Apple January January 2011 Fiscal Results Call : January 18, 2011Details from Apple's fiscal conference call results.
5:02 - Call is just beginning. Intro by Nancy Paxton.
5:02 - Usual safe harbor disclaimers.
5:04 - CFO Peter Oppenheimer up for the intro. "Outstanding" results. Sold more Macs, iPads and iPhones. All-time record quarter. $11 billion increase (71%) in revenue year over year.
5:05 - Focusing on Macs: 4.13 million, 23% growth. Almost 8 times IDC's most recent estimates of growth (3%). Strong growth in each geographical segment, high in Asia and Japan. High demand for the MacBook Air, but continued strong demand for the MacBook Pro.
5:05 - 3-4 weeks of Mac inventory.
5:06 - Mac App Store recap: up in 90 countries. "Very pleased" with response.
5:06 - iPods: 19.4 million iPods. iPod touch was over 50% of all iPods sold. 70% share, according to NPD. iPod is still top seller in most countries we track, GfK says. 3-4 weeks of iPod inventory.
5:07 - iTunes store: $1.1 billion revenue. Beatles for iTunes, movies on the iPhone in Japan. Over 400,000 TV episodes and movies bought or rented each day.
5:07 - iPhone: 16.24 million is 86% jump over a year ago, better than the 70% for the industry. Sales value $10.1 billion, ASP of $625.
5:08 - 185 carriers, 90 countries. "Very strong" YOY growth in all areas, doubling in Asia and Japan. 88 of Fortune 100 countries in Europe now testing or deploying iPhones. Custom apps fueling growth. Corporations like Wells Fargo, Dupont, Starbucks certifying it for use with their employees.
5:09 - 3.5 million iPhones in inventory, but still constrained by demand; could've sold more if we'd had larger stock.
5:10 - iPads: increase of over 3 million sequential (to 7.33 million). Corporate demand is high. Over 80% of Fortune 100 deploying or testing, up from 65% in the summer quarter. Usually same companies adding iPhones.
5:10 - ASP of iPads at about $600. Expanded retail reach and national availability. Ended the quarter with 4-6 weeks of inventory, expected.
5:11 - Over 32 million iOS devices last quarter alone. Pleased with iAd so far: expanded it beyond the US and added iAd Producer.
5:12 - Retail revenue almost doubled to $3.85 billion (?). iPad sales in stores were very strong. Also a record quarter for Macs with 851,000, an increase of 24%. About half were to those new to Macs. International stores particularly strong and overtook US stores; Chinese stores had the best traffic.
5:13 - 6 new stores open, 323 open at the end of the quarter. Average of 321 stores open earned $12 million per store. 75.7 million visitors versus 50.9 million a year ago.
5:13 - Gross margin was 38.5 percent, which was higher than guidance. Better commodity costs than planned. Leverage on higher revenue as well as freight and phone support helped.
5:14 - $247 million in stock compensation expense. Tax rate was 24.6%, below guidance due to a one-time benefit from a tax credit extension. Expect tax rate for 2011 to be 25.5%.
5:15 - Cash on hand up $8.7 billion (to about $60 billion). Made $650 million in payments in advance component payments last quarter, expect it over $1 billion this quarter.
5:15 - Outlook: revenue of $22 billion, gross margin of 38.5% after stock compensation.
5:15 - Earnings per share predicted for $4.90.
5:16 - Very confident in our strategy and new product pipeline.
5:16 - COO Tim Cook and Barry Whistler on the call for Q&A.
5:17 - Shannon Cross: What is Apple doing to improve component availability for the iPhone 4 backlog?
5:18 - Cook: Made a "very bold bet" by putting so much on the September quarter to hit 14 million. Stepped that up in this quarter to 16 million. We're obviously continuing to work on increasing this further. It'll take some time to do that. Relative to Verizon: we're "thrilled" and going to do "everything possible" to get it into their hands.
5:18 - Noticed that Mac App Store bestsellers tend to be Apple's own apps. Any initial thoughts?
5:19 - "Just getting going," recaps the one million figure. "Very happy" with the start of it.
5:19 - Katy Huberty, Morgan Stanley: How comfortable are you with the availability of iPhones and iPads? How are you going to address shortages?
5:20 - Cook: Increased iPads to get to supply/demand balance. Upped to 46 countries. Adding 15 countries in January to reach over 60. iPhone 4? "Very good" what we've done, but "not enough." Still a significant backlog. Feel great that the demand is so high, but I'm not going to predict when supply and demand will meet.
5:21 - Reaction and results from the Verizon customers will be huge. Don't want to predict when supply and demand will cross.
5:22 - Results in China have been "staggering." Revenue from greater China was $2.6 billion, up 4X from a year ago. A further exclamation point: did a little over $3 billion for the entire fiscal year. Korea has also been a very good market, "outstanding" Q1 driven by iPhone and iPad.
5:23 - Several other Asian countries doing very well. Japan by itself has revenue up 83%. If you're familiar with the Japanese economy, going up 83% is stunning. Continuing to look for expansion possibilities.
5:23 - Gene Munster, Piper Jaffray: How far out do you plan? One year, five years, any insight would be helpful.
5:24 - Cook: part of the "magic of Apple," don't want anyone copying it. Apple is doing its best work ever. Very happy with the product pipeline. Team has been unparalleled in breadth and depth that Steve has given to the company.
5:25 - Very confident about the future of the company. For those who haven't thought about it: we've done "fantastic" in our Mac business, but we still have relatively low share of a large PC market. There's an "enormous opportunity still there." Have a relatively low share in the phone market. Incredible momentum in that space.
5:26 - iPad: the market is huge, refers to IDC data having the market quadrupling in two years. Great markets, fast-moving markets, best products we've ever done. Feel very, very confident.
5:26 - Munster: How many more iPhones do you think you could sell? Oppenheimer reiterates past data (won't say, of course).
5:27 - In March quarter, Apple expects a "favorable pricing environment" for DRAM. Prices for key metals are increasing due to the strengthening of the worldwide economy. Other commodities: flash, batteries, optical drives, LCDs are in a supply/demand balance. They may fall in price consistent with historical trends.
5:28 - In most areas, we saw favorable pricing.
5:29 - Which areas do you see favorable pricing in? That's a competitive secret, we don't want our competitors getting an advantage. We design components where we think we'll have an advantage. With the A4, we didn't feel we had to invest in a fab, but didn't think there were good options for outside design.
5:30 - As an example of what it's done: signed a deal with several flash suppliers at the end of 2005 because it believed flash was the future. Fantastic use of Apple's cash. We constantly look for more of these. In the past few quarters we've identified another area. Pre-payments and tooling; similar to the flash agreement, this was very strategic. Won't go into it, but same kind of thinking that went into the 2005 deal. [displays?]
5:32 - Can't take a single product by itself as a basis. Don't guide on individual products. Oppenheimer: always aggressively worked to lower our costs. Shipped a lot of iPads in our December quarter. Quite happy with our progress.
5:32 - How about the competitive landscape?
5:33 - Oppenheimer: If you look at what's out there today, there's not much. There are two groups out there today: the ones using a Windows-based OS are fairly big, heavy and expensive. They have very weak battery life. They require a keyboard or a stylus as an input device. From our point of view and what we've seen, people just aren't interested in them.
5:34 - For Android: the operating system isn't really optimized for this. Google has said this. You end up with a size of a tablet that's less than what we believe is reasonable, or even one that we think would be an ideal tablet experience. You end up with a large smartphone, which is a bizarre product in our view.
5:35 - If somebody does a side-by-side with an iPad, the majority of people are going to pick an iPad. The next generation of Android tablets: there's nothing shipping yet, so I don't know. Generally they lack performance specs, prices, timing. Today, they're vapor. We'll assess them as they come out. However, we're not sitting still. We have a huge first mover advantage and an incredible user experience, from iTunes to the App Store. An enormous number of apps and a huge ecosystem. We're very, very confident.
5:36 - Is it still the case that iPhone non-exclusivity has had no impact on average prices (ASPs)? Also, there are still large global carriers you still don't serve. Is it unreasonable to expect that we should see more CDMA carriers going forward?
5:37 - Oppenheimer: Not specific to any carrier or region. I don't envision the overall ASP decreasing in the March quarter. We don't comment after that period of time. Relative to other carriers? We're always looking and assessing in every country who we should be doing business with. Exploring different deals and arrangements. We'll continue to do that.
5:39 - What we've done in the past is moved from an exclusive arrangement to a dual- or muiti-carrier arrangement. Not that we're necessarily doing that in every country: each has its own different characteristics. We don't have anything specific to announce today besides Verizon. Earned a great deal of respect from its customers.
5:39 - Very happy that we've signed a multi-year, non-exclusive deal with AT&T. Will have a dual-carrier setup shortly in the US.
5:40 - Any other impedances or hinderances that might be limiting Apple's ability to sign extra carrier agreements?
5:41 - Generally found that people "really want to do business with us." Don't see a lack of desire. Don't want to comment on a specific country; any negotiations are confidential in nature. We're not in a contractual obligation in any country anymore; the US was the last one. We're always looking at opportunities to grow.
5:41 - In the short term, we're constrained on iPhone 4 (i.e. expansion is less likely).
5:42 - Returning to the cannibalization question and the Mac. We grew 23% worldwide versus 3% (recapping earlier). Stunning. In every region; Asia-Pacific led the growth, over ten times what the market grew there. Japan 6 times the market. US and Europe grew double-digits despite contracting markets.
5:43 - Don't know for sure if there's cannibalization, but yes, I do think there is some. But I also think there's a halo effect. Halo effect from product to product. Introduced millions in Asia to Apple through the iPhone. The iPad is introducing many to the Mac. If this is cannibalization, it feels pretty good.
5:44 - If the iPads and tablets do cannibalize the tablet market, the other guys have more share; they have a lot more to lose. We have a lot to win. We don't spend a minute on cannibalization. The iPad team makes the best iPads, the Mac team makes the best Macs.
5:47 - Are you just grabbing one or two elements of the iPad and bringing them into OS X? There aren't "high walls" between divisions at Apple. If one invents a great product, there isn't a "not invented here" barrier. Tons of examples in our products where something was invented in one area and flowed to the other. Steve said it best: if the Mac was a separate company and the iPad was a separate company, what Mac would they build to compete with the iPad? MacBook Air.
5:48 - Do you think the iPad may drive share for the Mac in developing countries?
5:49 - Any product you ship early on looks different early on in the early adopter cycle. iPad went through that quickly. That data still needs to settle first. If you look at our Asia-Pacific business, this is incredible. The size of the Asian business we've built is massive. $2.6 billion in China again. Introducing many that are new to the company.
5:50 - Contrasting tablet market in the US (established market) with elsewhere? If it's large in one market, it's large everywhere.
5:52 - On Verizon and iPhone supply: working hard to increase iPhone supply, but not necessarily overnight. In terms of sequential guidance, we're "thrilled" to be guiding to 63% revenue growth year over year for March. Shipping the best products in Apple history and customer response has been tremendous. On Macs, expect a sequential decline. Also expect a large sequential decline in iPods, but a year-over-year increase in iPhone. Sequential decline likely for iPads.
5:53 - Any observations you'd like to make on Android a few months on from what Steve said?
5:55 - If you look at iPhone, we could've sold more if we had more supply. We grew faster than the market. Continuing to expand countries and carriers. Enormous enterprise traction. 88% of Fortune 100, 83% of Fortune 500. Highest customer satisfaction ratings versus Android or RIM. Largest app store. Over 160 million iOS devices since starting.
5:56 - Fundamentally believe that our integrated approach delivers a far superior experience than the fragmented approach. People are "going to pull their hair out" over the app stores over payment methods. Who's on the latest OS? Apple is "off the charts" versus the other guys. Launching with Verizon: huge pent-up demand. Integrated approach is much better for the end user because it's simple for the user. The customer doesn't have to be the system integrator. Who wants to be a system integrator?
5:57 - On iPads, we've been running three quarters without any significant quarters. Satisfaction is off the chart.
5:57 - Mark Moskowitz, JPMorgan: Insight on iPad gross margins going forward. Should we assume that Apple can really improve the feature set while keeping pricing stable?
5:58 - Oppenheimer: Not really a question we can answer. We "aggressively" trim costs. Gross margins for the quarter were higher than we thought. We feel good about the performance of our products and the cost of our products.
5:59 - MacBook Air was a "phenomenal" part of growth this quarter. People love it. Really happy with it coming out of the starting blocks. We've only been shipping it for less than 90 days, so we've only just gotten going.
6:00 - Wells Fargo: Are there still some barriers in corporate training or others that naturally need to be worked through to see wider adoption in business?
6:01 - Consumerization is working for us. CIOs are realizing that the happiness of the worker is more important than everyone using the same thing. Writing apps in a straightforward manner for the iPhone or iPad through the SDK is an important thing. Places people can go were "unimaginable" just months ago.
6:02 - Companies are normally conservative. To their credit, they've seen the value of this and are moving fast. In terms of inhibitors, the iPad has an advantage as it has a huge chunk of enterprise features. Were working on this before the first phone. Other products get the advantage of it.
6:03 - Apple wrapping up the call.