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Notes of interest from Apple's Q2 2011 conference call

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Apple on Wednesday reported its best second quarter ever, with $24.67 billion in revenue and $5.99 billion in profit, propelled by sales of 18.65 million iPhones. Following the news, Apple executives participated in a conference call with analysts and the press, and notes of interest follow.

Apple's iPhone sales in the second quarter of fiscal 2011 were an increase of 113 percent from a year ago. Mac sales also grew 28 percent to 3.76 million. Apple also sold 4.69 million iPads, a number that was below Wall Street expectations of about 6.2 million.

Participating in Wednesday's conference call were Apple Chief Operating Officer Tim Cook, and Chief Financial Officer Peter Oppenheimer.

Apple's regional business segments

Apple's revenue in America increased 87 percent in the second quarter of fiscal 2011.

Apple's greatest growth came from Asia, where profits increased by 151 percent.

Oppenheimer singled out the Asia Pacific market, where Mac sales grew 76 percent year over year.

"The growth in the Mac has been enormous in Asia," Cook said. "This is many multiples of the growth that that region is seeing for the market." IDC forecast is around 6 percent.

Japan also did well on the Mac for the quarter, and Cook said the U.S. had a "surprisingly" strong quarter for Mac sales.

Market share is less outside the U.S. in most places. Cook sees it as an opportunity for even more growth in the future.

"The momentum is still there. We seem to be the only guys that are focused on building innovative products in this space."

Several international countries are "extremely portable focused" with Macs, Cook said. He said the iMac has also performed well overseas though.

Apple's Mac business

Mac sales during the quarter were 3.76 million, a 28 percent increase year over year.

Greatest Mac sales ever for a March quarter.

IDC's most recent published estimate showed a 3 percent contraction in the overall PC market. March quarter is the 20th consecutive quarter that Apple has beaten the market.

New MacBook Pros got off to a strong start, "customer response has been excellent," Oppenheimer said.

iPad has created a "halo effect" for the Mac, Cook said, driving sales in the enterprise.

No evidence of share loss in the education business. Expect to see large year over year increase as we head into the back-to-school season.

Apple's iPhone business

iPhone sales grew an astounding 113 percent year over year, reaching 18.65 million for the quarter.

All-time quarterly record for iPhone sales.

Sales in America and Asia Pacific regions more than doubled year over year.

Strong growth in the enterprise segment. 88 percent of Fortune 500 are testing or deploying the iPhone. Examples: Cisco, Prudential, Boston Scientific, General Motors, Deloitte, Xerox.

Regarding the Japan earthquake, Cook said the economic impact "pales in comparison to the human impact."

Impact in Q2 was not major. Does not see a major impact in Q3, but Cook cautioned that the situation remains volatile, particularly with aftershocks and potential power outages.

Apple employees have been working around the clock on contingency plans. Preference has been to remain with long-term partners in Japan. "They have displayed an incredible resilience that I've personally never seen before," Cook said.

Cook: iPhone sales were "off the charts" in the U.S., with 155 percent year over year growth, thanks in part to Verizon. Also noted that AT&T did "extremely well."

"We continued to be on a tear in China. Greater China saw iPhone sales being up over three times, almost 250 percent," Cook said.

Cook said the $49 iPhone 3GS was "very popular, it did very well."

Cook on LTE networks: "The first generation of LTE chipsets force a lot of design compromises with the handset, and some of those we are just not willing to make. And so we are extremely happy with the iPhone 4 and the iPhone 3GS. Hitting 18.6 million units was something much larger than we thought we could do this quarter."

"We are constantly looking at where we should bring on incremental partners," Cook said. Apple brought on three large partners this quarter, particularly Verizon in the U.S.

iPhone focus has been on China. Overall sales in China was just less than $5 billion, or 10 percent of Apple. Cook said it's a "sea change."

The bulk of the emerging market focus has been in China. They're going to learn from that and then apply it to other countries.

Cook said Apple employees see Chief Executive Steve Jobs on a regular basis. He also said that Jobs wants to be back at work full-time as soon as he can be.

Cook said Samsung is a valuable partner in supplying components for devices.

"We felt the mobile communication division of Samsung ahd crossed the line, and after trying for some time to work out the issue, we decided we needed to rely on the courts."

Apple's iPad business

Apple sold 4.69 million iPads during its second fiscal quarter of 2011, as the company struggled to keep up with demand for the iPad 2.

Oppenheimer said the company is "thrilled" with momentum for the iPad.

"We're working hard to get it into the hands of customers as quickly as possible," Oppenheimer said of iPad 2.

"We sold every iPad 2 that we could make during the quarter, and would have liked to end the quarter with more channel inventory," Oppenheimer said.

Corporate demand for iPad is strong. 75 percent of Fortune 500 are testing or deploying iPad within their enterprises. Include companies: Xerox, AutoNation, ADP, Boston Scientific, Estee Lauder, Disney, Rite Aid.

Combining iPhone, iPad and iPod touch, Apple reached just under 189 million iOS devices sold.

On iPad 2 constraints: Cook called the demand "staggering." Said the company is "heavily backlogged" in the face of demand.

"We are shipping to an additional 13 countries next week, and we're planning to add even more countries through the quarter," Cook said. He's confident that the company will produce "a very large number of iPads" in the quarter.

"Demand has been staggering, and I'm not going to predict when supply and demand will come into balance," Cook said. "I can only be confident on supply side."

Cook: Product transitions are never simple. Apple drew the channel down on the first-generation iPad by 570k units during the quarter, and added, at the end of the quarter, 170k of the new iPad 2s, although most of it was in transit.

Sell-through was about 5 million for the quarter. "This has to be planned quite a ways in the future."

Won't say breakdown of iPad 2 vs. iPad 1 sales for the quarter due to competitive reasons. But Cook said he wishes Apple could have produced a lot more iPad 2s.

Cook: iPad 2 is "the mother of all backlogs."

Apple's iPod business

iPod sales were 9.02 million for the quarter, a 17 percent decline from the same period in 2010.

Total iPod sales were ahead of Apple's expectations. iPod touch accounts for more than half of all iPods sold.

Apple's share of MP3 players remain north of 70 percent. Still the top media player in most countries.

Revenue of almost $1.1 billion in iTunes. Best quarter ever.

Apple's retail business

Retail sales were up 32 percent in the second quarter of fiscal 2011, and in-store revenue from Mac sales was up 90 percent.

10th anniversary of Apple retail stores is on May 19.

In the coming days, Apple will host its 1 billionth retail visitor.

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

In March quarter, Apple stores set up more than 1 million products.

Revenue from retail stores was $3.19 billion, an increase of 90 percent.

323 stores in the quarter, with average revenue of $9.9 million, an increase of 67 percent.

International retail store volume exceeds average U.S. store volume.

Anticipate opening 40 new stores in fiscal 2011, nearly three-quarters outside of the U.S., including a fifth store in China.

Apple's next (Q3 2011) fiscal quarter

Apple provided guidance of about $23 billion in revenue and diluted earnings per share of $5.03 for its third fiscal quarter of 2011.

Projected gross margin of 41.4 percent. Expect the tax rate to be about 25 percent.

Guidance of $23 billion is a 7 percent sequential decline, uncharacteristic for Apple.
post #2 of 68
Tim Cook just said apple's suppliers were able to implement contingency plans. No material impact to supply or cost currently from the disaster in Japan.
post #3 of 68
Quote:
Originally Posted by AppleInsider View Post

Apple provided guidance of about $23 billion in revenue and diluted earnings per share of $5.03 for its third fiscal quarter of 2011.

okey dokey
post #4 of 68
Quote:
Originally Posted by veblen View Post

Tim Cook just said apple's suppliers were able to implement contingency plans. No material impact to supply or cost currently.

That would be an odd statement. So did he go on to explain missing the consensus estimates on iPad sales if supply wasn't an issue?
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post #5 of 68
Quote:
Originally Posted by Gatorguy View Post

That would be an odd statement. So did he go on to explain missing the consensus estimates on iPad sales if supply wasn't an issue?

He didn't say there was no issue with supply, he just said that the disaster in Japan didn't impact the supply.
post #6 of 68
Quote:
Originally Posted by Gatorguy View Post

That would be an odd statement. So did he go on to explain missing the consensus estimates on iPad sales if supply wasn't an issue?

The break down of the number between models 1 and 2 would be the most telling metric. Model 2 was only introduced March 11th. The announcement was a month earlier I believe on the Feb 20th. That, in my opinion, would cause you to lose a month of 1 Qtr sales alone.
post #7 of 68
No explanation of lower than expected iPad numbers?
post #8 of 68
You'll have to explain that one better

The reported sales were through the end of March weren't they?
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post #9 of 68
Apple should buy T-Mobile.
post #10 of 68
Quote:
Originally Posted by stelligent View Post

No explanation of lower than expected iPad numbers?

Sure! Apple is doomed! There, now you know the answer.
post #11 of 68
Quote:
Originally Posted by Gatorguy View Post

That would be an odd statement. So did he go on to explain missing the consensus estimates on iPad sales if supply wasn't an issue?

Quote:
Originally Posted by stelligent View Post

No explanation of lower than expected iPad numbers?

You should not expect Apple to explain why analysts' estimates were wrong. Ask the analysts
to explain how they arrived at their estimates. The fact that Apple can not manufacture enough
iPads to keep up with demand indicates that the sales were not below their own estimates.
post #12 of 68
Quote:
Originally Posted by stelligent View Post

No explanation of lower than expected iPad numbers?

Not really. I'm listening to the call now (they're still going lol), and basically they said product transitions can be difficult. They just didn't anticipate that much demand. Oppenheimer said they sold every one they could make.
post #13 of 68
They sold almost 5 million iPads, we're talking about a market that Apple created... that's pretty dope if you ask me. now, to find something to do with my iPad 2
doh!
post #14 of 68
Quote:
Originally Posted by stelligent View Post

No explanation of lower than expected iPad numbers?

He said they sold every iPad 2 they could produce. He said he wished they could have made more.
post #15 of 68
Quote:
Originally Posted by Freshmaker View Post

and basically they said product transitions can be difficult. They just didn't anticipate that much demand. Oppenheimer said they sold every one they could make.

Someone with Apple said that?? Good thing it wasn't video since he couldn't have said it with a straight face.
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post #16 of 68
Quote:
Originally Posted by Gatorguy View Post

That would be an odd statement. So did he go on to explain missing the consensus estimates on iPad sales if supply wasn't an issue?

Since "consensus estimates" on Apple are consistently and wildly inaccurate in almost every case, I'm not sure that this matters a whole lot.
post #17 of 68
Quote:
Originally Posted by Prof. Peabody View Post

Since "consensus estimates" on Apple are consistently and wildly inaccurate in almost every case, I'm not sure that this matters a whole lot.

Every estimate for the ipad 1 was off by at least 100% (on the low side), I suspect there was quite a bit of over compensating going on.

Apple created a new market, it will take the Analysts a while to figure it out. Supply issues show that Apple does not fully understand it yet.

It is ok because none of their competitors have any clue at all.
post #18 of 68
Quote:
Originally Posted by AppleInsider View Post

Several international countries are "extremely portable focused" with Macs, Cook said.

Well, I guess that's good as opposed to several domestic countries that I can think of...
post #19 of 68
Quote:
Originally Posted by Prof. Peabody View Post

Since "consensus estimates" on Apple are consistently and wildly inaccurate in almost every case, I'm not sure that this matters a whole lot.

They're generally conservative tho. I haven't seen any recent consensus over-estimates with Apple, have you?
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post #20 of 68
Quote:
Originally Posted by veblen View Post

He said they sold every iPad 2 they could produce. He said he wished they could have made more.

Correct.

The iPad 2 was on sale for the last two weeks of Q2 to one market. There was very little supply in bricks-and-mortars stores (in Apple's own retail stores as well as third-party stores). They didn't charge shipping orders for about a week, so they really only booked about a week's worth of online sales.

They clearly had very limited inventory on hand at launch.

Quote:
Originally Posted by Gatorguy View Post

They're generally conservative tho. I haven't seen any recent consensus over-estimates with Apple, have you?

Both the bloggers and the pros overestimated iPod and iPad sales.
post #21 of 68
Whether they over or under estimate has no bearing on the reality of what Apple is capable of producing or selling.

Quote:
Originally Posted by Gatorguy View Post

They're generally conservative tho. I haven't seen any recent consensus over-estimates with Apple, have you?
post #22 of 68
Quote:
Originally Posted by jmkaza View Post

He didn't say there was no issue with supply, he just said that the disaster in Japan didn't impact the supply.


What Cook said was that its not easy to ramp up production of a new product and ramp down production of the existing product in the short period of time they had in Q2. There was no mention of the various analysts' estimates ( obviously poorly estimated) of Ipad2 sales for Q2. The takeaway to me was clearly that they are producing many more now, with no component access issues and with "the mother of all back orders" on the Ipad 2, they are doing the best they can now to increase production and have demand/supply reach the desired equilibrium.

As a very long time Apple product user and investor, I couldn't have asked for a more articulate and clearly stated presentation and Q&A session than what was just given by Cook and Opp. this afternoon.

If the US/state governments ran with 10% of the productivity and efficiency that Apple
did, this country would be in a far, far better situation than we currently are in.
post #23 of 68
According to someone a few posts up Apple indicated they didn't expect the demand, thus they didn't have enough product. Disruptions in the supply chain weren't an issue.

That's still an odd comment IMO. . .
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post #24 of 68
Quote:
Originally Posted by Gatorguy View Post

According to someone a few posts up Apple indicated they didn't expect the demand, thus they didn't have enough product. Disruptions in the supply chain weren't an issue.

That's still an odd comment IMO. . .

Why? He addressed concerns about supply chain disruptions from Japan by mentioning contingency plans and stated that Japan hadn't, to date, had any material impact on supply. He also said that they hadn't been able to make iPads fast enough to meet demand and that that was an artifact of product transition-- drawing down iPad 1 inventory while trying to ramp up iPad 2 production in the face of massive demand.

Not seeing any oddness.
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post #25 of 68
Quote:
Originally Posted by OriginalMacRat View Post

Apple should buy T-Mobile.

No, Apple considers mobile operators to be dumb pipes, nothing more.

They don't fit Apple's business model of making scads of money of hardware sales. There is very little value-add to what Apple considers a utility.
post #26 of 68
It must be difficult for some people to realize that the explosive growth in the iPhone was putting a strain on panel materials.

The development of several new plants will alleviate this concern and allow for the flood gates to fully open up for the iPad 2 and beyond.
post #27 of 68
Quote:
Originally Posted by AppleInsider View Post

Apple's retail business

In the coming days, Apple will host its 1 billionth retail visitor.

Time for Apple to raise some Golden Arches, er, I mean Apples... Golden Delicious I think...



Quote:
Projected gross margin of 41.4 percent. Expect the tax rate to be about 25 percent.

Only one quarter tax rate for such a rich company like Apple that is doing so well. Time for Obama to spring into action and confiscate, er, take, er, tax, er, reinvest a lot more of that money for those he deems deserving. Watch out, the dude is one bad apple, Apple...
/
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post #28 of 68
Quote:
Originally Posted by cvaldes1831 View Post

No, Apple considers mobile operators to be dumb pipes, nothing more.

They don't fit Apple's business model of making scads of money of hardware sales. There is very little value-add to what Apple considers a utility.

Apple is correct.
post #29 of 68
You're of course probably right. Apple simply didn't expect much demand for the new iPad at launch. Their uncharacteristic silence about iPad2 sales numbers till now had added to my initial skepticism that there was adequate stock at launch to meet their anticipated demand.

All is good.
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post #30 of 68
Quote:
Originally Posted by Rot'nApple View Post


Only one quarter tax rate for such a rich company like Apple that is doing so well. Time for Obama to spring into action and confiscate, er, take, er, tax, er, reinvest a lot more of that money for those he deems deserving. Watch out, the dude is one bad apple, Apple...
/
/
/

Effective tax rate is much lower than that.
post #31 of 68
Quote:
Originally Posted by quinney View Post

The fact that Apple can not manufacture enough
iPads to keep up with demand indicates that the sales were not below their own estimates.

The conf call alluded to the fact that numbers were low as they drained the iPad1 reserves and ramped up the iPad2s...

they also said that they still can't keep up with demand where they would like to (they'd like to have 4-8 weeks of inventory in the pipe... they have less than 4 now).

They sell everyone they are making... which means they underestimated demand, and are taking a hit on short term sales.
post #32 of 68
When they say China sales of $5 billion is 10% of Apple, I don't quite get it. Their total sales is $24.67 billion for the quarter.
post #33 of 68
Quote:
Originally Posted by Gatorguy View Post

You're of course probably right. Apple simply didn't expect much demand for the new iPad at launch. Their uncharacteristic silence about iPad2 sales numbers till now had added to my initial skepticism that there was adequate stock at launch to meet their anticipated demand.

All is good.

The iPad2 launched on March 10th and the fiscal quarter ended March 26th - think about it!
post #34 of 68
Quote:
Originally Posted by cvaldes1831 View Post

Correct.

The iPad 2 was on sale for the last two weeks of Q2 to one market. There was very little supply in bricks-and-mortars stores (in Apple's own retail stores as well as third-party stores). They didn't charge shipping orders for about a week, so they really only booked about a week's worth of online sales.

It was more than one market by the end of the quarter - but you're right in general. How people though that Apple would beat the december Q given the release was so limited is beyond moi.
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post #35 of 68
Quote:
Originally Posted by peter236 View Post

When they say China sales of $5 billion is 10% of Apple, I don't quite get it. Their total sales is $24.67 billion for the quarter.

Good question. I didnt get that either.
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post #36 of 68
Quote:
Originally Posted by happyden View Post


As a very long time Apple product user and investor, I couldn't have asked for a more articulate and clearly stated presentation and Q&A session than what was just given by Cook and Opp. this afternoon.

Its worthwhile to compare Apple's conference call to Google's. You come away from google with no idea of whats going on - APple is clear, concise and honest.

They dont give any information about future products, except sometimes when guiding low on gross margin - this time he guided low on gross margin ( lower than their conservative normal guidance) but pretty much suggested it was no new product ( not this Q). It could that they expect a lot of iPads to be sold.

However the sequential revenue for this quarter is not expected to be higher - thats interesting, if iPads are not supply constrained do they expect a hit somewhere else?

( he said that iPhones are now in supply demand balance).
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post #37 of 68
Quote:
Originally Posted by asdasd View Post

It was more than one market by the end of the quarter - but you're right in general. How people though that Apple would beat the december Q given the release was so limited is beyond moi.

I thought it was possible given the still growing popularity of the devicr and considering the iPhone unit sales for Q2 have exceeded Q1 for the past two years (now 3 years).
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post #38 of 68
Quote:
Originally Posted by asdasd View Post

Its worthwhile to compare Apple's conference call to Google's. You come away from google with no idea of whats going on - APple is clear, concise and honest.

They dont give any information about future products...

Cooks comment regarding LTE is interesting. Obviously they are working to include it but I wonder if the rumoured delayed launch of the next iPhone is because of LTE. Im not saying I strongly believe that as I think there are better reasons for a potential time change, but I also dont think it can be excluded.
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post #39 of 68
Quote:
Originally Posted by peter236 View Post

When they say China sales of $5 billion is 10% of Apple, I don't quite get it. Their total sales is $24.67 billion for the quarter.

That is not what he said. http://www.macworld.com/article/1593...ranscript.html
post #40 of 68
this is why i bought aapl for the last few weeks. its obvious its a great buy!
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