Tuesday, July 20, 2010, 05:00 pm
Notes of interest from Apple's Q3 2010 conference callApple reported yet another impressive quarter Tuesday, with record sales of 3.47 million Macs helping to propel the company to $3.25 billion in profits, a 77 percent increase from a year prior. Following the news, Apple executives conducted a financial conference call with analysts and the press, and notes of interest follow.
The third quarter of Apple's 2010 fiscal year produced $3.5, and the company posted revenue of $15.7 billion. The company sold 8.4 million iPhones, 9.41 million iPods, and 3.27 million iPads.
On Tuesday's call were Apple Chief Financial Officer Peter Oppenheimer and Chief Operating Officer Tim Cook.
Apple's regional business segments
Apple ended the quarter with $45.8B in cash, up from $41.7B at end of last quarter.
Mac sales were up 40 percent in the Americas, with revenue up 25 percent.
Apple's biggest overseas growth came in Asia Pacific, where Mac unit sales were up 71 percent year over year. Revenue in that market was up a whopping 160 percent from Mac sales.
Worldwide, portables increased 37 percent, while desktops were down 12 percent. Total Mac sales were up 18 percent.
"We have a lot of opportunity domestically and in other parts of the Americas," Cook said of iPhone sales. But they're growing faster internationally for all products, when compared to domestically.
"The company's revenues in the Americas are growing over 40 percent," he said. "And so this is a huge number. It's not that we're talking about a low number, it's just that the international numbers are absolutely killer."
Apple's Mac business
3.47 million Macs, exceeding record by over 100,000. Represents 33 percent year over year growth.
Double-digit Mac growth in each geography. No supply issues in the last quarter.
"There's clearly a move to mobility," Cook said. Desktop numbers will grow when there's a new machine, but in quarters like the last, the desktops continue to lose share.
Apple's iPhone business
iPhone had an average selling price of $595.
Over 5 billion apps downloaded from the App Store.
Strong growth in Asia, Europe and Japan.
Surpassed sales of 100 million iOS devices in the quarter
Will defer about $175 million to buy cases. Cost will be recognized upon delivery to customers.
400 higher education institutions have approved the iPhone for faculty, staff and students. Over 60 percent of Fortune 500 are deploying the iPhone.
iPhone demand was ramping in June. "We are still ramping and increasing volume, but again there's not a specific thing... it's just a matter of getting up the ramp," Cook said.
Greatly reduced shipments of previous-generation iPhone around June 7. New iPhone 4 and 8GB iPhone 3GS didn't launch until three days before the end of the quarter. "We had significantly lower sales after June 7, for that period of time as we waited on the official launch," Cook said.
Growth rate prior to June 7 was around 90 percent. Exited the quarter with total iPhone sales up 61 percent.
Cook said the antenna issue has had no impact on sales. "We are selling every unit we can make currently." He said demand has been "absolutely stunning."
Returns for iPhone 4 are less than iPhone 3GS. "The ones for this specific (antenna) issue are extremely small," Cook said.
iAds: "We're going to learn a lot this calendar year and build a foundation for the future. And beyond that, I don't have any further specifics to share with you today," Oppenheimer.
North Carolina data center is "on schedule and everything is going fine." Expect to be completed and be in use by the end of the calendar year, Oppeneheimer said.
Bumpers: They will need to defer revenue for the iPhone 4s they sell where they have not delivered the bumpers, and where they have not heard from the customers wanting to place an order. Expect to make a revenue accrual with no cost of about $175 million. Expect to have it recorded as revenue in the September quarter. They will expense the cost of the bumpers when they ship them to customers. "Our most important objective there is to take care of every customer," Oppenheimer said.
Spain will go from one exclusive carrier to three carriers at the end of the month. They are still dealing with exclusivity on a case-by-case basis. "I just see an enormous amount of opportunity there," Cook said.
Possibility of other carriers: "We are very happy to be a partner with AT&T," Cook said. They have been a first-class partner and have really pioneered the smartphone growth."
Apple's iPad business
$2.17 billion sale of iPad and accessories. iPad sales alone was about $2.1 billion.
Average selling price of iPad was about $640.
iPad launches in 9 additional countries on July 23.
Already have 50 percent of the Fortune 100 deploying or testing the iPad. "It's incredible," Cook said.
Backlog of demand at end of last quarter, unable to fill. Selling them as fast as they can. "We are still are quoting longer lead times than we'd like, and we're working around the block to get supply and demand in balance," Cook said. "In the scheme of things, it's a good problem to have."'
Apple is working on increasing capacity, and feels like they can. They were just caught off guard by the demand.
When will supply for the iPad meet demand? "We honestly don't know," Cook said. The company was honestly surprised by its initial sales.
iPad is not taking a typical early adopter curve. But Apple believes the market is "very big," and that iPad is "defining the market." "We want to take full advantage of it, and so we are investing enormous time and resources in increasing our capability in getting iPad out to as many people as we can," Cook said.
"The demand has just been amazing and this is off to an incredible start," Oppeneheimer said.
On potential cannibalization of the Mac or other products: "We've only been selling for three months, and so I think the real answer is it's too early to tell," Cook said. He noted that the Mac had its best quarter ever when the iPad sold over 3 million units. "For us it's a jaw dropper."
Will iPad margins increase over time? Oppenheimer said they were "purposefully aggressive" when they launched the iPad. They are always working to become more efficient and cut down costs, and he expects it to continue with other products.
"We are absolutely selling every unit that we can make," Cook said. He said sales have been positive in every country they've released it in thus far. Anecdotally, he believes it's already beyond an "early adopter" phase. "I think it's extremely unique and extremely successful."
Possibility of an iPad halo effect, selling more Macs and other products? "We'll see. I don't want to predict it," Cook said. Said there's still a great opportunity for the Mac share to grow, because it is still so small.
"This is where it's great to have a lower share, because if it turns out the iPad cannibalizes PCs, I think it's fantastic for us," Cook said. "Because there's a lot of PCs to cannibalize. It's still a big market."
Apple's iPod business
Sales of iPod touch are very strong, sales are up 48 percent year over year.
ASP for iPod touch increased 12 percent, and revenue grew 4 percent. Overall iPod ASP dropped about $7.
iPod market share is over 70 percent. Also the top-selling player internationally.
Apple's retail business
Retail revenue up 73 percent. Mac sales were up 38 percent.
About half of Macs were sold to customers who never owned a Mac before.
7 new stores opened in the quarter, including 4 in U.S., 2 in Australia and 1 in Canada, ending with 293. With an average of 280 stores open, average revenue per store was $9 million.
Expect to open 24 new stores this quarter, including Paris and Shanghai. Will also have first two stores in Spain in Barcelona and Madrid.
Stores catered to 60.5M visitors, compared to 38.6M during year ago.
Apple's next (Q4 2010) fiscal quarter
EPS of $3.44 for the fourth fiscal quarter of 2010. Forecast 35 percent gross margin.
Higher mix of iPhone 4 and iPad sales expected, a negative for gross margin.
Oppenheimer said that some adjustments with suppliers occurred in June. Gross margin for the September quarter, they are delivering "great value" to customers, and the products have a "higher cost structure."
"We have been pretty aggressive here with pricing, and it's going to play true of it on the margin line," Oppenheimer said.
Apple plans to defer the revenue related to free iPhone bumpers till the end of the quarter. Estimated to cost $175M.