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Apple execs look to future amid earnings beat

Investors bid up Apple Inc. shares after the company's fiscal third-quarter earnings release as several metrics showed growth and EPS came in above expectations.

The company doubled-down on speculation that with its release of developer platform ARKit Apple intends to be a major player in emerging technologies like augmented and virtual reality. AR will be widely adopted across mainstream consumer and enterprise categories, and once the new mobile operating system iOS 11 ships, Apple's ecosystem will become "the world's biggest augmented reality platform," CEO Tim Cook said on an Aug. 1 earnings conference cal.

"From entertainment to gaming, I've seen what I would call more small business solutions. I've seen consumer solutions. I've seen enterprise solutions. I think AR is big and profound. And this is one of those huge things that we'll look back at and marvel on the start of it," the executive said.

The company also made machine learning technology available to its developers to embed in their own applications, including capabilities like space detection, object tracking and natural language interpretation, and its new desktop operating system, Mac OS High Sierra, will directly support 3D and virtual reality.

Looking at the quarterly results, the company grew units sold across all its product categories, with its Services segment hitting a record quarterly revenue mark of $7.27 billion, up 22% year over year from $7.04 billion.

"Over the last 12 months, our Services business has become the size of a Fortune 100 company, a milestone we've reached even sooner than we had expected," Cook said.

The growth in services is coming from several areas, CFO Luca Maestri said, particularly the expanding App Store, which is growing both the number and quality of products available and regional currencies accepted. Growth in Apple Music and iCloud are also contributing, he added.

The company also managed to grow its Mac and iPad categories as well, which are typically the company's more volatile categories. Apple sold 11.4 million iPads and 4.3 million Mac computers, up 15% and 1% and yielded revenue growht of 2% and 7% respectively.

"Mac revenue grew 7% year over year, driven by the strength of the MacBook Pro and iMac despite IDC's latest estimate of a 4% unit contraction in the global PC market," Cook said.

Elsewhere, Cook said Apple Watch sales were up over 50% year over year, making it the No. 1 selling smartwatch in the world "by a very side margin." Those sales helped drive 23% revenue growth to $2.74 billion in its Other Products category.

One product that was missing from the executives' opening remarks was Apple TV, one analyst pointed out, asking the executives if they are still as bullish on video as they had once indicated. Cook responded that the company's original content efforts, with distribution focused on Apple Music for now, is two-fold.

"One is for our own learning, given that we're new in the video space in terms of creation; and two is to give the Apple Music subscribers some exclusive content and hopefully grow our subscriber base," Cook said. "We've recently hired two great folks with lots of experience in creating content like 'Breaking Bad' and 'The Crown' and some really top-notch content. And so we'll see how this area goes but it's still an area of great interest."

Geographically, the company grew revenue in most reported markets on a year-over-year basis, except China, where revenues retreated to $8.00 billion from $8.85 billion despite strong growth from Services, iPad and Mac, and a record number of device upgrades. However, Cook pointed out that on a constant-currency basis revenue was up 6%. He also noted that customers switching to iOS was up year over year everywhere except China.

Investors responded bullishly to the company's corporate-level financial results for the fiscal third quarter, as net sales came to $45.41 billion for the quarter ended July 1, at the high end of the company's guidance range and up 7% from $42.36 billion in the comparable year-ago quarter. Net income came to $8.72 billion, or $1.67 per share, compared to $7.80 billion, or $1.42 per share, in the 2016 quarter, up 17% on a per-share basis.

The S&P Capital IQ EPS estimate for Apple's fiscal third quarter was $1.57.

The company sold 41.03 million iPhones during the quarter for revenue of $24.85 billion.

Looking forward, the company said it expects fiscal fourth-quarter revenue between $49 billion and $52 billion.

Apple shares traded up over 6% in after-hours speculation following the earnings release.