Notes of interest from Apple's Q307 quarterly conference call
Apple on Wednesday announced its most profitable June quarter ever, and later held a financial conference call with analysts and members of the media. Several notes of interest from the call follow:
The Cupertino-based company said third quarter profits surged 73 percent to $818 million, or $0.92 per diluted share, on sales of $5.41 billion.
Apple's Mac Business
In total, Apple shipped 1.764 million Macs during the quarter, representing 33 percent yearly growth. This included 1,130,000 notebooks and 634,000 desktop systems.
Notebook sales grew 42 percent year-over-year and accounted for 64 percent of Macs sold during the quarter. The sales generated $1.577 billion in revenue.
Desktop sales accounted for just 36 percent of the Macs sold during the quarter, rising significantly from the year-ago quarter in which Apple sold 529,000 units. Desktops accounted for $956 million of quarterly revenue.
In total, Macs and related services represented 60 percent of Apple's third quarter revenues.
Macs grew at 2.5 times IDC?s estimated industry growth rate for CPU sales during the quarter.
At the beginning of the quarter Apple was selling Macs in 50 Best Buy electronics stores but expanded to 75 stores by the quarter's end. At the end of the current quarter, the company expects to be in 200 stores. By the end of the calendar year it sees that number ballooning to 300 Best Buy stores.
While Apple would not offer any color on Mac sales as they relate to Best Buy, management said it is very satisfied with the program thus far.
Apple's Music Business
iPod sales and those of music-related services accounted for 40 percent of Apple's third quarter revenues.
Apple shipped 9,815,000 iPods during the quarter, representing 21 percent growth year-over-year, and accounting for $1.57 billion in revenue.
Apple's "Other Music Related Products and Services," which include iTunes and iPod accessories, boosted revenue to $608 million, an increase of 33 percent year-over-year.
Apple ended the quarter within its target range of 4-6 weeks of iPod inventory.
Apple's Consumer Electronics Business
Apple sold 270,000 iPhones during the final 30 hours of the quarter.
The company expects to sell its 1 millionth iPhone by the end of the current quarter, which ends September 29th. By comparison, it took Apple nearly seven quarters to sell its first million iPods.
Apple remains on track to launch iPhone in a few major European countries in the fourth calendar quarter of the year, expanding to other European countries in 2008. The company will make public its European iPhone launch plans a bit later in the current quarter, management said.
For the June quarter, iPhone and Apple TV-related sales combined for $180 million in deferred revenue.
Due to its deferred revenue accounting, recognize revenue from iPhone and iPhone accessories during the final 30 hours of the quarter was just $5 million.
AT&T says it sold more iPhones in the first two days than it did any other wireless communications device in its first month.
Apple will begin to recognize iPhone-related revenue share payments from AT&T during the September quarter but did not recognize any payments from the carrier during the June quarter.
Today, almost all AT&T and Apple stores have iPhone in stock.
iPhone sales were skewed towards the 8GB model during the final 30 hours of the June quarter.
Apple wouldn't say anything about iPhone gross margin. Management even stopped short of saying whether gross margins from the handset were above or below its corporate average.
Apple wouldn't talk about the potential for cheaper iPhones or a broadening of the iPhone line to additional models.
There is "no evidence" of iPod cannibalization from iPhone thus far, management said.
Apple would not break out Apple TV unit sales.
Apple's Retail Business
Apple's retail store revenues for the quarter totaled $915 million, climbing 33 percent from $688 million during the same period in 2006.
Mac sales at Apple retail rose 53 percent to 330,000 units.
During the quarter Apple remodeled 15 stores and opened 8 new stores to end with a total of 185 stores worldwide.
With an average of 180 stores opened during the quarter, average per store revenue was $5.1 million, compared to $4.7 million during the year-ago quarter.
Apple retail stores combined for $184 million in segment profit, which compares to a $122 million profit during the year-ago quarter.
The stores saw a record 21.9 million visitors during the quarter.
Apple currently has 270,000 registered One-to-One members.
Over 50 percent of customers buying Macs at Apple retail stores are new to the Mac platform.
Apple expects to open 12 stores in the September quarter to end the fiscal year with 197 stores. The company has not yet set a target for fiscal 2008 store openings but with have more info on the matter during October's conference call.
From here on out, Apple will begin to measure its retail operating performance the same way it measures the performance of its other operating segments.
Similarly, the company said, AppleCare and .Mac sales will now be recognized over the life of the services.
Apple's Education Sales
Apple saw its best ever quarter for education sales and also set a new quarterly record for Mac sales to education.
Sales of MacBooks were particularly strong with K-12 and higher-education institutions.
Apple's Mac Sales by Region
Apple's sales in the Americas were responsible for $2.68 billion in revenues, a climb of 21 percent year-over-year.
Apple Europe accounted for $1.16 billion in revenues, up 29 percent year-over-year but a decrease of 7 percent compared to the winter 2007 quarter.
Apple Japan, however, slowed its decline. The country represented $258 million in revenues, which was virtually even with the year-ago quarter and compared favorably to an 8 percent year-over-year drop in winter 2007.
Additional Notes
Apple's direct sales accounted for 53 percent of sales compared 49 percent for the year-ago quarter.
The company capitalized $26 million related to software development during the quarter.
Apple is now sitting on $13.8 billion in cash.
Cash flow from operations was over $1.2 billion during the quarter.
Operational expenses for the third quarter were $954 million.
Apple expects the tax rate for the next quarter to be 32 percent.
The Cupertino-based company said third quarter profits surged 73 percent to $818 million, or $0.92 per diluted share, on sales of $5.41 billion.
Apple's Mac Business
In total, Apple shipped 1.764 million Macs during the quarter, representing 33 percent yearly growth. This included 1,130,000 notebooks and 634,000 desktop systems.
Notebook sales grew 42 percent year-over-year and accounted for 64 percent of Macs sold during the quarter. The sales generated $1.577 billion in revenue.
Desktop sales accounted for just 36 percent of the Macs sold during the quarter, rising significantly from the year-ago quarter in which Apple sold 529,000 units. Desktops accounted for $956 million of quarterly revenue.
In total, Macs and related services represented 60 percent of Apple's third quarter revenues.
Macs grew at 2.5 times IDC?s estimated industry growth rate for CPU sales during the quarter.
At the beginning of the quarter Apple was selling Macs in 50 Best Buy electronics stores but expanded to 75 stores by the quarter's end. At the end of the current quarter, the company expects to be in 200 stores. By the end of the calendar year it sees that number ballooning to 300 Best Buy stores.
While Apple would not offer any color on Mac sales as they relate to Best Buy, management said it is very satisfied with the program thus far.
Apple's Music Business
iPod sales and those of music-related services accounted for 40 percent of Apple's third quarter revenues.
Apple shipped 9,815,000 iPods during the quarter, representing 21 percent growth year-over-year, and accounting for $1.57 billion in revenue.
Apple's "Other Music Related Products and Services," which include iTunes and iPod accessories, boosted revenue to $608 million, an increase of 33 percent year-over-year.
Apple ended the quarter within its target range of 4-6 weeks of iPod inventory.
Apple's Consumer Electronics Business
Apple sold 270,000 iPhones during the final 30 hours of the quarter.
The company expects to sell its 1 millionth iPhone by the end of the current quarter, which ends September 29th. By comparison, it took Apple nearly seven quarters to sell its first million iPods.
Apple remains on track to launch iPhone in a few major European countries in the fourth calendar quarter of the year, expanding to other European countries in 2008. The company will make public its European iPhone launch plans a bit later in the current quarter, management said.
For the June quarter, iPhone and Apple TV-related sales combined for $180 million in deferred revenue.
Due to its deferred revenue accounting, recognize revenue from iPhone and iPhone accessories during the final 30 hours of the quarter was just $5 million.
AT&T says it sold more iPhones in the first two days than it did any other wireless communications device in its first month.
Apple will begin to recognize iPhone-related revenue share payments from AT&T during the September quarter but did not recognize any payments from the carrier during the June quarter.
Today, almost all AT&T and Apple stores have iPhone in stock.
iPhone sales were skewed towards the 8GB model during the final 30 hours of the June quarter.
Apple wouldn't say anything about iPhone gross margin. Management even stopped short of saying whether gross margins from the handset were above or below its corporate average.
Apple wouldn't talk about the potential for cheaper iPhones or a broadening of the iPhone line to additional models.
There is "no evidence" of iPod cannibalization from iPhone thus far, management said.
Apple would not break out Apple TV unit sales.
Apple's Retail Business
Apple's retail store revenues for the quarter totaled $915 million, climbing 33 percent from $688 million during the same period in 2006.
Mac sales at Apple retail rose 53 percent to 330,000 units.
During the quarter Apple remodeled 15 stores and opened 8 new stores to end with a total of 185 stores worldwide.
With an average of 180 stores opened during the quarter, average per store revenue was $5.1 million, compared to $4.7 million during the year-ago quarter.
Apple retail stores combined for $184 million in segment profit, which compares to a $122 million profit during the year-ago quarter.
The stores saw a record 21.9 million visitors during the quarter.
Apple currently has 270,000 registered One-to-One members.
Over 50 percent of customers buying Macs at Apple retail stores are new to the Mac platform.
Apple expects to open 12 stores in the September quarter to end the fiscal year with 197 stores. The company has not yet set a target for fiscal 2008 store openings but with have more info on the matter during October's conference call.
From here on out, Apple will begin to measure its retail operating performance the same way it measures the performance of its other operating segments.
Similarly, the company said, AppleCare and .Mac sales will now be recognized over the life of the services.
Apple's Education Sales
Apple saw its best ever quarter for education sales and also set a new quarterly record for Mac sales to education.
Sales of MacBooks were particularly strong with K-12 and higher-education institutions.
Apple's Mac Sales by Region
Apple's sales in the Americas were responsible for $2.68 billion in revenues, a climb of 21 percent year-over-year.
Apple Europe accounted for $1.16 billion in revenues, up 29 percent year-over-year but a decrease of 7 percent compared to the winter 2007 quarter.
Apple Japan, however, slowed its decline. The country represented $258 million in revenues, which was virtually even with the year-ago quarter and compared favorably to an 8 percent year-over-year drop in winter 2007.
Additional Notes
Apple's direct sales accounted for 53 percent of sales compared 49 percent for the year-ago quarter.
The company capitalized $26 million related to software development during the quarter.
Apple is now sitting on $13.8 billion in cash.
Cash flow from operations was over $1.2 billion during the quarter.
Operational expenses for the third quarter were $954 million.
Apple expects the tax rate for the next quarter to be 32 percent.
Comments
Apple Japan seems increasingly like a waste of energy and resources for Apple. I wonder if the company should re-focus its energies elsewhere (e.g., China, India).
A 32% tax rate seems high for a tech company (one would have expected a lower tax rate resulting from credits related to employee option exercises, esp. given how the stock has been doing this past year).
What is "One-to-One"?
Couple of observations, and one question.
Apple Japan seems increasingly like a waste of energy and resources for Apple. I wonder if the company should re-focus its energies elsewhere (e.g., China, India).
A 32% tax rate seems high for a tech company (one would have expected a lower tax rate resulting from credits related to employee option exercises, esp. given how the stock has been doing this past year).
What is "One-on-One"?
1) Petite notebook is on the way to help boost Mac sales in Japan.
2) For the last several quarters, Apple's tax rate has been around 32 percent give or take a few percentage points.
3) http://www.apple.com/retail/onetoone/
Best,
K
Apple's "Other Music Related Products and Services," which include iTunes and iPod accessories, boosted revenue to $608 million, an increase of 33 percent year-over-year.
...
Apple sold 270,000 iPhones during the final 30 hours of the quarter.
...
For the June quarter, iPhone and Apple TV-related sales combined for $180 million in deferred revenue.
Due to its deferred revenue accounting, recognize revenue from iPhone and iPhone accessories during the final 30 hours of the quarter was just $5 million.
...
Apple would not break out Apple TV unit sales.
...
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From the financial statement pdf, there was $20 million in deferred revenue for Apple TV in the March quarter.
I didn't hear the CC but other sites reported that Apple said Apple TV revenue is accounted for in Other Music Related Products and Services, and that Apple also said the $5 million in iPhone revenue was from accessories. Is that correct? (I'll listen later tonight when the playback is available.)
Given all of the above information, can we roughly figure out the Apple TV unit sales?
Couple of observations, and one question.
Apple Japan seems increasingly like a waste of energy and resources for Apple. I wonder if the company should re-focus its energies elsewhere (e.g., China, India).
Apple couldn't sell in China and India as those markets are flooded with ~$500 pirated software laptops. They can only sell in high per capita GDP places like Japan, South Korea, Singapore, etc?
Furthermore Apple Japan is sucking out loud because Apple has been steadfastidly ignoring Apple Japan.
On everything from TV tuners to advertisements, size of notebooks to Macworld Tokyo. Not to mention the iPhone, which could do gangbusters, but will require a great deal of additional hardware/software functionality.
Note please that not only is Japan easily half the size of the United States economically, but it is also way more focused on both tiny notebooks, TV tuner included desktops (as there's not enough room for both TVs and large desktop computers), and?especially?advanced mobile phones.
Japan used to be Apple's number two market and if they spent some TLC on it, that could easily be the case again. Not least because of a Japanese adapted iPhone.
1) Petite notebook is on the way to help boost Mac sales in Japan.
Did anybody at Apple actually say so, or this just the ongoing rumour?
'Cause I'd buy one, and it would do great in Asia (if Apple Japan learns how to do advertising) but I'm thinking you're just talking about the ongoing rumour rather then Apple's conference call.
If I'm wrong though, great
A correction needed in your summary of CC
... Apple Japan is sucking out loud because Apple has been steadfastidly ignoring Apple Japan.
In what way is Apple ignoring Japan? Could you provide some examples?
Is it doing something less there than it does with other markets? Or, are you suggesting it should do more there than it does in other markets, e.g., Europe (in which case, it may just not be worth the added costs)?
Apple couldn't sell in China and India as those markets are flooded with ~$500 pirated software laptops. They can only sell in high per capita GDP places like Japan, South Korea, Singapore, etc…
Furthermore Apple Japan is sucking out loud because Apple has been steadfastidly ignoring Apple Japan.
On everything from TV tuners to advertisements, size of notebooks to Macworld Tokyo. Not to mention the iPhone, which could do gangbusters, but will require a great deal of additional hardware/software functionality.
Note please that not only is Japan easily half the size of the United States economically, but it is also way more focused on both tiny notebooks, TV tuner included desktops (as there's not enough room for both TVs and large desktop computers), and—especially—advanced mobile phones.
Japan used to be Apple's number two market and if they spent some TLC on it, that could easily be the case again. Not least because of a Japanese adapted iPhone.
Did anybody at Apple actually say so, or this just the ongoing rumour?
'Cause I'd buy one, and it would do great in Asia (if Apple Japan learns how to do advertising) but I'm thinking you're just talking about the ongoing rumour rather then Apple's conference call.
If I'm wrong though, great
Thee was no mention on the CC of an ultralight.I was listening carefully because I lust for one.
In what way is Apple ignoring Japan? Could you provide some examples?
Is it doing something less there than it does with other markets? Or, are you suggesting it should do more there than it does in other markets, e.g., Europe (in which case, it may just not be worth the added costs)?
Apple is known for ignoring "certain" things/markets/customers sometimes, but they are also known to surprise us from time to time.
It is well know that the Japanese market likes (1) ultraportables and (2) communication devices. In the case of the telecom devices, I think that Apple needs to meet all the requirements/specs needed there for the iPhone to be successful, so it will take sometime for them to get there. But for the ultraportable, they should already know that it is also a well-liked/selling product everywhere in the world, so they should be working on it, also if the 13" form factor was small enough, sales in Japan would have grown as well as anywhere else and this is obviously not the case...
On another note, am I the only one that has noticed that Apple will be "transitioning two products" next quarter that that it will cause (in part) a decrease of the margins from a whooping 36% this quarter to a forecasted 29.5% (more close to Apple's regular margins)?
We know/suppose that the iMac is being redesigned and that it should be available next month, but what about the 2nd product? Could it be the Mac mini? the iPod (video)? or the Mac Pro? They surely were not talking about displays or keyboards! IMO, transition means something more important than just a speedbump/storagebump. What do you think?
It is well know that the Japanese market likes (1) ultraportables and (2) communication devices. In the case of the telecom devices, I think that Apple needs to meet all the requirements/specs needed there for the iPhone to be successful, so it will take sometime for them to get there. But for the ultraportable, they should already know that it is also a well-liked/selling product everywhere in the world, so they should be working on it, also if the 13" form factor was small enough, sales in Japan would have grown as well as anywhere else and this is obviously not the case...
It sounds to me like you are suggesting Apple spend a lot of money and time catering to Japan's special needs!
If the consumers there do not like Apple's menu of offerings -- and it's perfectly legitimate and reasonable that they do not -- they should buy something else. It is just that the extra costs, and hence lower margins, involved in doing something so specific for the Japanese market may not be worth it for Apple. I am speculating that Apple intends do something tailored to Japan with the iPhone, but I also get the sense that it does not seem to be in a hurry to do so (perhaps rightly so).
Btw, how does Japan's per-capita PC consumption compare to that of a country such as the US?
Similarly, the company said, AppleCare and .Mac sales will now be recognized over the life of the services.
What does this mean?
It sounds to me like you are suggesting Apple spend a lot of money and time catering to Japan's special needs!
If the consumers there do not like Apple's menu of offerings -- and it's perfectly legitimate and reasonable that they do not -- they should buy something else. It is just that the extra costs, and hence lower margins, involved in doing something so specific for the Japanese market may not be worth it for Apple. I am speculating that Apple intends do something tailored to Japan with the iPhone, but I also get the sense that it does not seem to be in a hurry to do so (perhaps rightly so).
Btw, how does Japan's per-capita PC consumption compare to that of a country such as the US?
I agree with mostly writing off Japan as a market for Apple, other than for future iPhone business.
It sounds to me like you are suggesting Apple spend a lot of money and time catering to Japan's special needs!
If the consumers there do not like Apple's menu of offerings -- and it's perfectly legitimate and reasonable that they do not -- they should buy something else. It is just that the extra costs, and hence lower margins, involved in doing something so specific for the Japanese market may not be worth it for Apple. I am speculating that Apple intends do something tailored to Japan with the iPhone, but I also get the sense that it does not seem to be in a hurry to do so (perhaps rightly so).
Btw, how does Japan's per-capita PC consumption compare to that of a country such as the US?
No, I am suggesting that ultraportables are one of the favorite form factors in Japan as well as in other countries (a lot of people, in the US too, are waiting/willing to buy a smaller MB/MBP) so it is not specific to Japan, but I believe it is more apparent in Japan. Since this kind of product is of interest for lots of people and critical for Japan, Apple shouldn't wait too long to do it. I am certainly not asking for a specific product for Japan.
And we agree for the iPhone, Apple needs to be even more careful there because they already have advanced products/services and infrastructures, it will be tougher there.
What does this mean?
It means, that say you buy a 3 year AppleCare pack, Apple will list the income from that over the next 3 years, i.e. 1/12 of it for each quarter.
They currently do this for the iPhone, as it allows them to legally add features to it after it has been released. Essentially this means that all the iPhone income - from the initial sales and the kickbacks they get from AT&T will be like a subscription - spread over the (2?) year assumed life of the product.
This has the benefit for APPL of allowing them to hide actual sales of iPhones and AppleCare etc, by just stating the income for the quarter (from which it is impossible to really know how many actual units were sold). It also provides a more consistent cash flow (or the appearance of it anyway).
.... provides a more consistent cash flow (or the appearance of it anyway).
Apple wouldn't say anything about iPhone gross margin. Management even stopped short of saying whether gross margins from the handset were above or below its corporate average.
Apple wouldn't talk about the potential for cheaper iPhones or a broadening of the iPhone line to additional models.
There is "no evidence" of iPod cannibalization from iPhone thus far, management said.
Apple would not break out Apple TV unit sales.
Apple is the ever secretive company. I can't believe that anyone, analyst or stockholder, is amused. Certainly, this must hold down the stock as no one likes to be kept in the dark while being asked to make a leap of faith and pay good money.
I bought 10,000 $ worth of August 155 calls yesterday (when they were only $ 145 per contract), ater hours trading shows aapl at 150. When option trading begins tommorrow I wiil triple my money. +30,000 $$ in 48 hours. Why bother buying stocks and wait a year or two to triple your money? I at least double my invested cash once every month.
what?
Edit: nevermind...
You bought calls that will have tripled in value when option trading opens tomorrow. How odd...
I never really thought about leveraging a smaller amount of money this way...
I bought 10,000 $ worth of August 155 calls yesterday (when they were only $ 145 per contract), ater hours trading shows aapl at 150. When option trading begins tommorrow I wiil triple my money. +30,000 $$ in 48 hours. Why bother buying stocks and wait a year or two to triple your money? I at least double my invested cash once every month.
I am trying to learn options trading. Can you explain more in detail what you bought, how you bought it and how exactly would you attain that much of a profit?
Thank You in advance