Apple Woos New iPhone Fans as Current Owners Await Upgrade

Apple attracted a swathe of new iPhone customers over the holiday period, auguring well for a more significant upgrade to its flagship product this year - and the services revenue that these devices are increasingly generating. The shares climbed to the highest price in more than 17 months.

Existing iPhone users upgraded to the latest iPhone 7 models at about the same rate as the iPhone 6S a year earlier, Chief Executive Officer Tim Cook said in a conference call with analysts. Yet Apple still managed to sell 3.5 million more phones in the three months ended December 31, indicating growth was driven by new customers.

The iPhone 7 represented a modest update to its predecessor, the 6S, adding water resistance, an improved camera, battery life and processor while retaining similar styling. Expectations are mounting for a more significant upgrade to Apple's flagship product later this year, which is the 10th anniversary of the iPhone's launch. That may persuade more existing iPhone users to open their wallets for the next model.

"When we're able to innovate with new generations of products, clearly that plays a role in the upgrade rate," Chief Financial Officer Luca Maestri said.

Apple's research and development budget is growing apace, hinting at new innovations or products in the works. R&D spending jumped 19 percent to $2.9 billion (roughly Rs. 19,552 crores) in the first quarter.

Apple reported total revenue rose 3.3 percent to $78.4 billion (roughly Rs. 5,28,592 crores), with earnings of $3.36 a share, in the holiday quarter, exceeding analyst forecasts. The shares gained 6.7 percent to $129.50 at 2:10 p.m. in New York, the highest value since July 2015.

Samsung Electronics Co. recalled its flagship Galaxy Note 7 smartphone in September after a fault that caused some batteries to burst into flames. That reduced competition in the market for large, high-end smartphones and likely helped attract new customers, according to New York-based BTIG analyst Walt Piecyk.