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New iPhone Sales Smash Estimates, Apple Guides Up

Apple (AAPL) rose 5% Monday after trouncing initial sales estimates for its new iPhones and said its fiscal fourth-quarter revenue and profit margin would be at the high end of its prior guidance.

The Cupertino, Calif.-based technology titan said it sold more than 9 million iPhone 5S and 5C handsets in the first three days. Most analysts expected sales of 6 million to 7 million units. By comparison, Apple sold over 5 million units of the iPhone 5 in its first weekend last year.

"This is our best iPhone launch yet," Apple CEO Tim Cook said in a statement. "The demand for the new iPhones has been incredible, and while we've sold out of our initial supply of iPhone 5S, stores continue to receive new iPhone shipments regularly.

S Stands For Sales

Apple did not provide a breakdown, but Wall Street analysts believed the high-end iPhone 5S outsold the midpriced iPhone 5C.

Apple sold through to consumers 4 million 5S units and 1.5 million 5C units in the opening weekend, Piper Jaffray analyst Gene Munster estimated. For the rest, Apple likely counted 3.5 million iPhone 5C units that it sold into the sales channel, he said in a research note Monday.

Global Equities Research analyst Trip Chowdhry estimates that Apple sold five iPhone 5S units to every one 5C.

Before the latest iPhone launch, industry analysts had speculated that production issues involving the 5S fingerprint security feature would limit supply. Those concerns may have been overstated, RBC Capital Markets analyst Amit Daryanani said.

Apple's first-weekend sales of new iPhones are largely a function of how many handsets it can make, rather than market demand, said BTIG analyst Walter Piecyk. He called the 9 million iPhones sold "an incredible manufacturing feat" and a sign that Apple can still maintain secrecy.

This year's iPhone launch differed from last year's iPhone 5 launch in several ways. Most notably, the past weekend launch involved two new iPhone models. The 2013 iPhone launch was the widest initial release: 11 countries, vs. nine for the iPhone 5.

Apple also didn't offer preorders for its newest flagship handset, the iPhone 5S, as it did in prior years. This year's launch also benefited from immediate availability in China, which saw 2 million unit sales in its first weekend of the iPhone 5, and the addition of Japan's NTT DoCoMo (DCM) as a wireless carrier, UBS analyst Steven Milunovich said.

5C A 'Sleeper' Hit?

The bright-colored, plastic-backed iPhone 5C also could be selling better than many had expected. BTIG's Piecyk said the 5C could be a "sleeper" hit in the December quarter.

Apple said Monday it expects fiscal Q4 revenue and gross profit margin to be at the high end of its guidance range of $34 billion to $37 billion and 36%-37% respectively.

"Gross margin was the most encouraging data point," said William Blair analyst Anil Doradla in a research note. "After five straight quarters of gross margin contraction, Apple is guiding for roughly flat gross margin, and we are increasingly confident that gross margin will improve from these levels in fiscal 2014.

Tear-down analyses of the new iPhones point to Avago Technologies (AVGO) and NXP Semiconductors (NXPI) as "winners" over the prior-generation handset, gaining new content business, Sterne Agee analyst Vijay Rakesh said in a research note Monday.

Flash memory chipmakers Micron (MU) and SanDisk (SNDK) will benefit from the secular trend toward higher data storage and memory capacities in smartphones, he added.