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Apple Quarterly Earnings Report, January 26, 2016 : January 26, 2016

Join the MacNN team for live commentary and key statistics from Apple's quarterly earnings live cast.
10:01 - You're early! Join us at about 4:45 PM ET for analysis of Apple's holiday financial quarter.
1:05 - Coming soon to the homepage, a roundup of analyst predictions about the upcoming announcement.
4:37 - Here we go!
4:38 - Record quarterly revenue of $75.9 billion and record quarterly net income of $18.4 billion
4:38 - These results compare to revenue of $74.6 billion and net income of $18 billion, or $3.06 per diluted share, in the year-ago quarter
4:41 - And the funky music is playing pre-conference call.
4:43 - 74.8M iPhones, 16.1M iPads, 5.3M Macs sold in the quarter.
4:44 - Compare to: 74.5M iPhones, 21.4M iPads, 5.5M Macs in the year-ago quarter
4:45 - Greater China fueling growth, with a 14% increase in income from YAQ. Europe up 4%, Americas income down 4%, Japan down 12%.
4:47 - Here's something interesting: "other products" including sales of Apple TV, Apple Watch, Beats, iPod, and third-party accessory sales up 62% year over year, with $4B in revenue.
4:50 - Wall Street isn't going to like this. Closed at 99.99, up on the day. After hours will take a bit of time to resolve itself.
4:57 - Any bets on if Tim's got a cold again?
5:03 - And here we go!
5:03 - Nancy Paxton leads the call. First time for supplemental material, including the effect of foreign exchange rates over time.
5:04 - Tim Cook, opening remarks
5:05 - "huge accomplishment for our company, given the turbulent world around us"
5:05 - Average of 34,000 iPhones an hour 24/7/13 straight weeks
5:05 - 4x the volume from five years ago
5:06 - "challenging global macro-economic market"
5:06 - End of FY2014, euro, pound down double digits, other major currencies declined 20% or more. Ruble down more than 50%.
5:07 - 2/3 of Apple revenue outside US.
5:08 - Currency exchange problems cost Apple $5B this quarter.
5:08 - Record app store performance in China, but still seeing signs of economic softness in Hong Kong.
5:09 - Saw greater number of switchers from Android ever in Q1. No numbers given.
5:10 - new Apple TV is "laying the foundation for the future of television"
5:10 - 3600 apps for Apple TV.
5:11 - 12k locations in 48 countries selling Apple Watch. New quarterly record set for sales.
5:12 - second half of 2015, growth rate 10x higher for Apple Pay. Soon to be accepted at Exxon/Mobil through SpeedPass Plus app.
5:12 - 10M Apple Music subscribers.
5:12 - "mother of all balance sheets" $216B in cash on hand.
5:12 - "significant portion of Apple's revenue recurs over time"
5:13 - 451 research: 99% customer satisfaction with iPhone 6s/6s+, 97% iPad Air 2.
5:14 - Revenue driven by existing install base. Lot of time spent on devices, with lots of money spent on apps, and more likely to buy multiple Apple products, with high hand-down percentage.
5:14 - Apple has crossed 1B active Apple devices, causing growth in services.
5:16 - Luca Maestri takes the call.
5:16 - Luca is repeating info from the quarterly report.
5:16 - Gross margins similar to company average from services.
5:17 - Active device: device engaged with Apple servers within the last 90 days. Google calls an active device one engaged within 240 days.
5:18 - Growth driven by iPhone sales, revenue from services, expanded Apple Watch, Apple TV. No mention of iPad Pro.
5:18 - Gross margin 40.1%, up sequentially from commodity costs and product mix.
5:19 - Stock volatile, but $99.13 right now.
5:19 - Sales up 20% or more in many western european countries. $691 average selling price per iPhone, up from YAQ.
5:20 - 79% of mobile purchasers in US want to buy an iPhone. Highest percentage in five years.
5:20 - Slightly above 5-7 weeks of iPhone inventory in the channel
5:21 - NPD indicates that iPad has 85% of tablet share priced above $200. iPad is 67% of commercial iPad market (government, education, enterprise)
5:22 - 65% of tablet purchasers in next six months want an iPad. 73% of enterprise.
5:23 - Services revenue includes $548 million in "patent infringement dispute"
5:24 - Revenue from app store increased 28%, increase in customers of 18%. Average spent per customer reached all time high in December quarter, no number given.
5:25 - Over $153B of share buyback program completed.
5:26 - Big update in April about the share buyback program. Company will be "very active" in debt market. Dividend of $0.52 per share to be paid.
5:27 - Revenue 50-53B in next quarter, wide range because of economic volatility, margin 39-39.5%, Opex $6-6.1B, tax rate to be 25.5%.
5:27 - March quarter faces most difficult YOY compare relative to the rest of the year.
5:27 - Questions from analysts.
5:28 - Question: in terms of guidance for March, implies double digit decline. Explain. How much is weakening demand versus other reasons.
5:29 - Luca: expecting big impact from foreign exchange in March quarter. Economic condition a big problem.
5:30 - Gene Muenster: High level thoughts on VR, and impact of iPhone purchase program.
5:31 - Tim: First, about the product. Blown away by number of switchers last quarter, huge opportunity. Emerging markets versus LTE penetration, big opportunity. Upgrade program meaningful over time, as customers get into a different pattern versus subsidized phones.
5:32 - Terms of VR. Tim: "i don't think it's a niche. It's very cool, and has some interesting applications."
5:32 - Question: consumer reaction from an average selling perspective? Will customers move down the line?
5:33 - Luca: happy with average selling price in December quarter. Forex impact was $49 downwards.
5:34 - Channel inventory: entered quarter below target range of 5-7 weeks. Built up inventory.
5:34 - iPad, Mac, well within inventory ranges desired.
5:34 - Q: What's driving capital expenditure growth?
5:35 - Starts with tooling and manufacture. Up YOY. Then data centers, growing expenditure. Install base of customers and devices growing, requiring proportionate data center growth.
5:36 - Nearing completion of new campus in Cupertino, peak capex in part because of it.
5:36 - Question: iPhone looks like guidance includes 15-20% unit decline for Q2. iPhone units declining YOY for 2016? Saturation in the market?
5:37 - Tim: we do think that iPhone will decline in the quarter, but your numbers are wrong. Not projecting past the quarter. Q2 tough to compare.
5:38 - Environment dramatically different from last Q2.
5:38 - Many factors playing in, difficult to sort out which factors.
5:40 - Tim: lot of people in the world that will buy smartphones, and Apple should be able to win a fair share.
5:41 - Of service reported, 85% of all services is directly tied to install base. Rest related to when a device is sold (Applecare, and the like).
5:42 - On the install-base-driven services, there is a part related to revenue recognition, versus payouts to others.
5:42 - Growth of install base 25%. Growth of revenue from services, including all other factors, 24%.
5:43 - Question: Gross margin prediction clarification.
5:44 - December quarter: patent infringement number included in profit numbers. For Q2, negative impact on sequential basis is 50 basis points. Largest impact on margins is loss of leverage, as part of seasonal pattern offset by commodity pricing.
5:44 - Question: Leverage within model.
5:45 - Tim: R&D "we continue to invest without pause."
5:45 - Stock price: $98.36
5:46 - Some markets look pretty bleak. Brazil, Russia named. "this too shall pass, and these countries will be great places" for Apple to stay. "we're not retrenching"
5:47 - "this is the time to invest, and do so confidently."
5:47 - Question: next leg of growth in China. Investing in India over the next 2-3 years?
5:48 - Tim: China, LTE penetration at end of October only mid 20-percent. Enormous upgrade cycle possible.
5:48 - Middle class in china less than 50M in 2010, by 2020 about 500M. Enormous number of people moving into middle class.
5:49 - India also incredibly exciting. Growth very good.
5:50 - average age is low, half the people in India younger than 25. Demographic incredibly great for a consumer brand.
5:50 - 38% growth in India in Q1.
5:51 - Question: Accelerated growth last year, deceleration this year, relevant for 2016? Update on phone size distribution.
5:52 - Tim: Number of people who have not yet update to 6 family phone (6 or 6s) is 60%.
5:53 - AGAIN, currency exchange is the problem.
5:54 - Question: better sense of over-arching message for services revenue increase. Stepping stone to more service revenue?
5:55 - Tim: services broken out in Q1/2015. Break it out and show the full size and scope from a transparency point of view. Assets in services are huge.
5:55 - Tim: Something that the investment community should focus more on.
5:55 - Question: in-store at Apple Stores effect of Apple's upgrade program.
5:56 - Tim: upgrade plan has nothing to do with taking revenue from carriers, has to do with providing customers a simple way to upgrade.
5:56 - No idea over time how percentages will vary, but it doesn't matter.
5:58 - Question: what effect does the economic situation have on the product lineup strategy? Always that premium product or is it time to focus on a lower price point to drive services? Did the guidance three months ago have the patent settlement fee included?
5:59 - Tim: "our strategy is always to make the best products." Several different price points met now. iPhone 5s continues to do quite well. "I don't see us deviating from that approach."
5:59 - Luca: one-off item that affected the December quarter. Yes, probability of receiving the patent settlement payment was incorporated in the guidance range.
6:00 - That's it! More on the homepage all this week.

Previous Live Event Coverage:

2016 WWDC Keynote, June 13, 2016
Apple second quarter, 2016 earnings report, April 26, 2016
Apple 'Let Us Loop You In" Press Event, March 21, 2016
The Encryption Tightrope; Balancing Americans' Security and Privacy, March 01, 2016
Apple quarterly earnings report, January 26, 2016, January 26, 2016
Apple fourth quarter 2015 earnings call, October 27, 2015
Apple September 9 "Hey Siri" launch event, September 09, 2015
Apple's third quarter 2015 earnings announcement and conference call, July 21, 2015
2015 WWDC Keynote - The Epicenter of Change, August 06, 2015
Apple's September 9 event, September 09, 2014
WWDC 2014 keynote, June 02, 2014
WWDC 2014, June 02, 2014
Apple fiscal Q4 conference call, October 28, 2013
Apple's October 22 media event, October 22, 2013
Apple's September 10 event, September 09, 2013
Samsung Unpacked at IFA, September 04, 2013
Samsung Unpacked 2013 Episode 2, September 04, 2013
Apple fiscal Q3 2013 , July 23, 2013
WWDC 2013 Keynote, June 10, 2013
Apple fiscal Q2 2013 earnings call, April 23, 2013
Apple iPad mini unveiling, October 23, 2012
Apple iPhone 5 launch event, September 12, 2012
Apple Financial Conference Call Q3 2012, July 24, 2012
Live 2012 WWDC Coverage, June 11, 2012
Apple fiscal Q2 2012 results call, April 24, 2012
Apple cash balance call, March 19, 2012
Apple's iPad 3 Event, March 07, 2012
Apple fiscal Q1 2012 results call, January 24, 2012
Apple FYQ4 Quarterly Results, October 18, 2011
Apple - Let's Talk iPhone, October 04, 2011
Apple July Conference Call, July 19, 2011
Live WWDC 2011 Event Coverage, June 06, 2011
Google I/O 2011 day one keynote, May 10, 2011
Apple fiscal Q2 2011 results call, April 20, 2011
March 2 iPad event, March 02, 2011
Intel Thunderbolt Technology, February 24, 2011
HP webOS event, February 09, 2011
Google Android event, February 02, 2011
Apple January January 2011 fiscal results call, January 18, 2011
Verizon NYC Event, January 11, 2011
Google Chrome Event, December 07, 2010
Acer's Interact event, November 23, 2010
Back to the Mac, October 20, 2010
Apple's FYQ4 2010 results, October 18, 2010
Google TV Intro, October 12, 2010
Apple Sept 1 music event, September 01, 2010
BlackBerry August 3 Event, August 03, 2010
Apple iPhone 4 Press Conference, July 16, 2010
Sony E3 Keynote, June 15, 2010
Nintendo E3 Keynote, June 15, 2010
Microsoft E3 Keynote, June 14, 2010
WWDC 2010, June 07, 2010
D8 conference 2010, June 01, 2010
Google I/O Keynote II, May 09, 2010
Google I/O Keynote, May 19, 2010
Apple earnings - 2010, April 20, 2010
iPhone OS 4.0, April 08, 2010

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