Apple's iTunes Division Touts Record $8.5B Revenue

AP Photo/Kiichiro Sato

Apple store in downtown Chicago on Oct. 19, 2017.

Apple might be a hardware company, but its software and services business is becoming increasingly important. 

The tech giant on Thursday reported that its services division — which includes iTunes, Apple Music and other software — had generated record quarterly revenue of $8.5 billion, up 34 percent from the same period last year. The focus on services, which is led by senior vp Eddy Cue, is part of CEO Tim Cook's 2016 goal of doubling its annual revenue in the segment by 2020.

On a call with investors, Apple CFO Luca Maestri said that Apple Music is seeing its highest level to date of people converting from free trials to paid subscriptions. He also disclosed that subscriptions are up 75 percent year-over-year. Apple reported in September that Music had reached 30 million subscribers.

One reason for the growth could be the influx of original programming on the $10-per-month music streaming service. This summer, Apple released its first batch of original programming — reality series Planet of the Apps and Late Late Show spinoff Carpool Karaoke — on Apple Music. Apple has indicated that it plans to significantly ramp up its programming efforts, hiring television veterans Zack Van Amburg and Jamie Erlicht to oversee a reported $1 billion content budget. Their first scripted pickup was Steven Spielberg's Amazing Stories. Executives have yet to disclose whether future programming will be delivered via Apple Music or another, video-centric offering.

But content and services are still a small part of Apple's overall business. And most investors were looking to the company's fiscal fourth-quarter earnings for signs of whether Apple's new iPhone X will be a hit. 

The $1,000 iPhone doesn't hit Apple stores until Friday, but Apple revealed that it expects to bring in between $84 billion and $87 billion in revenue during the current quarter, an indication that it is feeling confident about sales of the device. 

The tech giant also reported that it sold 46.7 million iPhones during the three months from July to September, during which its new iPhone 8 device was only on sale for one week. 

The strong sales boosted Apple's overall business. It brought in $52.6 billion in revenue during its fourth quarter and earned $2.07 per share. Wall Street expected Apple to report revenue of $50.7 billion and earnings of $1.87 per share. 

At its September product event, Apple revealed that it would release an upgraded phone, dubbed the iPhone 8, as well as the overhauled iPhone X. The X (a reference to the 10th anniversary of the iPhone) retails for $999, making it the most expensive mobile device from the tech giant. Next quarter is when Apple will realize the bulk of sales for the iPhone 8 and iPhone X.

Apple shares closed Thursday up less than one percent, or $1.22, to $168.11. The stock was trading up more than 3 percent after-hours on the Nasdaq. 

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