Apple's FYQ4 2010 Results : October 18, 2010Apple is set to announce its fiscal year 2010 results on October 18th.
4:52 - Waiting for the call to begin. Apple usually starts very shortly after 5PM with a recap followed by deeper insights and Q&A.
5:01 - Apple is still waiting for additional people involved in the call to start; will be a little late.
5:03 - Call is starting. Usual safe harbor warnings coming up.
5:04 - CFO Peter Oppenheimer up. "Extremely pleased" with the conclusion of a great fiscal year. Best lineup ever, cust. response tremendous. Records for Mac, iPhone, iPad sales. Best revenue/earnings ever.
5:05 - Fueled mostly by iPhone, Mac and iPad.
5:06 - Exceeded previous Mac record: 27% YOY growth. More than double IDC's 11% estimate. Strong double-digit desktop and portable. Led by iMac sales and continued popularity of MacBook Pro and MacBook. Asia/Pacific and Japan leading.
5:06 - 3-4 weeks of Mac inventory.
5:07 - iPod share of the US is over 70% according to NPD (unchanged). Top-selling MP3 player internationally, gained share worldwide based on GfK data. 4-6 weeks of inventory.
5:07 - iTunes Store over $1 billion in revenue.
5:08 - 14.1 million iPhones; 91% YOY and well ahead of IDC estimates. $8.82 billion revenue in handsets and accessories. $8.6 billion of that iPhones themselves, $610 average device price.
5:08 - Strong growth in Asia, Europe and Japan, where sales more than doubled.
5:09 - Adoption of iPhone in the enterprise; from 60% to 80% of Fortune 500 now using iPhone since the iPhone 4 launch. Aviva, Total, Novardis, etc. making devices available to workers.
5:10 - Could have sold even more iPhones if we'd been able to supply them.
5:10 - 65% of Fortune 100 trying or deploying iPad. Procter & Gamble, Lowe's, etc. are using it.
5:11 - Increased channel inventory by 500K to keep up with demand, but still low at 2-3 weeks versus 4-5 (?) expected.
5:12 - Over 200,000 registered iOS developers. Over 65,000 game titles, over 30,000 iPad apps.
5:13 - About half of Macs sold at retail were to new users.
5:14 - 24 new retail stores open. First-day Beijing and Shanghai sales (new stores) were the highest ever for Apple retail store openings. Total of 317 store worldwide, 84 of them outside the US. Average of 301 stores open, average revenue per store was 11.8 million. Increase of 52%.
5:14 - In fiscal 2011, Apple expects to open 40-50 stores, more than 50% outside the US. Apple is also replacing stores in the US.
5:15 - Better than planned mix of iPhone sales led to 36.9% gross margin.
5:15 - 21% tax rate, lower than guidance. More foreign earnings and discrete one-time tax benefits.
5:15 - $51 billion cash on hand compared to $45.8 billion last quarter.
5:16 - 40 million iPhones in all of fiscal 2010.
5:17 - Five times the revenue than what Apple managed in 2005.
5:17 - Outlook: $21 billion rev, gross margin 36%, operating ex. $2.25 (?) billion. Tax rate 25.5%. Earnings per share of $4.80.
5:18 - Steve Jobs appears on the call: surprise.
5:18 - Couldn't help but drop by for our first $20 billion quarter. Will stay around for the Q&A too.
5:19 - "Handily beat" RIM's 12.1 million BlackBerries. Don't see them catching up anytime soon. They need to get out of their comfort area. Will be hard to convince devs to write for a third platform. "High mountain" to climb.
5:20 - On Android: 200,000 devices per day. 275,000 iOS devices average in the past 30 days, peaks of 300,000. 300,000 apps in the App Store. Hopes manufacturers will actually start reporting Android shipments, but that's not the case. We await to see if iPhone or Android was the winner.
5:21 - Google likes to characterize Android as open, but it's "disingenuous." We think of Windows as open, but Android is very fragmented. Many OEMs, including HTC and Motorola install proprietary UIs. Users are left to figure it all out. Every iPhone handset is the same.
5:22 - TweetDeck said it had to contend with over 100 versions of Android over 244 handsets. A daunting challenge. Many Android apps work only on selected handsets and selected versions. And this is for ones shipped 12 months ago.
5:22 - Compare with iPhone: just two versions to test against. Amazon, Verizon and iPhone have announced stores; there will be at least 4 stores to work with.
5:23 - Apple's App Store has over three times as many apps; one-stop shopping. Even if Google were right, and the issue was closed versus open, it wouldn't necessarily be right.
5:25 - Look at PlaysForSure: even Microsoft gave up and did Zune. Fragmented versus integrated. Makes the user the system integrator. When people just want their devices to "just work," integrated trumps fragmented every time. Devs can put effort into new features rather than supporting every device.
5:26 - Just a handful of credible entrants in tablet. Just about all of them use seven-inch screens. 70% of benefits, right? But it's diagonal: only 45% as large. They're a bit smaller than the bottom half. Not good enough to create good tablet apps.
5:26 - Would need to 'sand down your fingers' to a quarter of the size to match the iPad experience on a 7-inch screen. 10 inches is the minimum to have a good experience.
5:28 - The iPhone works well in a crowd. Giving up display area to fit a tablet in a pocket doesn't work. Even Google is telling people not to use Android 2.2 (Froyo) for tablets; what does it mean when you ignore it and do it anyways?
5:29 - Zero tablet-native Android apps. And the price isn't better, even with the smaller screen. We create our own everything, so we save money. Many of these will be DOA, and people will make 10-inch tablets next year.
5:29 - First Q&A question: Richard Gardner, Citi.
5:30 - Supply constraints on iPad, and how do you expect them to improve? Got into a balance in September with limited distribution. Exited in a position that allows us to expand, as we'd planned for some time. See: new partners in the US and internationally. Additional countries as the quarter goes on.
5:31 - Margins came down by half as much as Apple thought they would. Commodity costs were better, and we sold more iPhones than we thought we would.
5:31 - Gene Munster, Piper Jaffray.
5:32 - Analysts trying to get estimates. Can you help us understand things 1-2 years down the road in size, enterprise?
5:32 - Jobs: The iPad is clearly going to affect notebook computers. Not a question of if but a question of when. A lot of development progress over the next few years. Already seeing tremendous interest from education, and to his surprise, business. Talk to people every day in business that are using iPad.
5:33 - From board books down to nurses and hospitals. The more time passes, the more I'm convinced we've got the tiger by the tail. Tens of millions already trained on it with the iPhone/iPod, so it affects all aspects of life.
5:34 - I try to not predict, I try to just report. We'll keep you posted. Already shipping more iPads than Macs. Any updates on Flash? We love flash memory, Jobs jokes.
5:35 - Clear that even 14.1 million iPhones wasn't enough. Will take more time to improve. It's clear that the iPhone 4 demand took it to an entirely different level. We'd expected something, but it's even higher than that.
5:36 - Mike Abramsky, RBC: You are the tablet market right now. If Apple is going to sustain share in tablets in competitive markets. Tethering, Flash, etc. are coming in. Will this create a more fragmented market?
5:37 - Jobs: Have a hard time imagining what those strategies are. Tablets with far less features are having a hard time competing on price. Flash isn't an issue, since most video is HTML5 (not really true). We're not done. Working on a lot of things for the future. Don't know what a lot of these strategies are. We're out to win this one.
5:38 - Smartphones a zero-sum game? Largest market is still non-smartphones. Many of those will convert to smartphones, and the pie is continuing to grow. There will be room for a number of companies to be successful, but it eventually will turn into zero-sum or a lot closer to that. Currently a battle for developers.
5:38 - iPhone and Android are winning that battle.
5:40 - Ben Reitzes, Barclays Capital. On margins: Apple has factored a margin decline through higher iPod, iPad mixes.
5:41 - Jobs is asked about how his "hobby" is doing, and moving to a streaming model. We don't talk about unannounced products, but we've moved to all streaming on Apple TV; computer, iTunes, AirPlay. I can report that in a very short amount of time, 250,000 units. Great product, at $99 is very enticing. Once AirPlay is in place, it'll give another big reason to buy.
5:42 - Katy Huberty, Morgan Stanley: revenue deferral of $100 million for iPhone 4 bumper program. Plan to report that revenue in December quarter. Reflected in gross margins, as are shipments for December.
5:43 - Not a surprise to us: we already expected things. Again, very aggressive on iPads. Bumpers and one-time items brought down gross margins. Still 50% better than expected.
5:45 - Jobs: our goal is to make the best devices in the world. Congrats to Nokia for shipping the most devices, but we don't want to be like them. In our part of the market, Android is our main competitor. Android outshipped us for the first time (according to Gartner), but we're waiting to find out. Maybe Gartner will let us know. We'll be competing with them for quite some time. We believe in our approach very strongly. Believe in a product that just works.
5:45 - We think ours is the winning approach in the end.
5:47 - Tony Sacconaghi: You've compared the iPhone to the iPod in aspirations in the past. Contradictory with your current view. How should we think about your iPhone and iPad? Do you expect them to be volume leaders? We don't know how to make a great smartphone at $50 where Nokia makes basic $50 devices.
5:49 - Jobs (going on): we want to make the products the best we can while driving costs down. We updated our products many times at the same price and sometimes at a better price. It was the relentless improvement that let us beat our competition. We have a low share in the phone market (all phones), single-digits, but very high tablet share. We don't think you can make a great tablet. Can't express the software you'd want. Software developers aren't going to want to develop for every different screen size. Don't think they'd be happy with the limited number of elements they can put on screen.
5:52 - Sacconaghi: If the market starts to move towards lower functionality smartphones and dramatically lower prices, will you cede share? Jobs: You're thinking of it like a hardware manufacturer that doesn't know software: they just hope the software will magically sort itself out. Put in a smaller screen, etc. Chicken and egg situation where developers won't want to follow firms into supporting phones with lesser features.
5:52 - Why doesn't Apple give dividends or others to shareholders? We're in a unique position. We don't let cash motivate us to do stupid acquisitions. Want to keep our powder dry since we think there's one or two strategic opportunities in the future.
5:54 - Oppenheimer: About 2/3rds of Fortune 100 are deploying iPad. Never seen an adoption rate like that in my life. iPad picking up interest in K-12 education. Historically adopts very slowly.
5:55 - Calling on businesses, enabling and training carrier partners. AT&T's corporate sales and postpaid plans a sign of this.
5:56 - On iPhone: again, 85% of Fortune 500. Enormous energy devoted to it in the company. Macs are also increasingly being pulled into the enterprise, as users are given the choice to select. When they get the choice, they prefer the Mac. Don't have as much distribution effort on that, but as it increases, we'll move accordingly.
5:56 - We're not developing two different lines, like enterprise and consumer, as most do. We expect it to pay great dividends, as it already appears to do.
5:57 - Any color on margin for iPhone 4 specific, but we're always working aggressively to lower costs. Margins still down just slightly.
5:59 - Scotiabank: demand for new carriers. Any pressure on subsidies? Oppenheimer: pressure we get on supply. Virtually everyone we're doing business with wants more supply. At the country level, we have about 166 carriers in about 89 countries. Significant expansion. Expanded from single to multiple. Latest announced is in Germany (Vodafone, O2).
6:00 - 85 of 89 countries have iPhone 4. Hope to have all 89 using it by the end of the year. Any giving up on margin and subsidies when going multi-carrier? No exact details, but average prices still stay above $600.
6:01 - Jobs: We engineer so much of [products] ourselves. We've learned a lot. Very high volume manufacturer. Others have to buy through middlemen that get their cuts. System architects that know how to buy in a very efficent way. We've been [virtually] training to make the iPad for a decade.
6:02 - Call ends.