HUGE quarter. Revenue of $9.9 billion blows away whisper of $9.4 billion. EPS of $1.82 blows away whispers of $1.65-ish.
iPhone sales of 7.4 million in-line with estimates despite supply constraints. Mac sales huge. iPod sales not as bad as many had feared.
Upside appears to have come from Macs and margins. The Mac resurgence is great news. This business had stalled, and Apple has a huge opportunity to gain share in the PC market.
December guidance comically conservative, but not alarming.
Overall: Wow. Apple is on its way to becoming the defacto platform standard in mobile. And the crumbling of Microsoft’s Windows monopoly has opened a huge window on the desktop. The company is galloping after both opportunities.
Conference call will begin at 5PM/2PM. Here’s the link: www.apple.com/quicktime/qtv/earningsq409/ We’ll be covering it live.
CONFERENCE CALL NOTES:
5:00: Waiting for call to begin…
5:04: Call starts. Preamble crap.
5:06: “Extremely pleased.” (Understandably.) Revenue up 25%. Operating margin highest ever: 22%. Adjusted numbers huge, too.
5:07: Macs. 3.05 million, up 17% Biggest ever by 440k. Growing faster than market 19 of last 20 quarters. Best user experience. 17% growth compares to 2% market growth = huge market share gain. laptops 74% of mix and all of the growth. Successful back-to-school. 12% growth to education. 50,000 Macbooks to Maine (lucky bastards). 3-4 weeks inventory at beginning and end of quarter.
5:10: iPods. 10.2 million, down from 11 million. iPod touch up 100% y/y, driven by back to school and App store. Share of US market still over 70%. Top-selling and continued to gain share year over year. Began and ended with 4-6 weeks of inventory. iTunes another great quarter. Largest music retailer, 11 million songs, 7500 movies.
5:11: iPhones. 7.4 million, up 7% (last year had 2mm inventory build). Sell-through up 38%. Widened lead in customer satisfaction. Start selling in China end of this month. Also expanding carrier relationship in UK and Canada. App Store: 500 million downloads in quarter. $2.3 billion in quarter.
5:13: Stores. $1.87 billion, vs $1.72 billion. 670,000 Macs vs. 576,000. 15 new in quarter to 273. $7.1 million revenue per store. 22% margin, up from 17.5%. 45.9 million visitors, up 7%. 608,000 training sessions. Opened more stores internationally this year than in US. Opening upper west side store.
5:15: Margin way ahead: More snow leopard, lower iPhone transition costs. Component costs not as high as expected.
5:16: $34 billion of cash, up $2.9 billion sequential. $3.1 billion CFO. Preserving capital.
5:16 December outlook: NEW IPHONE ACCOUNTING. Deferred revenue will still be recognised, but less. Don’t know yet. But substantial portion of revenue will be recognised at sale. This will more closely align. Required to adopt no later than 1Q fiscal 2011. We can do it earlier. Making change will be complex, don’t know timing yet.
5:18: Our guidance is based on the same accounting…over 24 months. Forecasting remains challenging. (So we’re completely sandbagging, as always).
5:21: How can you seriously give us this laughable guidance? We think margins will decline for 4 factors: New products with lower gross margins. Seasonally higher mix of iPods, lower Snow Leopards. More air freight. Component costs higher. On revenue, back-to-school over. Lower ASPs. [Translation: It’s a joke.]
5:23: iPhone supply? Supply/demand converged in September or early October. Constrained before that. Channel inventory up 585k from previous quarter. We would have liked to have had more.
5:25: China: Launching Oct. 30 w/ China Unicom. 1,000 points of sale. Range of plans from $18/mo to $100/mo. At higher prices, get iPhone for free. There’s a good opportunity–largest market in the world.
5:26: Economy. We leave that to economists.
5:27: iPhone pricing when ditch AT&T for multiple carriers? Confidential. No change in wholesale price in markets in which we are already selling. But end-user price is set by carrier. Maybe a change there.
5:28: Seasonality in iPhone business? We don’t really know, because only a couple of years. In some countries just partial. We’re new in the business, so projecting is bad idea. For forecasts, we look at popularity of iPhone 3GS. Selling 64 countries. Now rolling out China and Korea. We’ll also be adding carriers in UK and Canada where we only had one.
5:29: Tax rate guidance higher why? 30% for fiscal 2010, consistent.
5:30: iPhone competition coming. Android. Are you quaking in boots? We feel great about our sales. 21 million units in fiscal year, up 78%. Tons of momentum. When look at ecosystem…85,000 apps, way more than anyone…plus strong product pipeline, we feel very good about competing against anyone. [THIS IS A HUGE POINT. APPLE IS BECOMING THE PLATFORM STANDARD HERE].
5:32: 3GS iPhone versus $99 one. 3GS very surprisingly strong. Very pleased.
5:33: Macs… Blowout quarter for laptops. Huge share increase. Strongest back to school. Launch of Snow Leopard. Level above 3mm, above our own internal expectations. Channel inventory didn’t change–3-4 weeks. Inventory change less than 15,000 units beginning to end.
5:36: Margins again… Component cost rising, we’re going to give more value to customers.
5:36: Why have exclusive iPhone deals if wholesale price the same? Can have innovative deals like visual voicemail that are easier to do. Also, an exclusive carrier may be willing to invest more. But no lack of people willing to sell iPhones.
5:38: Impact of remodeled stores? Strong results. 72 stores remodeled to updated design. Customers are having a great experience. International growth quite strong. Average store revenue up 20% (int’l).
5:39: OPEX Ratio. What about R&D? Won’t provide. Investing confidently for future.
–Jay Yarow taking over for us. Thanks. —
5:40: iPhone ASP went up, is it just sales or currency? iPhone ASP over $600, rebalancing ending channel inventory toward 3GS. On sequential basis, yes ASP up a bit in the portable space. A little benefit from the dollar, a small positive.
5:42: Demand issues for phone supply, or is component issues? The iPhone 3GS demand outstripped supply, a good old fashioned, demand issue, a nice problem to have in the scheme of things. Because outstripping supply, created component issues. Silicon is the hardest to get, happy we could solve bulk of these problems in September or October.
5:44: Apple distribution, mix of retail going forward for the Mac? Less than 13,000 stores worldwide. Expand in international markets. Grew Mac outside the US more than inside. Particularly in Europe and Asia was very strong.
5:46: Where in Europe? Spain was strong, a surprise. Western Europe, less UK very strong.
5:47: CapEx 4.7% or so of sales? Any details on CapEx for capital assets, and what it is? And when it will decrease? In Fiscal 09, a billion 150, up from bill 100. We will continue to open retail stores. Spending capital on facilities, infrastructure and the manufacturing spaces. But we haven’t been terribly capital intesive.
5:49: Can you quantify magnitude of the supply shortfall? Nope. iPhone 3Gs virtually short everywhere. We don’t know who waited, who bought a competitor.
5:50 iPhone in 80 countries by year end? 3GS in 64 countries now, 80 by end of the year. The 3G is already in 80 countries.
5:51: How about some pro-forma earnings numbers since GAAP is meaningless? No.
5:52: On iPhone an colour on consumer v. enterprise? Employee demand in corporate world is very strong. The iPhone is either being deployed, or used in over 50% of the Fortune 100 companies. Same with Europe and the FT 100. Over 350 Higher Ed have approved the iPhone. The government is approving as well.
5:55: Any chance international activation grew on a year over year basis? Sell through is up 38% on a Y/Y basis compared to a market growth of 5%.
5:56: What happened in student buy versus expectation? Individuals v. institutions? Student buy trickling through retail results, helped online results. Back to school was strongest ever. Attribute to individuals. Worried about state spending, still worried, saw no material stimulus spending. May see some this quarter. Institutions grew about 12%. State of Maine pushed us, it was extremely key.
5:58: Why is air freight high? Have to get everything into the sales channels. We can’t move the holiday season.
- Sept. quarter revenue: $9.9 billion vs. consensus of $9.2 billion and $9.4 billion whispers.
- Sept. quarter EPS: $1.82 vs $1.42 consensus and $1.65 whispers.
- Sept. quarter iPhones: 7.4 million vs. 7.5 million consensus
- Sept. quarter Macs: 3.05 million vs 2.75 million consensus
- Sept. quarter iPods: 10.4 million iPods vs. 10.5 million consensus, many expected below 10 million
- Dec. quarter guidance: (OLD ACCOUNTING METHOD) $11.3-$11.6 billion of revenue vs $10.8-11 billion estimates; $1.70-$1.78 EPS .
Apple should have no trouble beating September quarter expectations, led by strong iPhone and Mac sales. But as always, Apple investors will pay more attention to Apple’s guidance than its results — that’s what sends shares up or down after hours.
This time, there’s two sets of guidance numbers investors will need to look out for, which will be drastically different based on what accounting technique Apple plans to use for the December quarter.
Why? The U.S. Financial Accounting Standards Board approved a rule change last month that would allow Apple to report revenue and profit for its iPhone and Apple TV devices in the quarter they’re sold — and continue to supply free software updates — rather than spreading them over a 24-month “subscription” period.
That means Apple’s GAAP results and guidance — which publications and analysts traditionally cite — would get much bigger immediately, because they’re based on totally different maths. EPS could be as much as 50% higher.
For example, RBC analyst Mike Abramsky predicts Apple’s December quarter guidance under the new accounting method will be $12.4-12.7 billion of sales and $2.44-2.60 EPS. Under the old accounting method, he expects guidance to look more like $10.8-11.0 billion of sales and $1.64-1.75 EPS. The Street consensus is $11.45 billion of sales and $1.91 of EPS, assuming the old accounting method.
Note that this is only a change on paper — Apple’s actual business remains the same. And we expect Apple to continue to offer “comically” conservative guidance — see our feature on Apple’s earnings game here and a video explanation here. But either way, switching to the new technique for next quarter — during what will likely be Apple’s biggest quarter ever — could offer a bit of artificial optimism, which could send shares higher.
- Sept. quarter revenue: $9.20 billion consensus, $9.4 billion “real” expectations
- Sept. quarter EPS: $1.42 consensus, $1.65 “real” expectations
- Sept. quarter iPhones: 7.5 million consensus
- Sept. quarter Macs: 2.75 million consensus, 2.9 million (RBC)
- Sept. quarter iPods: 10.5 million consensus, many expect below 10 million
- Dec. quarter guidance: (OLD ACCOUNTING METHOD) $10.8-11 billion sales, $1.65-1.70 EPS.
- Dec. quarter guidance: (NEW ACCOUNTING METHOD) $12.4-12.7 billion of sales and $2.44-2.60 EPS (RBC estimate)
- Dec. quarter consensus: (OLD ACCOUNTING METHOD) $11.45 billion sales, $1.91 EPS
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