Notes of interest from Apple's Q107 conference call

Posted:
in General Discussion edited January 2014
Apple on Wednesday released results for its fiscal 2007 first quarter ended December 30, 2006, which included record revenue of $7.1 billion and record net quarterly profit of $1.0 billion, or $1.14 per diluted share.



Some notes follow from the conference call with analysts and members of the media:



Apple's Mac Business

Apple shipped a total of 1.606 million Macs during the quarter, representing 43 percent of the company's total revenue. This included sales of 969,000 notebooks and 637,000 desktop systems.

Overall, Mac sales rose 28 percent in units and 40 percent in revenue year-over-year. Sequentially, Mac unit sales were flat while Mac revenue rose by 9 percent.

Notebooks rose 65 percent in unit sales and 79 percent in revenue year-over-year. However, notebook sales declined 2 percent sequentially while rising 8 percent in terms of revenue.

Desktop units were down 4 percent year-over-year while revenue rose 5 percent. Sequentially, desktops rose 2 percent in units and 10 percent in revenue.

The quarter showed surprisingly strong MacBook Pro sales. Apple saw many customers "buying up the line," looking towards higher-end models.

The quoted figure of 1.6 million Macs shipped during the quarter was much higher than what Apple had projected internally. The company is "thrilled" with Mac shipments.

Mac sales grew at about 3 times IDC's published growth rate for the PC market during the quarter.

The Mac has outgrown the overall PC market for 8 of the last 9 quarters.

On the current progress of Leopard: "We've got a lot of people working on it."

When asked about the lack of iLife updates at Macworld, the company said only to "stay tuned."

The Pro market met internal expectations for the quarter, but those expectations were tempered by customers still waiting on the next version of Adobe Creative Suite. There was "lots" of positive feedback from the Photoshop CS3 beta released by Adobe last month.

Boot Camp downloads have exceeded 1.5 million. The Windows compatibility software continues to be "a great interest to a number of different people."

Mac inventory at the end of the quarter was just below Apple's target of 4-5 weeks.

Apple is continuing to selectivity expanding its Mac retail distribution channel and now has over 7500 worldwide distribution points. This is up 1500 points when compared to the same time last year.

As for Best Buy, the company increased its pilot project for Mac sales at the electronics retailer to over 50 stores prior to the holiday quarter and will work this quarter to evaluate those 50+ stores and determine how to proceed with future launches.

A survey of student buyers shows that their intent to buy a Mac portable has increased from 17 to 28 percent in the past year.

Apple defended its sub-par sales in Japan, noting that he PC market in Japan continues to be among weakest in world. IDC was projecting a 16 percent contraction in the home market, which is precisely where Apple is focused. In the digital media player space, Apple maintained a 53 percent share, but the market did not grow. "We are dissapointed with results even though they are consistent with the market," management said. The company plans to place an additional emphasis on Japan, which recently began with airing localized "Get a Mac" ads.



Apple's Music Business

Apple sold 21.066 million iPods during the quarter, representing a 50 percent increase in units and 18 percent increase in revenue year-over-year. Sequentially, iPods grew 141 percent in units and 120 percent in revenue.

When asked about expected sales relating to niche hardware such as the Airport Extreme, Apple said only that it sees Apple TV as the DVD player of the 21st century.

More details on the iPhone will be provided right before it begins shipping in June.

At this point Apple is "sold on" GSM/EDGE (2.5G) technology for the iPhone becase it's more widespread and better deployed in the U.S. than 3G. While the company doesn't comment on its product roadmap, it will "be where the technology is over time."

All three iPod models did exceptionally well during the quarter.

The iPod share of the US digital music player market was 72 percent in December, according to NPD.

During the quarter, the iPod gained share in every international country for which data is available.

iTunes continues to lead the legal download market, with an over 85 percent share.

The iTunes Store now contains over 4 million songs, 350 television shows, and 250 movies.

"We think the Cisco trademark lawsuit is silly," management said of the iPhone name dispute, reiterating its previous official statement. "We believe Cisco's U.S. trademark registration is tenuous at best."

Channel inventory of iPods increased by 200,000 units related to channel fill for the iPod shuffle. Apple ended within its range of 4-6 weeks.

Apple won't break down iPod gross margin (and never has), but said the players were "key" to the overall corporate gross margin.

Apple won't break out Apple TV sales next quarter and will instead lump them into its "Other Music Related Products and Services" category. We'll never know how many are actually sold unless Apple makes a separate announcement.

iPod worldwide distribution points remained at around 40,000; the company has dropped some but gained others.

Apple's goal of selling 10 million iPhones is through the 2008 calendar year.

Apple expects a higher seasonal decline in iPod sales from the December to the March quarters than it witnessed last year. Part of this has to do with the supply and demand balance achieved during the December quarter this year. Last year, demand for iPods exceeded supply during the December quarter, which resulted in some pent-up demand spilling into the March quarter.



Retail

Sales at Apple's retail stores came in at a record $1.1 billion (including sales of a record 308,000 Macs), though profit was down slightly from the previous quarter to $89 million. Apple opened 5 new retail stores during the quarter to end with 170 stores. With an average of 169 stores open during the quarter, per-store revenue was about $6.7 million.

Apple retail saw approximately 28 million visitors during the quarter, or 13,000 visitors per store, per week. The company expects to open 7 stores during the March quarter and 35-40 overall in fiscal 2007.



Other Apple business and segments

Apple Americas accounted for 625,000 Mac sales and $3.498 billion in revenues. These figures are up 21 percent and 30 percent year-over-year, respectively. Sequentially, Mac units decreased by 20 percent while revenue rose 52 percent.

Apple Europe accounted for 491,000 Mac sales and $1.711 billion in revenues. These figures are up 27 percent and 38 percent year-over-year, and 44 percent and 73 percent sequentially.

Apple Japan accounted for 70,000 Mac sales and $285 million in revenues. These figures are down 14 percent and 20 percent year-over-year. Sequentially, Mac units in Japan were up 13 percent while revenues were flat.

Apple's Asia Pacific (and FileMaker, Inc.) accounted for 112,000 Mac sales and $482 million in revenues. These figures are up 44 percent and 27 percent year-over-year. Sequentially, unit sales rose 10 percent in the Asia Pacific regions and revenues increased 46 percent.

Apple's "Other Music Related Products and Services" segment accounted for $634 million in revenue -- a 29 percent year-over-year increase and 40 percent sequential increase.

Apple's "Peripherals and Other Hardware" added $297M in revenue, representing a 2 percent yearly decline in revenue. Sequentially, revenues were flat.

Apple's "Software, Service and Other Sales" segment accounted for $347 million in revenue, an increase of 7 percent year-over-year and 10 percent sequentially.



Financial breakdowns

Gross margin for the quarter came in above guidance at 31.2 percent, due primarily to a favorable commodity environment across the board. "It was a great time to be a buyer," Apple's management said. For the March quarter, Apple sees the favorable commodity environment carrying over for LCD displays and flash memory, while DRAM should be relatively flat.

Operating margin for the quarter was extremely high at 18.6 percent, due primarily to revenue growth and affective cost management.

Operating expenses for the quarter were $898 million, including $40 million for stock-based compensation.

The tax rate was 31 percent.

Nothing new exists to share on the prospect of a stock split "at this time."

Capital expenditures for the quarter were $142 million, including $36 million for retail.

Apple increased its cash balance during the quarter by a staggering $1.75 billion to end with $11.9 billion.



Looking ahead to March

Looking ahead to the March quarter, Apple is targeting revenue of $4.8 to $4.9 billion and per share earnings between 54 cents and 56 cents. It expects gross margin to be about 29.5 percent, operating expenses to come in at $845 million, and the tax rate to be 32 percent.
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Comments

  • Reply 1 of 31
    edit - see next post
  • Reply 2 of 31
    Very roughly speaking, if we assume

    Apple currently has 5% market share (new sales)

    Apple continues to grow at 28% vs market growth of 7%



    Then market share would be roughly 5.9% at end of 2007, 7.0% 2008, 8.3% 2009 and 9.7% 2010.



    Is this realistic? too slow?
  • Reply 3 of 31
    mactelmactel Posts: 1,275member
    The Japanese might be punishing Apple for kicking Sony's back end in the digital music space.



    and/or



    The Japanese might be looking for a sub-notebook. They especially like the Origami devices running Microsoft's OS.
  • Reply 4 of 31
    josa92josa92 Posts: 193member
    cool, yo

    =D
  • Reply 5 of 31
    tenobelltenobell Posts: 7,014member
    I think the Japanese are ahead of the curve. From all signs this is the general direction of the PC market. Sales are slowing, headed towards saturation and stagnation.



    People are wondering why Apple gave practically the entire MacWorld Keynote to the iPhone. That's because ultra mobile computer devices are the future. Jobs showed the graph where portable device sales completely eclipsed personal computer sales.
  • Reply 6 of 31
    jeffdmjeffdm Posts: 12,946member
    Not only that, the Japanese PC market had contracted again, 16% if the AI article is right. If you can do everything you need to do with a phone, then a PC isn't necessary, and may be unwanted clutter.
  • Reply 7 of 31
    tenobelltenobell Posts: 7,014member
    Quote:

    Apple sees Apple TV as the DVD player of 21st century.



    I think we can all agree as of right now we don't see TV replacing our DVD player. I think this is a sign that Apple has more plans for the device.
  • Reply 8 of 31
    DO NOT forget their comment about possible acquisitions re use of free cash!!!



    THIS is really important in light of comments about reinventing Apple TV as the next VCR type device!!
  • Reply 9 of 31
    mcdavemcdave Posts: 1,114member
    Whether it's an ultra portable, notebook or desktop Apple still have the same challenge - they're not seen as running Windows. They should be able to achieve major desktop sales growth, through cannibalisation, regardless of overall PC market trends.



    Apple have still failed to do what's required to make the halo effect a reality. Apple retail is good but it still assumes people have already made their choice to consider 'Apple'. The battleground is in the general consumer retails outlets and Apple need to break the specifications/$ approach that dominates.



    That said, for the first time they can compete on specs like-for-like, can run Windows & compete on price (a 20" iMac + XP license is actually cheaper than a Dell Dimension 9200 here in NZ). However, unless Joe Public walks into a retailer & see's that iMac/MacBook nestled amongst the other PCs running Windows (+ showing Apple key points of difference) it ain't going to happen.



    Apple needs to commoditise desktop & notebook sales to get the figures up though maybe based in capability not specs



    McD
  • Reply 10 of 31
    Only 21,000,000 iPods?!



    Just think how many they would have sold if they'd followed my advice and made the Shuffles available in Colours!

    8)
  • Reply 11 of 31
    Any news on when TV Shows & Movies will be available outside the Good ol' U S of A?



    Can't see many people outside the U S of A being interested in ATV without it.

    - plus it would help shift more Video iPods etc
  • Reply 12 of 31
    boogabooga Posts: 1,077member
    Quote:
    Originally Posted by TenoBell View Post


    I think we can all agree as of right now we don't see TV replacing our DVD player. I think this is a sign that Apple has more plans for the device.



    Of course they have other plans, but this is definitely the future of the industry. I know I've watched more movies that my TiVo has recorded off cable than I've watched DVDs in the last few months. TiVo is like an iTV in which you have less control over your content... I see it as a natural progression to a post-TiVo market. If Apple starts offering subscriptions to their iTunes Video store, who needs cable or TiVo?
  • Reply 13 of 31
    DO NOT forget their comment about possible acquisitions re use of free cash!!!



    THIS is really important in light of comments about reinventing Apple TV as the next VCR type device!!
  • Reply 14 of 31
    Ah... sales in Japan are disappointing.



    Let's see. Apple Japan does not understand Macs, is not enthusiastic about them, many of their staff are actually Windows users and they don't try marketing at all. Apple Japan sucks at customer service and is incapable of repairing machines. I could go on, but I won't.



    The Get a Mac ads, while funny, are actually not good in the Japanese market and may actually backfire, leading people away from the "snob" on the block. Apple has a real lofty image here that prevents them from reaching the common man. A very well-created demo on the machines sitting in computer shops would really help, but they can't be bothered. Most other makers have nice demo programs running all day, and the Macs just sit there in silence.



    Saturation is a potential problem here, as is space: any people are going for the all-in-ones that include televisions and fold-away keyboards.



    Cell phones. This is the big one here. There are many more cell phones than land phones in Japan, annd everything is now done over the phone (ha ha). Last year I went to an opera; as soon as the intermission started, almost every person in the audience pulled out a cell phone to check for calls and email before even chatting with the other people they were with; this is true and it was pretty amazing to see. If Apple wants in on the market, they need to get over here quick, but also clean up their image fast (the name thing with Cisco will hurt Apple's standing in the Japanese mindset; it should not have happened, they feel, for whatever reason). Tie-in won't be a problem here in the short term, but will be long term, so Apple needs to work on getting its phone free of just one company (personally I don't care, but some people do).



    The Japanese want a very small, portable device that has computer power. Yep: a sub-notebook would sell like popcorn at a theater. Apple can do it, they know. Some ask why not?
  • Reply 15 of 31
    mr. hmr. h Posts: 4,698member
    Quote:
    Originally Posted by Bergermeister View Post


    Ah... sales in Japan are disappointing.



    Let's see. Apple Japan does not understand Macs, is not enthusiastic about them, many of their staff are actually Windows users and they don't try marketing at all. Apple Japan sucks at customer service and is incapable of repairing machines. I could go on, but I won't.



    It's been quite obvious for the last few years now that Apple should put you in charge of Apple Japan. Seriously. You have much more of a clue as to what's going on than they do.
  • Reply 16 of 31
    Quote:
    Originally Posted by AppleInsider View Post


    noting that he PC market in Japan



    Forgot the "t"
  • Reply 17 of 31
    Quote:
    Originally Posted by JeffDM View Post


    If you can do everything you need to do with a phone, then a PC isn't necessary, and may be unwanted clutter.



    For the unwashed masses, this is the case. Most humans on Earth will never have a computer, but everyone and their grandmother owns a phone.... Phones are everywhere.
  • Reply 18 of 31
    Quote:
    Originally Posted by TenoBell View Post


    I think we can all agree as of right now we don't see ?TV replacing our DVD player. I think this is a sign that Apple has more plans for the device.



    It would behoove them to implement those other "plans" post-haste.
  • Reply 19 of 31
    I just came back from Japan and visited the Ginza Apple Store. Very active and busy. But looking at the computer offerings, they do seem somewhat out of sync with what Japanese people like. Apple notebooks don't have TV tuners, are big by their standards and overall, it seems that for a market Japan's size, Japan seems like an afterthought. Stuff like the Mac Pro and iPod Hi-Fi are simply too big for most Japanese homes, and most of the iPhone's features are not new to the robust Japanese cellphone market. The iPod Radio Remote doesn't even work in Japan, which shows how much Apple's really paid attention to the market there.



    They clearly aren't doing enough research into the Japanese market, instead blaming it on falling market conditions. Nintendo blamed its low popularity on the declining Japanese game market, but it rejuvinated the Japanese industry because it actually did something to attract Japanese gamers rather than just sit idly by and hope the market arrives on its own.



    I'd argue Microsoft's efforts with the Xbox 360 in Japan are better than Apple's with Macs. Apple's fortunate to have 53% of the music player market there. Stuff like the iPod nano and shuffle are great for the Japanese, but I doubt Apple actually had Japan in mind when designing it.
  • Reply 20 of 31
    I think a 3G iPhone, an exclusive tie-in using iTunes for music downloads with DoCoMo (or Softbank, but DoCoMo is bigger) for all their mobiles, and a sub-notebook are what Apple needs to turn things around in Japan. Oh and of course the iPhone, as long as it remains GSM, will not work on Au/KDDI.



    As for a better marketing campaign check out Information Architects Japan on that one.



    Of course I've been advocating a sub-notebook for years, and one of the main selling points I've used is that in Asia (and especially Japan) sub-notebooks are hugely popular. Heck they didn't buy the toilet-seat iBook because that was too big.



    Anyone remember when Japan was Apple's number 2 market and got that custom PowerBook? Sigh.





    I'm totally with Bergermeister on this one, let's put him in charge of Apple Japan.
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