socialrosiechen: Apple Q3 2010 financial results conference call

Apple Q3 2010 financial results conference call

Follow along with TiPb as we listen to and comment on Apple’s Q3 2010 financial results conference call. We’re not live-blogging this, just posting highlights so you’ll need to refresh from time to time to see new notes. If you want to listen while you read, head on over to Apple.com for the audio stream. Now on [...]

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If you want to listen while you read, head on over to Apple.com for the audio stream.

Now on with the highlights:

Waiting on additional participants to show up
Starting now, IR person reading safe harbor provision
Tim Cook (henceforth TC), Peter Oppenheimer (OP) on tap, no Steve Jobs announced
OP: introducing results, began shipping iPad in 10 countries, launched iPhone 4, shipped iOS 4, new record for Mac sales
OP: Highest revenue ever 15.7 million, 4.23 margin, 3.25 net income, EPS 3.51
OP: Mac sales. Short version — they did very well.
OP: 9.4 million iPods. Declining. iPod touch 48% growth. Mix-shift to iPod touch 12% up, revenue growth 4% up. Share over 70%. Top selling MP3 sale, gaining share.
OP: iTunes exceeded 1 billion dollars. App Store 225,000 apps, 11,000 just for iPad. 5 billion apps downloaded.
OP: iPhone 8.4 million, 1.7 million iPhone 4 in 5 countries. 61% year-over-year growth. Customers loving new features, FaceTime, Retina Display, glass and stainless steel
OP: 5.53 billion for ancillary sales, up over 70%.
OP: 154 carriers in over 80 countries, Asia, Europe, Japan increasing
OP: Over 100,000,000 iOS devices sold. iOS 4 very favorable, people loving new features.
OP: iPad off to good start. 3.27 million iPads sold in 10 countries. 9 additional countries on July 23.
OP: Apple retail still growing.
OP: [Talking financial details about why their usual conservative numbers were exceeded. Again. Seriously]
OP: 48 billion on hand, up 4 billion. Still preserving capital, short dated, high quality investments
OP: Outlook to Q4. Offering free cases to all customers who purchased iPhone 4 until Sept. 30. Deferring revenue on those cases. Should cost 175 million.
OP: Expect 18 billion, 35% gross margin in Q4. Sequential decline due to higher mix of iPhone 4 and iPad which have higher cost structures, also free cases. Back to school promotions as well.
OP: In closing, they’re thrilled!
Now starting Q&A
Q: What are you hearing from corporations, adoption?
TC: iPhone now in 80% of Fortune 100 piloting or deploying, 60% of Fortune 500. 400 higher ed institutions as well. iOS 4 was a help.
TC: iPad in first 90 days. 50% of Fortune 100 testing or deploying. Incredible.
OP: Higher iPhone and accessory sales than they anticipated.
Q: Supply/demand breakdown, constraints?
TC: iPod, none. iPad and iPhone are different, both iPad and iPhone 4 had backlog couldn’t fill, still selling as fast as they can make them. High demand is never a problem. Planning 1 million a month capacity was a bold move, analysts predicted 1 million in sales for years. Did that in 1 month, still doing that. Apple is increasing capacity as fast as they can. Confident they will be able to do it.
TC: Just started ramping iPhone 4 in June. Limited days, only 4 days in Q.
TC: greatly reduced iPhone 3GS sales around June 7. Didn’t launch iPhone 4, new 3GS on June 24. Result was significantly lower sales after June 7 until June 24.
TC: 250,000 more units if they’d held inventory flat.
Q: Why are there supply problems? Rumors Apple does that on purpose.
TC: Would rather market move quickly to new products. How they want to manage it. Don’t purposefully create shortages for buzz. Not their objective. Would like to fill every order as quickly as they can. Demand for iPhone 4 absolutely stunning.
TC: Returns for antenna issue are very small.
TC: Pleasantly surprised how fast iPad has gotten going. Much faster to 1 million than iPod. Not following typical new product curve where it takes a long time to go mainstream after early adoption.
OP: Won’t reveal iPod Wi-Fi vs. 3G split, but demand for all of them have been amazing. Average $640.
Q: Will iPad cannibalize other product lines? Any thoughts?
TC: Discuss it internally, only selling 3 months. To early to tell. Thrilled they recorded best Mac quarter ever even with iPad sales. Jaw dropper.
Q: iAds business?
OP: Just launched in July. Will learn a lot this calendar year. No further specifics.
Q: Datacenter coming along?
OP: On schedule. Everything going fine. Expect to complete by end of calendar year.
Q: Cannibalization of iPad on iPod touch?
OP: iPod ASPs down $7, driven by start of back to school promotion, stronger US dollar. Mix up on iPod touch.
Q: Impact of bumper give-away?
OP: Will need to defer revenue for iPhone 4 they sell where they’ve not delivered bumpers, not heard from customers wanting to place order. Revenue accrual with no cost, will expense cost when shipped to customers.
Q: Android shipments increasing, competition to iPhone family?
TC: Haven’t seen Android results, sum of several companies. iPhone up 61% despite drawdowns and transition, growing faster than market.
Q: Competing tablets, 3G subsidies coming fall, impact?
TC: Selling every unit they can make, looks good in every country they’ve launched it in. Anecdotally growing faster than early adopter, faster than any product he knows of. Doesn’t know what competition will do. Everyone working on something. Apple extremely happy with position and business model. Affordable rate structure, starts at $15, no commitment, aggressive device pricing. Yes, someone could jack up rate plans, subsidize. Not sure people will want another contract. If someone tries it, both learn.
Q: iPhone software developers have complained not about App Store rules but about arbitrary nature. Apple done anything?
OP: Always looking to make developers happy, 225K apps, 5 billion downloads, 1 billion in payments to devs, iAds a second stream. Care deeply. Want to have great apps. Success is unparalleled.
TC: Vast majority of apps approved within 7 days. Many that aren’t have bugs, re-submitted, approved. Want to ensure pornography, graphic scenes don’t come on platform. Not everyone agrees, but that’s how they’re doing it.
Q: Dev concern misplaced?
TC: Value their concerns, modify when appropriate. Won’t say every concern misplaced. Value their feedback.
Q: Move to mobility?
TC: Long run, will see portables grow.
Q: FaceTime, industry standard, how will it role out? Windows, Mac?
TC: Sticking to financials for today.
Q: iPhone strong in Asia, Europe, Japan. Why not North America?
TC: Not law of large numbers. Phone market will increasingly become smartphone market. Steve said that long ago. Lots of domestic, Americas opportunities. Mac, iPhone, or iPad growing faster internationally. See that in revenues as well. Perspective, Americas growing 40% so this is huge number, just international numbers are killer.
Q: iPhone growth has come from broader carrier distribution. Broaden within countries, emerging markets like China, India, pre-paid?
TC: Extraordinary opportunity. Mac as example, AsiaPC Mac grew 73%, phenomenal. In China, grew 144%. Korea, 184%. HK almost 200%. Even in difficult economy like Spain, grew 59%.
TC: iPhone space doing well in all key markets, expanding that, learning what they learned with exclusive deals, looking market by market, opening Spain up. Will go from exclusive in Spain to 3. More countries remaining. Increased distribution, market, move to smartphone. All in iPhone favor. Sees enormous opportunity. Biggest challenge is determining which to deploy resources.
Q: Will there be iPad halo?
TC: Agrees, most people external to Apple focus on cannibalization, internally focus on synergy between. iPod historically people at Apple felt iPod created halo for Mac. Will see about iPad, doesn’t want to predict it. Mac share still low. Still enormous opportunity to grow. Might be some synergy. iDevices -> Mac, iPad < -> iPhone. This is where it’s great to have lower share. If iPad cannibalizes PCs, fantastic for Apple. Big market.
Q: Impact of wage hikes from sub-contractors?
TC: Don’t want to get into terms of commercial agreements, competitive info.
Q: Expand carriers to tap domestic demand, or enough with AT&T?
TC: Very happy to be partner with AT&T. Been first class partner, pioneered smartphone growth from network POV in US. That’s all.
OP: Best iPhone they’ve ever shipped, higher cost structure.
Q: Gap iPhone, iPad supply and demand? How many units?
TC: Don’t know. Only know if you have enough supply. Don’t have it.
That’s all folks!