Apple July Conference Call : July 19, 2011Quarterly Conference call with press and analysts discussing the quarter details
4:59 - Waiting for the call to start. Apple did well in iPhones most of all: its spring quarters usually see a dip, even when a new iPhone is in the cards. Verizon is likely the big credit here.
5:02 - Just beginning. Safe harbor warnings as usual.
5:03 - CFO Peter Oppenheimer opens it up with a recap: quarterly records for iPad, iPhone, Mac.
5:04 - Noting that net income actually grew faster than revenue.
5:05 - Mac focus: 3.95m Macs, 14% increase. 4X expected 3% growth. Particularly strong in Asia-Pac, where it was a 57% growth. Both desktop and notebook.
5:05 - iMac, MacBook Pro, MacBook Air the drivers. 3-4 weeks of inventory.
5:05 - LION IS LAUNCHING WEDNESDAY.
5:06 - iPod share of the market is over 70%, NPD says. More than half iPod touches. Leader in most markets, GfK says.
5:06 - $1.4b iTunes Store revenue, up 36% year over year. Music, video, apps. 225m accounts. More than 15 billion songs to date.
5:07 - iPhone: $13.3b (?). Very strong in all segments. Asia-Pac "particularly robust," quadrupling year over year. Increasing overall manufacturing capacity. By the end of the quarter, 228 carriers in 105 countries.
5:08 - 5.9m iPhones in inventory; up 700,000 to account for demand and increased distribution.
5:08 - 91% of Fortune 500 testing or deploying. 57% of global 500 countries testing or deploying. Examples: Nestle, Dow, Comcast, GlaxoSmithKline.
5:09 - 9.25m iPads vs. 3.3m a year ago. Increased production by over 4.5m, sold every iPad we could make. Distribution in 64 countries. $6b revenue vs $2.2b. 1.05m iPads in inventory; increase by 200K, well below target.
5:10 - 86% Fortune 500 testing or deploying. 47% of Global 500. In 15 months, seen it used in enterprise. Boston Scientific, Cedar Sinai Hospital, GE, Standard Charter, Salesforce all using it and developing apps. Alaska and American Airlines use iPads in cockpits.
5:11 - 222m iOS devices sold lifetime.
5:12 - Recapping iOS 5 features. Still due in the fall. iCloud too.
5:12 - $2.5b in cumulative payments to devs: "far ahead" of any competitors.
5:13 - Retail: $3.5b versus $2.6b a year ago. Higher iPad, iPhone, and Mac sales. 768,000 Macs, up 13%. About half new to Mac.
5:13 - 4 new stores, total of 327. Average of 325 open, revenue of $10.8 million per store. $828 million margin. Store traffic very strong. 73.7 million visitors, up 22%.
5:14 - Personal Setup: over 2 million collective devices.
5:14 - 30 new stores in the current quarter, including first in Hong Kong.
5:14 - On margins: stronger mix of iPhones, lower commodity costs. Tax rate: 23.5%.
5:15 - Cash: $76.2 billion versus $65.8 billion for last quarter.
5:16 - Apple talks accounting rules for updates: will charge for major updates, but fully deferred for three years. iCloud services will be worth about $22. Deferring $22 of each Mac sold from June on.
5:17 - From June 6 on, $15 of revenue deferred for each iPhone and iPad, $11 for each iPod -- each over two years.
5:18 - Outlook: $25b revenue vs 23 a year ago. OpEx 2.25b (?). Tax rate 24%. EPS of $5.50.
5:18 - Summarizing. 99% increase in revenue. "Very excited" about our new product pipeline.
5:18 - Q&A session starts.
5:20 - Wondering about low EPS guidance: why softer than usual? Education is usually biased to higher ed and expect year-over-year increases in Macs and iPhones; still increasing iPad production and expect big boost too.
5:20 - There's a "product transition" that will impact the September quarter. [probably MacBook Air, maybe iPhone] Factored it into guidance.
5:22 - Cannibalization? Some buy an iPad instead of a new Mac, but even more chose to buy an iPad over a Windows PC. A lot more of the Windows PC business to cannibalize than the Mac. Mac also has a lot of things that will let it continue to do well in the market.
5:22 - Some countries are at a supply/demand balance, but not all. Still working on it.
5:24 - Hong Kong, mainland China, Taiwan biggest. $8.8b in the fiscal year so far. "Substantial opportunity" for Apple.
5:25 - On component costs: margin will be about 38%, down 370 basis points. Product mix, loss of leverage, cost of product transition, and a full quarter of a Back to School promotion.
5:26 - Tim Cook: RAM, DRAM, LCDs in a "very positive" supply situation. Pricing should be better than historical trend. One-time benefits are embedded in 41.7% margin from the June quarter.
5:26 - Patent disputes: how to put them in context?
5:27 - Tim Cook -- Very simple view here: we love competition, but we want people to invent their own stuff. We're going to make sure we get paid for our portfolio.
5:29 - 42 new carriers and 15 new countries for iPhone. Those occurred throughout the quarter; the real sequential improvement was in emerging and developed markets. China, Brazil, Mexico, Middle East. Great for Apple: these are markets that Apple hasn't usually been as strong in, and we're finally seeing the fruits of our labor.
5:29 - Can't give out milestones for carriers for the next quarter, but it's a big focus for Apple. Working on new relationships. [read: China Mobile]
5:30 - China's on fire, up 600%.
5:32 - Android activation number a problem? "Hard to get our heads around" it. (implying doubt) Apple is growing more than 2X the rate of the smartphone market, sold every iPad we can make. Gaining traction in enterprise. Hard-pressed to find more than a few hundred rivals. Other tablets aren't gaining any traction.
5:33 - Very confident in the product, the App Store, proposition for developers. iPhone tops in customer satisfaction. "Very confident in our roadmap." Points to ChangeWave study: iPhone the "clear leader" in satisfaction and top pick for those buying a phone in the next 90 days.
5:34 - Apple TV continues to do well. Don't want to mislead: we still call it a hobby. It's not a leg of the stool. We love it, it's clear customers love it. Continuing to invest in it, because we think there's something there. [note: a repeat of Apple's frequent statements on Apple TV]
5:35 - How about diversification? 115,000 points of sale, so diversified in that area.
5:35 - Channels are in good shape. Putting more and more energy in development. Well understood and under control. Not something Apple worries about.
5:36 - Suppliers? Don't want to get into detail. "Part of the magic." One of those areas where we have some "secret sauce."
5:39 - How to sustain growth? Tariffs may be a factor. Plan to stay on the same business model, even with low-cost Android? Firmly believe there's no better device than the iPhone. No better way to move to a smartphone. "Good alignment in that area."
5:40 - Key driver in our units was in emerging/developing area. More and more energy in those markets that have been a bit more difficult. Looking at those markets in the aggregate shows most of them are prepaid.
5:41 - We convince some to start a postpaid because it's better for them, the carrier, and us, but we don't want to avoid that market. "We need to play there" to have the volume we want.
5:43 - 5% sequential Mac growth a problem? Look more at year-to-year. To grow at 14% versus 2.6% is something to be proud of. Why isn't it higher? Three things are primary factors.
5:46 - Some cannibalization of new Macs. Repeating: more bought iPads instead of new PCs than Macs. Some are choosing to wait for Lion. New MacBook Pro and iMac were launched in each quarter, but... [cut out]
5:47 - iPad supply: 3 weeks, further improved after the quarter. Led some countries to that supply/demand balance.
5:49 - Apple trains and provides help to carriers to help sell into enterprise. Some direct sales or through companies that sell to the enterprise. Building it up; doing a bit better each quarter. Moving from initial trial and deployment to penetration in a given company.
5:50 - To be this far with the iPad in the enterprise in 15 months is incredible, because enterprise is normally conservative. Sold more iPads in K-12 than we did Macs after just five quarters. "Just absolutely shocking. We would never have predicted this."
5:50 - Clear that it has a universal appeal from consumer to business to government and on and on.
5:51 - Really think we've done it right with iCloud. Didn't go unnoticed to us that it was one of the reasons why there was a strong intent to buy for iOS devices.
5:54 - How much progress on China in prepaid? iPhone is the key contributor to great China. Haven't figured out "how to play perfectly in the environment," but feel very, very good about our progress there. I don't think we'd have believed it if you'd told us a year ago we'd do $3.8 billion in a quarter. Taking those learnings and applying them to other markets.
5:56 - Share gain is always important; whenever it's going the opposite way, we're not happy with it. On different price points, we already have the $49 iPhone 3GS. In other markets, it depends on the VAT (taxes) and channel. Very distinctly different price than the iPhone 4.
5:57 - We'll only make the product we're very proud of, that are the best in the world, and if we can do it with a lower price, we will.
5:58 - Worth it to pay a little bit more for a materially better product.
5:58 - Media consumption on the iPad? Learned that it's used for a whole variety of things. If you talked to 10 different people, they would likely give you 10 different answers. That's why it's doing so well across different segments and geographies.
5:59 - Call wraps up.