On content in iTunes
Oppenheimer: We’re actually thrilled with the rate that we’re adding content into iTunes. This is something we have to do country by country, so it takes a bit of time to put in place. We have the largest catalogs of songs and movies available anywhere. Over 28 million songs, and this led to almost 1.9 billion dollars of revenue in the March quarter, which was up 35 percent year-over-year. We’re thrilled with the progress that we’re making in iTunes, and customers love it.
Cook: It was an incredible quarter in China. Revenue was record, was record at 7.9 billion in greater China, which is up over three times year-over-year and brings the first half revenue for greater China to 12.4 billion. That compares to a full year, last year, of 13.3 [billion], so it is mind-boggling that we can do this well.
Part of this was the pent-up demand for iPhone 4S. As you know, we launched mainland China in January of this year. China was not able to get into the Q1 period, so all of that is in Q2. We also have very strong demand for iPad 2. We have not shipped in mainland China yet the new iPad, although we are shipping in Hong Kong.
It’s a combination of these things and the halo that both of these products have produced for the Mac is also incredible. Mac was up over 60 percent year-over-year, and that compares to a market rate of growth of about 6 percent.
We have expanded point of sales. On a year-over-year basis, Mac is up 70 percent, but still in only 1,800 [retail stores] for all of greater China. And so there’s obviously a lot more opportunity there. iPhone, we’re up over 11,000 [stores], which is 138 percent, but 11,000 is a much smaller than we have in the U.S., and obviously China will in the next few years be a bigger opportunity. iPad is only in 2,500 points of sale.
Yes, we’ve expanded, we’ve expanded a lot, however, there’s a lot of headroom there in our view.
[Any different mix of iPhone sales in China vs the rest of the world?]
Cook: I don’t have that in front of me, but my recollection is that it wasn’t materially different; keep in mind that iPhone 4S just launched within the quarter, and so usually when a new product launches within a quarter you would expect it to mix fairly much toward the new product.
Demand [for the new iPad] has been incredibly robust. We are selling them as fast as we can make them, as Peter mentioned earlier. In China, I believe on a macro basis, China has an enormous number of people moving into higher income groups, middle class if you will. This is creating a demand for goods, not just Apple’s but other company’s goods as well. I think that there’s a tremendous opportunity for companies that understand China, and we’re doing everything we can to understand it and serve the market as good as we can.
On potential component shortages
Cook: Tough question to answer. Obviously we’re aware of the transition issue you mentioned [regarding Qualcomm chips] with 28 nanometer. We currently do not use 28 nanometer parts, but as you also know we don’t comment on future products, so I can’t talk about the future part.
Generally, outside of this, we work very closely with our supplier partners, and do everything that we can do to get supply, and sometimes we’re successful with that, and sometimes we’re not. You can bet that we are focused on anything that we think may impact us in trying to push every button within our disposal to work on it.
On partnering with Wal-Mart
Cook: There’s no plan to be in 10,000 [stores]. We’re trying some things, and as you know that doesn’t include the Mac. We’re trying some things and seeing how it goes. They’ve been a very good partner for us on iPod, been selling iPod for awhile, and are an increasingly more substantial partner in the iPad space as well, and an evolving partner on iPhone. And so, we’re working with them, and enjoyed working with them, and hope to continue expanding.
On patents, lawsuits, and settling
Cook: Y’know, I’ve always hated litigation, and continue to hate it. We just want people to invent their own stuff. If we could get some kind of arrangement where we could be assured that’s the case and a fair settlement on the stuff that’s occurred, I would highly prefer to settle versus battle.
But the key thing is, it’s very important that Apple not become the developer for the world. We need people to invent their own stuff.
On research and development
Oppenheimer: We view [R&D’s uptick] as a good thing. We are investing in engineering to continue to bring out the most innovative products in the world to delight customers. We are making investments in our hardware and software engineering teams, we’re shipping the best products that Apple has ever shipped today, and we’ve got some fabulous new products in the pipeline.
On the iPad in the enterprise
Cook: Initially, our focus was on working with the Fortune 500 and the Global 500 to get the iPad certified for their particular enterprise and I’m pleased to report that 94 percent of the Fortune 500 are testing or deploying iPads, and 75 precent of the Global 500 are testing or deploying iPads. These numbers are just off the charts for a product that’s only 24 months old.
We are moving our focus away from this and focusing on penetration withint these accounts. Peter alluded to some of the wins we’ve had in his opening comments. The incredible things about these are that they span across many verticals, through government, through education, and many different functions within the enterprise.
It’s absolutely the most broad base product I have ever seen in my whole career in terms of adoption rate into the enterprise. Yes, this means that we’re applying more resources in salespeople to interact directly with these customers. We also work with our carrier partners and our reseller partners in delivering both the product and services that are wrapped around that to these customers.