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Apple's big Q1 blows the door off estimates

Aaron Pressman
Kim Kyung Hoon/Reuters Apple CEO Tim Cook at an iPhone launch event in China. For the first time ever, Apple is the top smartphone vendor in China, according to a new report from research firm Canalys. Here’s the note from Canalys: The incredible popularity of the iPhone 6 and 6 Plus in China in Q4 2014 has led Apple to take first place in the Chinese smart phone market for the first time by units shipped. This is an amazing result, given that the average selling price of Apple’s handsets is nearly double those of its nearest competitors. While Chinese smart phone vendors are quickly gaining ground internationally, Apple has turned the tables on them in their home market. The company is finally riding the large screen and LTE trends in China, which have been vital to its success, along with a well-timed launch and a clampdown on grey exports of its products out of Hong Kong. The top four vendors in Q4 in China by units shipped were Apple, Xiaomi, Samsung and Huawei, respectively. This is big news for Apple as it prepares to deliver what analysts say will be a blowout quarter for iPhone sales. Over the last year, the top smartphone vendor in China has shifted between Samsung, Lenovo, and the startup Xiaomi. Apple has never been able to claim the top spot, but according to Canalys, the iPhone 6 launch was massive in China. China is one of the most important markets for smartphone vendors. Most people there are still making the transition from regular phones to smartphones. Xiaomi, a four-year-old startup based in China, has been particularly interesting to watch over the last two years or so. Its phones are very popular in China, and until now, it usually sold more units than Apple. Xiaomi makes really nice Android phones with high-end specs, but sells them for about half the price of other premium devices. But Xiaomi’s strategy hasn’t put a dent in the iPhone’s momentum in China, and the latest report from Canalys proves it. More to come…refresh for the latest. Read more stories on Business Insider, Malaysian edition of the world’s fastest-growing business and technology news website.

Investors were expecting a huge holiday quarter from Apple (AAPL) and the company did even better. Apple shares, just about unchanged so far this year, jumped more than 5% in after-hours trading.

Apple said it collected $74.6 billion in sales, up 30% from last year, and net income of $18 billion, up 37%, in the final three months of 2014, its fiscal first quarter. Earnings per share hit $3.06.

Analysts were expecting only $67.5 billion of revenue, including $43.1 billion from iPhone sales, to go along with earnings per share of $2.62, according to FactSet Research Systems.

Customers snapped up a record 74.5 million iPhones, up 46% from last year, at an average selling price of $687, up $50 from last year. Analysts were expecting 67 million to 70 million, so Apple easily beat even the high end of investor expectations.

CEO Tim Cook also told analysts that the company's highly-anticipated smart watch will ship in April. "Development for Apple Watch is right on schedule and we expect to begin shipping in April," he told analysts.

The mega quarter comes as some of Apple's top competitors faltered. Microsoft (MSFT) said on Monday night that sales of Windows licenses slipped 13% and offered a revenue forecast for the beginning of 2015 that was billions of dollars less than analysts expected. That, in turn, hit shares of Intel (INTC), Hewlett-Packard (HPQ) and other Windows-reliant tech companies.

Phenomenal iPhone sales resulted from what analysts were calling a super upgrade cycle. The new larger-screened iPhone 6 and 6 Plus models appealed to a wide range of customers. Apple became the biggest smartphone seller in China in the fourth quarter, Canalys reported today, an "amazing" result given that iPhones sell for double the price of competitors on average, the market research firm said.

But Cook took pains to note that only a small percentage -- he specified only "mid-teens or barely in the teens" -- of all iPhone owners had upgraded so far. "When I look at that, I'd say that there's an enormous amount left," he told analysts.

The bigger iPhones didn't help the struggling iPad at all. Apple reported sales of just 21.4 million iPads, down 18% from last year. And for the entire year of 2014, iPad sales sunk for the first full year since the ground-breaking tablet went on sale in 2010.

After several years when Apple's holiday quarter sales were slowed by manufacturing problems and capacity constraints, CEO Cook was able to brag that the company's execution was "simply phenomenal." One reason Apple outperformed its own previous guidance? The company was able to build a few million more phones than it had predicted.