Apple Fiscal Q2 2011 Results Call : April 20, 2011
4:58 - Waiting for the call to start; Apple may be two minutes late, but if so, no surprises.
5:03 - Just starting. Usual safe harbor disclosures and an introduction from Nancy Paxton, Senior VP for Investor Relations.
5:05 - CFO Peter Oppenheimer recapping details: record iPhone sales. Largest quarter-over-quarter growth ever for Apple (83%) due to iPhone and Mac.
5:06 - Mac products and services: 3.76 million Macs, 28pc growth. Touts it versus IDC's estimate of a 3pc industry contraction. Strong Mac sales in each segments, especially Asia-Pacific (76pc).
5:06 - Primarily due to the MacBook Air and "very strong" sales of the MacBook Pro.
5:06 - Customer response has been "excellent." 3-4 weeks of Mac channel inventory.
5:07 - Talks Lion features: still due in summer.
5:07 - iPod sales were ahead of expectations even with the decline. iPod touch over half of all iPods sold. Still the top MP3 player in most countries tracked by Gfk. 4-6 weeks of channel inventory.
5:08 - Record revenue from iTunes, App Store, iBookstore. Over 2,500 publishers. Over 100 million books. [not new]
5:09 - iPhone sales: 126 percent boost in accessory sales. Strong growth in all operating segments. Americas and Asia-Pacific more than doubling. Increased capacity significantly once again.
5:10 - Reiterates adding SK Telecom in Korea and Saudi Arabia. 1.7 million sequential increase in channel inventory to handle new launches; in target of 4-6 weeks of inventory.
5:10 - Cisco, Prudential, Boston Scientific, Deloitte, Xerox, "hundreds of companies supporting iPhones at work.
5:11 - "Thrilled" with iPad sales of 4.69m. "Tremendous" response to the iPad 2. Due to demand and despite expansion, channel inventory dropped by 400,000 to 850,000, below target. Selling every iPad it can make.
5:12 - ADP, Boston Scientific, Estee Lauder, Prudential, Rite-Aid, USAA all deploying iPads. 75% of Fortune 500 companies testing them (80% iPhone).
5:13 - Recapping iTunes subscriptions and the $2 billion threshhold.
5:14 - Apple is about to get its 1 billionth store visitor. $3.91 billion retail revenue. 797,000 Macs in stores, a 32 percent boost. About half were to those who'd never owned a Mac before.
5:15 - Talking Personal Setup: over 1 million products set up. 323 (?) stores. Rev per store was $9.9m, up 63 percent. Plan to open 40 stores in fiscal 2011, 75% of which outside the US.
5:16 - Tax rate 24.2%. Below guidance due to changes in forecast. $6+ billion increase in cash on hand.
5:17 - Outlook: $23 billion spring versus $15 billion a year ago. Operational expenses include $2.5 billion. Tax rate to be about 25%. Earnings per share of $5.03.
5:18 - Finishing: "excited" about our new product pipeline.
5:18 - Q&A session up next.
5:18 - Goldman Sachs: any supply chain disruption from the Japan earthquake?
5:19 - Tim Cook steps in: Hearts go out to everyone involved. Apple has a long history with ties to Japan. Taking actions to assist in the relief effort. Economic impact pales relation to the human impact.
5:20 - Some impact, but not material to Apple's results. Revenues should be $200 million less, factored in. No impact on fiscal Q2, don't anticipate any material supplier impact for Q3. We source hundreds of items from Japan: LCDs, flash, resins, foils.
5:21 - The earthquake caused disruption for many, and many have been indirectly affected. "Working around the clock" to implement contingency plans. Remain with long-term partners in Japan. Showing a resilience he had personally never seen before. No impact, but caution that the situation remains unpredictable.
5:21 - No issues today that are unsolvable, but the situation is uncertain and there's no guarantee. Will be happy to address fiscal Q4 on the next call in July.
5:22 - Goldman Sachs: iPad 2 supply constraints, can you say where they lie, and how you'll get back?
5:22 - Cook: iPad 2 demand is "staggering," and they're still "heavily backlogged." "Extremely pleased" with the progress of the manufacturing ramp. Happy they rolled out to 25 extra companies. An extra 13 countries next week. More countries through the quarter.
5:23 - Citigroup's Richard Gardner: More color on what drove iPhone sales in the quarter. How about iPhone seasonality in the spring?
5:25 - Cook: Did very well everywhere. Called out the places where it was just off the charts. US up 155% due to Verizon. AT&T did extremely well too. IDC only expected 48% percent. "On a tear" in China; up over 3X. Over 250%. Catapulted revenue to just under $5 billion. Up almost 4X year over year.
5:25 - Oppenheimer expects a "significant increase" in iPhone sales for the June quarter year over year.
5:26 - Morgan Stanley: Price elasticity for the $49 iPhone 3GS?
5:26 - Cook: "Very, very well."
5:26 - Morgan Stanley: how about LTE? Urgency to support faster networks.
5:27 - Cook: 1st generation of LTE chipsets forced a lot of design compromises. Some of those we're just not willing to make. Extremely happy with the iPhone 4 and 3GS. Something "much larger than we thought we could do."
5:29 - International Mac purchasing habits? Growth has been enormous, citing 76% in Asia-Pacific. IDC's forecast was 6% for the area. Japan did well too. US had a surprisingly strong quarter. US up just over Americas average. Speaks very well to the opportunities for the Mac. 20 quarters in a row outgrowing the PC market. Momentum is still there. Only ones focused on making innovative products.
5:29 - Desktops vs. portables same as in the US? Some countries are very portable focused. New MacBook Pro helped. Great future for both the iMac and the notebooks.
5:31 - Sequential decline in leverage affected by by low iPad inventory, high iPhone demand.
5:31 - Cook: iPad and iPhone clearly creating a halo effect for the Mac [in the enterprise]. Astonishing given growth relative to IDC.
5:32 - Barclays: average price trend for the iPad? Any dynamics that would change it?
5:32 - Oppenheimer: For competitive reasons, don't want to give the average prices to our competitors. Can use accessories and the like to make estimates.
5:33 - Barclays: when do you think you'll get supply equilibrium for the iPad 2?
5:33 - Cook: Confident we'll make a very large number. Can only be confident on the supply side, though.
5:34 - Spending with CapEx and carrier partners?
5:35 - Cook: Don't want to get into specifics on CDMA. Already bringing on incremental partners like Saudi Telecom. Constantly looking and adding where it makes sense. We'll keep looking for that.
5:35 - Oppenheimer: Expect to spend $5.7 billion in capital expenditures. $500 million in retail, $5 billion elsewhere. Spend $3.5 billion in fiscal 2011 and fiscal 2012 with three suppliers. $900 million of that was in the just-ended March quarter.
5:36 - RBC: Any analogies between Android tablets and the rise of Windows PCs?
5:37 - Cook points to comScore showing iOS outreaching Android by 59% [when iPads, iPods count]. Materially faster than the market rate of growth. Sold every iPad we could make. Gaining traction in enterprise with the Fortune 500 adoption rate. Over 350,000 apps, 65,000 for iPad, versus under 100 for Android [note: closer to 50].
5:39 - Paid over $2 billion to developers, so our business proposition is very, very strong. Believe even more that our integrated approach is better than Android's fragmented approach. User appreciates that Apple can take responsibility for the experience where Android makes the user a "systems integrator." [repeating past arguments]
5:40 - Oppenheimer on prepaid market: our focus is on the Chinese market, want to learn about the market there. About 10% of Apple's revenue is there. Not long ago it would have been 2%. Not a classic postpaid market. Have "some ideas" about other countries. Don't want to share them, but put the bulk of our emphasis on China to learn and then take that learning to other markets.
5:40 - Considerably more than half of iPhone in China is prepaid.
5:41 - How closely is Jobs involved on medical leave? Still see him on a regular basis, and he's still involved in major decisions.
5:42 - Analyst Toni Sacconaghi asks about a possible forecasting error claiming that Apple may have underrun its production.
5:43 - Cook: took off 570,000 original iPads in the quarter and added 170,000 new models. Apple had to plan this "quite a ways" in the future. Sent out an invitation in late February, event March 2, shipped March 11, and went international March 25.
5:45 - We knew people were anticipating a new product. Factored that into our expectations. Still extremely pleased with the manufacturing ramp. Repeated talk of getting 25 more countries in March 25 and 13 more next week.
5:45 - Forces at work in the guidance, particularly the dramatic increase in iPads?
5:46 - Sequential revenue decline was helped by managing to increase iPhone production; hadn't happened before. iPad issue too.
5:47 - Purposefully aren't giving out sales versus shipments to avoid assisting competitors. Wish we could make a lot more.
5:48 - Oppenheimer: Macs popular in school. "Very significant" increase in Mac sales likely to come. Cook: schools even more conservative than enterprise for computers. Nearly 1:1 ratio of iPads to Macs shows a lot of opportunity.
5:50 - Cook: Not talking about unannounced products. In supply-demand balance in almost all major markets for the iPhone, including today, virtually everywhere. Macs and iPods too. iPad 2 has the "mother of all backlogs."
5:50 - Pacific Crest asks: Would it require a new disruption to create problems beyond fiscal Q3?
5:51 - Cook: As of today, we don't expect any material supply impact. Beyond June, there are risks... repeating that there's nothing seen so far as unsolvable. I would worry if something took a turn for the worse. I can't predict that.
5:52 - Replacement Macs versus new customers?
5:52 - Apple holds that number "tight to the vest."
5:52 - Sterne Agee: Why has Apple been able to beat on component pricing?
5:53 - Cook: we typically don't buy on the spot (short-term) market. We see very minimal impact. Beyond Q3, it's tough to see that far. Companies that buy on the spot market would see something extremely different.
5:53 - On the iPad: is there interest in having it subsidized by service providers?
5:54 - Cook: subsidized by a few markets, such as Korea and Japan (24-month contracts). Majority of the people on 3G are doing using a pay as you go plan. Carriers can do that, but many customers prefer PAYG.
5:55 - UBS: Is last quarter's mention of a product transition affecting today? How about Apple versus Samsung on part supply?
5:55 - Prefer to talk about sequentially. Increase in mix for iPad sales. Expect revenue and leverage down.
5:56 - Cook: We are Samsung's largest customer. Very valued customer. I expect the strong relationship to continue. We think Samsung had "crossed the line." After trying to resolve the issue, we decided to use the courts.
5:57 - Oppenheimer on future of iTunes: Can't say, but we operate the most popular store in the world with the largest library. More content to customers than anybody. Confident on what we'll do in the future.
5:57 - $2.5 billion CapEx reflects investment in engineering, retail, enterprise, and infrastructure to support the growth. Making good investments that are paying off.
5:58 - Conference call is wrapping up.