Apple today announced their Q4 2011 financial results, including 17.7 million iPhones, 11.2 million iPads, 6.62 million iPods, $6.62 billion in profits. Unfortunately for Apple's stock in after-hours trading, that's below expectations -- the first time Apple hasn't exceeded expectations since Q2 2002.
“We are thrilled with the very strong finish of an outstanding fiscal 2011, growing annual revenue to $108 billion and growing earnings to $26 billion,” said Tim Cook, Apple’s CEO. “Customer response to iPhone 4S has been fantastic, we have strong momentum going into the holiday season, and we remain really enthusiastic about our product pipeline.”
“We are extremely pleased with our record September quarter revenue and earnings and with cash generation of $5.4 billion during the quarter,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the first fiscal quarter of 2012, which will span 14 weeks rather than 13, we expect revenue of about $37 billion and we expect diluted earnings per share of about $9.30.”
Of course these results don't include 4 million iPhone 4S sold last weekend. In other words, North Carolina might not be enough. They're going to need a bigger money bin.
We'll be covering Apple's financial results call at 5pm EDT, so keep your browsers' locked here.
- Tim Cook (TC): First call since the loss of Steve Jobs. Cook is repeating the email he sent out previously.
- Peter Oppenheimer (PO): New record for Mac and iPad, new quarterly record for iPhone.
- PO: [Going over results]
- PO: Going over new MacBook Airs, Lion, Mac business.
- 6.6 million iPods, down from 9.3 million. iPod touch still 50%. iPod share remains 70% according to NPD. Continues to be best selling in most country. 4-6 weeks inventory.
- iBookstore has 180 million downloads.
- 17.1 million iPhones, compared to 14 million in previous quarter. New September record. Asia almost doubled. Please with growth as they transition to iPhone 4S. Expected design following new product rumors at WWDC. Declined in second half of quarter due to increased speculation. 4-6 weeks channel inventory.
- Deferred new carrier additions until after launch. Sprint and KDDI now added.
- iPhone ranked highest in customer satisfaction, performance, ease of opperation, features, design. 93% of Fortune 500 testing or deploying, 60% of Global 500 testing or deploying. Lowes is in process of rolling out custom app. L'Orelieel, RBS, SAP, TI, Land Rover, CXS.
- Thrilled to be shipping iPhone 4S, Siri. Customers will love performance of A5, camera, 1080p. Now in 7 countries, working hard to roll out in 22 countries by end of next month.
- New record 11.1M iPads sold. iPad 2 launched in 28 countries, 90 countries total. $6.9 billion in revenue. 4-6 weeks channel inventory.
- Only 18 months sicne introduction. 92% of Fortune 500 is testing or deploying. 52% of Global 500 testing or deploying.
- United Continental is putting iPad in airplanes. Sonic Automotive is using for checkin, analytics. General Mills, Siemens, others using them.
- 250 cumulative iOS device sales to date. Customers are loving iOS 5.
- iCloud launched last week. It's the easiest way for customers to manage content. Early reviews excellent.
- App Store 500,000 apps, 18 billion download. 123 countries total.
- Apple Stores growing, Mac and iPad sales. iPhone sales slowed.
- Will be restoring or replacing older Apple Stores in US that can't meet demand.
- $81 billion in cash.
- Next quarter to span 14 instead of 13 weeks. Talking expectations. Apple is usually very conservative.
- 4 72 million iPhones, 32 million iPads, 17 million Macs. 40 new stores
- Q: iPhone 4S close to holidays, how do you mitigate shortage?
- TS: 4 million sold, great start, thrilled. Confident in supply, won't speculate when demand will balance. Confident will set all time record for iPhone this quarter.
- Primary negative impact was sell-through pause? No inventory issues?
- TS: Much less of a reduction they were expecting. Revenue exceeded guidance. Knew there was great anticipation of June/July iPhone. That was pace for last several years. Decline did occur but not to extent they though, beat guidance. Reduction happened in back half of the quarter as speculation hit highs. Thrilled to be shipping iPhone 4S, iCloud, iOS 5.
- In wildest dreams couldn't have gotten off to better start.
- Q: Why can't you do better than 40% in September given how well iPhone 4S is already doing, favorable components.
- PO: Expect gross margins to be flat. Favorable environment will continue, healthy mix of iPhone. Fully offset of higher cost structures, lower price points for iPhone, iPod, US dollar.
- Q: Traction in China, any update? Insight? How substantial?
- TC: Progress has been amazing. Greater China was 2% in '09. 12% in 2011. 16% last Q. Fastest growing major region by far. Up 4x, 270% year over year. Total revenue over 13 billion. A year ago, they were right above 3 billion. Growing at feverish pace. New retail stores. Online store opened at the end of last year. 200 mono-branded stores (resellers). Premium experience. 7000 point-of-sales on iPhone in Greater China. How far can it go? Never seen a country with as many people rising into the middle class, aspiring to buy products Apple makes. Enormous opportunity. Place more stores. Middle East has significant opportunities.
- TC: iPhone introduced whole new customers to Apple. iPad will do the same. The sky is the limit.
- Q: Update on margin flexibility as you start to use more than one source?
- TC: Outstanding team in this area, unparalleled track record. Keep trying to improve it. Use balance sheet in favorable way to do strategic deals. Very important to Apple across series of products. As they get larger, they have elected to diversify some, however their approach has been and will always be to do business with as few as possible to be very deep, do as great an innovation as possible. Give Apple great quality, reasonable prices. Helps margin.
- Q: Amazon with Kindle Fire, lower price points, limited features. Hybrid market?
- TC: Outstanding iPad quarter. 11 million. Same time setting Mac record. Phenominal. Seen several competitors try to compete with iPad. Different form factors, price points. Reasonable to say none have thus far gained traction. In fact, iPad share went up. June quarter, IDC said 3/4 tablets were Apple. Assess this thing, look at iOS 5, iCloud, iTunes and App Store ecosystem, books, movies, 140k native apps for iPad vs. 100s for other guys. He feels very comforatble in ability to compete. Pipeline.
- Q: Why defer carriers?
- PO: Knew they would launch iPhone 4S, wanted to launch new carriers with new device. Biggest impact was rumors. Pervasive. Behind them. iPhone 4S is off to fantastic start. Thrilled to be including Sprint, KDDI, best product line EVER!
- Q: Size of tablet market? Not netbook? How big could it be?
- TC: Thought from beginning it would be huge, has been even greater than they thought. 40 million iPads sold cumulative basis. Still believes tablet market will be larger than PC. Not guidance, what he believes. More people can access it, ease of use is off the charts.
- Q: How many iPhone units were deferred? How should they think of iPhone 4S launch? Velocity?
- TC: Can't run experiment twice. Can't tell with precision if no rumors, no expectation. He believes they were substantial. Get same answer from customers. 4S is off the charts. Do comparison of 3 days of launch. 4 was 1.7 million. 4S was over 4 million. Mother of all uplifts. Feedback is fantastic.
- Q: iPad category, now that it's more experienced, Macs are up sequentially, how would iPad seasonality work? Gut feel?
- PO: Expect to establish new records for both iPhone and iPad, fantastic products, great market.
- Q: Siri?
- TC: Number of people using it is amazing. Questions, personality, is incredible. See Siri as profound innovation. Over time, many many people will use it in a substantial way. What percentage of input, search will be Siri, he doesn't know but his gut it substantial, incredible innovation. Feedback they're getting from customers.
- Q: Thailand?
- TC: Hearts go out to everyone who has lost life and family from monsoons, flooding. Apple has factories not-operable. Timeline is unknown. Whether hasn't allowed assessment. Primary exposure is on Mac. Number of drive components sourced, Thailand is significant. Can't give precise accounting, he's concerned about it. Overall industry shortage of disk drives. Not sure. Placed assessment to degree they've already provided.
- Q: Patent disputes with Samsung, Android. What are your objectives? Injunctions, royalty fees?
- TC: Don't want to comment on litigation. As you know, spend a lot of time and money and resource on coming up with innovation. Don't like it when someone else takes those. Unfortunately pushed into court system. Don't want to comment on remedies.
- Q: Price reduction on iPhone 3GS? Free on contract, cheap off. Elasticity? New segment of consumers? Prepaid vs. postpaid?
- TC: Wanted to make iPhone more accessible to broader market. Also lowered price of iPhone 4 to $99. These are still fantastic products. Can do reasonably well. Also has advantage in pre-paid markets. Lower than where entry points were previously. Did it for both markets. Both are very important. Thinking for a while to do that.
- Q: More on components!
- TC: Take is seriously!
- Q: Pressure on gross margins? Can expand or maintain if pressure from product mix?
- PO: Repeating December quarter predictions.
- Q: iPad, where is distribution rollout? Any pause? Growth in emerging markets?
- TC: In 90 countries on iPad. About 40,000 POS. 50,000 on iPod. 120,000 on iPhone. Still countries left to do. Are in main countries. Was there a slow down? With iPhone numbers, crystal clear there was a showdown. Not the case with iPad. Supply/demand, entered balance, stayed there for quarter. Outside of China, has already started looking at other countries. Already done. Over $900 million in Brazil. Some have protectionist strategies, very high if no local content.
- Q: First call as CEO, anything thoughts on different strategy, dividend, buy back? Cannibalization levels of iPad vs. Mac?
- TC: Second first. Seeing cannibalization. Showing up in 2 ways. Some buying iPad over Mac. Larger number are electing to buy iPad over Windows PC. Coming out very well. Mac had best quarter by far last quarter.
- TC: Wanted to maintain flexibility. Cash not burning a hole in their pocket. Conservative investments. Done a good job. Done things like acquire companies, acquired IP. Invested in supply chain. Build out stores. New product tooling. What they're doing with cash, doing extremely good job. Very frugal.
- TC: Not religious about holding/not holding cash. Will ask what's in Apple's best interest and will always do that.
- PO: $81 in cash. $51 billion was offshore.
- TC: Series of unbelievable products. Pipeline is unbelievable. Totally separate and distinct things. Cash is always a topic. Always do what's in Apple's best interest.
- Q: iPhone goal was audacious at 1% at launch, now at 5%. 95% of market to go. Similarly audacious goal for next few years?
- TC: Want iPhone in as many hands as possible. Thinks it's the greatest phone by far. Aspire to greater volumes. Smartphone market will absorb handset market. 1.5 billion handsets. Smartphone is 400 million. Huge growth. Also grow in sector. Big win is eat into 1.5. For anyone. Apple is very focused on doing that.
- Q: Extra week linear on revenue and expenses?
- PO: 14 week will conclude on New Year Eve day. Strong but not as strong as Thanksgiving to Christmas. For expenses, variable, payroll for 14 week. Fixed costs are fixed, benefit there as well.
- Q: Japan, bigger disparity on units vs. revenue?
- TC: Huge percentage of Japan total revenue in year ago quarter was iPhone 4 launch. Adversely effects revenue compare. Mac grew 48 percent. iPhone was negative year-over-year. One of first 7 countries, very good start.
- Q: tablet market higher or lower end?
- TC: Fantastic things in pipeline, sold 40 million in first 18 months. Have good handle on what to do next.
- Q: iPhone business into emerging market? Carriers thoughts on pricing change?
- TC: Look at channel inventory on iPhone at end of Q4, September 24 cut off. Half of that has already sold through. One portion driving that is elasticity. Also did, in a very few countries, dropped 3GS price a bit early. Particularly in pre-pay markets. Pleased with results.
- That's it folks.!
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