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Market Update

Stage Set for a Blockbuster December Quarter at Apple

It would be a mistake for investors to view the sequential decline in iPhone sales as an inflection point for Apple's success.

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At first glance,  Apple's (AAPL) fiscal fourth-quarter results lacked the upside surprise to which some investors have become accustomed. It would be a mistake, however, for investors to view the sequential decline in iPhone sales as an inflection point for Apple's success. In fact, we believe Apple's December quarter is shaping up to be a blockbuster.

Total revenue was $28.4 billion, up 39% year over year. In contrast to revenue growth that averaged more than 70% during the first three quarters of the year, Apple's sales trajectory clearly decelerated. However, widespread speculation of a new phone release (which occurred last week) drove delays in purchases, causing the iPhone segment, which represents approximately 40% of total revenue, to grow just 25% year over year. In the short time since its release, however, the iPhone 4S is establishing a record sales pace and continues to exceed expectations despite a launch event that received a lukewarm reception. We continue to believe that the capabilities of the new phone, a large base of existing customers ready for renewal, and new price points for existing phones have positioned Apple for tremendous success during the next quarter, which will be 14 weeks long instead of 13 (due to a quirk in Apple's fiscal reporting calendar).

Michael Holt does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.