Apple’s (AAPL) finance chief Peter Oppenheimer paid a visit to Citi’s tech conference this afternoon and played his role perfectly: A respectable “no comment” to virtually every question he was asked, ranging from iPhone features to new product announcements to how Apple was going to model its operating margins.
Of interest, Oppenheimer reiterated that Apple was (obviously) interested in selling the iPhone in China, but didn’t offer a time table. And he repeated the contents of a leaked Steve Jobs email from last month — that the company wishes it had waited to launch its messy MobileMe email/syncing product instead of releasing it the same time as the iPhone 3G, iPhone 2.0 software update, and iPhone app store.
No doubt it’s a thrill for conference attendees to be in the same room as someone from Apple’s senior management team — and a good branding opportunity for Citi; Apple execs don’t show up at every i-bank conference. But if you were holding out for news, you’ll have to wait for Steve Jobs’ keynote next Tuesday.
1:48 p.m. Still listening to music… Webcast hasn’t started.
1:51 Q&A begins. Standard disclaimers.
1:52 Gross margins: Talked last quarter on call that shouldn’t be modelling continuation of 35%-36% to company. Why? Oppenheimer recites same canned line from earnings call: Plan to keep offering products at a reasonable margin, but not so high to benefit our competitors. Introduce new products at a higher cost that offer value to consumers; then crank down costs. Have some of these investments ahead of us, can’t talk specifically about them. Pricing: Consider cost and competition; in the past, seen us keep and lower street pricing.
1:54 Typical to do product refreshes in the fall; sounds like this year a bit different. Talk of “revolutionary” new products, etc. Is rate of reinvestment different this year? We don’t talk about new products. Some things in product pipeline, but stay tuned. “We plan to rock next week” and have 4,000 extremely talented engineers who are always working on new things. iPod refresh? “We’ll have to see.”
1:56 80% market share of consumer notebooks priced above $1,000? (NPD) How do you continue to grow without keeping price point down? How do you balance growth with product pride? In last 14-15 quarters, have outgrown market 2-3x. Momentum pretty strong. About 3.5% globally according to IDC, 7.5% in US.
1:57 Ended last quarter with 216 retail stores; over 50% we sold were to people who had never bought a Mac before. Stores sold 500,000 Macs last quarter. Best Buy started with pilot of 10 stores, now growing that to 600 stores, half of which will have Apple badge employees. Very happy with sales at Best Buy. Seeing Macs all over the place, aeroplanes, coffee shops, many at today’s conference.
1:59 Bracing for non-answer. Held a panel about netbooks. 12-15 million netbooks at $300-500, small displays, solid state drives. Should represent about 1/3 of total growth in notebook market. Any thoughts? As you said, limited to what can say about what Apple will do in the future. But now, we have lots of great notebooks! Can’t say what we’re going to do in the future.
2:01 Solid state drives? Expensive today; price is coming down, that’ll be a good thing. We’ll see how competition between solid state and hard drives work out; think it’ll be good for us and our customers in the end.
2:02 Currency: High correlation between demand in Europe and dollar-Euro exchange rates. Apple tends to adjust pricing every six months, but competition adjusts daily or weekly. How should we think about that impact at Apple? Not sure all competitors are adjusting prices daily or weekly; weaking dollar is a net positive for Apple, strengthening dollar is a net negative. Some things we can do to help mitigate strengthening dollar: hedging program, some costs in local currency, can adjust pricing. Very complex area — we tend to hedge 3-6 months out.
2:04 MobileMe: Situation where Apple is stretching R&D dollar thin? Spending adequately in R&D? Expect bump up? We’ve made big investments in R&D. From the end of fiscal 2005 to 2007, R&D went up 45%. Have increased it significantly in 2008. Have over 4,000 very talented engineers at Apple. Recently some independent assessments on cust. svc that we’re really happy about. In notebook space, achieved score of 83, a very satisfied rating, while Dell and HP and four other brands had average of 54. Desktop equivalent.
2:06 With MobileMe, we absolutely believe it’s the right product for our increasingly mobile customers. Wish we’d rolled out over smaller increments, not the same day as iPhone 2.0, iPhone 3G, App Store. Working on several improvements, working very hard to make it something we can all be proud of.
2:07 Operating margin trending up. Still room to expand from current 20% level? We’re not putting a business model out there, and have given you specific guidance for Sept. quarter. Regarding iPhone, very happy with margins with the iPhone and iPhone 3G. Recording revenue over a two-year period; will come into P&L over time. Expect to sell more iPhones in sept. quarter than in any prior quarter. Cash benefits relatively immediate. Very focused on coming out with state of the art products for customers; will continue to invest in engineering, etc.
2:09 Beijing store? Well-visited. Have a great team in that store; doing a wonderful job. Excited about the potential of stores in China.
2:09 iPhone in China? China is a place that we want to be. I don’t have any announcements today regarding China, but for those who haven’t seen it, we’ve had three in Russia in the last 24 hours. Couldn’t be happier with where we are with iPhone distribution. Agreements in over 70 countries, shipping today in over 40 countries, starting at Best Buy in just a few days. Can’t give mid-quarter update in supply-demand; customers loving iPhone 3G and working hard to get them rolled out around the world.
2:11 Excess cash continues to build on balance sheet. As iPhone 3G ramps, cash balance will balloon. What do you do with it? What is reluctance to buy back stock or pay a dividend? Should we be concerned that a bit of a corp. governance issue given that you haven’t done anything with it? Cash is growing for all the right reasons. Preference has been to maintain strong balance sheet; in case we make acquisitions, etc. No change to announce today, but board and management regularly discuss all elements of business, including the cash.
2:13 Best K-12 quarter in Apple’s history in June qtr, MacBooks did especially well. This quarter tends to be more focused on higher ed. as students are going back to college. Running back to school promotion, which includes iPod nano or iPod touch. Research we’ve seen so far from student monitor shows intention to buy Mac is very high this year; decided to include iPod touch given it would be a great product for students to use on campus. Wi-fi with web browsing, email, and connectivity to app store.
2:14 Pricing umbrella? Don’t want to make it easy for competitors.
2:15 Semi. acquisition: Have not disclosed the price. Acquired PA Semi recently; group of very talented engineers that work on microprocessors and other chips. We have had engineering capability in chips that we’ve used to work closely with chip suppliers on Mac and iPod; acquired to enhance that capability in the future, especially for iPods and iPhones.
2:17 Why no voice activated dialling on iPhone? Safari: Seems like MSFT is going to remove capability to have cookies stored. Going to be able to deliver option for people to switch off cookies? Don’t know. Not sure about question about cash. iPhone question: Voice dialling? Beauty of our software model. We have a team of people who are working on new innovations; can make them come out for current and new customers. Wouldn’t rule anything out.
2:19 Wrapping up.
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