Dan Moren - 2:17:04—Looking ahead to Dec, here' s the outlook: sunny, with a chance of cash!
Dan Moren - 2:17:18—Changing the way we account for iPhone and AppleTV.
Comment from Brainwrap - 2:17:21—As John Gruber put it: "More Macs and more iPhones than in any previous quarter in history. In a worldwide recession. With the holiday quarter still to come. Yowza."
Comment from Dominique James - 2:17:39—Where in Manhattan will they open the store in November? ("Upper West Side," I believe they said.-JS)
Dan Moren - 2:18:03—Don't know at this time the amount of revenue deferral for iPhone and Apple TV and believe substantial portion of revenue will be recognized at sale.
Dan Moren - 2:18:44—Will be required to adopt new rules no later than Q1 2011, but can adopt in fiscal year 2010, currently assessing adopting it. Uncertain as to timing of adoption.
Dan Moren - 2:19:15—Today's numbers based continue to be based on current subscription accounting.
Jason Snell - 2:19:35—Read more about this change in accounting rules in this CNET story from September. (Hat tip: MacJournals.)
Jason Snell - 2:19:52—We've stopped the MacJournals Twitter feed for now because it duplicates what we're writing, FYI.
Dan Moren - 2:19:56—Revenues between $11.3 billion and $11.6 billion. Gross margin 34%. Opex $1.64 billion. Tax rate to be about 30%. EPS around $1.70-$1.78.
Comment from JPM - 2:20:32—Does that change in accounting for iPhone/AppleTV sales mean that they will start charging for iPhone OS updates? (Probably the reverse: they'll stop charging for iPod touch updates.)
Dan Moren - 2:20:39—18% net income growth. Continued to release new products such as MacBook Pros, iPhone 3GS, iPhone 3.0, more.
Dan Moren - 2:20:47—Looking forward to delivering exciting new products in 2010.
Dan Moren - 2:21:01—And now we're on to questions.
Dan Moren - 2:21:49—Gardner from CitiGroup: Factors informing guidance for next quarter. Why sequential jump in revenue is so much below what has been seen in last few years?
Dan Moren - 2:22:40—Opp: Gross margin declining because of 4 factors. 1) New products greater value to customers and lower gross margins. 2) As expected, seasonally higher mix of iPods and fewer Snow Leopard sales. 3) Air freight is higher. 4) Component costs are up.
Dan Moren - 2:23:06—Guidance includes double-digit revenue growth from last year, which was best quarter. Lower ASPs this year.
Dan Moren - 2:23:54—Barclays Capital: 1) Channel inventory in iPhone. Supply situation? Lack of availability overseas, alleviated at end of quarter. Pent-up demand?
Comment from MB - 2:23:54—@ JPM: read on Macworld (I think) that they would STOP charging for it. Can someone confirm? (That seems most likely.-JS)
Dan Moren - 2:24:34—Cook: Many of the countries had demand outstripping supply, but improved in Sep, and supply and demand converged in most countries in Sep. or early Oct. Now have about 2.4 million units in the channel, and that's additional 585,000 from previous quarter end.
Comment from MacJournals - 2:24:43—Apple has the option to defer some iPod Touch revenue and give free upgrades, but it's not clear that would be an advantage for them or help sell more units, so I wouldn't bet on it.
Dan Moren - 2:24:45—Barclays: Comfortable with that, given China launch?
Dan Moren - 2:24:51—Cook: Would have liked to have more.
Comment from Dominique James - 2:25:10—When they say "delivering exciting new products in 2010" does it mean updates to existing product lines or new product categories? [Tantalizing, isn't it?-JS]
Dan Moren - 2:25:11—Barclays: Excitement or limitations in China? Velocity of units?
Dan Moren - 2:26:00—Cook: Thrilled to be launching on Oct. 30 with China Unicom. 1,000 points of sale and then expand further over next several months. Announced plans and prices for device and service, including a very wide range from $18/mo. to $8500/mo. At higher price points, individual can get device for free, and it goes up as you go down.
Comment from Boman - 2:25:58—Any word about non-laptop mac sales? Are they still growing, but not nearly as much as laptop sales? Or are they flat or even declining? Would that be bad news for any of the desktop lines?
Jason Snell - 2:26:20—@Boman: They're down year over year. Laptop sales are accelerating, desktop sales are lagging.
Dan Moren - 2:26:44—Cook: Shipped 3G and 2G phone prior, discovered that there were quite a few phones going into China, so seems to indicate a good opportunity. Not making projections on volume, and largest market in the world in terms of total phones. Aim to make it as large as possible in terms of smart phones.
Dan Moren - 2:26:49—Barclays: Economy update?
Dan Moren - 2:26:55—Cook: We leave the economy forecasting to economists.
Dan Moren - 2:27:21—Gene Munster, Piper Jaffray: Looking at iPhone, can you talk about pricing of phone when you go from exclusivity to multiple carriers?
Jason Snell - 2:27:35—That chart will show you unit sales for Mac desktops (blue) and laptops (green)
Dan Moren - 2:28:02—Cook: Pricing is confidential, Gene, so not something I can comment on in detail. Generally, for markets where already selling, not expect to see wholesale price difference as they bring on other carriers. However, end user price is set by carriers themselves, so may see a street price difference.
Dan Moren - 2:28:13—Munster: Wouldn't necessarily see change in pricing that you're charging the carrier?
Dan Moren - 2:28:16—Cook: Correct.
MacJournals via Twitter - 2:28:16—Tim Cook, COO ("TC"): Would have liked to have more iPhone units in channel because some countries are a bit low on supply
Dan Moren - 2:28:33—Bank of America: Not a lot of experience with seasonality in iPhone business, but how do you see that in Q4? And tax rate?
Comment from Sam Penrose - 2:29:36—Average price per portable/desktop? Guesses on #'s of Mac mini and Mac Pro? [It's $1380 per desktop, $1265 per laptop. I'd imagine it's 75-85% iMacs.-JS]
Dan Moren - 2:29:56—Cook: When we look at Sep to Dec. quarter, very few quarters to look at. In vast majority of countries, only been selling for just a year. Honestly speaking, new in the business still, and to make seasonality forecast would not be a good idea. Look at popularity of the iPhone 3GS has been phenomenal, very surprised by demand. Selling in 64 countries by end of quarter, roll out others like China, and hopefully Korea. Adding some carriers in some countries where only had one carrier before, such as UK and Canada. That's what we think about in Dec. forecast.
Comment from MacJournals - 2:30:27—ASPs are not all that meaningful to us because Apple gets retail price for units it sells retail/online, but only wholesale price for channel units. It's difficult to break that down into a meaningful number except for comparing quarters to each other.
Dan Moren - 2:30:30—Opp: Tax rate was 26% , below guidance of 30%, primarily due to higher mix of foreign earnings. For the year, around 29%. Fiscal 2010, about 30%, consistent with what's been seen the last few years.
Dan Moren - 2:31:04—RBC Capital Markets: Thoughts on holiday season, given increase in competitive intensity against iPhone? Lots of wannabes coming to market in that season, and many offering touchscreens, app stores, media, browsers, etc.
Comment from Benjamin Cox - 2:31:34—We know there are about 34 million iPhone handsets in the market, but how many iPod Touches? Those numbers are usually rolled into iPod sales figures... do we know how large the market of "handsets that support the App Store" is? [When it was 40M, it was 40% iPods, so my guess is that those numbers are similar now.-JS]
Dan Moren - 2:31:50—Cook: Feel great about how we ended fiscal year, selling 7.4 million. Almost 21 million for fiscal year. Up 78% from before. Significant momentum. Look at the ecosystem, with iTunes and App Store, with over 85,000 apps, a country mile more than anyone else, plus very strong product pipeline we have, we feel very very good about competing against anyone.
Dan Moren - 2:32:10—Cook: Frankly, think people are trying to catch up with first iPhone from 2007. Long since moved to beyond that.
Comment from MacJournals - 2:32:21—Apple probably wants to be careful about touting the number of apps in the App Store. Now that free apps can use in-application purchasing, we'd expect a lot of dual "lite/paid" apps to reduce into a single app, and that will drop the overall number of apps. It's not a bad thing, unless you're touting "we have this many apps" as a metric of success.
Jason Snell - 2:32:27—Cook doing a little trash talking about the iPhone's competitors.
Dan Moren - 2:32:29—RBC: Pleasantly surprised at mix of 3GS vs. $99 3G? What did that tell you abotu value proposition?
Dan Moren - 2:32:58—Cook: Demand for 3GS did exceed expectation, quickly changed orders for components that differed between models. Intense appetite for latest tech and very pleased with results.
Dan Moren - 2:33:16—Cross Research: Mac business: channel inventory levels, mix?
Dan Moren - 2:34:02—Cook: Last quarter was quarter of the portable. Up 35% year over year, compared to IDC at 9%. Blow-out quarter for portables. Result of the lineup we announcedin June. Backlog in the quarter on that line. Also, back to school help. Strongest back to school we ever had. Launch of Snow Leopard, which occurred later in quarter.
Jason Snell - 2:34:27—Last quarter was "the quarter of the portable." No kidding. I'm pretty sure Apple has never had 74% of Mac sales be laptops before. Now what is this about Apple's laptop sales dying because they don't have a netbook?
Dan Moren - 2:34:52—Cook: Group of things that came together to push us to a level above 3 million, beyond internal expectations and stretch targets. Started quarte before 3-4 weeks and ended quarter between 3-4 weeks, and to be specific, the inventory change less than 15,000 units from beginning to end. Very minor growth in sales from sequential view.
Dan Moren - 2:34:59—Cross: Snow Leopard install base?
Jason Snell - 2:35:01—I'll remind you, Apple's laptop sales went up quarter-over-quarter, and the average selling price went up, too. The average laptop sold last quarter cost $1265.
Dan Moren - 2:35:20—Cook: Upgrade sales of SL, include family and box set, more than double from what experienced for Leopard over same first 5 weeks. Much more than had planned, and very pleasantly surprised.
Dan Moren - 2:35:27—Cook: Yes, the price cut worked.
Jason Snell - 2:35:35—"The price cut worked," says a questioner. "YES IT DID!" Cook replies.
Dan Moren - 2:35:42—Credit Suisse: Last year, commentary around longer term gross margin? Fiscal 2010?
Comment from MacJournals - 2:35:54—Jason: again, Apple's average *revenue* per laptop was $1265. Higher for retail units, lower for channel units. It's difficult to find that meaningful to actual buyers.
Dan Moren - 2:36:23—Opp: Qualitative thoughts. Two things to be aware of: some key components have rising cost. Second, continuing to focus on delivering state of the art products and plan on providing ever-increasing value to customers.
Dan Moren - 2:36:49—Goldman Sachs: On the iPhone, what's the benefit of having exclusive agreement in bigger countries?
Dan Moren - 2:37:08—Cook: In an exclusive relationship, can test some level of innovation that would be more difficult with several carriers—Visual Voicemail, for example.
Dan Moren - 2:37:43—Cook: Also, in some cases, an exclusive carrier may be willing to invest more. No lack of people wanting to sell iPhones, frankly. Not sure if that's true on a broad basis, but may be true in some indvividual basis. Other than that, ask the carriers.
Comment from Sam Penrose - 2:38:04—@MacJournals: $1,265/portable ... MBP holding its own against MB; seems meaningful to me.
Dan Moren - 2:38:11—JP Morgan: Qualitative sense of impact of remodeled stores and increase in penetration with APple Stores internationally?
Jason Snell - 2:38:50—Come on, someone ask the netbook question. It's a classic....
Dan Moren - 2:39:10—Opp: Seeing strong results from remodeled stores. Ron and his team have remodeled 72 stores to bring to most updated design. Those designs provide best customer experience in the industry bar none, whether it be in selling part of the store, or in the Genius Bar or creative bars. Customers are having a great experience. In terms of int'l, the growth there was quite strong in quarter. Avg. store revenue up over 20% for int'l stores this quarter.
Dan Moren - 2:39:33—JP Morgan: Op/ex reatio going forward. Any sense thinking about R&D going forward? Any sort of changes regarding pipeline?
Dan Moren - 2:40:20—Opp: Don't want to give specific %, but over last year have managed op/ex well, but have been investing confidently for future, especially for engineering, distribution, marketing and advertising. Saw benefits of last downturn of coming out with strong product pipeline. Repeating that this time around. Being careful, making good choices, continuing to invest wisely and confidently in our future.
Jason Snell - 2:40:25—Our Glenn Fleishman has been tweeting fictional Apple announcements from an imaginary call. They are very entertaining, though crazy.