Notes of interest from Apple's Q2 2015 conference call

Posted:
in AAPL Investors edited April 2015
It was yet another record breaking quarter for Apple in March, driven by growth of both the iPhone and Mac. Following the announcement executives from the company participated in a conference call with analysts and the media, and notes of interest follow.




Apple earned $13.6 billion in profit during the three-month period, thanks to sales of 61.17 million iPhones, and 4.56 million Macs. Participating in Monday's call were Apple Chief Executive Tim Cook, and Chief Financial Officer Luca Maestri.

Highlights

  • The iPhone 6 and iPhone 6 Plus are attracting the highest number of switchers ever
  • The App Store had its best quarter ever with the most customers to date
  • Apple made 27 acquisitions in the last six quarters
  • Best Buy now offering Apple Pay in-app, and will support it at all U.S. stores later this year
  • Apple Watch has 3,500 apps available
  • Apple ended the quarter with $194 billion in cash, $171 billion of it offshore

Apple's iPhone business

Last month, the number of locations accepting Apple Pay tripled. Best Buy will support it in stores later this year.

Over 1,000 HealthKit apps have ben developed, and more than 60,000 iPhone userse have enrolled.

iPhone revenue was up 55 percent year over year. Apple also saw its highest rate of switchers from other platforms.

iPhone ASP was $659, an increase of $62 year over year.

Apple's Mac business

Mac sales grew 10 percent year over year, once again outpacing the overall PC market.

Growth was led by portables, particularly the new MacBook Pro and MacBook Air from March.

Mac unit sales were up 31 percent last quarter in China, while the overall PC market shrunk in that country.

Apple's iPad business

iPad sell-through was 13.7 million as Apple reduced channel inventory.

New March quarter record for iPad sales in Japan, and an all-time record in China.

iPad turns 5 this month, and continues to be the No. 1 tablet in sales, despite recent declines.

Recent data also shows that iPad remains No. 1 in enterprise.

iPad sales are being cannibalized iPhone and Mac.

Underlying data makes Cook feel better than the sales figures. First-time buyers are around 40 percent in the U.S., 70 percent in China.

Usage numbers for iPad are "off the charts" and "so far above competition."

"The iPad is an extremely good business over the long term," Cook said. "When precisely it begins to grow again, I can't predict. But I strongly believe that it will."

Apple's retail business

Foot traffic at Apple stores grew 22 percent year over year.

Six stores were added in China in the last quarter, and 40 stores will be open in Greater China by next year.

Apple's service businesses (App Store, iTunes, etc.)

Services revenue increased 9 percent to 5 billion.

Apple's iOS App Store returned 70 percent more revenue to developers than Google Play in the March quarter.

App Store revenue was up 29 percent in the March quarter.

App Store grew over 100 percent year over year in China.

Apple's expanded capital return program

Existing program was set to conclude at the end of this calendar year. It will now extend to the end of March 2017.

Share buyback program was raised by $50 billion to $140 billion.

Dividend was raised for the third time in less than 3 years, to 52 cents per share. The 11 percent increase will be paid in May.

Apple continues to plan for annual dividend increases growing forward. Apple is currently one of the largest dividend payers in the world.

Apple Watch

Internally, Apple hoped to have more than a thousand apps available at launch. There are 3,500.

Consumer response has been "overwhelmingly positive," Cook said.

Internally, they're making adjustments to meet demand for what models customers want.

Apple is expecting to expand into more countries in late June.

Apple Watch has new technologies that will hurt margins, lower than company average.

Customer response has been nearly 100 percent positive, Cook said.

Apple's third quarter of fiscal 2015

Revenue has been guided between $46 billion and $48 billion.

Gross margin expected to be between 38.5 and 39.5 percent.

Margins are expected to be slightly down due to a variety of factors, including a foreign exchange element.
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Comments

  • Reply 1 of 24
    Ok. Anything else?
  • Reply 2 of 24
    cornchipcornchip Posts: 1,153member
    Just ask the NYT, Apple is DOOMED
  • Reply 3 of 24
    adonissmuadonissmu Posts: 1,772member

    How many Apple watches have been pre-ordered? That's what people care to know besides iPhone sales. 

  • Reply 4 of 24
    SpamSandwichSpamSandwich Posts: 30,412member
    adonissmu wrote: »
    How many Apple watches have been pre-ordered? That's what people care to know besides iPhone sales. 

    Next quarter.
  • Reply 5 of 24
    eightzeroeightzero Posts: 2,209member

    This is interesting: "Apple Watch has new technologies that will hurt margins, lower than company average."

     

    But perhaps these technologies required a platform for development (cough taptic cough force touch cough) so they can be adopted for use in other lines of business and products? A short term drop in profitability to set the stage for continued innovation, growth and profit? = buy and hold.

     

    The margin on the Watch Edition has to be insane. The number of units sold reduces the actual profit to smaller (comparatively) dollar numbers, but buy I'd like to know that. And...we never will. Deep. Dark. Secret.

  • Reply 6 of 24
    mr. hmr. h Posts: 4,698member
    eightzero wrote: »
    This is interesting: "Apple Watch has new technologies that will hurt margins, lower than company average."

    Yes, I was surprised by that as well. I thought that the margins on the bands in particular must be astronomical, but clearly not. As usual with Apple, you get what you pay for and quality costs money.
  • Reply 7 of 24
    asdasdasdasd Posts: 5,173member
    Yes. They were vague on whether this low margin on the watch is a teething issue or a permanent thing.
  • Reply 8 of 24
    Tim's last answer in Q&A -- in response to a question about HBO Now -- was intriguing.

    After saying very favorable things about HBO, he broadened his response to the whole online content category with something like this:

    "The whole media industry is on the verge of very, very significant change, and we think Apple can be a part of it."

    You could apply this comment to several offerings:
    - Apple TV
    - Content reselling (like existing relationship with HBO Now)
    - Content originator/producer (like Netflix's expansion into original content)
    - Beats

    None of this is a surprise, but Tim's willingness to mention it on a public call certainly opens up the speculation floodgates.
  • Reply 9 of 24
    Apple continues to print money. What a quarter.
  • Reply 10 of 24
    wizard69wizard69 Posts: 12,647member
    eightzero wrote: »
    This is interesting: "Apple Watch has new technologies that will hurt margins, lower than company average."
    This really isn't a surprise. Making that encapsulated electronics module isn't going to be cheap, at least not for the initial ramp up of production. I wouldn't be surprised to find out that that tiny board costs more than a full size motherboard to produce.
    But perhaps these technologies required a platform for development (cough taptic cough force touch cough) so they can be adopted for use in other lines of business and products? A short term drop in profitability to set the stage for continued innovation, growth and profit? = buy and hold.
    While taptic is certainly new technology for Apple and thus likely to cheapen over time as production is refined, it isn't isn't in my mind the most costly part of the watch or even relatively near the most costly.
    The margin on the Watch Edition has to be insane.
    The just said it wasn't insane! In fact if is comparatively low. Low compared to what at Apple is the big question.
    The number of units sold reduces the actual profit to smaller (comparatively) dollar numbers, but buy I'd like to know that. And...we never will. Deep. Dark. Secret.

    People seem to obsess over the dollar amount of the profits. That really isn't an important number as dollars come with sales. Companies come to market with products at all sorts of margin levels, they stay in business fine as long as sales are there to cover the ongoing expenses of the company.
  • Reply 11 of 24
    eriamjheriamjh Posts: 1,086member
    I listened to this call. The analysts are so stupid. They ask stupid questions, word them stupidly, and dance around the actual question because they don't have the balls to ask it outright.

    No one asked if apple would give an estimate of watch pre-orders. No one asked how many were actually shipped. Granted, apple already said they wouldn't provide breakdowns, but jebus, why not try?

    The margin comment is stupid. They take a response and turn it into a negative headline. The watch is doing better than apple expected. Did they mention that?
  • Reply 12 of 24
    As someone who appreciated Apple before they really got big, it's been crazy watching them succeed. They are a true success story. Easy to remember back when Windows was bigger than Apple, and I didn't think Apple could come back from that. But, thanks to Steve Jobs, Apple is better than ever. And Tim Cook continues the legacy. The history books are mean to Steve Jobs, but Steve did everything that he did for the customers. He complained and cussed out the computer engineers, so that the customers didn't have to. He gave customers the computer they wanted. Even as people deride the newest MacBook because it doesn't serve video editors well, Apple continues to focus on what the 90% need. They've always been a company that angers the tech savvy, and seem to magically just work to the everyday consumer.
  • Reply 13 of 24
    bkkcanuckbkkcanuck Posts: 851member
    Quote:

    Originally Posted by Eriamjh View Post



    I listened to this call. The analysts are so stupid. They ask stupid questions, word them stupidly, and dance around the actual question because they don't have the balls to ask it outright.



    No one asked if apple would give an estimate of watch pre-orders. No one asked how many were actually shipped. Granted, apple already said they wouldn't provide breakdowns, but jebus, why not try?



    The margin comment is stupid. They take a response and turn it into a negative headline. The watch is doing better than apple expected. Did they mention that?

    "Most" analysts are not going to ask questions that Apple has already said it WILL NOT answer.  Apple has said that they will keep all this information as opaque as possible since they don't want to release which watch styles are popular and which ones are less so, etc. etc. etc.  They are keeping one eye over their shoulder as some of the swiss watch makers are making moves to enter the "fashion" end of the smartwatch market and they don't want to give them information that might be used to position these new competitors entering the market better until they absolutely have to.  The time is precious so you ask questions that there is a chance of answering to try and feel out enough information that will help them in analyzing the market going forward.  The smarter ones have their snitches all over the place within the supply chain itself which will give part supply / order information that then can be combined to estimate how fast and how much is being manufactured and thus potentially sold before anyone else knows.

  • Reply 14 of 24
    fastasleepfastasleep Posts: 2,088member
    Quote:

    Originally Posted by Eriamjh View Post



    I listened to this call. The analysts are so stupid. They ask stupid questions, word them stupidly, and dance around the actual question because they don't have the balls to ask it outright.



    No one asked if apple would give an estimate of watch pre-orders. No one asked how many were actually shipped. Granted, apple already said they wouldn't provide breakdowns, but jebus, why not try?

     

    This must be your first time listening. They don't ask those questions, because they're smart enough to know they won't get answered, so it's a waste of their chance to ask a question that might actually get answered, and of everyone's time including everyone listening. Tim's no fool, it's not like he's going to change his mind about what they disclose — I recall a year or two ago someone asking about something in a roundabout way, and Tim answered something along the lines of "You're very clever to ask about that, but..." followed by the standard boilerplate about not commenting on it. See every response to Gene Munster's idiotic Apple TV questions the past couple years (this is the first call he didn't mention it I think!)

  • Reply 15 of 24
    Did he actually say iPhone and Mac were cannibalising iPad? Wouldn't it make more sense that people may have been waiting to invest in Apple Watch rather than buy an iPad? Maybe upgraders felt that they didn't want to shell out for both a new iPad and an Apple Watch this Spring???

    I suppose the iPad isn't quite innovating as much as the other products. Not enough changes between iPad Air and iPad Air 2. Perhaps the 12" iPad will reinvigorate those figures. I'm still waiting on a 10" iPad that's light enough not to cause discomfort when held landscape-wise with one hand.
  • Reply 16 of 24
    bkkcanuckbkkcanuck Posts: 851member
    Quote:
    Originally Posted by ontheinside View Post



    Did he actually say iPhone and Mac were cannibalising iPad? Wouldn't it make more sense that people may have been waiting to invest in Apple Watch rather than buy an iPad?

     

    Yes, and it makes perfect sense.  When the phone was smaller there was more need of a larger tablet and some pay have bought the iPad as well as the phone.  A portion of those may find that the largest screen phones these days do the job well enough.   People that are buying the iWatch right now are largely the most loyal early adopter type that can't wait for it to mature, as such those people are likely to buy more than just the iWatch and not those that would have to "save up" for an iWatch (i.e. more committed) -- since they already have a phone..... (and probably one of the newest models).

     

    A portion of the iPad buyers (maybe 20%) probably bought an iPad when a small laptop would be a better suited, so I can see the new Macbook taking away some of the market... and some of those it would be their first Mac purchase (which I think would be exciting).  

  • Reply 17 of 24
    asciiascii Posts: 5,941member
    The Mac has been a star for a while now, you'd think it would get more love. Annual updates for the Mac Pro, and a new Mac monitor would be nice.
  • Reply 18 of 24
    ditzilditzil Posts: 2member



    That hit me on the call especially since speculation has been that margins were well over 50%. On the other hand Apple could be lowballing because of the perception that the 15K watch is not Apple like. I'm sure when they crunch the real numbers and add in all the bands the number will be 40% plus but Apple may never tell us. 

  • Reply 19 of 24
    mubailimubaili Posts: 383member
    Did he actually say iPhone and Mac were cannibalising iPad? Wouldn't it make more sense that people may have been waiting to invest in Apple Watch rather than buy an iPad? Maybe upgraders felt that they didn't want to shell out for both a new iPad and an Apple Watch this Spring???

    I suppose the iPad isn't quite innovating as much as the other products. Not enough changes between iPad Air and iPad Air 2. Perhaps the 12" iPad will reinvigorate those figures. I'm still waiting on a 10" iPad that's light enough not to cause discomfort when held landscape-wise with one hand.
    iPad cycle is more like PC's, and is a victim of its own success.
  • Reply 20 of 24
    trumptmantrumptman Posts: 16,451member

    Apple ended the quarter with $194 billion in cash, $171 billion of it offshore

     

    Bad policy is bad policy even when you are a good liberal Californian.

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