Apple Earnings - Live Update

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Keith: Expect similar trajectory over March quarter? And, vis-a-vis 19%, which direction does that go?

Peter: Have to see. Sales will be down sequentially in March quarter. Don't know if it will follow Tiger's lead, but Leopard's been doing very well. Talking about largely box sales, but Leopard is shipping on every Mac too, and that contributes to Mac sales.

Keith: Japan sales had a nice bounceback. What caused that?

Tim: We've struggled there for several quarters. One data point doesn't make a trend, but reception to iMac was tremendous. Desktop share went from 6% to 10% year-over-year, and iPod touch was received well. Those two things together really drove Japan performance.

2:38 PT - DM: Charles at Needham and Company (this guy sounds like Jack Nicholson): Revenue sharing with carriers? Does Apple share in incremental revenue that Orange (in France) gets on an unlocked phone?

Peter: Not discussing deals with carriers.

I want you to get me a carrier sales detail. Hold the turkey, hold the mayonnaise, hold the AT&T data. And I want you to hold it between your knees. (Too obscure a Jack Nicholson reference?) -J.S.

2:40 PT - DM: Gene Munster at Piper Jaffray: Lot of questions about high-end consumer health? How should investors view that relative to Apple in 2008?

Peter: Leaving economic forecasting to others. We're focusing on managing our business. If Dec. quarter was any indication, Apple did incredibly well. Revenue up both in and out of US; retail stores had record quarter, traffic up 10 million year-over-year. Very confident in strategy and products. Going to keep coming out with innovative hardware and software products.

Gene: In terms of international iPhone rollout, what's the target?

Tim: Plan to enter Asia in 2008. Rolling out additional European countries in 2008.

Gene: Lot of talk on China; anything specific?

Tim: Nothing specific to announce today.

Gene: What will it take for the Apple TV to become more of a business than a hobby?

Tim: We're back with Apple TV take 2, and movie rentals direct from iTunes. "We think we have it right this time, so we'll see." Not projecting volumes, but think we have a great product.

2:42 PT - DM: Andrew at Bear Stearns: When you talked about US iPods being flat, is that year-over-year?

Tim: Unit sales, year-over-year were flat in the US, yes.

Andrew: Sense of what you were seeing in terms of consumer behavior with all this traffic?

Peter: In Dec. quarter, retail stores had a quarter for the record books. Mac sales 504,000. Up year-over-year. Over half Macs sold were to new Mac users.

Andrew: Store opening plans for this year? What do you see in domestic and international?

Peter: 35-40 stores will open in fiscal 2008. Today, about 25 stores are outside of the US, and more stores will open internationally in 2008 than they did in 2007, including first stores in China.

2:44 PT - DM: Tony with Stanford Bernstein: Can you explore comments on different curve of demand seen in last month of quarter: only iPods or did the Mac curve look any different?

Tim: Mac was very strong throughout the quarter; that curve had to do with iPods. Point is that the shape of the curve in the buying season was different in US, but similar internationally.

Tony: Rough math might suggest non-Apple channels only grew in single digits in the US; comment what you're seeing in those channels relative to other quarters?

Tim: Reiterating numbers. America with retail grew 29%; strip out retail stores, America grew at 22%. US grew at 27% year-over-year.

Tony: If US grew at 27%, stores grew at 50%. He's trying to figure out the other channels and see if there are any other observations about linearity throughout the quarter (some of the math here is a bit over my head in terms of what he's trying to figure out here).

Tony: Can you comment on the number of unlocked phones estimated sold?

Tim: Number of phone bought with intention of unlock was significant, but not sure how to estimate that. Saw sales increase as predicted in Dec. quarter vis-a-vis holiday gift-buying pattern. Not sure about when people are actually activating. Don't have a precise estimate. We see this phenmenon as an expression of very strong interest in iPhone globally, and in that way "it's a good problem to have."

Tony: Believe percentage of unlockers higher or lower?

Tim: Too early to tell, but I think it's significant.

Tony: Given that iPhone has over $1 billion in deferred revenue, a reason you're not disclosing iPhone channel info?

Peter: Since only one channel partner in each country, not reporting inventory.

The iPhone unlocking questions are fascinating to me. Essentially the story here is that Apple sees a lot of iPhone sales that never end up getting activated with their partner in whatever country they're in. Their speculation here is that these are people who live in countries without iPhones, and people are so desperate to get Apple's iPhone technology that they're willing to unlock the phone in order to use it in their country. The fact that Apple thinks those numbers are "significant" is kind of amazing to me, but then again I've heard tell of iPhones all over China, and of course there's no deal to legally bring the iPhone to China. -J.S.

2:49 PT - DM: Mike at RBC: Help reconcile 2.3 million in December with 4 million announced at Macworld?

Peter: 4 million iPhone were to date as of keynote. 3.7 million iPhones sold cumulatively sold through Dec. quarter were part of that.

Mike: Increase in run rate since December?

Peter: I'll leave the analysis to you, but remain confident and seeing good sales.

Mike: Quantitative or qualitative in international iPhone results compared to US?

Tim: Very limited experience, but very happy with all the launches so far.

Mike: Is 3G and Bluetooth important to that iPhone outlook and European market?

Tim: We don't talk about new products, but we're very confident.

Mike: Based on the roadmap you have?

Tim: We're very confident about 10 million in 2008.

2:51 PT - DM: Question: Does your guidance presume roughly flat component cost?

Tim: We believe DRAM and flash memory remaining pretty flat. LCD markets in a close balance, with some improvements in cost. Most other components, seasonally slow March quarter results in pretty flat costs.

Question: Should we be building in expectation of sequentially down shipments for iPhones? Peter: We've only recently begun selling iPhones, so can't comment.

2:53 PT - DM: Shaw Wu (everybody's favorite analyst!) from American: Desktop business was stronger than portable in sequential and year-over-year. Any color?

Tim: iMac announcement in August was extremely well-received and iMac has enormous momentum. Total desktops grew at 53% comparing to IDC's projection of 10% desktop growth.

Shaw (isn't it Shaw?): Re: iPhone seasonality. It's a little early, but looking for a little help in terms of thinking about iPhone seasonality?

Peter: Just not something I can comment on this quarter. We'll report to you in April about March quarter.

Indeed, if you look at Mac sales, laptop sales receded quarter-to-quarter, but desktop sales were up sharply. And Cook points out that Apple's desktop sales grew at 53% and the iMac sales were even better than that. We'll see what the MacBook Air does, if anything, for Mac laptop sales in the second quarter. -J.S.

2:55 PT - DM: Chris Whitmore: How many retail outlets or distribution during quarter?

Tim: Mac was available in 9500 outlets this year compared to 7700 a year ago. Plan on doubling the number of Best Buy stores.

Chris: iPhone outlets? Is there a target? Expansion of Best Buy relationship?

Tim: 2500 storefronts in Europe carrying iPhone, between UK, France, Germany. 2000-2100 in US between Apple Stores and AT&T stores. Nothing to announce today in terms of expansion.

2:56 PT - DM: Andy at Pacific Securities: On Apple TV, any plans on new in store displays? Any other marketing, especially at 3rd party retailers?

Tim: We're looking at it, but nothing to announce today.

Andy: Doing anything to promote corporate use in reseller channel or in education?

Tim: Education market had record Q1; grew about 5x IDC's forecasted rate of growth, both K12 and higher ed. Many many examples of small businesses using Macs; large corporations remain interested as well.

2:57 PT - DM: And we're wrapping up. If you want to listen, the call will be available as a podcast (oh joy!). If you're having trouble getting to sleep tonight, the replays will be available at 5PM PT today.

2:58 PT - DM: That's all, folks. If you enjoyed it half as much as we did, well, we enjoyed it twice as much as you. See you next quarter.

Thanks for tuning in, everybody. We listen to financial conference calls so you don't have to! -J.S.

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