Apple (AAPL) easily beat the Street’s low hurdles and matched heightened “whisper” expectations for Mac and iPhone sales. Guidance low as always, and not a problem.
As usual, Apple COO Tim Cook made fun of netbook PCs on the company’s earnings call, basically saying that the company has no interest making a $400 or $500 crappy mini-laptop. But as always, Apple doesn’t “want to discount” the possibility that it’ll compete there in the future, likely via a tablet computer in the next 6 months.
No Steve Jobs cameo on the call.
Cheaper, more powerful MacBooks helped Apple ship 2.6 million Macs last quarter, up 4% year-over-year, in line with whispers. And Apple sold 5.2 million iPhones last quarter, up from 717,000 during last year’s June quarter. (Before the iPhone 3G shipped.) iPod sales beat consensus.
Apple’s guidance, as always, was below expectations. The company predicts $1.20 of EPS on $8.8 billion of revenue. If we play Apple’s guidance game — adding 39% to EPS and 7% to revenue — the company will really report $1.67 earnings per share on $9.4 billion of sales.
Revenue: $8.35 billion vs. $8.20 billion consensus, $8.4-8.5 billion whispers
EPS: $1.35 vs. $1.17 billion consensus, $1.35 whispers
iPhone units: 5.2 million vs. 4.0 million consensus, 5 million whispers
Mac units: 2.6 million vs. 2.4 million consensus, 2.6 million whispers
iPod units: 10.2 million vs. 9.5 million consensus
Sept. Rev. guidance: $8.8 billion vs. $9.05 billion consensus
Sept. EPS guidance: $1.20 vs. $1.30 consensus
LIVE Conference Call notes: (Refresh for the latest.)
5:01 Waiting for call.
5:02 Call begins. Standard disclaimers.
5:03 Peter Oppenheimer: An “extremely busy” quarter for new products, customers responded enthusiastically. Proud of results given economic environment. Adjusted sales $9.7 billion, $1.4 billion higher than reported revenue. Adjusted GM $1 billion higher. Adjusted net income $700mm higher than reported. (Factors in full iPhone revenue instead of subscription.)
5:04 Sold 2.6 million Macs, setting new June quarter record, nearly meeting last September’s all-time quarterly record. Accelerated sales after MacBook launch.
5:06 10.2 million iPods, down y/y. Two key reasons for decline: Reduced channel inventory by 400,000. Sellthrough declined 4%. We have 3 categories of what we call “pocket products.” Traditional MP3 players, iPod touch, and iPhone. Trad y/y decline, as forecasted, for trad MP3 players. Expect this business to decline over time as we cannibalise with iPod touch and iPhone. But have a great business which will last for many, many years. Despite decline in sales, research shows that about 50% of recent traditional iPod purchases are buying first iPod, including high-penetration markets. iPod touch big growth, more than 130% year-over-year.
5:07 Share of US market over 70%, iPod top selling MP3 player, continued to gain share. 4-6 weeks of channel inventory.
5:08 iPhone: Thrilled to have sold over 5.2 million iPhones. Response to new iPhone 3GS huge, with over 1 million sold in first 3 days. Can’t make enough to meet demand. Customers and reviewers impressed.
5:11 Over 8 billion songs downloaded from iTunes store.
5:12 Retail: $1.5 billion revenue, vs $1.45 billion year-ago. Sold 492k Macs, up from 476k. About half to first-time Mac buyers. Opened 6 stores, up to 258. 27 remodels. Avg store: $5.9mm vs $6.8mm year-ago. 38.6 million visitors, vs. 31.7mm year-ago, up 22%.
5:13 Why beat GM? Component costs not as high as thought, spent less on warranty and tools, ramped products faster than expected.
5:14 Made $500 mm payment to Toshiba for NAND flash.
5:14 Expect 34% GM in Sept quarter. Opex $1.445 billion. Tax rate about 30%. Targeting EPS 1.18 to 1.23.
5:15 Very enthusiastic about Snow Leopard, user experience, etc. Remain confident in strategy and new product pipeline, working hard to deliver exciting products, etc. Opening call to Q&A.
5:16 Q&A: Munster asks about demand for new 13-inch MacBook Pro, relationships with wireless carriers. Tim: Couple of models somewhat constrained; don’t think it had a material effect on last quarter, factored view of supply into guidance. Re: Carriers, I think most of the carriers we’re doing business with are thrilled over lower churn, higher ARPU, and customers are demanding the iPhone. Feel like we’ve got a very good set of relationships are are obviously looking to expand.
5:18 Expanding relationship with AT&T like laptop cards or living room? Nothing to announce today. Any update on status with AT&T? Tim Cook: “I think it’s an excellent relationship and we’re very happy with it.”
5:19 Small business accounts delaying purchases. Overall, negative 6% in institutional business. K-12 was more negative than that, higher ed was around 0% level.
5:20 Mix down versus historic, commercial customer who was buying up in the line is delaying purchases in weak economy. Thrilled with overall results.
5:21 Some idea of how $99 iPhone is doing? Change in mix? As we made changes, both launch of 3GS and price reduction, saw significant acceleration in total unit sales. Don’t want to give precise mix. As Peter alluded, iPhone 3GS is currently constrained in virtually every country, demand very robust. Speaks to the great product that it is, working very hard to fill demand.
5:22 Growing interest from enterprise for iPhone 3.0 and iPhone 3GS, due to hardware encryption and improved security. Doing good with small business and large orgs that allow people to purchase phones for personal use. 13% (think I got that right, will double-check) of Fortune 500 have purchased 10,000 each, some orgs with more than 25,000 each. Still at tip of iceberg.
5:24 Mac, while usually increase in units, and expect to see one, expect sequential increase to be less than previous years, as refreshed last quarter. Institution sales under pressure, too. iPod, expect trad MP3 to decline, iPod touch to increase significantly. iPhone: Introduced new phone a quarter earlier this year, very optimistic about products, but just don’t have any experience in this seasonality with distribution as wide as we have it.
5:27 For many key components, costs are rising. We will continue to focus on delivering state of the art products at price points that our competitors can’t match, etc.
5:28 1.83 million is iPhone inventory they’d like, including in transit and demos.
5:29 Mac business more or less elastic than anticipated, how are you thinking about elasticity? Thrilled with results we had since portable announcement. Mac sales did accelerate after announcement, feel great about how they’re selling. Some people that are buying up because they can now get MacBook Pro for $1199.
5:30 Apple won’t give hint on EPS carryover from delayed iPhone revenue recognition. Heh.
5:37 No colour on iPhone purchasing habits — too early to make long-term judgments.
5:41 Competitors have app stores, touch, etc. How can out-innovate? I don’t want to talk very much about what we have planned in the future. We just shipped next major version of the world’s most advanced mobile software platform. App store in 77 countries, more than 45 million install base. (iPhone + iPod touch.) 65k apps in store, 1.5 billion downloads. As you may remember, app number compares to the latest numbers we have for RIM and Nokia is 1-2k each, Android less than 5k. We feel like we have a substantial lead on apps, software, and we think we have brought a great deal of hardware innovation for the phone. Feel extremely good for competitive position. Years ahead of other people.
5:44 Our goal is not to build the most computers, it’s to build the best. We’ll play where we can. We don’t see a way to build a great product for this $399, $499 price point. Some customers, maybe many, disappointed and disenchanted once they buy. Focus on making the best, the most innovative, and giving people tremendous value. Have grown Mac 18 of last 19 quarters.
5:46 Services and apps growing fast on iPhone. Growth constrained by network capacity by carrier partners? I think that’s a better question for them. What I see, I see them making more investment in order to have faster networks, and see them being very happy about driving higher ARPU and lower churn. Changes CPGA if they’re not out churning people left and right. Will make investments to deliver services that people really enjoy.
5:48 Netbooks. An emerging market for truly mobile device with larger screen than on iPhone? Basically asking about Apple tablet. Very funny. I never want to discount anything in the future, never want to specifically answer question on new products. I think most people who are buying a portable want a full-featured notebook. Deliver incredible value. Customers very happy. I think some of the netbooks are very slow, have software technology that is old, don’t have robust computing experience, lack horsepower, small display and cramped keyboards. We’re only going to play in things where we can deliver something that is very innovative that we can be proud of.
5:50 US 40% of iPhone activations, according to analyst. What about international growth? Tim: We don’t release the percentage of iPhone sales by geography. Wouldn’t want to get into that with you. Smartphones in general are being sold in larger numbers in environments where postpay is primary payment mechanism.
5:53 iPhone 3GS supply and demand won’t balance in short term. Very difficult to gauge demand without supply.
5:54 Hope to be in China with iPhone within a year.
5:55 Division between new activations and upgrades? No. Race to bottom on app prices. Increasing number of 99-cent offerings. Concerned? Taking steps to enable consumers to separate quality apps from garbage? Always looking for ways to categorize apps differently, do have some ideas. Working on further improvement. Up to developer what to charge, I think what they’re doing is doing the elasticity analysis and deciding where to best set their price. I would think as the install base grows more, makes sense to have a bit lower prices. But up to developers.
5:57 Call is over. No Steve Jobs cameo!
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