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Thursday, October 25, 2012, 02:00 pm PT (05:00 pm ET)

Notes of interest from Apple's Q4 2012 conference call

Apple had yet another record quarter in September, with profits growing 25 percent on sales of 26.9 million iPhones. Following Thursday's earnings release, the company held a conference call with analysts and the media, and notes of interest follow.

Apple Chief Executive Tim Cook and Chief Financial Officer Peter Oppenheimer both took part in Thursday's call.

Highlights


  • 4.9 million Macs was a new September quarter record. MacBooks accounted for 80 percent of all Mac sales.
  • In total, more than 44 million iOS devices were sold in the September quarter.
  • iCloud now has 190 million active users.
  • Apple now has $121.4 billion in cash, up from $117.2 billion from the previous quarter.
  • Revenue for the entire fiscal year topped $156 billion, driven by sales of over 200 million iOS devices, 18 million Macs, and 35 million iPods.
  • Gross margin of new iPad mini is "significantly below" Apple's average.
  • On Microsoft Surface, Cook said he gets the impression it's a "fairly compromised, confusing product." He added: "You could design a car that flies and floats, but I don't think it would do all of those things very well."
  • "We continue to be a customer of Samsung and continue to have a commercial relationship," Cook said.
  • Cook also panned 7-inch tablets. "We don't think they're good products, and we would never make one."

Apple's iPhone business



iPhone saw 58 percent year over year growth, while the overall smartphone market saw 45 percent growth.

iPhone 5 demand has been "phenomenal," Oppenheimer said. It launched in 31 countries before the end of the September quarter.

Demand for the iPhone 5 continues to outstrip supply.

Ended the quarter with about 9.1 million iPhones in channel inventory, a sequential increase of about 800,000 iPhones.

Recognized revenue from iPhone handsets and accessory sales was $17.1B, up 56 percent.

Canon and Amtrak are utilizing iPhones — Amtrak is using them to train its conductors to use new in-house apps for ticketing and reporting.

News organizations like BBC, WSJ, CTV News, and others are using iPhone cameras to capture HD news footage on location.

Oppenheimer said Apple has made a number of improvements to Maps over the past month and the company will not stop until Maps is up to the company's traditionally high standards.

"We are in a significant state of backlog right now," Cook said. "In terms of production, our output has improved significantly since earlier this month. I'm very, very pleased with the progress we've made there, I'm pleased with the current volume output there."

Cook said Apple is on track to debut the iPhone 5 in 100 countries before the end of this quarter. There will be "some large countries," he said, in the month of December.

He noted it's common for there to be a learning curve with new product introductions, but this is the "most prolific period" in the company's history for new product introductions. "We do see all of these costs associated with each of these, but I don't see those costs accelerating on a per-unit basis as we go through the quarter. I see it very much being a production ramp amongst many, many new products."

Apple's iPad business



Oppenheimer said that iPad sales were ahead of Apple's expectations.

Recognized revenue from sales of iPad & accessories was $7.5 billion, compared with $6.9 billion from a year ago, up 9 percent.

Apple ended the quarter with just over its target of 5 weeks of channel inventory.

Volkswagen has developed more than 30 in-house iPad apps for vital processes at the company. A Chinese insurance company has deployed thousands of iPads to their employees.

"We do think that the iPad, and the iPad mini, and the iPad 2 will all be extremely attractive offerings for people in lieu of PCs," Cook said.

iPad sales fell from 17 million in the June quarter to 14 million in the September quarter. Cook said the 14 million exceeded what Apple had expected it to do.

A seasonal reduction in the September quarter is usual, he said, because K-12 heavily buys in the June quarter and doesn't buy much in the September quarter.

iPad mini: "We didn't set out to build a small, cheap tablet. We set out to build a smaller iPad that has the full iPad experience," Oppenheimer said.

Cook said Apple tries to create a product that people will love for months and years after they purchase it. "That's what iPad mini has been designed to do. You can really see that more broadly on iPad by looking at the usage statistics... over 90 percent of the traffic from Web tablets are iPad."

Apple's Mac business



Portable sales grew 9 percent year over year, and represented 80 percent of Mac sales.

Mac sales grew 1 percent during the quarter, compared to an overall PC market contraction of 8 percent.

Apple expects the new iMac will be constrained for the full December quarter in a significant way.

Apple's iPod business



iPod touch continues to represent more than half of all iPods sold.

iPod share was over 70 percent of U.S. MP3 player market share

Apple's Apple TV business



Sold 1.3 million, up over 100 percent year over year. Sold more than 5 million in the fiscal year, almost double the previous year.

"The business continues to do very well, but if you look at the size revenue of this business versus our other businesses, it's quite small. And so it still has the hobby label, however it's a beloved hobby."

Apple's iTunes business



$6.5 billion has been paid cumulatively to developers.

The App Store now has more than 700,000 applications, including 270,000 specifically for iPad.

Apple's retail business



Apple stores generated $4.2 billion in the revenue, selling over 1.1 million Macs in addition to an undisclosed number of iOS devices.

Exited the quarter with 390 stores, 140 of them outside the U.S.

Apple Retail opened 18 new stores in 10 different countries during the quarter, including locations in Sweden and a second store in Hong Kong — it's largest opening of the year.

Average revenue per store was $11.2 million, compared to $10.7 million in the year-ago quarter.

Hosted 94 million visitors in the stores in the quarter, compared with 77.5 million in the year-ago quarter.

An average of 19,000 visitors per store, per week.

Apple's regional business segments



Fourth-quarter revenue in China was $5.7 billion, up 26% year on year. Mac sales were up 44% in the region.

iPad was up 45 percent in Greater China, while iPhone was up 38 percent. "All in all, a fantastic quarter," Cook said.

Full fiscal year revenue was $23.8 billion in China, up $10 billion year over year. China represents about 15 percent of Apple for the fiscal year.

"We are continuing to invest in our own retail stores there, we continue to expand distribution with channel partners as well, and we continue to see it as an extremely exciting market with more and more people wanting Apple products," Cook said.

Apple's next (Q1 2013) fiscal quarter



Apple has forecast revenue of $52 billion and diluted earnings per share of about $11.75 for the December quarter.

All of Apple's recent product introductions have higher costs than predecessors, driving down gross margins, given that they're at the highest point of the cost curve. Due to this, the sheer number of new products, lower pricing on iPhone 4 and iPhone 4S, and significantly lower gross margins on the new iPad mini, Apple expects gross margin to decline 400 basis points during the current quarter.