And the Q&A session begins...
Q: Is there any reason why Mac growth rate won't continue?
A: In some of the markets we are in, Mac growth is absolutely spectacular - more than 40% in several European countries, over 100% in China.
Q: How does AT&T bad press impact your brand?
A: AT&T is a great partner. They had more mobile broadband users than any other carrier. They have issues in a few cities, but they have detailed plans as to how to address these. We have reviewed their plans and we have confidence in them.
Q: Give us a sense of gross margin for Dec and March quarter?
A: Actual December Q revenue exceeded our previous guidance by $4B. About half of this is due to strong business, the rest is due to accounting change. Dec gross margin was a bit better than expected due to: better commodity environment, better warranty performance and lower duty cost, and lower cost due to higher revenue (volume?) March gross margin is expected to be lower due to higher component cost, seasonal decline in revenue (volume?), and the strength of the US dollar. (He expects DRAM prices to go up. For most other commodity items, supply-demand is in balance. 3.5" drives will still be supply constrained.)
Q: Does the guidance include revenue from unannounced products?
A: No comment, wait until Wednesday.
Q:A: Expect seasonal sequential revenue decline for Macs, an even bigger sequential decline for iPods. We also also expect a seasonal decline for iPhone.
Q: Do you see any dynamic that changes your cash flow.
A: Cash generation is very strong. Under the new accounting rules, there is a very small deferral for iPhone and AppleTV. I don't see that changing, we are very good with receivables and inventory management.
Q: How about iPhone and China? More partners over time?
A: We don't disclose units by country but... We started selling in China at the end of October. We have passed 200K units activated mark. We are focused on the quality of sales and customer experience as we are building the brand name for the long term. I don't want to forecast sales or partner expansion plans.
Q: Can you comment on your comfort level with iPhone (channel) inventory?
A: Channel inventory grew up t 2.7M level. We are completely comfortable with it. We could have sold more but we chose not to because we are managing inventory very carefully. We had expansion into several large countries and we needed to expand our inventory.
Q: Any comments on Nokia litigation?
A: We have a long standing practice on not commenting on pending litigation.
Q: GM guidance down to 39%, how do we think through that given that iPhone margins are 60%?
A: It is difficult to talk about GM on a year-over-year basis due to product and commodity cycles as well as currency fluctuations.
Q: The iPhone application approval process has been under criticism. Have you received any feedback from iPhone owners?
A: It is important to keep this in perspective. Over 90% of apps have been approved in less than 14 days. We have the approval process in place to protect the privacy of the consumer or the integrity of the platform. Most of the rejections are due to bugs in the code to protect the customer. The noise on this issue is much higher than the reality.
Q: How do you feel about new product category opportunities ahead? Do you see something as big as iPhone coming?
A: Please wait till Wednesday? Stay tuned.
Q: Is it appropriate to roll out iPhone type products on a globally homogeneous price scale given the income differences?
A: Even the average income may not be as high as US, one has to look at the distribution of income as well. We are very focused on these markets. Our revenues tripled in greater China (China, Hong Kong, Taiwan) last quarter. 58% of our revenue last quarter was from outside US. We realize the we must do well in these markets to continue to grow.
Q: Can you provide more color on AppStore?
A: For competitive reasons we don't share much of this information. We are way ahead of our competitors with over 100K applications in our store. This is one of the key reasons why iTunes set a record last quarter.
Q: Is iPhone likely to drive corporate acceptance of Mac?
A: After iPhone 3GS, iPhone saw a lot more corporate acceptance. 70% of Fortune 100 are actively deploying or piloting iPhone. These are some staggering numbers considering we have been in this market for only 2.5 years.
Q: Have you seen changes in iPhone financial model?
A: Sales are largely incremental as we add carriers. We see market share increases. However, in most cases, we selected to stay with a single carriers.
Q: How should investors think about Apple's long term strategy in the context of recent acquisitions?
A: We occasionally acquire small companies from time to time for their technology and talent.
Q: How do you plan to use your cash? Share repurchases, dividends?
A: We don't have a change in our cash philosophy.
Q: Any plans to change iTunes AppStore revenue model?
A: We are running iTunes AppStore slightly over break-even, and we are happy to keep doing this to provide the best applications to our customers.
Q: $25 deferred iPhone revenue?
A: The second revenue element, the right to receive future s/w upgrades, is estimated to be $25 per iPhone. We applied a $25 deferral all iPhones sold in the past and $10 deferral to all AppleTV sold. As a result of this, in our revised balanced sheet, you will see substantially less deferred revenue. We recognized about $110M in the Dec quarter for all the iPhones sold in the previous quarters over the past 2 years.
Q: How about the strong CPU growth in APAC and Japan?
A: The Mac growth is above market, but we believe we can do better. APAC is the highest performing region in terms of Mac growth. iPhone also grew an incredible amount.
Q: How about mobile advertising? What's going on with Google?
A: We work with Google in some areas, compete with them on others. Mobile advertising is in infancy. We are going to work hard to provide a great opportunity to developers.
Q: Are you seeing improvements in the Pro segment?
A: We saw a small year over year increase. It is still an economically challenged area.
Q: How about education? How does the economy and shrinking budgets impact this?
A: The combination of K12 and higher ed grew 16% year over year. This is the best we have seen since before the recession. We really understand teaching and learning and we are the only tech company to get this. We will stay focused on this market and will continue to do well.
