Notes of interest from Apple's Q4 2009 quarterly conference call

Apple's fourth quarter of 2009 was the company's most profitable ever, riding high on record Mac and iPhone sales. The company on Monday conducted a financial conference call with analysts and the press. Notes of interest for Apple's results and the now concluded call follow.

On Monday, Apple detailed the results of its fiscal 2009 fourth quarter which ended Sept. 26, 2009, posting revenue of $9.87 billion and a net quarterly profit of $1.67 billion, or $1.82 per diluted share. That's up from revenue of $7.9 billion and net quarterly profit of $1.14 billion, or $1.26 per diluted share, in the year-ago frame.

Apple's regional business segments

Apple Americas accounted for 1.252 million Mac sales and $4.297 billion in revenues. That's a 12 percent year-over-year increase, and an additional 20 percent in revenue from the same frame a year prior.

Apple Europe represented 761,000 Mac sales and $2.491 billion in revenue. That amounted to a year-over-year increase of 25 percent in sales, and 45 percent in revenue for the region.

In Japan, Apple sold 79,000 Macs amounting to $4.34 million in revenue. That was a slight 1 percent increase year-over-year for the region, with a 36 percent increase in revenue from the same frame in 2008.

Other segments, including Asia Pacific and FileMaker Inc., saw a 42 percent increase in shipments and 39 percent growth in revenue based on 291,000 Mac sales generating $7.81 million in revenue.

Apple's "Other Music Related Products and Services" segment was responsible for $1.018 billion in revenue. It was a 6 percent year-over-year drop.

Apple's "Peripherals and Other Hardware" added $6393 million in revenue, an 8 percent drop from Q4 2008.

Apple's "Software, Service and Other Sales" segment produced $647 million in revenue, up 18 percent from a year prior.

Apple's Mac business

Apple shipped 787,000 Mac desktops during the fourth quarter of 2009, amounting to $1.086 billion in revenue. That was a 20 percent decline in revenue for the desktop business compared to a year prior, with 16 percent fewer machines sold.

But the portable business boomed, with 35 percent growth in sales and 27 percent growth in revenue. That equated to sales of 2.266 million Mac laptops generated $2.866 billion in revenue.

These numbers beat the record from the year-ago quarter. Portables represented 74 percent of Mac mix.

Apple officials are particularly pleased with 42% year-over- growth.

It was a very successful back to school season: 12 percent year-over-year to educational institutions, highest quarterly mac sales ever for U.S. education business.

50,00 MacBooks sent to state of Maine as part of ongoing One to One initiative.

Snow Leopard response has been tremendous. Generated consumer box upgrade sales at twice rate of Leopard.

Tim Cook called the fourth quarter of 2009 the "quarter of the portable." Sales were strong, based on the strength of the lineup announced in June. Back to school Mac sales were the strongest ever.

Upgrade sales of Snow Leopard, including the family and box set, were double that of Leopard over the same five-week period. That was more than Apple planned.

Apple's iPhone and Apple TV businesses

Apple sold 7.367 million iPhones during the quarter, producing $2.297 billion in revenue. That is a 7 percent increase in units from a year prior, but a massive 185 percent increase in revenue from the same frame in 2008.

Response to iPhone 3GS tremendous, and officials are very pleased with JDPower's announcement that iPhone tops the charts.

The iPhone maintained its lead and widened it over the next competitor in both categories.

Looking forward to selling iPhones in China next month, great opportunity in a big market.

Apple plans to expand carrier relationships in the U.K. and Canada,

The App Store has seen unparalleled success. 85,000 apps are available, with 2 billion downloads to date, including half a billion in September quarter.

Recognized revenue from handset sales and accessory payments was $2.3 billion, compared to $806 million year ago.

For much of the quarter, most of the countries were very low in inventory and demand outstripped supply. The situation improved in September and there are now 2.4 million units in the channel.

Launching in China on Oct. 30 on China Unicom. Going to start with 1,000 points of sale and expand further over the next several months. Plans and pricing range from $18/month to $85/month. No projections on volume, but it is a huge market, so it's very important to get started.

Regarding competitors, people are trying to catch up with the first iPhone which launched two years ago. "We've long since moved beyond that," Tim Cook said.

Demand for the iPhone 3GS exceeded expectations. Apple quickly changed orders for components accordingly.

On the advantage of exclusive contracts, Cook said you can test some of the level of innovation that would be more difficult to do with several carriers. Visual Voicemail, in the initial iPhone, was an example of that.

Average sale price of the iPhone in the fourth quarter was just over $600. That reflects both a high mix of iPhone 3GS sales, and the benefit of rebalancing the ending channel inventory towards the higher model.

Over 50 percent of the Fortune 100 are deploying a pilot program of the iPhone.

Over 350 higher education institutions have approved iPhones for faculty and students.

Apple's iPod business

10.177 million iPods were sold during the quarter, amounting to $1.563 billion in revenue. That's about even with the third quarter of 2009 in terms of sales, and a 5 percent increase in revenue from the previous frame. But year-over-year, it amounts to an 8 percent decline in sales and 6 percent drop in revenue.

Apple began the quarter with 3-4 weeks of channel inventory. Sales of iPods were down from just over 11 million in year ago quarter.

50 percent of recent iPod buyers bought, including US, Japan, Australia, Canada, and the U.K.

Customers love the iPod nano's new features.

Sales of iPod touch up 100 percent year over year, riding high on the incredible popularity of app store.

Share of U.S. market remains over 70 percent for MP3 players, according to NPD. iPod was top-selling MP3 player, with gains year over year in almost every country they track.

Began within target range of 4-6 weeks of channel inventory.

iTunes Store had another strong quarter. Customers are loving last month's release of iTunes 9, including LP, Home Sharing, and Genius Mixes, improved syncing, and the store redesign.

iTunes Music Store is in 23 countries. It is the largest online music retailer, offering 11 million songs.

Apple's retail business

Retail outlets accounted for 670,000 of the Mac maker's computer sales, providing 1.867 billion in revenue. That is a 12 percent year-over-year increase in hardware sales, and represents a 9 percent growth in revenue.

Stores had a record quarter, with highest revenue, segment margin, and Mac sales ever. Revenue was $1.87 billion, compared to $1.72 billion last year.

Half of Macs sold were to customers new to the platform.

There were 15 new stores opened, with the total now at 273. With an average of 262 open, average revenue was $7.1 million per store.

Apple Stores saw 45.9 million visitors, compared to 42.7 million in the year-ago quarter.

608,000 personal training session were conducted, with 208,000 memberships.

Overall this year, 26 new stores were added, and 72 were remodeled. Apple opened more stores internationally than in the U.S. for the first time.

In November the company will open its first two stores in France, including the Louvre, and plans another high-profile store on upper west side of Manhattan.

Cook said Apple has seen strong results from its remodeled stores. Apple's retail locations provide the best customer experience in the industry, bar none.

Internationally, average store revenue was up over 20 percent for the past quarter.

Apple's next (Q1 2010) fiscal quarter

Apple expects revenue in the range of about $11.3 billion to $11.6 billion, and diluted earnings per share in the range of about $1.70 to $1.78.

The Financial Accounting Standards Board's rule change for Generally Accepted Accounting Principles will change the way Apple accounts for the iPhone. Now, the balance will be recognized immediately as revenue, rather than spreading over two years.

Only the estimated sales value of the iPhone software upgrade will be deferred in the future. The hardware itself will no longer be deferred.

Apple plans to adopt the new rule a year from now. They have the option of adopting earlier in fiscal year 2010. The change will be complex and they're uncertain on the timing right now, so no more specifics were made available.

Guidance for the September quarter is based on subscription accounting, not affected by new rules. It will be recognized over a 24 month period.

Very pleased with quarter and 12 percent annual revenue growth. Officials are looking forward to additional exciting products coming in the future, and they are confident in their pipeline. Apple is focused on its strategy of offering the best and most innovative products, and officials said they are very enthusiastic about the year ahead.

Gross margin predicted to decline about 34 percent based on four factors: new products with lower gross margin than predecessors; a seasonally higher mix of iPods and fewer Snow Leopard box sales; more air freight; and higher component costs.

Lower revenue projected because back-to-school seasons are over and December quarter is typically driven by holiday purchases.

The guidance includes double-digit revenue growth from last year.