Apple Fiscal Q1 2012 Results Call : January 24, 2012

Apple provides details of its fiscal Q1 2012 (calendar Q4 2011) performance.
4:48 - On hold. Apple is likely to be ecstatic during the call: it blew out every expectation for iPads, iPhones, iPods, and Macs.
5:00 - Correction: not iPods, but that market is also on the decline.
5:01 - As a side note: AAPL stock is over $450 in after-hours trading. All-time record by a wide margin.
5:02 - The call begins. Usual safe harbor disclaimers.
5:03 - CFO Peter Oppenheimer comes in: "thrilled" to talk about the record revenue and profits. "Very proud" of the results and momentum.
5:03 - Strength primarily in iPad, iPhone, Mac. 14th week in the quarter helped.
5:04 - $13.1b income. Half of the income of all of fiscal 2011. EPS of $13.87.
5:05 - Macs: 5.2m Macs, new records both in desktops and portables. 26% YOY versus zero growth for the market overall (IDC). Average weekly Mac sales up. Strength in Asia-Pacific, up 58%. Fueled by very strong MacBook Air and MacBook Pro sales, as well as continued strong sales of iMac.
5:05 - 3-4 weeks of inventory.
5:06 - iPods: 15.4m. Ahead of expectations, iPod touch still over 50% of share. Still top seller in US and worldwide. 4-6 weeks of inventory, on target.
5:06 - iTunes: $1.7b revenue. Expanded to Brazil + 27 other countries. Now over 20 million songs.
5:06 - December 25: 140 (?) million apps and content that day.
5:07 - iPhones: 37.04m. Very strong growth in all segments through the popularity of iPhone 4S. "Captivated by Siri."
5:07 - iPhone inventory up 200K to under 6m iPhones in the channel, below the target of 4-6 weeks.
5:08 - $24.4b total revenue (including accessories). Nearly all Fortune 500 supports or includes iPhone.
5:09 - Royal Dutch Shell, Credit Suisse, Kimberly-Clark, Facebook, all use it. China and 21 additional countries now get the iPhone as of January.
5:10 - iPads: 15.4m iPads. Versus 7.3m. 111%. "Extremely popular" with holiday buyers. Revenue up 99% to $9.1b. Sellthrough exceeding sell-out! 4-6 weeks of inventory on target. "Nearly all" the top Fortune 500 companies actively using iPads.
5:11 - Bed Bath & Beyond uses iPads for key metrics on the sales floor. Vineyards use it for QA and soil assessments. China Airlines (?) EDA uses it for flight manuals and more.
5:11 - 1.5m iPads in use in education (over 1,000 one-to-one). Recapping the iBooks 2 and iBooks Author intros.
5:11 - Over 600,000 iBooks Author downloads since Thursday.
5:12 - Talking iTunes U app. As of today, over 3m iTunes U app downloads.
5:12 - 315m iOS device sales lifetime. 62m in the fall.
5:13 - 550,000 apps available. 170,000 just for Apple. Developers will have earned over $4b from App Store sales.
5:14 - Retail: new records for iPad/iPhone/Mac. iPhone sales doubled in stores, iPad up significantly. 1.1m Macs at retail.
5:14 - "About half" of Macs sold were to those new to Macs. 4 new stores, including Grand Central and 3 in Europe. 361 stores. Average of 358 stores = $17.1m per store. Increase of 43%. Segment margin is $1.8b.
5:15 - 110m visitors. 45% increase. Translates to 22,000 per store per week. "Incredible." EasyPay self-checkout has been a big help. In-store pickup makes shopping that much easier.
5:16 - 44.7% company gross margin, higher than guidance. Lower commodity and product costs. Higher leverage and one-time items benefitting the quarter. Higher than expected mix due to iPhone sales. $357m stock-based compensation.
5:16 - Cash is $97.6b versus $81.6b for the summer. $64b was offshore at the end of the quarter. Actively discussing uses of the cash balance and don't have anything specific to announce today. Not looking to burn a hole in our pockets.
5:18 - Outlook: revenue to be $32.5b versus $24.7b a year ago. Gross margin 42%, inc. $60m relating to stock compensation. Tax rate of 25.25%. EPS of $8.50 is the target. "Extremely pleased" with the response to our products.
5:18 - "Extremely enthusiastic about our new product pipeline."
5:18 - Q&A up next.
5:18 - Ben Reitzes, Barclays: describe iPhone momentum as you ended the quarter? What's included for the iPhone in guidance? Any more detail and metrics?
5:19 - Tim Cook: "thrilled" with 37m iPhones, 128% growth. Substantially above the 20m previous record. Breathtaking customer reception to iOS 5 and Siri the main factors.
5:20 - Also attribute it: "Made a very bold bet" as to what demand would be. As it turns out, despite it being a very bold bet, we were short of supply throughout the quarter. Significant backlog. Situation has improved some, but we're still short in some key geographies.
5:20 - Also attributed to delayed purchases [pent-up demand]. People were anticipating a new iPhone being announced. Made the right decision to go with a broad range of iPhones. The 14th week was part of this. Everyone knew that, though.
5:21 - Geographically, strength in every key region, especially the US and Japan. Got going early and had many more sales days than other countries. iPhone sales in greater China, even without the iPhone 4S until January, were also good.
5:21 - "Could not be happier." We didn't bet high enough. Customers are loving iPhone.
5:22 - Average selling price is up. iPhone 4S was the most popular iPhone. During most launches, we tend to see this at the front end of the launch.
5:23 - Follow-up: was it just recent country additions? Any constraints?
5:24 - Demand in greater China is "staggering" and "off the charts" (not selling at retail due to violence). Where we launched earlier in the quarter were smaller countries. Did make progress on supply balance. Caught up in some, but others we're not.
5:25 - Component environment? It was "favorable." We would predict that the environment stays favorable except for the tragic situation in Thailand. Apple won't have a material supply issue, but we will pay more for drives.
5:25 - Richard Gardner: did hard drive shortages have any impact on Mac sales? Any effect on revenue?
5:26 - No material effect on cost or supply in the fall. Don't expect material supply problems in winter, but do expect cost increases. Factored into guidance.
5:27 - How favorable do you expect prices to be for NAND [flash], RAM? Did get better costs in the fall, particularly on displays. Still expect supply greater than demand and to favor costs. Hard drive supply issue can be navigated.
5:28 - CFO Peter Oppenheimer steps in. We do see a healthy sequential margin, but expect it to be down. Non-recurrences of one-time items and a stronger US dollar will affect the fall. About a quarter of the upside to the guidance came from those two factors.
5:29 - Bill Schiff (?), Goldman Sachs: Any impact from lower cost tablets? What do you think of competition from models by Amazon and others?
5:30 - Tim: Very happy with 15.4m iPads. Very consistent with our long-term belief that this is a "huge opportunity" for Apple. Clearly believe, like many others in the company, that the tablet market will be larger than the PC market. IDC data: tablet sales exceeded PC sales in the US last quarter.
5:31 - Ecosystem for iPads is a market by itself. Now over 170,000 apps versus "a few hundred" for the competition. People want to do multiple things with their tablets. We don't see these e-readers like Amazon's in the same category. We don't think that people who want an iPad will settle for these limited function devices. People will agree that it was the "year of the iPad" for the second year in a row.
5:31 - Plan to "innovate like crazy" and expect to keep going.
5:33 - Each of the iPhone models were important in achieving 37m units. Glad to cover the broad range. The iPhone 4S was "clearly the most popular." In postpaid, there's a much smaller difference that's larger in the prepaid market. Too early to tell given that we just started in October. Still, "thrilled" with the results.
5:34 - Is the talk of cash any different than historically? Peter Oppenheimer: have always internally discussed our cash. Recognize that it's growing for the right reasons. Our discussions are "active," but nothing to announce today.
5:34 - Any timeframe for discussions? When we have something to announce, we will.
5:36 - Is the loss of leverage significant? Oppenheimer: sequential decline will come from loss of leverage vs. fixed costs (one less week affects relative costs). Highest high that Oppenheimer has seen since he's been at Apple. Don't see the margin going up sequentially like it did last year.
5:37 - Asking about TVs. Everyone has a connected TV. From a high level, how should we be thinking about your strategy in the living room?
5:38 - Tim Cook: Apple TV is doing pretty well. A bit above 2.8m Apple TVs sold last year, quarterly record of 1.4m in the fall. Still classify it as a hobby. Continue to add things to it. "Couldn't live with out it." Continue to "pull the strings" to see where it takes us, but other than that I have no other comments.
5:39 - Keith Bachmann, BMO: how are you framing opportunities for dividends and buybacks. Examining "all uses" of our cash balance. What we might do in the supply chain, acquisitions, and otherwise. No perspective to share today other than we're "actively" discussing things [repeating again].
5:41 - iCloud effect: over 85m users. "Incredible" that this happened in just a few months. Solved a lot of problems that people were having and made their lives easier. Fundamental shift recognizing that people had numerous devices and wanted the bulk of their content in the cloud and easily accessible. Seeing the response.
5:41 - iCloud isn't just a product, it's a "strategy for the next decade."
5:41 - Chris Whitmore, Deutsche Bank: iPhone distribution in the quarter and its outlook? Where are you in distribution, including expanding reach in China over the next couple of quarters.
5:42 - Over 130,000 iPhone points of sale, up 35% YOY. Consistently added. Including adding carriers as well as key retailers which are particularly important. Added carriers with KDDI and Sprint, both of whom will speak for their own results. Extremely pleased with both.
5:43 - Incumbents also did incredibly well. China Unicom is still a good partner. Nothing to announce on expansion there today, but China is an "extremely important market" for us.
5:44 - iPhone revenue expected to be significantly up YOY, but down sequentially. Same for iPad. Mac and iPod down consistent with seasonality.
5:46 - Recapping why revenue is likely to be down more than usual sequentially. Lack of 14th week, won't be included in the March quarter this year. Would have loved to have had the week. Increased iPhone channel inventory 1.7m and benefited the quarter. Fall quarter benefited from iPhone 4S; significant pent-up demand. Year ago quarter was second full quarter of iPhone availability, so there's differences here.
5:46 - US dollar strength against the Euro affects it; US and Euro were flat last year.
5:47 - On Anobit: sometimes we buy companies that have great engineering or talent, early technology, or IP. Tend to do several a year. "Very very disciplined." Track record here has been very strong.
5:48 - Tim Cook: we don't believe in a lot of divisions like other companies. The semiconductor team works for Bob Mansfield. Engineering for the whole company. Integrating Anobit into that team. Has some "fantastic technical talent." Fortunate to have them join us.
5:49 - Ambitions for future carriers in the next 12-18 months to get the rest of the 500 carriers worldwide (285 so far)? Retail presence expansion in India and Russia?
5:50 - Tim Cook: in India and Russia, both through carriers and reseller partners. Tried to be clear that we have a "ton more energy" in the China market today. Doesn't mean that there's a lack of effort or focus on the others, just that we want China.
5:50 - Next on the list is Brazil: "huge opportunity" for us there. Don't envision Apple retail being there in the near term.
5:51 - India: presence is small, but revenue is up 3X. Beginning to see traction there. Getting to a large revenue like in China. Nothing to announce on carrier expansion, but we have the same list you do. Would like to get into "all" countries over time.
5:52 - Do you think Apple benefited from these lower-cost tablets by using them and deciding to trade up to the iPad? And do you see this year's ultrabooks like tablets last year?
5:54 - Cook has heard from customers who went in looking at some devices and come out with an iPad. "No obvious change in the data" for iPad sales from cheap tablets. iPad still cannibalizing the Mac, but we "love" that trend. Enterprise... education sales doubled, and we saw more iPads sold than Macs.
5:55 - Think we will win a few deals. Sold over 55m iPads to date, and we've only been shipping since April 2010.
5:55 - Are you seeing accelerated refresh rates? Quicker iPhone updates, Macs?
5:56 - Tim Cook: in enterprise, we've seen the iPhone be the catalyst for iPads, and then iPads sometimes trigger Macs. Difficult to put our fingers on it, but all our customers are pointing that out. We've seen that before with the halo the iPod created for the Mac. Not a phenomenon that is new to us.
5:57 - Android versus iPhone like Mac vs. Windows? Wouldn't characterize it like the Mac vs. Windows market. Mac has grown faster for over 20 quarters, but still single digits. iOS, meanwhile, is over 60m just in the last quarter.
5:58 - Look at NPD data: in the US, iPhone was at 43% and Android at 47%. Nielsen: 45% iPhone vs. Android at 47%. comScore: iPhone 42% and Android 41%. US data shows that it's a "very close race."
5:59 - On the iPad side: all of us inherently believe that the iPad is "way ahead." No comparable product to the iPod touch. iOS is doing "extremely well." Not a two-horse race: there's a horse in Redmond that's always running. All we can count on is innovating and making the best products. Ignore what others are doing.
6:00 - Screen sizes: has the popularity of larger screens changed or impacted your view? What about 4G?
6:00 - Wouldn't comment on the future roadmap: I'm sure that's a shock to you. We just sold 37m iPhones and could have sold more with more supply. Lots of people out there currently love what we're doing.
6:00 - Call concludes.

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