Apple totally crushed it last quarter as expected, and even Apple’s guidance is impressive.iPad, Mac, and iPod shipments were all stronger than expected: Apple shipped 3.27 million iPads, 3.47 million Macs, and 9.4 million iPods during the June quarter.
The strong Mac number means that iPads are not (yet) cannibalising the Mac business — an especially good sign.
iPhone shipments came in a little weaker than some estimates — 8.4 million, due in part to inventory issues. Still, pretty good, considering that the iPhone 4 didn’t launch until the very end of the quarter, in limited quantities, and considering Google Android’s rise as a fierce competitor.
On the company’s earnings call, COO Tim Cook said that Apple is making iPhone 4s as fast is it can, and despite “Antennagate,” it’s selling every iPhone 4 that it can make. And obviously the company is not creating the inventory shortages as a way to build buzz, he said.
Overall, the company earned $3.25 billion on $15.7 billion of revenue in the June quarter. Shares increased 2% in after-hours trading.
But everyone knew Apple was having a good quarter. So how about its guidance for the September quarter? It looks like Apple is not expecting much of a pinch from “Antennagate” — it is forecasting a whopping $18 billion in revenue for next quarter, and $3.44 EPS.
Q3 Revenue: $15.7 billion vs. $14.75 billion Street consensus, $15.74 billion high Street estimate, $13.2 billion guidance
Q3 EPS: $3.51 vs. $3.11 Street consensus, $3.47 high Street estimate, $3.28 “real” estimate, $2.34 guidance
Q3 iPhone shipments: 8.4 million vs. 8.7 million Street consensus, 9.5 million Munster/Piper estimate, 8.8 million Andy Zaky estimate
Q3 iPad shipments: 3.27 million vs. 3.2 million Munster/Piper estimate, 3.4 million Andy Zaky estimate
Q3 Mac shipments: 3.47 million vs. 3.1 million Street consensus (could be upside because of favourable NPD numbers, which came out last night), 3.36 million Andy Zaky estimate
Q3 iPod shipments: 9.4 million vs. 9.1 million Street consensus
Q4 Revenue guidance: $18 billion vs. $17.03 Street consensus, $16.1 Munster/Piper expectations
Q4 EPS guidance: $3.44 vs. $3.82 Street consensus, $3.30 Munster/Piper expectations
LIVE conference call notes follow. Click here to refresh this post.
4:58 Waiting for call to begin.
5:02 Call begins. Opening remarks coming from Apple’s IR boss. CFO Oppenheimer and COO Tim Cook on the call, and treasurer. No Steve Jobs, as usual, unless he comes on at the end as a cameo. (Probably not.)
5:04 Oppenheimer’s introductory remarks. Shipping the best products in Apple’s history. Highest quarterly revenue ever, bigger than last holiday quarter. 61% year-over-year revenue increase. Driven by launch of iPad in addition to strong iPhone and Mac sales. $4.23 billion operating margin. Net income up 78%.
5:05 3.47 million Macs is a record, beating last December quarter. 33% y/y growth beats overall market’s 22% y/y growth. Beat both in desktop and notebook categories. Continued momentum of iMac and MacBook Pro family responsible for the growth. Record Mac sales in edu despite state budget cutbacks. iPod touch sales up 48% year-over-year, which drove 12% iPod ASP growth. iPod still ~70% of MP3 market.
5:07 iTunes revenue $1 billion. App Store: 225k apps available, including more than 11,000 apps specifically for iPad. Over 5 billion apps downloaded. Ended quarter with 4-6 weeks of iPod channel inventory.
5:07 IDC says smartphone market grew 38% y/y during June quarter, so Apple iPhone grew almost twice as fast. Sales value of iPhones alone $5 billion, $595 ASP. 154 carriers in 88 countries, continue to experience very strong y/y growth in Asia, Europe, and Japan. Strong sales growth from old and new carrier partners. Surpassed 100 million iOS devices cumulative sales. Nice milestone.
5:09 iPad ASP around $640. We look forward to bringing iPad to 9 additional countries on July 23.
5:10 Apple retail: $2.58 billion, up 73% year-over-year. Sold 677,000 Macs, vs. 492k a year ago. About half of Macs sold were to customers who had never owned a Mac before. 7 new stores in the quarter, 293 stores. With avg. 287 stores open, $9 million avg revenue per store. Expect to open 24 stores this quarter, including Paris and Shanghai, London, first two stores in Spain in Barcelona and Madrid.
5:11 iPad, currency, other factors including iPhone 4 had effect on margins, but not as much as thought. Unanticipated favourable adjustments and higher revenue helped out.
5:12 $45.8 billion cash at the end of the quarter. Cash flow from ops $4.8 billion. Investment of cash still focused on preservation of capital.
5:13 Looking ahead, will be offering free cases to customers who have purchased iPhone 4. As a result, will be deferring revenue for value of those cases — about $175 million — which will be recognised in the December quarter. Will recognise the cost of the cases as we deliver them to customers.
5:14 Lower margins ahead because of revenue deferral impact, plus greater mix of iPhone 4 and iPad, which are lower margin than some other products.
5:15 Very confident in new product pipeline. Now time for the Q&A.
5:16 What hearing from corporations? What seeing in terms of corporate adoption? Tim Cook: Now up to more than 80% of Fortune 100 deploying or piloting the iPhone. Very good momentum in Fortune 500, over 60% deploying or piloting. Also transcending into education. Around 400 higher ed institutions have approved iPhone for fac, staff, students. iPhone is really taking off and iOS 4 was another help in doing that. Mac had incredible quarter. Still selling principally to consumer and education, but are seeing businesses with increasing interest in the Mac. Many sales still through the channel. Obviously thrilled with growing 33% year-on-year. iPad: 50% of Fortune 100 are deploying or testing the iPad. “It’s incredible.”
5:19 Working around the clock to try to get supply/demand in balance for some lines. In the scheme of things, it’s a good problem to have. What source of constraint? “High demand is never a problem.” Went into iPad thinking that planning 1 million per month capacity was a very bold move. Some people thought we’d only sell that number in the whole calendar year. Increasing capacity as quickly as we can. A number of things we have to increase in order to do that. Fairly confident that we will be able to increase capacity. Not someting profound that we can’t eventually increase.
5:22 (Sorry about the delay — Firefox crashed.) As far as gross margins, we just introduced iPad and iPhone 4, delivering great value to customers, these products have higher cost structures. Higher cost structure than predecessor. While margin is attractive, we have been pretty aggressive here with pricing and it’s going to play through a bit on the margin line.
5:24 Announced iPhone 4 in June, didn’t launch new iPhones until June 24, three days before the end of the quarter. If you look at y/y growth rate prior to June 7, it was around 90%. Exited quarter with total iPhone sales up 61%. Net reduction in channel was about 250,000 from beginning of the quarter. Run rate associated with sales of new product higher than run rate of sales of old product. Last quarter had about 2.7 million in channel, ended with about 2.45 million ended. Lots of phones in transit, not available for sale.
5:27 Why still problems with inventory on product launches? If you look at previous generation product, we call the number of units we are going to sell many weeks beforehand, and when we run out, we run out. Tend to manage that aggressively. That’s what happened here. Exactly the way that we want to manage it. We do not create a shortage for buzz. We would like to fill every customer’s order as quickly as we can. Demand for iPhone 4 is absolutely stunning. Can’t say when we will be able to meet demand, but everyone is working hard.
5:29 What changes in demand since Antennagate? Let me be very clear: “We are selling every unit we can make, currently.”
5:29 No slowdown in order rates online? My phone is ringing off the hook for people who want more supply. Right now it’s hard to test the real question that you’re asking if there’s an effect or not, because we’re selling every one we can make. Returns that we’ve seen on the iPhone 4 are less than the iPhone 3GS as Steve shared on Friday. Ones for this specific issue are extremely small.
5:30 If you look how long it took us to sell first million iPods (20 months, I think), as opposed to iPad, phenomenal difference. Not following typical early adopter curve. I don’t know how high is high. Our guts tell us that this market is very big, and we believe that iPad is really defining the market, and we want to take full advantage of it. Investing enormous time and resource.
5:32 Won’t disclose split between 3G and wifi. But all of the models have been very popular. Demand has just been amazing. Overall ASP was about $640.
5:33 Cannibalization? Real answer is that it’s too early to tell. If you look at the quarter we just finished, thrilled we recorded the best Mac quarter ever the same time we sold 3.3 million iPads. For us it’s a jawdropper. iAds? Launched iAd in early part of July. Going to learn a lot this calendar year and build a foundation for the future. No further specifics to share today.
5:34 Everything on schedule in North Carolina datacenter. Expect to finish by end of calendar year.
5:40 Any cannibalization of iPad on iPod touch? iPod touch higher percentage of units sold sequentially? iPod ASPs down about $7 sequentially, driven by start of back to school promotion, and a stronger US dollar. We did mix on a y/y basis up into iPod touch. I don’t have sequential touch mix in front of me, says Oppenheimer.
5:41 Anticipating iPad margins to increase? We were purposely aggressive when we launched. Thought we had a great product and great first-mover advantage, and we’re selling them as quickly as we can make them. We are always working to become more efficient and to try to ride down the cost curves, and don’t see that being any different on the iPad than any other products.
5:42 Impact of bumpers on Sept quarter? Two impacts: Will need to defer revenue for iPhone 4s where we have not yet delivered bumpers. Or not heard from customers wanting to place an order. I expect accrual (revenue, no cost) about $175 million. Would expect to have that recorded as revenue in December quarter. Will expense cost of bumpers when we ship them. Most important objective is to take care of customers. (NON ANSWER!)
5:43 Android is gaining ground. Where seeing competition? Tim Cook: I haven’t seen Android results for June, since sum of several companies’ shipments, but iPhone shipments were up 61% in June quarter despite inventory issues. Growing substantially faster than the market.
5:44 Questions about sustainability of iPad demand. What thoughts there? Given that maybe some competitive subsidized 3G tablets coming in the fall, how do you see that impacting? iPad we are absolutely selling every unit that we can make, and it looks good in every country that we have launched. (Someone’s iPhone alarm just went off on the call. Someone have a 6 pm meeting?) Fastest growth trajectory, think it’s extemely unique and special. Don’t know what competition will do or try. Extremely happy with our competitive position. If you look at US as an example, where you have very affordable rate structure, seems what the end user really desires. Yes, someone could jack rate plans way up and subsidise. I’m not sure that people want another contract.
5:47 What’s up with App Store rules? Always looking to make developers happy. $1 billion in payments to devs crossed. Launched iAd with objective to develop another revenue stream for them. Care deeply about developers, want to have more apps. Success we’ve had is unparalleled. Another non-answer!
5:48 Do you value developers’ input? We value the input of every developer and very much listen to them and modify the program when it makes sense. We’re welcome to every kind of feedback.
5:50 FaceTime features? Not going to answer. Want to get to all the financial questions. Punting that one for another day.
5:51 Why is North America not on the list where iPhone was so strong? Anything to do to reacclerate growth? Not hitting law of large numbers. Phone market will increasingly become a smartphone market. Growth of company, growing faster internationally than domestically. But put in perspective. Company’s revenues in Americas growing over 40%. Just that international numbers are absolutely killer.
5:52 iPhone growth markets: I think both on Mac and iPhone and later iPad, still extrordinary opportunity left. If you look at Mac as example, in Asia Pacific, Macs grew 73% year-over-year. In China, grew 144%. In Korea, 184%. In Hong Kong, almost doubled. In Spain, Mac grew 59%, despite difficult economy. Extraordinary numbers in that. In iPhone, doing well in basically all of the key markets. In terms of expanding that, learning what we’ve learned with exclusive deals, have elected to open Spain up, and will go from exclusive carrier market to having 3 carriers. That’s one example. More countries remaining. Still increased distribution. Just see enormous amount of opportunity out there. Biggest challenge is which to deploy resources against, versus making a list of ideas.
5:55 iPad halo effect? Seeing someone buy an iPad, subsequent purchase of MacBook or iPhone? Good question. I do agree that most people external to Apple focus on cannibalization as a negative, but at Apple we focus on synergy between devices. iPod created a halo for Mac, people felt. As iPod volume took off, dramatic change in Mac sales. Could that happen with iPhone and iPad? We’ll see. Mac has outgrown the market 17 straight quarters, but Mac share is still low. Huge opportunity for Mac to still grow. This is where it’s great to have a lower share. If iPad cannibalizes PCs, there’s a lot of PCs to cannibalise.
6:01 And that’s it.
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