Apple is holding their Q2 2012 financial results call, and we're here to break down anything interesting they might say. Apple made a ridiculous amount of money again, with 35.1 million iPhones, 11.8 million iPads, 7.7 million iPods, $11.6 billion in profit.
Live updates, after the break!
- Peter Oppenheimer (PO): Record quarter again. Strong growth in iPhone and iPad. 15.4 billion in operating margin. 11.6 billion in net revenue.
- New record for desktop and portable Macs. 4 million. 3 or 4 weeks of inventory. Below target range.
- Mountain Lion, 9th major release of OS X. Brings popular iOS features to OS X.
- Mountain Lion will be in Mac App Store later this summer.
- 7.7 iPods sold. Down. iPod touch still over half. iPod share still over 70%. Still top selling in most countries.
- 4-6 weeks of iPod inventory.
- iTunes all time record. 1.9 billion in revenue. 35% up. Music, video, apps strong.
- 35.1 million iPhones sold. 88% year over year growth. More than twice smartphone market. Very strong growth in all segments. AsiaPac, Japan doubled year over year. China was 5x level year ago quarter. iPhone 4S launch, China telecom. Over 100 countries. 8.6 million in inventory. In target range of 4-6 weeks inventory. $22 billion in revenue. 85% increase.
- iPhone in enterprise. Opportunity to leverage devices to improve efficiencies through in-house iOS apps. Actively deploying in-house apps to their base.
- iPad 11.8 billion. 151% increase.
- New iPad now available in 40 countries. Strong growth. More than doubling in each segment. $6.6 billion in revenue. Up 132%. Below target range for inventory.
- Education interest in Education grows. 2x sold compared to Macs. San Diego school purchased 2K, will purchase 15k more. Hopeful iPad will be popular in school buying quarter.
- Air Force deploying thousands of iPads. Thousands deployed as mobile sales tools
- 365 million cumulative iOS device sales. App Store in 120 countries. 200,000 apps just for iPad. 25 billion apps downloaded in less than 4 years.
- 125 million iCloud customers.
- (Apple Stores still doing well)
- 47.4% gross margin. Lower than expected commodity cost, stronger revenue and product mix including iPhone.
- Cash 110.2 billion at end of March quarter. 12.6 billion up. 74 billion off shore.
- 2.65 per share dividend in Q3. Will provide info at that time.
- Q3 projection of 34 billion in revenue, gross margin 41.5%.
- Extremely pleased with March results, revenue almost doubling. Fastest iPad rollout ever. iPhone 4S now in over 100 countries including China.
- Q: Explain Q3 predictions?
- PO: iPad and iPhone ramp up was extremely successful. Able to fulfill demand in March rather than June. Unlike last year, they expect decline in revenue. 1) iPhone channel inventory changes, increase by 2.6 million units. Exited in target range. Last year was still increasing channels. That will impact sequential comparison. 2) Fabulous iPhone 4S execution. December backlog led to huge January. China launched in January. 3) New iPad exection was also fabulous. Launched with significant supply. Fastest country rollout ever. Able to satisfy demand faster. Shift of volume into March. Will effect sequential comparison. 4) Decreased entry price of iPad to $399. 5) U.S. dollar strength.
- PO: Most amazing March quarter ever, feel good about business and pipeline.
- Q: Decline in iPad price. What is the right way to read it? Tell you about price point over time?
- PO: Learning about elasticity of demand. Doing well. New iPad is on fire. Selling as fast as they can make them. Education buying season looks terrific.
- Q: Outgrew market in Macs again. Slow down in year over year growth, what factors? Product transition?
- Tim Cook (TC): We did outgrow the market. Mac 7% where market grew 2%. 24th straight quarter of growth. Compare to last year effected by change to bulk of portable line in Q2 2011. Portables up 53% last year. Look at it sequentially, had 14 weeks in December quarter. Was some cannibalization from iPad, market is slow, but much large factor is compare to a year ago.
- Q: What are you learning about lower price points on iPhone and iPad?
- TC: With iPad 2 change in entry price, thrilled with results but it's only been a few weeks. Too early to come to clear conclusion. Unlocked some education demand, more price sensitive customer. Several other countries, marked change in demand at that price point. Early going, feel great about it. New iPad is what's constrained. Still constrained. Mix of new iPad to iPad 2, not certain of what that is yet. Absolute sales of iPad 2 is very exciting.
- TC: On iPhone still very happy with pricing moves. iPhone 3GS, iPhone 4. Both contribute to ability to archive 35 million in sales. Second highest of all time.
- Q: Tablet and PC market in the future? Windows 8? Why won't the ultrabook/MacBook Air and tablet markets converge?
- TC: Anything can be forced to converge, problem is products are about tradeoffs. You make tradeoffs to the point where what you have left doesn't please anyone. Toaster and a refrigerator won't be please to a consumer. tablet market is huge. Said that since day one. Using at Apple, already clear there was so much you could do, reasons so broad. Precisely what they've seen. Consumer, education, enterprise. Application meaningful and abundant. As ecosystem gets better, Apple doubles down on making great products, limit is nowhere in sight.
- TC: Just 2 years after launching iPad, sold 64 million. Took 3 years for iPhone, 5 years for iPod, 20+ years for Mac. Profound product. breadth is incredible. Appeal universal.
- TC: IDC, Gartner, Forrester have numbers. Gartner says 325 by 2015, 375. More than PC today. More formal predictors see lines cross. Also believes there's a good market for MacBook Air. Continue to innovate in that product. Appeals to someone with different requirements. But together, compromise most. Some people will prefer to own both. That's great too. Compromise of convergence, not going to that market. Others might from a defensive point. Apple won't. Q: Carrier subsidies? Any concerns? Think about risks?
- TC: Focus is on making very best smartphone in the world. Phone that delivers an off-the-charts user experience customers want to use every day of their lives. All carriers want to provide what their customers want to buy. That's motivation. Apple needs to continue making great products customers want. Innovating at rate and pace that's unbelievable.
- TC: Carrier subsidy isn't large relative to sum of payments over 24 month contract period. Delta between iPhone and other phone is smaller difference. iPhone has distinct advantages over other phones. Churn from iPhone customers is lowest of any phone they carry. Significant, direct financial benefit.
- TC: Engineers work very hard to be efficient with data. Different than others. Better than other app phones. iPhone is best smartphone on the plant to entice a customer from traditional mobile phone to upgrade to smartphone. Largest opportunity for Apple, carrier partners, customers. Win. Win. Win.
- Q: How are consumers using iCloud? iTunes Match? Paid storage?
- PO: Customers are using all iCloud features. Respond terrific. Feedback terrific. Storage pickup is growing. 125 million users. Building up. Storage growth will come more over time. Real desire wasn't about selling more storage. Recommend Match but paid for service. Just wanted to increase customer delight. Why they did it.
- Q: China?
- TC: Incredible quarter in China. Revenue was record. 7.9 billion in greater China. Up 3x. Mind-boggling. Part of this was pent-up demand for iPhone 4S. Launched in Mainland China in January, 2012. Also have strong demand for iPad 2. Haven't shipped new iPad yet but have in HK. Halo for Mac is also incredible. 60% up year-over-year. Expanded point-of-sales. Lot more opportunity.
- Q: Was iPhone mix in China different?
- TC: Wasn't material different.
- Q: Better content on iTunes?
- PO: Thrilled with rate they're adding content. Have to do it country by country, takes time. Largest catalog of songs and movies. 28 million songs. 1.2 billion in revenue in Q2. Up 35% year over year.
- Q: Shortages? Qualcomm? Constraints? Bottlenecks?
- TC: Tough question to answer. Aware of 28nm issue. Currently don't use them. Don't comment on future products. Generally, work closely with supplier partners, do everything they can do to get supply. Sometimes successful, sometimes not. Trying to push every button to work on it.
- Q: Walmart? Arkansas moving to 25 stores. Very pleased. When in 10,000.
- TC: No plan to be in 10,000. Trying some things. Doesn't include Mac. Seeing how it goes. Walmart very good partner on iPod. Increasingly substantial in iPad, evolving in iPhone. Enjoy working with them. Hope to continue expanding.
- Q: iPhone inventory? China balance?
- TC: Desire was to increase channel inventory across the quarter. Extremely back logged. Addition of 2.6 million allowed them to get into supply/demand balance. Op team execution so good, vast majority of supply/demand was reached in January. Mother of all Januaries.
- TC: World wide still constrained on new iPad. Demand incredibly robust. Selling as fast as they can make them. In China, on macro basis, has enormous number of people moving into middle class. Creating demand for goods, not just Apple's. Tremendous opportunity for companies who understand China. Apple doing everything to understand China.
- Q: Changes in Spain, Vodaphone changes. Seen any changes in Spainish market?
- TC: Spain has been weak for Apple, probably many countries. Revenue grew in Spain but materially less than EU or ROTW. Wasn't cause and effect, however. Is in terrible economic situation. Unusual case.
- TC: To be clear, what carriers did was, they still have subsidies for existing customers, pulled subsidies on new customers. All carriers didn't do that, only a couple. Wouldn't use that as proxy for the world.
- Q: Patents?
- TC: Hates litigation. Just wants people to invent their own stuff. If they can get a fair settlement, he'd highly prefer to settle. Key thing is, it's very important that Apple not become the developer for the world. Need people to invent their own stuff.
- Q: iCloud data? Multiple devices?
- PO: Have it but don't want to help competitors.
- Q: R&D up, why?
- PO: View this as a good thing. Investing in engineering. Investing in hardware and software teams. Fabulous new products in the pipeline. Don't have percentages in front of him.
- Q: China Telecom, when did that launch?
- TC: Early March, supply/demand balance prior to end of quarter.
- Q: OpEx leverage? Components?
- PO: Investing in R&D, spending on marketing, advertising, retail channels, infrastructure, stock based comp. Confident. Thinking long term.
- TC: Component costs were better than planned. Displays and NAND Flash drove benefits. June quarter NAND, mobile DRAM exceed demand. LCDs to stabilize, HD market has moved to balance. Most other components should fall in line.
- Q: Margins?
- TC: 2/3rds driven by higher mix of iPads and Macs. Full quarter of selling current iPad market. Loss of leverage on sequential higher revenue.
- Q: Enterprise, what resources are Apple dedicating to it?
- TC: Initial focus was on working with Fortune, Global 500 to get iPad certified. 94% of Furtune 500, 75% of Glbal 500 testing or deploying iPad. Off the charts for 24 month old product. Now focusing on penetration in those accounts. Incredible things about wins is that they span across many verticals, across government, education. Most broad-based product he's ever seen.
- Q: iPhone down next quarter, conservative or seen change?
- PO: Incredibly confident in business, strategy. Give guidance they have confidence in achieving. Do expect decline. Now in target range. March quarter had backlog. Able to fulfill that and launch 20 countries. Immense confidence.
- Q: iPad constraints a component issue?
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