Steve Jobs Steals The Show On Apple’s Earnings Call


Apple crushed revenue and earnings estimates, as expected, and the company’s guidance looks strong for its holiday quarter.

But the iPad business posted a huge miss: 4.19 million shipments versus the Street’s consensus at 4.7 million and many estimates above 5 million.

On the earnings call, Apple hinted that this was at least in part a supply issue, noting that supply and demand weren’t balanced until September, the last month of the quarter.

Steve Jobs stole the show on the call, trashing competitors like RIM and Google, and suggesting that the iPad and iPhone will win against rivals because they are better products at great prices. Jobs also said the company is holding onto its cash — more than $50 billion now — mostly in case a big strategic opportunity comes along.

On the plus side, Apple’s iPhone business posted huge numbers despite the “Antennagate” hoopla — Apple moved 14.1 million phones last quarter, and boasted in its press release that this beat RIM’s most recent quarter, when it shipped 12.1 million BlackBerry devices. (Though their fiscal quarters only overlapped by two of the three months.)

Steve Jobs also announced that Apple has already sold more than 250,000 of the new Apple TV device.

Key Stats:

  • Sept. qtr. revenue: $20.34 billion vs. $18.9 billion consensus, $19.9 billion high Street estimate, $19.6 billion “real” expectations
  • Sept. qtr. EPS: $4.64 vs. $4.06 consensus, $4.41 high Street estimate, $4.85 “real” expectations
  • Sept. qtr. iPad shipments: 4.19 million vs. 4.7 million consensus (via Piper Jaffray), 5+ million would impress
  • Sept. qtr. iPhone shipments: 14.1 million vs. 11 million consensus (via Piper Jaffray), 13+ million would impress
  • Sept. qtr. Mac shipments: 3.89 million vs. 3.7 million consensus (via Piper Jaffray), 4+ million would impress
  • Sept. qtr iPod shipments: 9.05 million vs. 10 million consensus (via Piper Jaffray)
  • Dec. qtr. revenue: $23 billion vs. $22.22 billion consensus, $23+ billion guidance would look very strong
  • Dec. qtr. EPS: $4.80 vs. $5.04 consensus, $4.50+ guidance would look strong

LIVE Conference call notes follow. Remarks are paraphrased unless in quotations. (Click here to refresh for the latest.)

4:57 Waiting for call to begin.

5:02 Still holding, listening to soothing music.

5:03 Call begins. Now Apple giving typical disclaimers.

5:04 CFO Oppenheimer gives intro. We’re extremely pleased! Product lineup best ever. New all-time records for Mac, iPhone, and iPad sales. Highest quarterly revenue and earnings in Apple’s history. Revenue up $8 billion y/y, with 67% y/y growth. (Wow! That’s crazy impressive, when you think about it.)

5:06 Strong iMac sales, MacBook Pro and MacBook sales.

5:06 9.05 million iPods, down from 10.18 million a year ago. iPod share of US market at over 70% based on NPD data. iPod gaining share internationally.

5:07 New Apple TV introduced. No comment on sales.

5:07 Very pleased with iPhone sales, 91% y/y growth, higher than 64% y/y growth of smartphone market. $8.6 billion iPhone sales, $610 ASP. Experience very strong growth in Asia, Europe, and Japan, where iPhone sales more than double year-over-year.

5:09 Since shipped iPhone 4, more than 80% of Fortune 500 deploying or piloting iPhone, up from 60%. P&G, GE, Pfizer, Total, Novartis, etc. have made iPhone available to employees. Increase of 825,000 iPhones to channel inventory. Big backlog, think could have sold more.

5:10 Almost 4.2 million iPads. Seeing great enthusiasm from consumers, edu, enterprise. Over 65% of Fortune 100 already deploying or piloting iPad. Lowes, P&G, NBC Universal, and Novartis among them.

5:11 Cumulative iOS sales of 125 million devices last quarter, including iPhone, iPod touch, and iPad.

5:11 iOS 4.2 still scheduled for November.

5:12 Marketers “very pleased” with engagement on iAds.

5:12 $3.57 billion in revenue for Apple retail. Stores sold 874,000 Macs, vs. 674k year-ago. About half of Macs were to customers new to Mac. Opened 24 stores, 16 of which were outside the US.

5:14 36.9% total gross margin, above guidance. Includes better than planned mix of iPhone sales.

5:15 Cash plus s/t and l/t totaled $51 billion at end of quarter, an increase of $5.2 billion.

5:16 40 million iPhones in fiscal year. Grew fiscal year revenue of 50%+, up to $65 billion. Generated almost 5X revenue and 10X profit than it did 5 years earlier in fiscal 2005.

5:18 Steve Jobs joins the call! Notes he doesn’t usually participate. But I just couldn’t help dropping by for our first $20 billion quarter. Sticking around through the Q&A.

5:19 Bragging about the iPhone. “We’ve now passed RIM, and I don’t see them catching up with us.” They must now leave their comfort zone, and will be a challenge for them to get developers to embrace their platform. What about Google? Activating 200,000 Android devices per day, and 90,000 apps in App store. Apple activated about 275,000 iOS devices per day over past 30 days, with peak around 300,0000 on some of those days. With 300,000 apps on App Store. No solid data for Android phone shipments. Google loves to characterise Android as open, and iOS and iPhone as closed. We find this a bit disingenuous. First thing most of us think as open is Windows. Unlike Windows, where most PCs have same UI and run the same apps, Android is fragmented. Many Android OEMs install proprietary UIs.

5:21 TwitterDeck [sic] contends that it has to deal with over 100 versions of Android, and over 200 handsets. Makes this much more complicated. And this is for handsets that have been shipped less than 12 months ago. Compare this with iPhone, with 2 versions to test against. Amazon, Verizon, and Vodafone have all created their own app stores. “This is going to be a mess for both users and developers.”

5:23 Open doesn’t always win. Look at PlaysForSure Microsoft music system. Even Microsoft dumped this in favour of Apple’s approach, screwing OEMs. And Google’s integrated Nexus One flopped. Open versus closed is a smokescreen. What matters more is what’s best for the customers. Users want devices to “just work” and believe integrated will trump fragmented every time.

5:24 I’d like to comment on avalanche of tablets poised to enter the market. It appears to be just a handful of credible entrants, not an avalanche. Nearly all use 7-inch screen. One thinks this would offer 70% of benefits of 10-inch screen. But it’s only 45% as large as the iPhone’s 10-inch screen. If you cut iPad screen in half, that’s what you’re looking at. Not enough for good tablet apps. You’d also need to include sandpaper so people could make their fingers smaller. We think 10-inch screen size is minimum to create great tablet apps.

5:27 Even Google is telling tablet companies to wait for new release of Android next year. What does it mean when software supplier says not to use software for tablets, and you ignore them and use it anyway? New tablets won’t have any apps. And competitors having a hard time coming close to pricing, even with cheaper, smaller screens. These new tablets will be DOA: Dead on arrival. “Sounds like lots of fun ahead.”

5:29 Q&A begins: Supply constraints on iPad? Got into a balanced situation in September with limited number of distribution points. Exited quarter in supply position to expand distribution.

5:30 Headwinds in gross margins: Margins came down about half of what they thought they would. Did a bit better in the quarter because commodity and other costs were better than thought, and sold more iPhones than thought they would.

5:32 Future of iPad? Jobs: The iPad is clearly going to affect notebook computers. I think the iPad proves it’s not a question of if, it’s a question of when. I think there’s a lot of development and progress. Tremendous interest in education, and much to my surprise, in business. Being “grabbed out of our hands”. Boards of directors shipping iPads around, nurses and doctors in hospitals, other large and small businesses. We’ve got a tiger by the tail here. This is a new model of computing, we’ve already got tens of millions of people trained on with the iPhone.

5:34 Update to thoughts on Flash? Jobs cracks a joke! Flash memory? WE LOVE flash memory.

5:36 Competition… think Apple will sustain share growth in tablets? Jobs: I have a hard time envisioning what [competitive] strategies are. So far, tablets with far less functionality are having a hard time matching us in price. Flash hasn’t been a big problem; most of video on web available in HTML5 (is this true?). We think we have a very good product here that’s going to be hard to match. We’ve priced iPad pretty aggressively. “We’re out to win this one.”

5:38 Jobs: Room for a few winners in smartphone war, but fewer. Right now a battle for mindframe of customers and developers, and right now iPhone and Android are winning that battle.

5:40 Jobs on Apple TV: We have gone to a streaming model. It’s complete streaming. All the content is rented from the iTunes, or is streamed from your computer or soon to be streamed from your iPhone or iPad with AirPlay. So how is doing? Can report that in just a very short amount of time, already sold 250,000 Apple TVs.

5:42 Revenue deferral of just over $100 million for the bumper program. Would expect record that in revenue in the December quarter. Did ship a number of bumpers in December quarter, which affected margins.

5:43 What are key risks in managing company to make sure you don’t lose lead to Android? Jobs: Our goal is to make the best devices in the world. It’s not to be the biggest. As you know, Nokia is the biggest. Admire how many handsets they sell, but we don’t want to be like them. We want to be us. In our side of the market, Android is our big rival. Android outshipped in June, waiting to find out this quarter. Gartner numbers pretty accurate. Will be competing with them for quite some time, we have different approaches and we believe in ours. We’re going to pursue ours and we think that’s the winning approach in the end.

5:46 Aspirations for iPad and iPhone? Market share or profit? Volume players and market leaders? Or simply to make good products, but maybe smaller share? First of all, Nokia makes $50 handsets, and we don’t think we can make great smartphones for $50. Our goal is to make really breakthrough, great products. Make the best products in really every industry we compete in, to drive cost down while making better products all the time. It was relentless improvement at sometimes a better price that helped beat competition. We have low market share in phones, and very high in tablets. But we don’t think about it that way. The reason we wouldn’t make a 7-inch tablet isn’t because we wouldn’t want to hit a price point; we think it’s too small for the software. We think about the software strategies first, as a “software-driven company.”

5:49 We’re all about making the best products at aggressive prices. That’s what we did with the iPod, and that’s what we’ll do with the iPad.

5:50 Jobs to analyst: You’re looking at it wrong! Jobs getting into the weeds about how devs don’t want to write crappy versions of their app for crappy devices.

5:52 What is aspiration for $50 billion in cash, why not return more to shareholders? We strongly believe that one or more strategic opportunities may come along. Very disciplined with use of cash, don’t do stupid acquisitions. We’d like to continue to keep our powder dry, we feel one or more strategic opportunities in the future. That’s the biggest reason.

5:53 Tim Cook on iPad: About 2/3 of Fortune 100 are deploying or piloting iPad. I’ve never seen an adoption like this in my life in enterprise; enterprise is usually much slower. Also beginning to pick up interest in K-12, which is historically a slow market. Enabling carriers to sell. This isn’t a hobby or something we’re doing lightly. Mac is getting pulled into enterprise where people are given choice.

5:57 Oppenheimer: Always working aggressively to lower costs. Happy with GM in Sept quarter, ahead of what we thought. See them being down just slightly in December quarter.

5:58 Demand for carriers for iPhone 4? The pressure is on supply, not demand, says Tim Cook. 166 relationships at end of quarter in about 89 countries, significant expansion. Went to multiple carriers in more countries. Latest country is Germany, launching both Vodafone and O2 together with T-Mobile later this month.

6:00 ASPs have generally stayed above $600 despite changing many markets from exclusive market to non-exclusive market.

6:00 Why does iPad have pricing advantage versus PC companies? Jobs says because Apple makes so much of it, and have learned a lot. This is a product we’ve been building for for the last decade.

6:01 Call over.

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