An Apple iPhone 7 and the company logo are seen in this illustration picture taken in Bordeaux
Seattle - Apple attracted a swathe of new iPhone customers over the holiday period, auguring well for a more significant upgrade to its flagship product this year - and the services revenue that these devices are increasingly generating.

Existing iPhone users upgraded to the latest iPhone 7 models at about the same rate as the iPhone 6S a year earlier, chief executive officer Tim Cook said in a conference call with analysts.

Yet Apple still managed to sell 3.5 million more phones in the three months to the end of December, indicating that growth was driven by new customers.

The iPhone 7 represented a modest update to its predecessor, the 6S, adding water resistance, an improved camera, battery life and processor, while retaining similar styling.

Expectations are mounting for a more significant upgrade to Apple’s flagship product later this year, which is the 10th anniversary of the iPhone’s launch. That may persuade more existing iPhone users to open their wallets for the next model.

Read also: PICS: What's inside the new Apple iPhone?

“When we’re able to innovate with new generations of products, clearly that plays a role in the upgrade rate,” chief financial officer Luca Maestri said.

Apple reported total revenue rose 3.3 percent to $78.4 billion (R1.06 trillion), with earnings of $3.36 a share, in the holiday quarter, exceeding analyst forecasts. The shares gained as much as 3.5 percent in extended trading, after the results.

Samsung Electronics recalled its flagship Galaxy Note 7 smartphone in September after a fault that caused some batteries to burst into flames. That reduced competition in the market.

Americans are taking longer to upgrade their smartphones, partly because wireless carriers have phased out plans that offer discounts for new devices every two years. That puts more pressure on handset makers to find new customers - something Apple pulled off in late 2016.