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Apple shares surge 7% and jump back above $100

Jon Swartz, and Jefferson Graham
USA TODAY
In this Sept. 9, 2015, photo, Apple CEO Tim Cook introduces the iPhone 6S during an Apple media event in San Francisco.

Corrections and Clarifications: A previous version of this story misstated that the Apple Watch was a part of Apple's Services divisions. 

SAN FRANCISCO — Apple's report on quarterly earnings felt like deja vu on Tuesday, with slackening desire for new iPhones sending sales down.

Yet, results that topped Wall Street's lowered estimates, plus its forecast for better-than-expected sales for the current quarter, sent the stock up following the after-hours report. Apple's stock jumped about 7% and leaped back above $100 a share, to close at $102 a share.

For the fiscal third quarter, which ended in late June, Apple (AAPL) reported earnings per share of $1.42, down from $1.85 in the year-ago quarter. Net income fell 27% to $7.8 billion.

Apple earnings, iPhone update - live blog

Sales dropped for the second straight quarter, down 15% to $42.4 billion.  They were hit by waning demand for new smartphones, particularly in its powerhouse market of China. Iphone unit sales fell to 40.4 million, also down 15% year-over year, but slightly above the 40 million iPhone unit shipments forecast in estimates collected by FactSet.

Results "reflect stronger customer demand and business performance than we anticipated at the start of the quarter," said Apple CEO Tim Cook in a statement.

Analysts surveyed by S&P Global Market Intelligence had expected $1.38 earnings per share in the recently-completed quarter, on sales of $42.1 billion. Apple anticipated $41 billion to $43 billion in revenue.

A tougher market for Apple in China contributed to falling iPhone sales. Its share of the smartphone market in China in May slid to 10.8% from 12% a year ago, dropping it from third place to fifth, according to Counterpoint Technology Market Research. The fop four smartphone makers — Huawei, Vivo, Oppo, and Xiaomi — were all local companies.

Apple said Tuesday sales in greater China were down 33% year-over-year, pushing the region's contribution to total revenue behind that of Europe.

Where your iTunes dollars go: Apple's services is worth $23B

In a call with analysts, Cook pointed to Apple's recent $1 billion investment in Didi, known as the Uber of China, as a way to "learn a lot about the Chinese market beyond what we know."

Disappointment over sinking sales at the company that knew nearly unbounded revenue and stock momentum for more than half a decade has hammered the stock. Shares ​have lost about a third of their value since mid-2015. In the regular session, Apple closed down 0.7% at $96.67.

For the current quarter, which ends in September, Apple said it expects to make between $45.5 billion and $47.5 billion in sales. Analysts on average had forecast $45.8 billion in sales.

The forecast "implies the business is perhaps not as bad as expected," said Piper Jaffray analyst Gene Munster.

Cook touts 'amazing' Apple Pay growth

Analyst Patrick Moorhead of Moor Insights and Strategy said Apple's fortunes are tied to the next iPhone, and a software refresh of the Apple Watch that will improve the experience for consumers. The watch upgrade, in particular, "will bring in a second wave of new buyers," that could be ten times the initial wave of early adopters, he said.

One bright spot for Apple is its "services" unit, which includes iTunes and the App Store. It brought in nearly $6 billion in revenue, and now is Apple's second biggest source of sales, after the iPhone.Services now represents 11% of Apple's overall revenue over the last three quarters.

Where your iTunes dollars go: Apple's services is worth $23B

The App Store, with 2 million apps, is on a roll, and could be helped in the current quarter by the red-hot app Pokémon Go, which is free, but has "in-app" purchases for upgrades. The app, barely three weeks old, has already generated some 75 million downloads, and has been a showcase for mixing gameplay with augmented reality.

Pokemon is "a testament to what happens with innovative apps, and the power of a developer being able to press a button and offer a product," Cook said. "We’re high on AR, it's a great commercial opportunity...it will be huge."

Apple stock's bearish signs are rising

Follow USA TODAY San Francisco Bureau Chief Jon Swartz @jswartz on Twitter.

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