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Notes of interest from Apple's Q3 2011 conference call

post #1 of 60
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Apple on Tuesday reported a record-breaking quarter with $28.57 billion in revenue, propelled by a massive 20.34 million iPhones and 9.25 million iPads sold in the quarter. Following the news, Apple executives participated in a conference call with analysts and the press, and notes of interest follow.

Apple's iPhone and iPad products continue to send the company to even greater heights, as handset sales were up 142 percent year over year, and the iPad grew 183 percent from 2010. Its $28.57 billion in revenue was a record-breaking quarter.

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

Apple's iPhone business

iPhone sales were up 142 percent year over year, despite the fact that a new model was not released in the quarter. Sales also crossed the 20 million milestone for the first time ever.

More than double IDC's estimated growth for the rest of the smartphone market.

91% of Fortune 500 are using or testing iPhone as a primary device, including major corporations like Nestle, Dow Chemical, Glaxo Smith Kline, and Comcast. In addition, 57% of all Fortune 500 are similarly deploying or testing the iPhone.

Recognized revenue from iPhone sales was $13.3 billion, up from $5.3 billion, or an increase of 150 percent.

Though sales were strong year-over-year in all segments, Asia/Pacific was particularly strong, almost quadrupling year-over-year.

Apple continues to increase its iPhone production capacity and by the end of the quarter was available at 228 carriers in 105 countries.

Apple ended the quarter with about 5.9 million iPhones in channel inventory, which falls within their target range of 4-6 weeks.

Added 42 new carriers in the last quarter. Sequential improvement was due to emerging and developed markets. China, Brazil, Mexico and the Middle East were said to be major contributors.

"We are really beginning to see the fruits of our labor in these markets," Cook said.

Looking forward, Cook said expanding the iPhone to new carriers is a major focus for the company. "There are still great partners out there to do business with, so we're obviously out working new relationships."

On iPhone activations, Cook said Google's recent numbers are difficult to compare because Apple sold over 33 million iOS devices in the June quarter.

"Our numbers are very straightforward, they're transparent, and they're reported quarterly," Cook said.

Cook cited recent data from ChangeWave that showed Apple has the greatest customer satisfaction and those who plan to buy a smartphone in the near future prefer the iPhone.

On the prepay market, Cook said "We know that we need to play there in order to have the kinds volumes we'd like to have." The company has "a lot more to do" in expanding channels for the device.

Apple's iPad business

The iPad grew 183 percent year over year to reach sales of 9.25 million. iPad sales exceeded total iPod units in the quarter.

Apple continued to sell ever single iPad they could build.

Launched iPad in 36 additional countries during the quarter, ending with availability in 64 countries.

Recognized revenue from iPad sales was more than $6 billion, up from $2.2 billion.

Apple ended the quarter with about 1.05 million iPads in channel inventory, which is below their target range of 4-6 weeks worth.

47 percent of Global 500 companies are testing or deploying iPad. 86 percent of Fortune 500 are deploying or testing the iPad, up from 75% during the previous quarter.

In total, more than 220 million iOS devices have been sold through the June quarter.

Cook said some iPad purchases are inevitably made instead of a Mac, but he believes more customers are buying an iPad instead of a Windows-based PC.

Said it's been a "frenzy" as customers want to get an iPad 2, but he feels confident in the company's ability to ramp up production and meet demand.

Cook said Apple expects iPad sales to see significant year over year growth in the next quarter, though they don't share specific numbers.

"Last quarter, we sold more iPads in K-12 than we did Macs," Cook said. "To do that in just five quarters is absolutely shocking. We never would have predicted this."

He said the iPad has a "universal appeal" in many different markets, from consumers to schools to government.

On media consumption, Cook said if you talked to 10 different people, they'd likely give you 10 different reasons that they love the iPad.

Apple's Mac business

Mac sales were 3.95 million, up 14 percent from 3.47 million a year ago.

2011 represents a new June quarter record for Mac sales.

Growth was more than four times IDC's recently published forecast for the overall PC market, Oppenheimer said.

Performance was particularly strong in Asia, up 57 percent year over year.

Apple's iPod business

iPod sales continued their steady decline in the most recent quarter, slipping 20 percent year over year to 7.54 million.

iPod touch accounted for half of all 7.5 million iPods sold during the quarter.

Apple TV is doing well, Cook said, but he doesn't want anyone to believe that it's becoming a major product. "Right now it's still a hobby status, and we're continuing to invest in it because we think there's something there."

He said the new A4-powered Apple TV, released late last year for $99, was a wise transition for the company to make.

Apple's regional business segments

International sales accounted for 62 percent of the quarter’s revenue.

The company saw the greatest gains in the Asia Pacific region, where sales spiked from $1.8 billion in 2010 to $4.7 billion in 2011.

"China was very key to our results," Cook said. Greater China sales were up over six times, with revenue of about $8.8 billion for the year.

"This has been a substantial opportunity for Apple, and I firmly believe we are just scratching the surface right now," Cook said. "I believe there is an incredible opportunity for Apple there."

Apple's retail business

Revenue from Apple's retail segment rose 36 percent to $3.5 billion on higher volume sales of Macs and iPads.

Apple opened 4 new stores during the quarter to end with 327 stores. Average revenue per store rose roughly 20 percent to $10.8 million.

The stores hosted 73.7 million visitors during the June quarter, up from 60.5 million during the year-ago quarter.

Apple's personal set-up program within the stores got off to a strong start, with Apple having set up over 2 million total Macs, iPhones, iPods and iPads during the quarter.

Looking ahead, Apple plans to open 30 new stores in the September quarter alone, including the first store in Hong Kong.

Apple's next (Q4 2011) fiscal quarter

Apple's guidance for next quarter calls for revenue of $25 billion and diluted earnings per share of about $5.50.

Gross margin is expected to be about 38 percent. Operating expenditures are projected to be 2.725 billion, with a tax rate of about 24 percent.

Oppenheimer said the company expects to see year over year increases in sales for its Mac, iPhone and iPad products. iPod units are expected to decline.

He also alluded to a "future product transition" that will affect the company's fall quarter. He attributed that, along with this fall's launch of iCloud and other services, to more conservative than usual guidance for the next quarter.

Oppenheimer said lower gross margins are expected to be due in part to a different product mix, as well as a full quarter of the company's back to school promotion.

Cook said NAND, DRAM, LCDs, batteries and optical drives are in a "very positive supply situation currently." Hard drive supply, however, is constrained, and those prices are expected to drop less than other components.

Oppenheimer said Apple saw benefits in the warranty and phone support elements, as well as "some settlements" that the company had, which helped the company's gross margins in the third quarter of fiscal 2011.
post #2 of 60
well blew that out of the water,,, wonder how many analysis got it wrong yet again
post #3 of 60
Quote:
Originally Posted by Maestro64 View Post

well blew that out of the water,,, wonder how many analysis got it wrong yet again

the professional analysts always have low-end estimates because they're being paid for their advice. It's better to be wrong conservatively than to be wrong over-optimistically. Their customers (investors) don't pay them to predict with exact accuracy. They pay them to say, "here's a baseline projection - buy Apple shares based on this. They may well exceed these numbers, but they won't fall short."

That's a very different scenario than all these bloggers playing a game of pin-the-tail-on-the-EPS, just to get bragging rights.
post #4 of 60
Quote:
Originally Posted by Maestro64 View Post

well blew that out of the water,,, wonder how many analysis got it wrong yet again

Probably every last one of them, but in this case I can't blame them too much.
post #5 of 60
Is it Wednesday already?
post #6 of 60
Oppenheimer just confirmed Lion to come tomorrow.
post #7 of 60
I get a terrible Echo in the conference call stream, its almost impossible to understand anything, what the heck
post #8 of 60
Quote:
Originally Posted by astra4 View Post

I get a terrible Echo in the conference call stream, its almost impossible to understand anything, what the heck

It's just you.
post #9 of 60
Quote:
Originally Posted by astra4 View Post

I get a terrible Echo in the conference call stream, its almost impossible to understand anything, what the heck

figured it out, I had two QT instances open, lol
post #10 of 60
Quote:
Originally Posted by Maestro64 View Post

well blew that out of the water,,, wonder how many analysis got it wrong yet again

Well, that is to say Apples finance bods got it wrong again as well. They forecast $25bn at the last earnings call (I think)!

Amazing to see they sold more iPads than iPods. That thing has just come from nowhere.
post #11 of 60
He sure made a point of noting how popular the iPad is. I don't think it will more than a couple years before the iPad makes more revenue than the iPhone.
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 #12 of 60
Quote:
Originally Posted by Maestro64 View Post

well blew that out of the water,,, wonder how many analysis got it wrong yet again

I'd rather that the analysts get it wrong by under-predicting, than get it just right or over-predict.

It's better to see that euphoric market pop!!
post #13 of 60
iCloud is worth $22 to the average Mac user and $11 for iDevices per year? How do you even go about coming to an estimate like that?
post #14 of 60
Quote:
Originally Posted by brutus009 View Post

Is it Wednesday already?

The results were so good that we got magically transported into the future.
post #15 of 60
Heheh - it's official - something is being updated in september
post #16 of 60
--wrong thread--
post #17 of 60
Apple should consider splitting up operationally. The more these mobile tween products consume Apple's attention, the more they seem to drop the ball on professional products.
post #18 of 60
Quote:
Originally Posted by LighteningKid View Post

iCloud is worth $22 to the average Mac user and $11 for iDevices per year? How do you even go about coming to an estimate like that?

Based on estimated usage plus overhead. If the overhead to operate iCloud is $100/year, and the marginal cost for an extra mac (based on estimated storage/bandwidth usage) is $16, and the marginal cost for an extra iDevice is $6, and they allocate the $100 overhead evenly across 20 devices ($5 each), you would defer $11 per iDevice and $22 per Mac.

It can't be and is not meant to be exact. It's just a good faith estimate of what portion of the revenue from a sale today should be allocated to future quarters to cover the value delivered later.
post #19 of 60
Quote:
Originally Posted by strobe View Post

Apple should consider splitting up operationally. The more these mobile tween products consume Apple's attention, the more they seem to drop the ball on professional products.

Yeah, I bet their investors are fucking livid that they keep screwing up so much.
post #20 of 60
Time for Apple to be crazy.

70 billion in cash:
Buy
ARM: 15 billion (the processor that will rule the world)
AMD 7 billion (great graphics, high end servers CPU)
NOKIA 20 billion (great infrastructure. Great manufacturing plants)
LM Ericsson 40 billion (Sells most Base station in the world. Could lead to the AppleNetwork
Build its own Foundry 7.5billion. Why help Samsung/TSMC to copy A5-6 processors.

+ give a couple of billion to Steves health. ISteve needs to come back!
post #21 of 60
Quote:
Originally Posted by AppleInsider View Post

On iPhone activations, Cook said Google's recent numbers are difficult to compare because Apple sold over 33 million iOS devices in the June quarter.

"Our numbers are very straightforward, they're transparent, and they're reported quarterly," Cook said.

In other words, Google is trying to baffle you with BS.
post #22 of 60
Quote:
Originally Posted by shompa View Post

Time for Apple to be crazy.

70 billion in cash:
Buy
ARM: 15 billion (the processor that will rule the world)
AMD 7 billion (great graphics, high end servers CPU)
NOKIA 20 billion (great infrastructure. Great manufacturing plants)
LM Ericsson 40 billion (Sells most Base station in the world. Could lead to the AppleNetwork
Build its own Foundry 7.5billion. Why help Samsung/TSMC to copy A5-6 processors.

+ give a couple of billion to Steves health. ISteve needs to come back!

Keep in mind that you pay a ~30% premium over market cap when you buy a company.

ARM I could see; that would really wrench Android. The others, not so much -- why buy companies you've beaten in the market and whose value is only going to go down?

What I would like to see is a Sony purchase. Go vertical integration on content, media distribution, and home electronics. Market cap is about $27B, so figure $35B, or half of the cash reserves.
post #23 of 60
Quote:
Originally Posted by shompa View Post

time for apple to be crazy.

70 billion in cash:
Buy
arm: 15 billion (the processor that will rule the world)
amd 7 billion (great graphics, high end servers cpu)
nokia 20 billion (great infrastructure. Great manufacturing plants)
lm ericsson 40 billion (sells most base station in the world. Could lead to the applenetwork
build its own foundry 7.5billion. Why help samsung/tsmc to copy a5-6 processors.

+ give a couple of billion to steves health. Isteve needs to come back!

buy EA



9
whats in a name ? 
beatles
Reply
whats in a name ? 
beatles
Reply
post #24 of 60
Quote:
Originally Posted by strobe View Post

Apple should consider splitting up operationally. The more these mobile tween products consume Apple's attention, the more they seem to drop the ball on professional products.

I hope they come up with a better way to produce actual computer software. As an Apple Investor I'm really happy with the success of the iPhone, iPad, etc., but as a computer user I'm not happy with the state of Apple's computer software - iMovie, QuickTimeX, Final Cut Pro, the uglyfying of iTunes,... it seems like they sent all the good software people to iOS, and let the amateurs run amok in the Mac software division.
post #25 of 60
Quote:
Originally Posted by brucep View Post

buy EA

Ewww! Whatever for?
post #26 of 60
Quote:
Originally Posted by shompa View Post

Time for Apple to be crazy.

70 billion in cash:
Buy
ARM: 15 billion (the processor that will rule the world)
AMD 7 billion (great graphics, high end servers CPU)
NOKIA 20 billion (great infrastructure. Great manufacturing plants)
LM Ericsson 40 billion (Sells most Base station in the world. Could lead to the AppleNetwork
Build its own Foundry 7.5billion. Why help Samsung/TSMC to copy A5-6 processors.

+ give a couple of billion to Steves health. ISteve needs to come back!


I'd agree with the build the foundry part. Anyone listen to Horace Deidu's last podcast? He identified the inability to meet demand as Apple's biggest problem right now, and what he thinks the company should spend its billions on. If not building their own, at least ensuring that their contractors can increase production.
post #27 of 60
Quote:
Q: Including prepaid, indirect distribution markets?

A: Looking at emerging markets in the aggregate, most of those are prepaid. We believe postpaid is better in the long term for customer, carrier and Apple. In general we are playing in the prepaid market -- not avoiding that market, we know we need to play there in order to have the types of volumes we'd like to have.

Except a cheaper iPhone emerging. Perhaps first for China Mobile.
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 #28 of 60
Quote:
Originally Posted by BrooksT View Post

ARM I could see; that would really wrench Android. The others, not so much -- why buy companies you've beaten in the market and whose value is only going to go down?

Less than you might think, ARM's licenses to firms like NVDIA would still be in place.
post #29 of 60
Quote:
Originally Posted by strobe View Post

Apple should consider splitting up operationally. The more these mobile tween products consume Apple's attention, the more they seem to drop the ball on professional products.

Just go away and crawl back into your hole.
post #30 of 60
Quote:
Originally Posted by AppleInsider View Post

On the prepay market, Cook said "We know that we need to play there in order to have the kinds volumes we'd like to have." The company has "a lot more to do" in expanding channels for the device.

By this statement I'm pretty convinced we'll see a $300~ USD iPhone this September. Tim has been hinting loudly that this is gonna be the next major market for the iPhone and that Apple wants the iPhone to be a high volume device, not just a high end device.

Quote:
Originally Posted by AppleInsider View Post

"Last quarter, we sold more iPads in K-12 than we did Macs," Cook said. "To do that in just five quarters is absolutely shocking. We never would have predicted this."

This is simply astounding. In my opinion this adds fuel to the fire for the discontinuing of the white MacBook. The iPad (not the Air) is effectively replacing the MacBook in education and likely for a lot of consumers that use their devices primarily for web, photos and music.
post #31 of 60
Quote:
Originally Posted by solipsism View Post

Except a cheaper iPhone emerging. Perhaps first for China Mobile.

I was more convinced of that before the conference call. Many of his answers, including that one, have me questioning any type of new cheaper iphone.

After the call I think continuing to sell the 3GS for a lower price is a much more likely scenario than Apple announcing a new product for that space in September.
post #32 of 60
Quote:
Originally Posted by blackbook View Post

By this statement I'm pretty convinced we'll see a $300~ USD iPhone this September. Tim has been hinting loudly that this is gonna be the next major market for the iPhone and that Apple wants the iPhone to be a high volume device, not just a high end device.

See I just didn't get that at all from those comments. His preference for post paid, and saying that they are still trying to figure out how best to play in that market dont seem like a company just months away from launching a new product to compete there.

I could be wrong and I hope I am.
post #33 of 60
Quote:
Originally Posted by Jcoz View Post

See I just didn't get that at all from those comments. His preference for post paid, and saying that they are still trying to figure out how best to play in that market dont seem like a company just months away from launching a new product to compete there.

I could be wrong and I hope I am.

I don't think we can expect to see a 'cheap' iPhone (except perhaps a TD-SCDMA China-only one) for as long as iPhone is growing 100%+ YoY. When we see iPhone YoY growth dipping to 80% that's when it will be imperative.
post #34 of 60
At $76B, Apple has just about enough money to clone Steve Jobs. Imagine what they could make by selling Steve Jobs clones. First customer, RIM, quickly followed by HP and MS.
Apple has no competition. Every commercial product which competes directly with an Apple product gives the distinct impression that, Where it is original, it is not good, and where it is good, it...
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Apple has no competition. Every commercial product which competes directly with an Apple product gives the distinct impression that, Where it is original, it is not good, and where it is good, it...
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post #35 of 60
Quote:
He also alluded to a "future product transition" that will affect the company's fall quarter. He attributed that, along with this fall's launch of iCloud and other services, to more conservative than usual guidance for the next quarter.

Is the "future product transition" referring to the iPhone5? This is the most logical interpretation of this statement, but here are some other options that could affect Apple's revenue/profits:
- Significant drop in iPhone 3GS price to enable more prepaid customers
- Introduction of iPad3 and a price drop ($100 across the board) for iPad2
- AppleTV that is actually a TV (i.e. integrated into a large LCD TV) that comes with a year worth of streaming video rentals
post #36 of 60
I don't understand why people think Apple should buy everything under the sun. Their focus is already split in too many directions, and their track record for buying companies is shit.

They bought Nothing Real, for example. It had a wildly successful product called Shake. Apple seemed to lose interest and killed it.

How man of these purchases actually added value to the company:

http://en.wikipedia.org/wiki/List_of...tions_by_Apple

Meanwhile, they SOLD ARM shares just before it really took off. Now you want them to buy again?

Apple may be a pretty good electronics company, but they're terrible investors.

Apple does best when they focus on a few things which work really well together. If they're going to buy a company, it would be for their book value or capital in making Apple products. In other words higher order goods, not final goods. If they were to buy MRAM before it became the next big thing, for example.

Another thing they could do is move more of their operations overseas before Sacramento attempts to tax them to death.
post #37 of 60
Quote:
Originally Posted by cloudgazer View Post

I don't think we can expect to see a 'cheap' iPhone (except perhaps a TD-SCDMA China-only one) for as long as iPhone is growing 100%+ YoY. When we see iPhone YoY growth dipping to 80% that's when it will be imperative.

Not sure, this is where Android phones are aggressively winning market share, Apple may want to respond before it is too late. Remember iPod shuffle?
post #38 of 60
Quote:
Originally Posted by macshark View Post

Is the "future product transition" referring to the iPhone5? This is the most logical interpretation of this statement, but here are some other options that could affect Apple's revenue/profits:
- Significant drop in iPhone 3GS price to enable more prepaid customers
- Introduction of iPad3 and a price drop ($100 across the board) for iPad2
- AppleTV that is actually a TV (i.e. integrated into a large LCD TV) that comes with a year worth of streaming video rentals

I was thinking the same thing when I read that statement. I'm thinking he's eluding to a new possibly lower margin product being introduced in the September quarter.
post #39 of 60
Quote:
Originally Posted by cloudgazer View Post

Heheh - it's official - something is being updated in september

Yeah. I was hoping August, as some rumors are now saying. But if it were out then, the numbers would be higher. I just can't believe that sales will be lower though. Even if phone sales drop, iPad sales will rise, as will Mac sales.
post #40 of 60
Quote:
Originally Posted by Mac Voyer View Post

At $76B, Apple has just about enough money to clone Steve Jobs. Imagine what they could make by selling Steve Jobs clones. First customer, RIM, quickly followed by HP and MS.

I think they should wait until after they overtake XOM. Which should be fairly soon.
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