices have magnified the importance of the company's services division, which is fueled by commissions from digital transactions on iPhone apps, subscriptions to music, video streaming and repair plans.

The up to 30% commissions Apple collects from apps distributed through its exclusive app store have become a focal point of a fierce legal battle that unfolded in a high-stakes trial year, as well as proposed reforms recently introduced in the US Senate seeking to down the company's barriers preventing consumers from using alternative payment systems.

For now, though, the services division is still booming. Its revenue in the past quarter hit $19.52 billion, a 24% increase.

Apple is widely believed to be maneuvering toward another potentially huge money-making opportunity with the introduction of an augmented reality headset that would project digital images and information while its users interact with other physical objects and people. True to its secretive form, the company has never said it is working on that kind of technology.

But Cook has openly shared his enthusiasm for the potential of augmented reality in past public presentations, and reiterated that point during Thursday's conference call.

"We see a lot of potential in that space, and are investing accordingly," he said in response to a question.

Some analysts believe the long-rumored headset could finally roll out later this year — unless it's delayed by supply shortages.