Apple Earnings - 2010 : April 20, 2010

Second quarter conference call for Apple.
4:56 - Apple's conference call is, as always, playing classical music before it begins.
4:59 - As a side note: RIM shipped 10.4 million BlackBerries during its last quarter, but that included December; Apple's quarter was strictly post-holiday and is slightly more impressive as a result.
5:03 - Conference call started; usual safe harbor disclaimers to start.
5:03 - Strong momentum continued over; highest quarterly iPhone and Mac sales ever.
5:04 - $13.50 billion and net quarterly profit of $3.07 billion
5:04 - Operating margin was $4 billion; earnings per share was $3.33.
5:05 - 2.94 million Macs; 33% growth in Macs versus 24% for the industry in the quarter (NPD). Double-digit growth in desktops and notebooks.
5:05 - 10.9 million iPods sold; about equal to a year ago. iPod touch sales still very strong, 63% year over year. Revenue growth in iPod touch year-over-year.
5:06 - (12% year over year). Still the top selling MP3 player, including in countries like Australia and Canada. Continued strong demand for music and apps in iTunes. 12 million songs, over 185,000 apps.
5:07 - 4-6 weeks of iPod inventory.
5:07 - iPhone sales of 8.75m an all-time high; more than three times higher growth (131%) than the industry.
5:08 - Sales value of iPhones was $5.3billion. Average selling price of $600. With 151 carriers. Strong growth in Asia, Australia, and Europe.
5:08 - Reminds everyone that the iPhone won #1 in JD Power studies. iPhone 4.0 SDK getting "very positive" reaction from developers.
5:09 - "Extremely pleased" with iPad sales over the past couple of weeks.
5:09 - Retail: $1.68b billion revenue, increase of 22 percent. 38 percent increase in Macs sold YOY; 50 percent were new to Mac.
5:10 - 2 new UK openings and 1 in Germany; 286 total. $5.9 million in sales per store.
5:10 - 47 million visitors to stores versus 39.1 million a year ago. Jump of 20%. Over 700,000 personal training sessions.
5:11 - 40 stores opening in fiscal 2010, including stores in London, Paris and Shanghai.
5:11 - Overall: helped by stronger product mix, lower costs, and fixed cost leverage.
5:11 - OpEx: $1.65 billion, including stock compensation. Tax rate was 24%, lower than the revised 27% and earlier 29%.
5:12 - Cash is now at $41.7 billion versus $39.8 billion last quarter. Focusing on preserving capital. Short-term, quality investments.
5:13 - Outlook: revenue between $13b and $13.4b. Gross margin down, including $36m in stock compensation. Margin drop will be driven by first quarter of iPad sales -- very aggressive on price.
5:13 - Stronger US dollar, the Mac portable transition and a "future product transition" will affect the next quarter. [may be iPhone]
5:14 - Earnings per share estimates are $2.28 to @2.39 versus $2.01 a year ago.
5:14 - Very confident in our new product pipeline; now on to Q&A.
5:15 - Gene Munster, Piper Jaffray: What insights have you gained from the iPad in the US market for demand? Any cannibalization?
5:16 - No obvious impact in the last quarter since it wasn't on sale; we really don't have enough experience to judge yet, but we're "thrilled" with how iPad has been selling so far.
5:17 - On Mac sales: it's hard to compare a quarter where iMac and Mac mini were unveiled vs. one where there weren't any new Macs at all.
5:17 - Munster: mix of Wi-Fi vs. 3G iPads? We need to sell both models in an "unconstrained" environment to gauge this.
5:19 - Brian Reitzes, UBS: Is an iPhone transition going to factor in? Apple just reiterates outlook, but does note the new MacBook Pros plus education should help sequentially.
5:20 - Apple does expect iPods to decline steeper sequentially than a year ago, but doesn't have much experience with sequential changes.
5:21 - Why was the iPhone number so good, especially overseas? Channel inventory? Inventory was flat over the quarter. 474% in Asia, very high elsewhere too. Added 8 carriers, such as Vodafone in UK/Ireland and key models in Asia. Also had great performance from existing carriers.
5:22 - China has been "interesting:" iPhone units were up 9 times YOY and another 800 points of distribution. First half of the fiscal year: revenue from greater China was $1.3 billion. Up over 200% YOY. Positioned to take advantage of the growth.
5:23 - Just begun shipping the iPad, so can't talk much about App Store yet beyond what's been said.
5:24 - How quickly can you ramp iPad production? Not a production problem per se (re: shortages). US demand was much stronger than expected, hence the delay. We're "adding capability;" it has "shocked us" how much demand there was.
5:25 - DRAM market is constrained, so sequential memory prices will be higher. LCDs and HDDs are in balance. Others will decline with historical trends.
5:26 - Is Apple considering iAd a profit center, or break even? We're "dipping our toes in the water."
5:26 - AT&T's network upgrades? Still working very, very hard. Clearly making big strides, as shown by surveys. That will continue.
5:27 - Can you quantify how many iPhone sales come from new carriers? Don't break it out, but both new and old carriers were strong.
5:29 - Incremental distribution? US, Germany and Spain only places where they're contractually exclusive and not major markets. Every non-exclusive move has seen sales rate increase and market share grow, but that doesn't mean it's true in every case. We think very carefully at the country level to decide what's in our best interest.
5:30 - iPad will lower gross margin by 150 basis points by itself (600 total). To make up, Apple would have to get $2 billion revenue from iPad, or 15% of revenue -- is that the case?
5:32 - When we priced the iPad, we priced it aggressively (reiterating this again). Think the market for the iPad is "very large" and want to capitalize on the first mover advantage. We have a good track record of riding the cost curve.
5:33 - To achieve Apple's targets, Apple might have to be open on pricing, right? Can't comment on any possible plans, but we've priced aggressively and been happy so far.
5:34 - Component pricing here is neither a headwind nor a tailwind. They're necessarily a big factor. "Other transitions" are coming into play on gross margin.
5:34 - Is Apple deferring revenue for iPad software upgrades? We'll talk about that in July, when we can include iPad sales.
5:35 - China was great for Apple. Retail stores? 2 stores in Shanghai this summer. 20 stores in China by the end of calendar 2011.
5:35 - Maynard Um: average of about 58,000 iPhones per operator. How do you drive those up on a per operator basis?
5:36 - Not a very meaningful number, Cook says. We drive sales by focusing on "product innovation:" iPhone 4.0, new hardware, new distribution points, continued geographic expansion. Great marketing too.
5:37 - Will legal expenses (for lawsuits like HTC/Nokia) affect operating expenses? Yes, it's factored into guidance.
5:38 - Smartphone market is a great market to be in; great growth. Reminder that Apple's 131% growth was 3X the industry, and best outside of the US.
5:40 - Apple TV units were up 34% year over year; still small, still a "hobby." Relative to size, it's doing well. iPhone, Mac compete in much larger markets; we keep it a hobby to set expectations for the category.
5:41 - Again on iAd: plan to learn a lot and use that for the future, so revenue is hard to talk about.
5:43 - Not the right person to ask about whether or not the iPad is cannibalizing the netbook. It's like 100 to 0. "No brainer" since a netbook doesn't do anything well.
5:45 - iPad is better for web, e-mail, reading books, video of any kind, and the App Store. The larger canvas gives artists room to do something very cool. It really is a new category; it's early, but we "really, really like" what we see. We had high hopes, and it exceeded those.
5:47 - Does Apple have any influence on iPhone carrier rates? We do everything that we can to get the best deal possible. Carriers often want to do the same. We were surprised, though, that buyers have still skewed towards the iPhone 3GS despite the $99 iPhone 3G. People still want the product and the apps, so carrier pricing is only one of the factors.
5:48 - Accessory portfolio for the iPad so far is good for us; many iPhone/iPod accessories can work with the iPad. Give it time, just like the other devices.
5:50 - Keith Bachmann, BMO: is retail driven by new openings, or is there more going on? Average increase of revenue (up 8%) was the best in six quarters. Mac did very well, up 38%. Very confident in stores due to the experience.
5:51 - If you annualize, 8% growth per store is incredibly high, so it's not just new store openings that are driving growth.
5:51 - iPad will be counted as a line item in the data summary, so it will get separate sales numbers from iPhone and other devices.
5:52 - Can Apple tell what kind of apps people are buying? How about the average price for iPad apps? Still very early.
5:53 - Country divisions between new to Mac sales? Can't break it down that way, but "thrilled" all over the world.
5:54 - Mark Moskowitz, JP Morgan: Can you say if any iPad buyers are new to Apple? Numbers are too preliminary, so we don't read much into them.
5:55 - Are the new products in the year going to be completely new, or incremental updates? We're not going to help our competitors by saying which.
5:56 - June quarter dominated by regular schools, September by higher ed. Look forward to competing.
5:56 - Conference call ended.

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