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By Jeremy Glaser | 01-24-2012 05:15 PM

Apple Turns in Another Blockbuster Quarter

Some upside remains in Apple shares, but the acceleration of the iPhone and iPad businesses has sent the stock closer to fair value, says Morningstar's Mike Holt.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser.

Apple had another blowout quarter, and I am here today with senior analyst Mike Holt to get his first take on the results and what he thinks is next for the tech giant.

Mike, thanks for talking to me.

Michael Holt: Thanks for having me.

Glaser: So was there anything bad in this quarterly report?

Holt: Well, there are so many good things to focus on, nothing bad is sticking out. I mean when you see 37 million iPhones and 15 million iPads being sold, that's a blockbuster quarter.

Glaser: So there really seems like there was strength across a lot of different businesses. So let's take a look at each of them somewhat briefly. First is the iPhone. Was the launch of the iPhone 4S successful for Apple?

Holt: Absolutely, and it's incredible success. If you look at the quarter before this, the September quarter, they sold 17 million iPhones. So to go up to 37 million sequentially in one quarter that's a huge jump; that's a screaming success for the product launch.

Glaser: So now is that due to further adoption in new markets, in emerging markets? Is it due to people trading up from their existing iPhones? What's driving that big increase?

Holt: With that big of an increase, it's a combination of all those things. So there are on more carriers around the world; even in the U.S., you see they've launched on more carriers after historically just being with AT&T. But it's also just there was pent-up demand from the existing user base, and then there was a lot of new interest from people who didn't have an iPhone before.

Glaser: Now in the tablet space, what's happening with the iPad? Has it seen any headwinds from lower-priced competitors like the Kindle Fire yet?

Holt: Less than we've expected. There is room. We've seen this on the smartphone side that there's room for more than one player, so it won't just be Apple dominating forever; there's room for Android devices, for the Kindle Fire. But what we see now is that Apple is doing just fine despite the competition.

Glaser: What's happening with their Mac sales?

Holt: Those are strong, too. There's a nice Halo effect; they've brought a lot of new users in on the iPhone and iPad, and some of those are opting for the Mac. But if you look at how this revenue breaks down, 50% of the revenue from the quarter was from the iPhone, and if you include the iPad, over 70% of the revenues are accounted for with just those two devices. So that's where we are really focusing our energy.

Glaser: So what does this move toward even more mobile devices do for the firm's margins?

Holt: Surprisingly, they actually went up. A lot of people are concerned that maybe the way Apple would drive volume going forward is to move into lower-priced segments. They are offering of course the iPhone 4S, but they are still offering the iPhone 4 and the 3GS as well.

What we take away from this quarter is that, that did not drive down the average sale price. So the demand is really being fueled by demand for the highest-end device right now. Now that may change in the coming quarters, but for right now, it's still a very strong trend.

Glaser: So with this higher profitability, huge sales, just adding to that ever-growing pile of cash in Cupertino, any news on what they are going to do with this? Any thoughts on what they could do with all those cash?

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