Apple Fiscal Q2 2012 Results Call : April 24, 2012Apple details its winter quarter for the start of 2012.
4:52 - Waiting for the call to start at 5PM Eastern.
5:01 - We may get to hear more details about dividends during this call.
5:01 - Apple starts the call with the usual introductions and safe harbor warnings.
5:02 - CFO Peter Oppenheimer comes in. "Outstanding" quarter. New records for iPhones, iPads, and Macs, highest results ever.
5:03 - Second only to the results from the fall quarter. $15.4b operating margin.
5:03 - Net income of $11.6b equal to $12.30 per share.
5:04 - Macs: 4m, up 7%. 3-4 weeks of Mac channel inventory - below expectations of 5-6 weeks.
5:04 - Recapping OS X Mountain Lion preview. Still expect it in late summer.
5:04 - Music: 7.7m iPods, down 15% but ahead of expectations. iPod touch is still more than half. iPod's share is still over 70%, according to NPD. Top-selling MP3 player in most countries tracked by GfK.
5:05 - 4-6 weeks of iPod inventory.
5:05 - iTunes: $1.9b revenue, up 35% year to year through songs and apps.
5:06 - iPhone: 35.1 million. 88% growth vs. 42% for the market, according to IDC. Very strong in all segments, led by Asia-Pacific/Japan, where it more than doubled. Momentum in China: 5X versus a year ago. China Telecom in March helped.
5:06 - iPhone 4S in over 100 countries, 230 carriers. 8.6m in inventory. 4-6 weeks of inventory.
5:06 - 85% increase in accessory revenue.
5:07 - "Majority" of Fortune 500 companies are part of the iOS Enterprise Developer Program.
5:07 - iPads: 11.8m, up 151%. Customers are "loving" the new iPad. Available in over 40 countries. "Very strong" growth, more than doubling in each segment. $6.6b revenue, up 132%.
5:08 - 2m iPads in inventory, an actual decrease in inventory; down below expected 4-6 weeks inventory.
5:08 - School district bought 10,000 iPads, expects 15,000 more. iPad "opens doors." Hoping it'll be popular for K-12.
5:09 - Air Force Command is buying iPads to replace flight bags. iPads being used in the field for project management. Roche, Bayer, etc. buying iPads too. Surpassed 365m iOS devices, 55m (?) in the quarter.
5:11 - Retail: $4.4b, up 38% year to year. Second only to the fall's results. 826,000 Macs vs. 797,000 a year ago. Over half of Macs were to those new to Mac. 2 new stores, Amsterdam and Houston. 363 stores, nearly a third outside the US. 361 store average.
5:11 - 85m visitors to stores. Increase of 19%. Average 18,000 per store, per week.
5:12 - 47.4% gross company margin. Lower than expected commodity prices and stronger product mix as well as one-time items. OpEx $3.2b.
5:12 - Cash: $110.2 billion at the end of the quarter vs. $97.6 billion. $74 billion was offshore. Cash flow was $14 billion.
5:12 - On the dividend: plan to provide dividend payment data in July.
5:13 - Gross margin outlook: 45.1%. OpEx: $3.3b. Tax rate: 25.25%. EPS of $8.68 (down from $12.30 in winter).
5:14 - Extra details: retail revenue per store at $12.2m average, up 22%.
5:15 - Q&A, on headwinds. Oppenheimer: fastest rollouts we've ever had, letting us fulfill demand in the March quarter rather than June. Expect a sequential decline in June for that reason.
5:16 - Last year, we added new countries/carriers in the June quarter last year. "Fabulous" iPhone 4S execution led to a backlog and a "huge" January.
5:16 - Exited the quarter in supply and demand balance.
5:17 - iPad execution was "also fabulous." Fastest rollout ever satisfied demand much faster than last year. Will affect the sequential comparisons.
5:17 - Dropping the entry iPad price to $399 and a strengthened US dollar also affected results. "Feel very, very good about our business" given the best March quarter ever.
5:18 - "We're just learning the elasticity of demand." New iPad is "on fire," and Apple is "selling them as fast as we can make them."
5:19 - Citigroup's Richard Gardner: Macs outgrew the market, but a slowdown versus before. iPad cannibalization?
5:20 - Tim Cook: Apple grew 7% where the market grew by 2%. Comparing to last year, it's largely affected by the change of the portable line. MacBook Pro updated in February last year where there wasn't an update this year. Compare was very difficult.
5:20 - 14 weeks in 2011 vs. 13: 26% growth more like 17% when equalized.
5:21 - Sanford Bernstein analyst: what are you learning about lower priced iPhones and iPads? Was the price drop on iPad mix-related, or broadening channels?
5:22 - Cook: "Thrilled" with the results on the $399 iPad 2. It's "only been a few weeks," so it's "too early" to come to a conclusion. Unlocked some education demand to more price-sensitive customers. In some countries, there was a "marked change in demand."
5:22 - New iPad was supply-constrained for its first three weeks of shipping and is still constrained. Not certain what the ratio is yet. Absolute sales of iPad 2 are "very exciting."
5:23 - On iPhone: happy with iPhone 3GS/4 price changes. Both of them contribute our ability to hit 35.1m shipments.
5:24 - Comment on why you don't believe tablets and ultrabooks won't converge? (Relating to Windows 8 and its touch support) Why do you think that might not come?
5:26 - Cook: Anything can be "forced to converge," but products are "about tradeoffs." "You begin to make enough tradeoffs that you please no one. You can converge a toaster and a refrigerator," but the result likely won't be pleasing to the user. With tablets, the uses become broad. Education, enterprise... "everywhere you look now." Applications are very easy to make meaningful for someone, such an abundance of those... that the limit here is "nowhere in sight."
5:26 - Just 2 years after the iPad, we've sold 67 million. 24 years to sell that many Macs, 5 million that many iPods, 3 years for that many iPhones. "Extremely happy" with the trajectory of all of those products. Appeal of it is universal.
5:27 - "Could not be happier" at the level with which we're innovating. In terms of market: IDC, Gartner, Forrester have data. Forrester says 375m by 2015, others "mid 300s." Where the PC market is today, but that's only three years from now. More formal predictors are starting to see these lines cross. I sincerely believe that they will.
5:28 - Believe there's a good market for the MacBook Air. Continue to innovate in that. "Continues to appeal to someone that has a little bit different requirements." Don't want to combine the two because it could appeal to neither user. "To make the compromises, we're not going to do that... others might join that party."
5:30 - Subsidy effect? "Our focus is on making the best phone in the world." At the end of the day, "the vast majority of carriers want to provide what their customers want to buy." The important thing for Apple is to make what customers want to buy. Innovate at a rate that's unbelievable.
5:30 - The subsidy is "not large" relative to the sum of rates over a 24-month period. iPhone has distinct advantages for some carriers over others. Churn from customers is the lowest of any phone they sell. Direct financial benefit.
5:31 - Engineering teams work "extremely hard" to be efficient with data. App-rich ecosystem.
5:31 - iPhone is the "best smartphone on the planet" to entice customers using a traditional phone to upgrade to a smartphone. Great experience for the customer and helps the carrier. Some of these factors are missed in the general discussion.
5:32 - Oppenheimer on iCloud: customers are using "all" the features of iCloud. Pickup on storage is occurring, but growing. Just launched iCloud in October. Over 125m users since then. Building up documents, music, and other things they want to store. Storage growth will come over time.
5:33 - Our real desire here was not about selling more storage... "we just really wanted to increase the customer delight over the entire ecosystem." "We couldn't be happier" that there's over 125m users.
5:33 - Gene Munster's Piper Jaffray: more detail on China. Increased distribution points, anything else?
5:36 - Cook: "Incredible quarter," $7.9b revenue in China, up 3X year to year. $12.4b total, vs. $13b last year. Very strong demand for iPad 2, but haven't shipped new iPad in the mainland. "Halo" for iPhone and iPad on the Mac. Mac up 60% year over year. Expanded point of sales. YOY, distribution points up 70%, but still "a lot of opportunity" there. 11,000 points is much smaller than in the US. In the next few years, it will be a bigger point of opportunity. iPad is only in 2,500 points in China. "A lot of headroom."
5:36 - iPhone 4S just launched, so the mix would likely skew towards the newer product.
5:37 - How important is getting better content on iTunes? Oppenheimer is "thrilled" with the rate of iTunes content additions. Largest catalogs of songs, movies available anywhere. 28m songs. $1.9b in revenue [recap].
5:38 - Ben Reitzes, Barclays: talk of possible Qualcomm shortages towards year's end? I know you don't comment on future products, but do you expect to get "more than your fair share of product" from Qualcomm or on any component?
5:39 - Cook: we're aware of the 28nm lithography transition. We also don't currently use it, can't comment on future products. We work with our supplier partners and do everything we can do. Sometimes we're successful, sometimes we're not. Focused on everything we can do to push the button and get supply.
5:40 - On Walmart store-in-a-store: "no plan" to necessarily be in all 10,000 stores. "Very good" partner for iPods, and an increasingly more substantial partner for iPads. Evolving partner on iPhone. "Enjoyed" working with them.
5:41 - Keith Bachmann, BMO: more specifics on Asia-Pacific supply-demand balance for iPhone, and 2.6m inventory?
5:42 - Our desire was to increase channel inventory across the quarter because we were extremely backlogged. The 2.6m let it get to its target. Supply-demand balance meant that "vast majority" of supply-demand was reached by late January. "Mother of all Januaries" in clearing the backlog and the mainland China launch.
5:43 - Cook: were constrained on iPads going into the winter quarter and coming out. China on a macro basis: "enormous number" of people moving into higher income groups, like middle class. Creating a demand for goods, not just Apple's but others, that created a "tremendous opportunity" for companies that understand China. We're trying hard to understand it.
5:44 - Any changes in demand in Spain? Spain has been "weak" for many companies. Revenue grew in Spain, but "materially less" than in Europe or worldwide. Wasn't cause-and-effect. Spain is just in a "terrible economic situation." Unusual case.
5:45 - Carriers still have subsidies for their existing customers; not saying what existing to new customer ratio is. Pulled subsidies on new customers. Not all carriers in the market did that, a couple did. Wouldn't use Spain as a proxy for the world.
5:47 - Oppenheimer on iPhone expectations: year over year increase, but sequential decrease. iPad is expected to grow both year over year and sequentially. 2/3 of the sequential decline comes from iOS/Macs, the rest coming from one-time events.
5:48 - Is there a point at which Apple feels it would be better to settle?
5:49 - Cook: "I've always hated litigation and will continue to hate it." I just want people to make their own stuff. "I would highly prefer to settle versus battle" [if that happens] "It's important that Apple not become the inventor for the world."
5:49 - Oppenheimer: don't want to help competitors by providing details on iCloud data.
5:50 - Oppenheimer is very confident for the product pipeline.
5:51 - Shaw Wu, Sterne Agee: China Telecom?
5:51 - Cook: China Telecom launched in March, supply-demand balance by the end of that quarter.
5:52 - Operating expense (OpEx) leverage?
5:53 - Oppenheimer: Investing in R&D to create the most innovative products in the world, expanding indirect channels, increasing stock-based compensation for employees. "Confident" in the returns we'll get on these investments.
5:54 - Cook: component costs were better than had been planned. Displays and NAND flash drove most of the cost benefit. NAND and mobile DRAM supply continued to exceed demand. Pricing would continue to be favorable as it moves to a balance. Hard drives now in a balance, although it will still be high relative to the pre-Thailand flood conditions.
5:55 - Oppenheimer reiterates sequential decline: 2/3s due to iPads and Macs.
5:55 - What resources is Apple dedicating to the enterprise? What do you need?
5:56 - Cook: our focuses were at first on Fortune 500 and Global 500 iPad certification. 94% of Fortune 500 testing or deploying, and 75% of Global 500. Off the charts for something only 24 months old.
5:56 - Moving focus away from this and towards penetration on these accounts. Span across many verticals: government, education, many different functions within enterprise.
5:57 - Applying more resources, sales people to interact directly. Working with carrier and reseller partners for services around that.
5:58 - Deutsche Bank: if we take gross margin changes, that would see iPhones down 10m quarter to quarter. That right? What about guidance?
5:59 - Oppenheimer: we give guidance that we're confident we can expect. We do expect a sequential drop in sales [but won't say if it's 10m]. "Immense confidence" in what we're doing and "very pleased" with how we're performing.
5:59 - When do you expect to meet demand for the iPad? Cook: hard to say, but we will be able to supply a "significant" number of iPads in the quarter. Tough to know that it will balance until you get there. Total number will be "very significant."
6:00 - Call wraps up.