Notes of interest from Apple's Q307 quarterly conference call

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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.


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