Notes of interest from Apple's Q4 2011 conference call
iPad sales during the September quarter were 11.12 million, an increase of 166 percent from the year-ago quarter. And Mac sales were the highest ever at 4.89 million for the three-month span.
Those, along with sales of 17.07 million iPhones, helped Apple earn quarterly revenue of $28.27 billion and quarterly net profit of $6.62 billion, or $7.05 per diluted share. That's the best September quarter in the company's history.
Participating in Tuesday's conference call were Apple Chief Executive Officer Tim Cook and Chief Financial Officer Peter Oppenheimer.
Cook started off the call by acknowledging Tuesday's call is the first one held by Apple since company co-founder Steve Jobs died earlier this month.
"The world has lost a visionary, a creative genius, and an amazing human being... His spirit will forever be the foundation of Apple," Cook said.
The CEO said Apple remains dedicated to doing the work of Jobs. He thanked everyone for the many condolences that have been sent since he passed away.
Apple's iPhone business
iPhone sales were up 21 percent year over year, a smaller than usual increase as in previous years the period came just after a new iPhone was launched. This year, Apple opted to wait until October to launch the iPhone 4S.
Oppenheimer said Apple was "pleased" with iPhone sales growth as the company transitioned to the iPhone 4S.
iPhone sales declined across the quarter, particularly in the second half as rumors of a new iPhone grew.
Deferred new carrier additions until after the September quarter to coincide with the iPhone 4S launch. Apple now has 130 carriers in 105 countries.
93 percent of Fortune 500 are deploying or testing the iPhone, up from 91 percent from last quarter.
Recent example of success: Lowes is rolling out 40,000 iPhones with custom applications allowing them to interact with customers with how-to videos.
Other companies: Loreal, Royal Bank of Scotland, S&P, Jaguar Landrover, CSX and many more.
"Working hard" to get iPhone 4S into customers' hands as quickly as possible. Will launch in 22 more countries by the end of this month.
Cook said he's confident Apple will have a "large supply" of the iPhone 4S going into the holiday season.
"I'm confident that we will set an all-time record for iPhones this quarter," he said.
Executives knew there was "great anticipation" of a new iPhone in June or July. Sell-through decline occurred, but not to the extent that Apple anticipated, resulting in the company beating its guidance.
Sales took a hit later in the quarter as rumors of the iPhone 4S hit "extreme highs," Cook said.
"In our wildest dreams, we couldn't have got off to a better start than we did with the iPhone 4S," he said.
Apple's approach is to do business with as few people as they can to deeply integrate. Doing business with too many different companies makes it difficult.
Rumors of a new iPhone had a "substantial" impact on sales during the last quarter.
"We're thrilled with how we've gotten started (with the 4S)," Cook said. "The feedback that we're getting from customers is just fantastic."
On Siri, Cook said it's a "profound innovation." Over time, he believes many people will use it in a substantial way. "What percentage of their input will be by that, I don't know, and what percentage of their searches, I don't know. But our gut has been, since the beginning of this, that it's substantial."
On patent disputes with Samsung and other Android vendors: Cook didn't want to comment on any particular litigation.
"We spend a lot of time and money and resource in coming up with incredible innovation," he said. "We don't like it when someone else takes those. And so that's why unfortunately we've been pushed into the court system as a remedy to that. But I don't want to comment about any particular lawsuit."
Didn't want to say whether Apple is looking to enter into licensing agreements with companies it has accused of patent infringement.
Cook said the free iPhone 3GS and lower priced iPhone 4 will "do reasonably well" in the postpaid market. Could have a lower price in prepaid markets as well, lower than where entry points were previously.
"We did it for both markets... the post-pay and the pre-pay markets. Both of those are very, very important to us, and it has been our thinking for awhile to do that."
"We think it's the greatest phone by far, and that's why we live to do that. Yes, we aspire to much larger volumes than where we are. And we think the smartphone market will eventually absorb the handset market."
Apple's iPad business
The iPad continues to grow for Apple, reaching 11.2 million units sold in the company's fourth quarter of fiscal 2011. Sales were up 166 percent year over year, representing the fastest growing category for Apple.
"The tablet market is a huge opportunity for Apple, and we're very excited with our current performance and customer enthusiasm for iPad," Oppenheimer said.
Revenue from iPad and accessories was $6.9 billion, up 146 percent from 2010.
It's been just 18 months since the iPad debuted. 90 percent of the Fortune 500 are deploying or testing the iPad.
Oppenheimer noted that many airline pilots are now using iPads in the cockpit. Technicians at Siemens energy use iPads when they do work at the top of their wind turbine.
Surpassed a quarter of a billion cumulative iOS sales this quarter.
App Store has 500,000 applications and more than 18 billion downloads. The App Store launched in more than 30 new countries during the September quarter.
Cook on the Kindle Fire: "We've seen several competitors come to market to try to compete with the iPad over time. Some had different form factors, different price points. I think it's reasonable to say that none of these have gained any traction thus far."
Apple's share of the tablet market actually went up as other competitors came to market.
"When you really assess this thing and look at iOS 5, iCloud, the ecosystem with iTunes and the App Store and books and movies, and the fact that we have over 140,000 native apps for iPad versus a number in the hundreds for the other guys, I feel very, very confident about our ability to compete, and extremely confident in our product pipeline."
Total iPad sales are north of 40 million. Cook believes the tablet market will eventually be larger than the PC market.
"There will be many, many more people that can access it and the ease of use is so phenomenal and off the charts that I think it's a huge opportunity for Apple across time."
Oppenheimer: Expect to set new company records for both the iPhone and iPad in the December quarter.
iPad is now in 90 countries, with about 40,000 points of sale around the world. There are about 50,000 points of sale for iPod, and 120,000 for iPhone.
While it's crystal clear there was a slowdown in iPhone numbers as rumors grew of the iPhone 4S, Cook said there was no such slowdown seen in iPad sales during the September quarter.
Cook believes there is cannibalization of the PC market with the iPad. Some people are buying an iPad rather than a Mac, but a "materially larger" number of people are buying an iPad instead of a Windows-based PC.
"I think we are overwhelmingly coming out very, very well in that cannibalization," he said.
"With cannibalization like this, I hope it continues."
Apple's Mac business
It was a record-setting quarter for the Mac, reaching 4.85 million sales in the three-month period. That's Apple's best quarter ever for the Mac.
Previous record was set in the last September quarter, this exceeded it by more than 700,000.
Apple's year over year growth was more than six times greater than the larger PC market, according to IDC.
Portables represented 74 percent of Mac sales, but Apple still saw record desktop Mac sales, particularly with the iMac.
More than 6 million downloads of Lion since it launched in July.
Cook said Apple's hearts go out to those affected by the monsoon in Thailand.
There are "several" factories currently not operable in Thailand. The recovery time is not known.
"From the work that we have done, we would say that our primary exposure is on the Mac," Cook said. He said a "significant portion" of the worldwide total supply of hard drives comes from Thailand.
"It is something I'm concerned about... I'm virtually certain there will be an overall industry shortage of disk drives... How it affects Apple I'm not sure."
On potential unibody casing issues for the Mac lineup, Cook said Apple is currently "investigating and assessing the situation."
He said the component market for NAND and DRAM declined last quarter, along with LCDs. They are all in a generally positive supply situation.
"Most of the other components we expect to fall at or above historical trends."
Apple's iPod business
iPod sales were down even more than usual because the product lineup was not updated. 6.62 million iPods were sold during the quarter, a decrease of 27 percent.
Total iPod sales were ahead of Apple's expectations. The iPod touch accounts for more than half of all iPods sold.
iPod share is still north of 70 percent, and the iPod is the top selling music player in most countries Apple tracks.
iTunes store earned $1.5 billion in revenue.
Oppenheimer said they are "very pleased" with the growth of the iBookstore, with more than 180 million books downloaded to date.
Apple's regional business segments
Apple continues to see tremendous growth in the Asia Pacific region, where revenue grew by 139 percent year over year.
Revenue also grew 34 percent in the Americas and 36 percent in Europe from 2010.
Apple's only losing region was Japan, where revenue fell by 21 percent year over year.
Cook on China: "The China progress has been amazing." He's never seen a country with as many people rising into the middle class and aspiring to buy products Apple makes. "It's an area of enormous opportunity."
It's number two on Apple's list of top revenue countries. Placing additional investment with more stores and other things. Now more than 7,000 points of sale for the iPhone.
Additional focus on other areas that have shown great promise, like Brazil, up 118 percent year over year. Went over the $900 million mark.
Russia is looking "more promising," Cook said. He also believes there are "significant opportunities" in the Middle East.
The iPhone has opened up Apple to a lot of new customers that didn't look at the company before. He expects the iPad to do the same.
Apple's retail business
Apple's retail business grew by 1 percent year over year in the September quarter.
Mac and iPad sales were strong, but largely offset by iPhone sales, which had a tough comparison in 2010.
About half of Macs sold in stores in the September quarter were to customers who have never owned a Mac before.
Opened seven stores in six countries in the last week of the quarter.
Ended quarter of total 357 stores. Average revenue per store was $10.7 million.
Store traffic "strong," with a record 77.5 million visitors in the September quarter.
Expect to open 40 stores next quarter, with about 3/4 of them outside in the U.S.
Apple will also expand many stores in the U.S., which it feels are now "too constrained" to properly serve customers.
Apple's next (Q1 2012) fiscal quarter
Oppenheimer has said Apple expects to earn revenue of about $37 billion in the current holiday quarter, with diluted earnings per share of about $9.30.
The coming quarter, the first of fiscal 2012, will span 14 weeks rather than 13. This is done once every six years to align the fiscal periods with the December calendar.
Ended the quarter with 81.6 billion in cash plus short term and long term investments, an increase of $5.4 billion from the June quarter.
Total revenue in fiscal 2011 was more than $108 billion.
Gross margin for the coming December quarter is expected to be 40 percent. Going forward, Oppenheimer said Apple will continue to offer "the very best products to customers we can."
The company plans to be "aggressive" with future moves and is excited about its future product pipeline.