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Notes of interest from Apple's Q3 2010 conference call

post #1 of 25
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Apple reported yet another impressive quarter Tuesday, with record sales of 3.47 million Macs helping to propel the company to $3.25 billion in profits, a 77 percent increase from a year prior. Following the news, Apple executives conducted a financial conference call with analysts and the press, and notes of interest follow.

The third quarter of Apple's 2010 fiscal year produced $3.5, and the company posted revenue of $15.7 billion. The company sold 8.4 million iPhones, 9.41 million iPods, and 3.27 million iPads.

On Tuesday's call were Apple Chief Financial Officer Peter Oppenheimer and Chief Operating Officer Tim Cook.

Apple's regional business segments

Apple ended the quarter with $45.8B in cash, up from $41.7B at end of last quarter.

Mac sales were up 40 percent in the Americas, with revenue up 25 percent.

Apple's biggest overseas growth came in Asia Pacific, where Mac unit sales were up 71 percent year over year. Revenue in that market was up a whopping 160 percent from Mac sales.

Worldwide, portables increased 37 percent, while desktops were down 12 percent. Total Mac sales were up 18 percent.

"We have a lot of opportunity domestically and in other parts of the Americas," Cook said of iPhone sales. But they're growing faster internationally for all products, when compared to domestically.

"The company's revenues in the Americas are growing over 40 percent," he said. "And so this is a huge number. It's not that we're talking about a low number, it's just that the international numbers are absolutely killer."


Apple's Mac business

3.47 million Macs, exceeding record by over 100,000. Represents 33 percent year over year growth.

Double-digit Mac growth in each geography. No supply issues in the last quarter.

"There's clearly a move to mobility," Cook said. Desktop numbers will grow when there's a new machine, but in quarters like the last, the desktops continue to lose share.


Apple's iPhone business

iPhone had an average selling price of $595.

Over 5 billion apps downloaded from the App Store.

Strong growth in Asia, Europe and Japan.

Surpassed sales of 100 million iOS devices in the quarter

Will defer about $175 million to buy cases. Cost will be recognized upon delivery to customers.

400 higher education institutions have approved the iPhone for faculty, staff and students. Over 60 percent of Fortune 500 are deploying the iPhone.

iPhone demand was ramping in June. "We are still ramping and increasing volume, but again there's not a specific thing... it's just a matter of getting up the ramp," Cook said.

Greatly reduced shipments of previous-generation iPhone around June 7. New iPhone 4 and 8GB iPhone 3GS didn't launch until three days before the end of the quarter. "We had significantly lower sales after June 7, for that period of time as we waited on the official launch," Cook said.

Growth rate prior to June 7 was around 90 percent. Exited the quarter with total iPhone sales up 61 percent.

Cook said the antenna issue has had no impact on sales. "We are selling every unit we can make currently." He said demand has been "absolutely stunning."

Returns for iPhone 4 are less than iPhone 3GS. "The ones for this specific (antenna) issue are extremely small," Cook said.

iAds: "We're going to learn a lot this calendar year and build a foundation for the future. And beyond that, I don't have any further specifics to share with you today," Oppenheimer.

North Carolina data center is "on schedule and everything is going fine." Expect to be completed and be in use by the end of the calendar year, Oppeneheimer said.

Bumpers: They will need to defer revenue for the iPhone 4s they sell where they have not delivered the bumpers, and where they have not heard from the customers wanting to place an order. Expect to make a revenue accrual with no cost of about $175 million. Expect to have it recorded as revenue in the September quarter. They will expense the cost of the bumpers when they ship them to customers. "Our most important objective there is to take care of every customer," Oppenheimer said.

Spain will go from one exclusive carrier to three carriers at the end of the month. They are still dealing with exclusivity on a case-by-case basis. "I just see an enormous amount of opportunity there," Cook said.

Possibility of other carriers: "We are very happy to be a partner with AT&T," Cook said. They have been a first-class partner and have really pioneered the smartphone growth."


Apple's iPad business

$2.17 billion sale of iPad and accessories. iPad sales alone was about $2.1 billion.

Average selling price of iPad was about $640.

iPad launches in 9 additional countries on July 23.

Already have 50 percent of the Fortune 100 deploying or testing the iPad. "It's incredible," Cook said.

Backlog of demand at end of last quarter, unable to fill. Selling them as fast as they can. "We are still are quoting longer lead times than we'd like, and we're working around the block to get supply and demand in balance," Cook said. "In the scheme of things, it's a good problem to have."'

Apple is working on increasing capacity, and feels like they can. They were just caught off guard by the demand.

When will supply for the iPad meet demand? "We honestly don't know," Cook said. The company was honestly surprised by its initial sales.

iPad is not taking a typical early adopter curve. But Apple believes the market is "very big," and that iPad is "defining the market." "We want to take full advantage of it, and so we are investing enormous time and resources in increasing our capability in getting iPad out to as many people as we can," Cook said.

"The demand has just been amazing and this is off to an incredible start," Oppeneheimer said.

On potential cannibalization of the Mac or other products: "We've only been selling for three months, and so I think the real answer is it's too early to tell," Cook said. He noted that the Mac had its best quarter ever when the iPad sold over 3 million units. "For us it's a jaw dropper."

Will iPad margins increase over time? Oppenheimer said they were "purposefully aggressive" when they launched the iPad. They are always working to become more efficient and cut down costs, and he expects it to continue with other products.

"We are absolutely selling every unit that we can make," Cook said. He said sales have been positive in every country they've released it in thus far. Anecdotally, he believes it's already beyond an "early adopter" phase. "I think it's extremely unique and extremely successful."

Possibility of an iPad halo effect, selling more Macs and other products? "We'll see. I don't want to predict it," Cook said. Said there's still a great opportunity for the Mac share to grow, because it is still so small.

"This is where it's great to have a lower share, because if it turns out the iPad cannibalizes PCs, I think it's fantastic for us," Cook said. "Because there's a lot of PCs to cannibalize. It's still a big market."


Apple's iPod business

Sales of iPod touch are very strong, sales are up 48 percent year over year.

ASP for iPod touch increased 12 percent, and revenue grew 4 percent. Overall iPod ASP dropped about $7.

iPod market share is over 70 percent. Also the top-selling player internationally.


Apple's retail business

Retail revenue up 73 percent. Mac sales were up 38 percent.

About half of Macs were sold to customers who never owned a Mac before.

7 new stores opened in the quarter, including 4 in U.S., 2 in Australia and 1 in Canada, ending with 293. With an average of 280 stores open, average revenue per store was $9 million.

Expect to open 24 new stores this quarter, including Paris and Shanghai. Will also have first two stores in Spain in Barcelona and Madrid.

Stores catered to 60.5M visitors, compared to 38.6M during year ago.


Apple's next (Q4 2010) fiscal quarter

EPS of $3.44 for the fourth fiscal quarter of 2010. Forecast 35 percent gross margin.

Higher mix of iPhone 4 and iPad sales expected, a negative for gross margin.

Oppenheimer said that some adjustments with suppliers occurred in June. Gross margin for the September quarter, they are delivering "great value" to customers, and the products have a "higher cost structure."

"We have been pretty aggressive here with pricing, and it's going to play true of it on the margin line," Oppenheimer said.

Apple plans to defer the revenue related to free iPhone bumpers till the end of the quarter. Estimated to cost $175M.
post #2 of 25
I expect Apple to put a camera in all iPods coming September.
post #3 of 25
Quote:
Originally Posted by ihxo View Post

I expect Apple to put a camera in all iPods coming September.

even the shuffle

I'm not too sure about the classic either; but the touch gaining a camera (or two) should be apples next move.
post #4 of 25
Considering the economy we are in this is incredible. Thing is, I can only see further upside to all of this.

Apple is definitely doomed
post #5 of 25
Quote:
Originally Posted by ihxo View Post

I expect Apple to put a camera in all iPods coming September.

I agree. And within six months (just in time for xmas?) there'll be FaceTime across all Apple devices with a camera. Next iPad upgrade, that'll be there as well.

There's a term for this: Synergy. Apple's tapped into the energy of synergy.

The future's so bright, we gotta wear shades!

post #6 of 25
This is incredible!

Also just got an Email that my iPhone 4 just shipped, 2 day early!

edit: I waited 3 Weeks to get to this Point
post #7 of 25
Quote:
Originally Posted by Joe hs View Post

even the shuffle

I'm not too sure about the classic either; but the touch gaining a camera (or two) should be apples next move.

This year might be the end of the road for the classic. If not this year, then certainly next, but more likely this year.
post #8 of 25
All I have to figure out is which family member gets my current iPad when the camera/facetime model comes out.

I've been playing with house money on AAPL for months; so, it's all gravy.
post #9 of 25
well, everyone expects an updated iPod touch with two cameras like the iPhone, with FaceTime. and a new body style to match?

and most expect iTunes to go into "the cloud" thanks to the big new NC server farm that will be "in use by the end of the year." with more services for MobileMe too?

and many expect a totally overhauled AppleTV running the iOS with apps. with iThing remote control?

should be a doozy of a September special event.
post #10 of 25
"Exciting new products" are all good and well...but how about a Mac Pro update someday?
post #11 of 25
Quote:
Originally Posted by Eideard View Post

I've been playing with house money on AAPL for months; so, it's all gravy.

don't bet you house on it! sell now or by the end of the year. Apple stock price is "in play" and being driven up by speculators. they always push it up to a point that is not sustainable before it retreats back to a realistic plateau (just like happened to Google). nothing goes up forever.

(and - hush! - if something bad ever happens to Steve J., it will crash suddenly.)

the stock market is a casino nowadays. nothing is really based on actual earnings anymore (Apple doesn't even pay old-fashioned dividends!). P/E ratios are absurd. it's just a question of can you find a sucker willing to pay more than you did? the only time you get actual "business value" for your stock is when there is a stock buy-back, or another company buys your company outright. neither of which will happen with APPL.

i know Apple fans see its booming stock price as proof of Apple's success. but ultimately today's stock market is half-sham.
post #12 of 25
Quote:
Originally Posted by minderbinder View Post

"Exciting new products" are all good and well...but how about a Mac Pro update someday?

No kidding:
http://buyersguide.macrumors.com/#Mac_Pro

Double the average. Hmmmnn..
2011 13" 2.3 MBP, 2006 15" 2.16 MBP, iPhone 4, iPod Shuffle, AEBS, AppleTV2 with XBMC.
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2011 13" 2.3 MBP, 2006 15" 2.16 MBP, iPhone 4, iPod Shuffle, AEBS, AppleTV2 with XBMC.
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post #13 of 25
Quote:
Originally Posted by Alfiejr View Post

don't bet you house on it! sell now or by the end of the year. Apple stock price is "in play" and being driven up by speculators. they always push it up to a point that is not sustainable before it retreats back to a realistic plateau (just like happened to Google). nothing goes up forever.

(and - hush! - if something bad ever happens to Steve J., it will crash suddenly.)

the stock market is a casino nowadays. nothing is really based on actual earnings anymore (Apple doesn't even pay old-fashioned dividends!). P/E ratios are absurd. it's just a question of can you find a sucker willing to pay more than you did? the only time you get actual "business value" for your stock is when there is a stock buy-back, or another company buys your company outright. neither of which will happen with APPL.

i know Apple fans see its booming stock price as proof of Apple's success. but ultimately today's stock market is half-sham.

have you watched AAPL over the last few weeks? It's been swinging between $240 and $280, but overall, no gains in weeks.
It's long overdue for a climb to $300. I think it will get there in the next month.
post #14 of 25
Quote:
Originally Posted by LTMP View Post

have you watched AAPL over the last few weeks? It's been swinging between $240 and $280, but overall, no gains in weeks.
It's long overdue for a climb to $300. I think it will get there in the next month.

I'm almost expecting $300 tomorrow.

But... Apple is expecting a 50% increase in top line y/y (and at least 25% on bottom line, based on Apple's guidance), so I'd say a PE under 25 is still a great value, so anything under $325 between now and September. They have $50 per share in cash...

But hey, the broader market is much less predictable.
post #15 of 25
Quote:
Originally Posted by aaarrrgggh View Post

I'm almost expecting $300 tomorrow.

But... Apple is expecting a 50% increase in top line y/y (and at least 25% on bottom line, based on Apple's guidance), so I'd say a PE under 25 is still a great value, so anything under $325 between now and September. They have $50 per share in cash...

But hey, the broader market is much less predictable.

I think it's the broader market that's kept bringing it down over the last quarter. Well, except for the antenna bulls**t over the last couple of weeks.

It's already at about $260 in after hours trading. You might not be wrong at $300 tomorrow, but I'm guessing $280.

With the growth AAPL is expecting, I think a PE of 27 isn't unreasonable... and WTF are the new products?! The next big announcement should make things interesting.
post #16 of 25
Quote:
Originally Posted by Alfiejr View Post

don't bet you house on it! sell now or by the end of the year. Apple stock price is "in play" and being driven up by speculators.

Yeah? What's new. Apple's always "in play", but it's driven "down" as well as "up".

Do you know what Apple's average P/E ratio has been over the last ten years? It's less than half its average right now, without backing out the 45 billion in cash and marketable securities.

I'm just sayin'....
post #17 of 25
Quote:
Originally Posted by Sacto Joe View Post

Yeah? What's new. Apple's always "in play", but it's driven "down" as well as "up".

Do you know what Apple's average P/E ratio has been over the last ten years? It's less than half its average right now, without backing out the 45 billion in cash and marketable securities.

I'm just sayin'....

Looks like the Shorts are getting ready to take it in the Shorts, just sayin'...
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Please consider throwing extra cycles at better understanding Alzheimer's, Mad Cow (CJD), ALS, and Parkinson's disease go here <a href="http://folding.stanford.edu/" target="_blank">http://folding....
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post #18 of 25
Quote:
Originally Posted by Sacto Joe View Post

Yeah? What's new. Apple's always "in play", but it's driven "down" as well as "up".

Do you know what Apple's average P/E ratio has been over the last ten years? It's less than half its average right now, without backing out the 45 billion in cash and marketable securities.

I'm just sayin'....

At a sane long term cap rate of, say, 12:1 (about 8%), if Apple's after-tax profit is $12 billion for a year at the current quarterly rate, then its classic economic value is $144 billion plus the $45 billion in cash and $5 billion in other assets = $194 billion. its market cap today is $229 billion. so the $35 billion difference is speculative "future expectations" value, essentially based on long term optimism.

actually i have to admit for today's stock market this is very conservative!

(if you push the cap rate up to 16:1 (about 6%) - which would look good today for a short term investment - you get an even better total number of $242 billion.)

The same total for Microsoft, btw, with $15 billion annual profit + $65 billion in cash and other assets, comes out $245 billion @ 12:1 long term cap rate. but its market cap is only $223 billion today. so the $22 billion negative difference i guess is also "future expectations" value - based on long term pessimism!!

but still don't bet teh house on the stock market.
post #19 of 25
Quote:
Originally Posted by Prof. Peabody View Post

This year might be the end of the road for the classic. If not this year, then certainly next, but more likely this year.

Maybe, I think it all depends on sales. It costs them little to push the Classic. Each year Toshiba has announced a new 1.8 HDD the day of or after the iPod Classic is announced. This tell me that Apple is the one pushing them to make them and the major buyer. Could they be the only buyer of these HDDs?

Toshiba may get to a point, like with the 1 HDDs, and stop developing denser drives, but Apple may see a small profit from continuing with the current 1.8 HDD capacity for a couple more years, but with a lowered price point. Toshiba would likely still make these drives even if they didnt push the R&D any further.

So Im going to go with a lower priced priced Classic using the same capacity for the Autumn iPod/iTunes event.
Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"
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Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"
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post #20 of 25
Quote:
Originally Posted by AppleInsider View Post



"This is where it's great to have a lower share, because if it turns out the iPad cannibalizes PCs, I think it's fantastic for us," Cook said. "Because there's a lot of PCs to cannibalize. It's still a big market."


LOL - I Love this one!
post #21 of 25
Quote:
Originally Posted by jmmx View Post

LOL - I Love this one!

While this may happen to Apples advantage, I dont think its the only advantage for Apple. I think well see the halo effect of the iPad as someones first Apple product push them into the Mac, as well as an upsurge in Mac desktop sales.

Im amazed by two things: 1) How quickly (fairly) non-technical, older people I know with iPads have quickly made this their primary consumption device for certain apps, web browsing and reading books, and 2) that they only just released the first x.x.1 update since its release in April and that they havent fast tracked iOS 4.0 for the iPad because of the growth and profit potential that should outstrip Mac profits in short order.
Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"
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Dick Applebaum on whether the iPad is a personal computer: "BTW, I am posting this from my iPad pc while sitting on the throne... personal enough for you?"
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post #22 of 25
These numbers are one sharp stick in the eye of those who tried to derail the Apple-cart by stoking the flames of the antenna issue. Bottom line: nice try blogosphere, thanks for playing. Next time try competing on more than one level--play the three dimensional game that Apple does!
A.k.a. AppleHead on other forums.
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A.k.a. AppleHead on other forums.
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post #23 of 25
Shouldn't that be "working around the clock"?

Philip Machanick creator of Opinionations and Green Grahamstown
Department of Computer Science, Rhodes University, South Africa

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Philip Machanick creator of Opinionations and Green Grahamstown
Department of Computer Science, Rhodes University, South Africa

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post #24 of 25
Very very good jobs, dear Steve! When an Apple TV update??

Giovanni B. Saccone
Creativity is just connecting things (Steve Jobs)
> > > My wEb SiTe < < <

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Giovanni B. Saccone
Creativity is just connecting things (Steve Jobs)
> > > My wEb SiTe < < <

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post #25 of 25
Quote:
Originally Posted by AppleInsider View Post

Apple's iPhone business

Wut`bout ATV then? When exactly're ATV+iAd gonna revolutionize gaming?

Quote:
Originally Posted by AppleInsider View Post

iAds: "We're going to learn a lot this calendar year and build a foundation for the future.

Ready-steady-go.

Quote:
Originally Posted by AppleInsider View Post

North Carolina data center is "on schedule and everything is going fine." Expect to be completed and be in use by the end of the calendar year, Oppeneheimer said.

Hosting gatekeepers for FaceTime in particular, we presume?

Quote:
Originally Posted by AppleInsider View Post

Span will go

Will go who? What friggin' span?


Quote:
Originally Posted by AppleInsider View Post

Apple's iPod business
Sales of iPod touch are very strong, sales are up 48 percent year over year.

Not sure how they pull this out of their billing reports. Unscientific statistics from everywhere show exactly 40+% of potential buyers are abandoning it for iPad. Contradictory.

We mean Apple no harm.

People are lovers, basically. -- Engadget livebloggers at the iPad mini event.

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We mean Apple no harm.

People are lovers, basically. -- Engadget livebloggers at the iPad mini event.

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