Live Update: Apple Q3 Earnings Call

1:36 Jason Snell: Hi everyone. Jason Snell here, joined by Dan Moren and Matt Deatherage of MacJournals.com.

1:36 Jason Snell: Huge quarter again for Apple.

1:36 Jason Snell: http://finance.yahoo.com/news/Apple-Reports-Third-Quarter-prnews-1588672529.html?x=0&.v=1

1:36 Jason Snell: Record revenue of $15.7 billion, profit of $3.25B

1:37 Jason Snell: 3.47M Macs, most ever. iPhone 8.4M. iPad, 3.27M.

1:42 Jason Snell: We're still processing the numbers.

1:43 Jason Snell: Apple's conference call starts at 2 p.m. PT; we will be liveblogging it here.

1:44 Dan Moren: For those keeping score at home, Apple just bested its previous record revenue, which was $15.68B in the first quarter of this year (which, we'll note, was a holiday quarter).

1:45 Dan Moren: Also, important to keep in mind today that this quarter ended on June 26, just two days after the iPhone 4's launch.

1:46 Jason Snell: Average selling price for the iPad was $662, which suggests that most people did not buy the $499 Wi-Fi only 16GB model.

1:47 [Comment From Jeremy ] is there a link to earnings call?

1:47 Jason Snell: The earnings call link can be found, along with most everything else, at http://www.apple.com/investor/

1:47 [Comment From Mark ] Did Apple top Microsoft?

1:48 Dan Moren: Assuming the MS question is about revenue, it's unknown since Microsoft doesn't release its results until Thursday.

1:48 [Comment From Ed ] Will Steve Jobs be present at the earnings call?

1:49 Dan Moren: It's unlikely, but it's not impossible. In my time covering these, I've only seen him show up once.

1:49 Dan Moren: And when he did, it was a surprise.

1:51 Jason Snell: Okay, so. Record number of Macs sold, 3.47 million. Up from previous record of 3.3M two quarters ago. That means Apple has set a Mac sales record 3 of last 4 quarters

1:51 [Comment From Lex ] It's the most Macs ever, Jason said. What's the most iPhones sold in a quarter for Apple to date, if the 8.4M isn't a record?

1:51 Dan Moren: Apple sold 8.75 million iPhones last quarter.

1:53 Jason Snell: We have gotten some sense of the trajectory of iPad sales. 3 million were sold in the first 80 days. They sold another 270,000 of them in the remaining 9 days or so of June, meaning the pace hasn't really fallen off much

1:53 Jason Snell: Selling roughly 30,000 of them a day

1:54 Dan Moren: Also, as some point out, they sold almost as many iPads as Macs.

1:54 Dan Moren: Which is pretty impressive for an entirely new category of devices.

1:55 [Comment From Rich ] Will giving away all those bumpers cut into their bottom line? Any idea what it actually costs to make one?

1:55 Dan Moren: We don't know exactly what they cost, but I'd imagine they're not terribly expensive to make. It seems unlikely that it will drastically cut into the bottom line, but chances are someone will ask.

1:56 Jason Snell: Revenue breakdown. 28% from the Mac, 34% from the iPhone, 14% from the iPad, 10% from the iPod.

1:57 Dan Moren: Once again the iPhone is a pretty significant earner for the company.

1:57 [Comment From Mick ] What percentage of iPod revenue is iPod Touch?

1:58 Dan Moren: Apple doesn't usually break out individual products in its earnings, but you can sometimes get a flavor from the average selling price of the lin.

1:58 Jason Snell: ASP of the iPod this quarter was $164, down a bit from last quarter

1:59 Dan Moren: Jason's too fast for me. I was checking my math!

2:00 Jason Snell: So Apple sold 1M iPads in 28 days. 1M more in the next 30 days. 1M more in the next 22 days. 270,000 more in the following 9 days.

2:01 Jason Snell: So no sign of sales slacking off.

2:01 [Comment From Neven ] Is it fair to say that more than 50% of Apple's revenue now comes from iOS device (34%+14%+whatever the iPod touch contributes to the iPod revenue)? If true, it makes for a catchy factoid.

2:02 Dan Moren: That seems pretty likely, given that the iPod touch sales probably do make up that missing 2-3%.

2:02 Dan Moren: That chart does a great job of putting things in perspective.

2:02 [Comment From AaronS] Adding more countries certainly helps sustain iPad sales.

2:02 Jason Snell: Good point. Also useful when you can't make enough otherwise, AaronS... smooths out the demand.

2:03 Dan Moren: Here we go.

2:03 Dan Moren: Here are opening remarks. As always, we'll hear from CFO Peter Oppenheimer and COO Tim Cook, along with treasurer Gary Wipfler.

2:04 Dan Moren: And of course, we have forward-looking remarks that may or may not pan out.

2:04 Dan Moren: And here's Peter!

2:04 MacJournals.com: CNBC's chyron is about how iPod sales are below street estimates

2:05 Dan Moren: Extremely pleased to report outstanding results for the June quarter. Began shipping iPad in 10 countries, launched iPhone 4, shipped iOS 4, and set new all-time record for quarterly Mac sales.

2:05 Dan Moren: Thrilled to announce highest quarterly revenue ever, previous record set in most recent holiday quarter. $15.7 billion, increase of $6 billion over previous June quarter.

2:05 Dan Moren: Driven mainly by iPad. Operating margin $4.23 billion.

2:05 Dan Moren: Net income was $3.25 billion, up 70% year over year. Earnings per share $3.51.

2:06 Dan Moren: Starting with Mac products. Record quarterly sales of 3.47 million Macs, beating last record by 100,000. 33% year over year growth, over 22% growth for market overall (IDC).

2:06 Dan Moren: Strong double-digit Mac growth in all geographies, led by iMac and MacBook Pro.

2:06 Dan Moren: Record Mac sales in U.S. Education institution business, despite state budget constraints. 3-4 weeks of Mac channel inventory left.

2:07 Dan Moren: 9.4 million iPods compared to 10.2 million year ago quarter. iPod touch very strong with sales growing 48% year over year. ASP up.

2:07 Dan Moren: iPod share of U.S. share for market is over 70% according to NPD.

2:07 Dan Moren: iPod top selling MP3 player internationally and growing in almost every country (GFK).

2:07 Dan Moren: iTunes Store revenue over $1 billion, growing 25% year over year.

2:07 Dan Moren: App Store has more than 225,000 apps and more than 11,000 specifically for iPad.

2:08 Dan Moren: Users have downloaded over 5 billion apps from App Store.

2:08 Dan Moren: Ended quarter with target range of 4-6 weeks of inventory.

2:08 Dan Moren: iPhone sales of 8.4 million, including over 1.7 million iPhone 4s in initial 5 countries.

2:08 Dan Moren: Outgrowing the global smartphone market.

2:08 Dan Moren: Recognized revenue from handsets was $5.33 billion during quarter, compared to $3.06 billion in year ago quarter.

2:09 Dan Moren: Sales value of iPhones alone was about $5 billion, ASP of $595.

2:09 Dan Moren: iPhone distribution of 144 carriers in 88 countries.

2:09 Dan Moren: Very strong growth in Asia, Europe, and Japan.

2:09 Dan Moren: Surpassed sales of 100 million iOS devices.

2:09 Dan Moren: Very favorable reaction to iOS 4.

2:10 Dan Moren: Through end of June quarter shipped 3.27 million iPads to customers in 10 countries.

2:10 Dan Moren: Recognized revenue of iPad sales was $2.17 billion.

2:10 MacJournals.com: Actual iPhone average selling price of $595 is interesting, because Apple's data summary only gives "iPhone and related." Using that number, ASP would be $635. So that means each iPhone sale also generates about $40 in additional revenue from other directly related physical products.

2:10 Dan Moren: Nine additional countries in July 23.

2:11 Dan Moren: Retail stores generated record revenue and customer traffic. $2.58 billion in revenue, increase of 73% over last year. 677,000 sold compared to 492,000 last year, increase of 38%.

2:11 Dan Moren: Half of the Macs sold were still to new Mac users. 7 new stores opened in quarter, ending with 293 stores.

2:11 Jason Snell: There's that stat again -- still selling about half of all the Macs in their retail stores to people who have never bought a Mac before. Been going on for a few years now.

2:11 Dan Moren: With an average of 287 stores open, average revenue per store was $9 million compared to $5.9 million.

2:11 Dan Moren: 60.5 million vistitors in the quarter, compared to 38.6 million in year ago quarter.

2:12 Dan Moren: 24 stores opening this quarter including Paris and Shanghai, London Covent Garden, Barcelona and Madrid.

2:12 MacJournals.com: Jason: that stat has never been lower than about 45% in all the quarters they've given it, and they've given it every quarter I can remember

2:12 Dan Moren: 39.1 percent of gross margin. 310 basis points above guidance.

2:13 Dan Moren: Unanticipated favorable adjustments as well as better performance on their guided factors.

2:13 MacJournals.com: (310 basis points = 3.1%)

2:13 Dan Moren: OI&E for quarter was $58 million. Tax rate was 24.2%, 3 points below guidance for 1) better mix of foreign earnings, 2/3s of difference. 2) Tax audits.

2:13 Dan Moren: Cash + short term $45.8 billion end of June quarter, compared to $41.7 billion at end of last quarter.

2:14 Dan Moren: Investment priority is still preservation of capital.

2:14 Dan Moren: Looking ahead to September, here's the outlook.

2:14 Dan Moren: As announced on Friday, free cases for all iPhone 4 customers through Sep 30.

2:14 [Comment From Alex Brooks] Anybody hear the iPad ASP?

2:14 Dan Moren: As a result, deferring revenue corresponding to the value of cases yet to be ordered by/delivered to eligible customers to end of quarter.

2:14 Dan Moren: Estimated value about $175 million.

2:14 Jason Snell: Alex: It's about $660 as far as I can tell.

2:15 Dan Moren: Recognize cost of cases upon delivery to customers. $18 billion in revenue, compard to $12.2 billion in same quarter last year.

2:15 Dan Moren: Expect most of sequential decline due to iPhone/iPad sales, revenue deferral impact of iPhone case offer.

2:15 Dan Moren: Back to school promotion and absence of favorable adjustments and more are absent.

2:15 MacJournals.com: I think he gave an iPad ASP without related revenue but I didn't get it noted

2:16 Dan Moren: OPEX is $2 billion. OI&E about $50 million, due to short-term interest rate. Tax rate about 26.5%. Targeting EPS of $3.44.

2:16 Jason Snell: Actually he said about $640 for iPad ASP, so there's an extra $20 of slop from related products sold, like cases.

2:16 Dan Moren: Working hard on catching up with customer demand and looking forward to more customers in more countries this quarter.

2:16 Dan Moren: Now on to questions!

2:16 Dan Moren: [Now drinking water while I have a second!]

2:16 Dan Moren: First question from Shannon Cross at Cross Research.

2:17 Dan Moren: Q: Talk a bit about what you're hearing for corporations for iPhone, iPad, and Mac?

2:17 Dan Moren: Tim Cook: If you look at the iPhone, we are now up to more than 80% of the Fortune 100 that are deploying or piloting. Very good momentum in the Fortune 500. Over 60% of the Fortune 500 are deploying or piloting. In education, see around 400 higher ed that have approved iPhone for faculty, staff and students.

2:17 MacJournals.com: I'd take $20 of "slop" multiplied by 3,270,000 units! :-)

2:18 Dan Moren: Cook: iOS 4 helped too. In terms of Mac, great quarter. Still selling principly to consumers in education. Businesses do have increasing interest. More to difficult to measure because sales through channel often. Thrilled with growth though.

2:18 Dan Moren: Q: The iPad?

2:18 Dan Moren: Cook: In the first 90 days, already have 50% of the Fortune 500 that are deploying or testing the iPad. Incredible.

2:18 Dan Moren: Oops, Fortune 100.

2:19 Dan Moren: Q: Gross margin upside, said half came from 5 better performance areas. Why those areas better than anticipated?

2:19 Dan Moren: Peter: Largest contributors were higher iPhone sales than had included in guidance and higher accessory sales.

2:19 Dan Moren: Next question: Richard Gardner, CitiGroup.

2:19 Dan Moren: Q: Supply/demand breakdown for product categories. Any notable supply constraints in product lines?

2:20 Dan Moren: Cook: No significant issues with Mac for quarter or currently. iPod is the same; none significant. iPhone and iPad are significantly different.

2:20 Dan Moren: Cook: Both of theses products—specifically iPhone 4—backlog at end of last quarter. Currently selling both products as fast as can make them. Quoting longer lead times than we'd like, trying to get supply/demand in balance. In the scheme of things, it's a good problem to have.

2:20 Dan Moren: Q: Any additional color on what the causes of constraint are?

2:21 Dan Moren: Cook: High demand is never a problem. On the iPad, as mentioned, went into making it thinking that 1 million per month capacity was very bold move. In fact, if you look at analysts, they predicted only sell that many all year. But sold 1 million per month. Increasing capacity as quickly as possible. Number of things that have to be increased to do that. Fairly confident we will be able to increase capacity. Not a situation when something is stopping them.

2:22 Jason Snell: So basically, they are making iPads and iPhone 4s as fast as they can. For the iPad that appears to be about 30,000 per day.

2:22 Dan Moren: Cook: The iPhone, just started ramping end of June with very limited days last quarter. Launched on 24th, quarter ended on 26th. Still ramping and increasing volume. Not a specific thing that is an overwhelming issue.

2:23 Dan Moren: Q: Mix of iPhone 4/iPad is a negative for gross margin this coming quarter. iPhone has typically had margins above corporate average. Why on the negative side for Sep? Little more detail on adjustments that affected gross margin in June.

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