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.
2:23 Dan Moren: Peter: I don’t want to go into a lot of specificity about adjustments, but did have some that occurred in supply chain and some other product costs that benefited us in June. Larger contributor of the second set of factors that I outlined.
2:24 Dan Moren: Cook: Gross margin for Sep quarter, just introduced iPad and iPhone 4. Delivering great value, but products have higher cost structures. iPhone 4 has a higher cost structure than previous model that was shipping. Pretty aggressive with pricing, and that’ll play through on margin line.
2:24 Dan Moren: Next question: Gene Munster, Piper Jaffray.
2:24 Dan Moren: Q: Talk a little about dynamics between last year and this year iPhone launch?
2:25 Dan Moren: Cook: Greatly reduced shipments of 3GS around June 7th (WWDC). Coincided with announcement of iPhone 4. Didn’t launch iPhone 4 and 8GB 3GS until June 24th, only 3 days before end of quarters. As a result, significantly lower sales after June 7th, waiting on launch.
2:25 Dan Moren: Cook: In fact if you look at year over year growth rate prior to June 7th, it was around 90%.
2:26 MacJournals.com: CNBC is downplaying the blowout now, saying that since Apple “tamps down” its estimates, the numbers were in line with what the “optimistic” analysts were expecting.
2:26 Dan Moren: Cook: As you know, we exited quarter with total iPhone sales up 61%. Basically we did a channel adjustment. Pulled previous generation down significantly in channel inventory, increaesed from zero iPhone 4 units and 8GB 3GS and net reduction was about quarter of a million units from beginning of quarter. Run rate associated with sales of new product are larger than those of the old product.
2:26 Dan Moren: Q: So last quarter, 2.7 million units in channel?
2:26 MacJournals.com: Of course, most analysts project well above what Apple projects, and the numbers were still WAY above the consensus estimate, so this does not withstand scrutiny.
2:26 Dan Moren: Cook: Right, so ended at about 2.45. Previous generation draw down was slightly less than 1.3 million. Combination of iPhone 4 and 3GS was up about 1 million. Vast vast majority of that was in transit, not for sale.
2:27 Dan Moren: Cook: If we would have held inventory slack since beginning of quarter, a little over 250,000 more units. However, really would have wanted to do if had opportunity, would have taken inventory from beginning of quarter to end of quarter, because end of quarter was larger run rate at end of quarter with new products.
2:28 Dan Moren: Q: Shortages of iPad/iPhone 4 right out of the gate: any insight into why there’s supply problems at product launches?
2:28 Dan Moren: Cook: Look at previous generation product, guess the number of units to sell many weeks before hand. When we run out, we run out. Tend to manage that agressively on purpose because would like market to move to new product.
2:29 Dan Moren: Cook: In terms of new product, we don’t create a shortage for buzz. Not our objective; would like to fill every customers order as much as we can. Demand for iPhone 4 is stunning, would like to catch up with demand, but can’t predict when that will happen.
2:29 Dan Moren: Q: Since the issues with the antenna, any changes in demand for iPhone 4?
2:29 Dan Moren: Cook: Let me be very clear: we are selling every unit we can make currently.
2:29 Dan Moren: Ben Reitzes, Barclays Capital.
2:29 Dan Moren: Q: Elaborate on last question: you haven’t seen any slowdown in order rates? Or any increase in returns noticeable?
2:30 Dan Moren: Cook: Ben, my phone is ringing off the hook with people who want more supply.
2:30 Dan Moren: Cook: It’s hard to test the real question you’re asking about the effect, because we’re selling every one we can make.
2:30 Dan Moren: Q: On the return issue?
2:30 Dan Moren: Cook: The returns that we’ve seen on the iPhone 4 are less than the 3GS as Steve said last Friday. The returns for this particular issue are very small
2:31 Dan Moren: Q: With regards to iPad, when do you think supply/demand will be in balance? Refer back to your experience with other products?
2:32 Dan Moren: Cook: We honestly don’t know. We had been pleasantly surprised at how fast this product has gotten out of the chute. If you look at how long it took us to sell the first million iPods, 20+ months vs. one month of iPad, it’s a phenomenal difference. Not following typical early adopter curve and cross into the mainstream. I don’t know how high is high. Our guts tell us this market is very big and we believe that iPad is really defining the market. Want to take full advantage of it so we are investing enormous time and resource in increasing our capability to getting iPad out to as many people as we can.
2:32 Jason Snell: Big endorsement of iPad market there.
2:32 Dan Moren: Q: You surprised about how many wants the 3G iPad? What’s the split between 3G and Wi-Fi?
2:33 Dan Moren: Peter: We’re not going to disclose the splits, but all models have been very popular. The demand has been just amazing, overall ASP in the June quarter for iPad was $640.
2:33 Dan Moren: Next question: Bryan Marshall.
2:33 Jason Snell: At the rate they’re making them, they’d sell 9M total iPads for this calendar year. If they increase the rate, they are saying they’ll sell more than 10M in calendar 2010.
2:33 Dan Moren: Q: With regards to upside in Mac as well as iPhone? Pretty impressive that iPad came in this quarter. iPad potentially cannibalize from other products going forward?
2:33 Jason Snell: Well, more than 9M, but let’s assume it’s at least 1M more 😉
2:34 Dan Moren: Cook: We do talk about this internally. Only been selling for 3 months, so it’s too early to tell. if you look at our quarter, we’re thrilled that we reported our best Mac quarter ever in the same quarter that we sold almost 3.3 million iPads.
2:34 Dan Moren: Q: Any updates on how the iAd business is doing?
2:34 Dan Moren: Peter: We’ve just launched iPad in early part of July. We’re going to learn a lot this calendar year and build a foundation for the future. Beyond that, no further specifics to share.
2:34 Dan Moren: Q: An update on how the data center build in North Carolina?
2:35 MacJournals.com: Despite what Cook said about huge demand for iPhone 4, CNBC just said he “ducked” the question and that Apple said it “can’t tell” what impact “antennagate” is having on iPhone 4 sales. Wankers.
2:35 Dan Moren: Peter: North Carolina is on schedule, everything is going fine. Expect to complete it by end of calendar year and begin to use it.
2:35 Dan Moren: Next question: Toni Sacconaghi with Sanford Bernstein.
2:35 Dan Moren: Q: Gross margin question. On guidance last quarter, you said about a quarter of sequential decline came from iPads, abotu 150 basis points. Relative to your expectation on that, what kind of impact did iPads have on your gross margin?
2:36 Dan Moren: Peter: Toni, the factors that we cited last quarter, largely on a collective basis, were as we thought. Did about 310 basis points better than we thought. The biggest piece of that difference really came from selling more iPhones and selling accessories. Other factors were generally about what we though they would be.
2:37 Dan Moren: Q: So you were expecting to be down about 570, you were down about 260…what was the collective impact of those two positive forces? How do we think about these factors?
2:37 [Comment From JSCarlton ] I think he DID duck the question. He didn’t address whether demand was down…just said that it was hard to measure.
2:37 Dan Moren: Peter: Ahead of what we thought by about 310 basis points. About half of that was better iPhones/accessory sales. Rest of it came from favorable adjustments were the bigger piece of the remaining half.
2:37 Dan Moren: Q: Comment on whether adjustments were one time? Discretionary?
2:38 MacJournals.com: Fair enough, JSCarlton, but I would argue it makes little difference when they’re already selling more than every unit they can make.
2:38 Dan Moren: Peter: The ones that we benefited from, I don’t expect them to reoccurr.
2:38 Dan Moren: Q: Tim, you had talked a little bit about channel inventory. Sounds like you might have 1.4 million in existing channel inventory of the older 3GS. Is that correct and where and how are those being sold currently?
2:38 [Comment From AaronS ] Wouldn’t a data center be great for a more cloud focused iTunes (streaming and such)? Could that be some indication of a move that direction during the very beginning of next year, and not sooner?
2:39 Dan Moren: Cook: We had about 1.4 on June 26, end of fiscal quarter. Currently, we have less than that. Sold in most of countries we sell 3GS in.
2:39 Dan Moren: Q: Any progress since end of quarter in increasing total channel inventory?
2:39 MacJournals.com: Aaron: Apple already has huge infrastructure needs with the existing iTunes Store (including both music, TV shows, and apps), MobileMe, and even old standbys like movie trailers. I don’t think you can project that a new data center means cloud-based music, although it gives Apple more options.
2:39 Dan Moren: Cook: I never feel like I’m fighting a losing battle. On iPhone 4 we are selling things as quickly as we make them, so we have more work to do there.
2:39 Dan Moren: Q: If you’ve taken down inventory of non-iPhone 4 and selling them as quickly as you can, inventory is lower now than on June 26?
2:40 Dan Moren: Cook: Keep in mind we sell the new 8GB 3GS, so 1.4 million that I was referring to are the iPhone 3GS units in the previous generation.
2:40 [Comment From Neven ] Aaron: the data center may be useful for a future streaming service, but not necessary, especially not in the early days.
2:40 Dan Moren: Q: Final question, you talked a little bit about cannibalization of iPads on Macs, and iPod touch on year over year basis. ASPs fell quite a bit on the iPod business. Any cannibilization of iPod touches on IPad?
2:41 Dan Moren: Peter: Toni, our iPod ASPs were down about $7 sequentially, driven mainly by start of back to school promotion which started in June, and stronger US dollar. Did mix up into iPod touch, year over year.
2:41 Dan Moren: Next question: Keith Bachman, Banc of Montreal.
2:41 Dan Moren: Q: Peter, when the iPhone when you were using deferred accounting, deferred balances indicated that margins went up over time. Would you anticipate that iPad margins will increase as we move forward?
2:42 [Comment From Humbledaisy] So, is itnsafe to say that Apple isn’t beleaguered anymore?
2:42 Jason Snell: I think it’s safe to say that Apple is a titan of industry now, Humbledaisy.
2:42 Dan Moren: Peter: We’re purposefully aggressive when we launched the iPad because we believe we had a great product and a great first-mover advantage. Selling them as quickly as we can make them. We are always working to become more efficient and ride down the cost curves, and no different on the iPad.
2:42 Dan Moren: Q: Any comment on the impact of the bumpers? Figuring costs into September, any other impact?
2:43 Dan Moren: Peter: Two impacts of this. First is that we will need to defer revenue for the iPhone 4s that we sell where we’ve not delivered the bumpers and where we have not heard from the customers wanting to place an order. I expect the accrual we’ll need to make (a revenue accrual with no cost) will be about $175 million in Sep quarter and will be recorded as revenue in the Dec. quarter. Will expense cost of bumpers when we ship them to customers and our most important objective is to take care of every customer.
2:44 Dan Moren: Q: Tim, Android shipments increasing, gaining press. Any color about where you see Android as competition to iPhone?
2:44 [Comment From Markus] Cant scroll down with iPad 🙁
2:44 Jason Snell: Markus, try scrolling with two fingers on your iPad.
2:44 Dan Moren: Cook: I haven’t seen Android results for June, since it’s several companies. But iPhone sales were up 61 percent in the quarter, despite the inventory drawdown. And that’s against IDC’s smartphone expectation of 37 percent, so growing faster than market.
2:45 Dan Moren: Mike Abramsky, RBC Capital Markets.
2:45 [Comment From Markus] Thx! Great 🙂
2:45 [Comment From Alex Brooks] Markus: Use two fingers to scroll.
2:45 MacJournals.com: Yeah, on iOS, to scroll an area within a larger scrollable area (like a small area inside a web page), use two fingers on the smaller area to scroll it and not the larger Web page.
2:45 Dan Moren: Q: Still some questions around sustainability of iPad demand after early adopters and international rollout, because still a relatively new category. Thoughts? May be some competitive subsidized 3G tablets coming in fall, how do you see that impacting the iPad pricing/demand?
2:46 Jason Snell: Someone’s iPhone or iPad alarm just went off on the conference call. Is that their warning to get off the call? 🙂
2:46 Dan Moren: Cook: On iPad we are absolutely selling every unit that we can make. Looks good in every country that we have launched in and we’re excited about launching in additional countries this coming weekend. Anecdotally, it seems that it’s beyond early adopter stage, based on watching people using it. It’s the fastest that has happened with any product I know of our have been involved with.
2:47 Dan Moren: Cook: In terms of competition, I don’t know what they will try. No secret that everybody’s working on something, but we’re extremely happy with our competitive position and business model that we have, looking at U.S. as an example, where you have a very affordable rate structure that starts at $15 w/ no commitment and very aggressive device price, that seems to be what the end user really desires.
2:47 Dan Moren: Cook: So, yes, somebody could come in and jack the rate plans way up and subsidize, but I’m not so sure that people are really going to want another contract. Right now, thrilled with our position.
2:47 Dan Moren: Next question: Charles Wolff, Needham and Company.
2:48 Dan Moren: Q: In the past, iPhone software developers not about App Store rules, but about the fact that they are arbitrary. Has Apple done anything about this?
2:48 Dan Moren: Peter: We are always looking to make our developers happy. Over 225,000 apps with over 5 billlion downloads, thrilled to have crossed $1 billion in payments to developers, and have just launched iAds. Care deeply about our developers and want to have many many great apps for iOS products, and success that we’ve had to date is unparalleled.
2:48 [Comment From Lex] Is Dan Moren the fastest typist on the planet? And are rumors that he’s typing this transcription on an iPad with one hand behind his back true?
2:49 Jason Snell: 1. No, I am. 2. Actually he has six fingers on each hand, so he has an unfair advantage over the rest of us.
2:49 Dan Moren: Cook: Vast majority of apps are approved within 7 days of their submission. Many of those unapproved have bugs and are resubmiitted and approved. All of us want to insure that porn and graphic scenes don’t make their way to the platform. Not 100% of us will agree, but many of us would like to keep it that way.
2:49 Dan Moren: Q: Do you think concern of developers is misplaced?
2:49 MacJournals.com: My name is Inigo Montoyo. You transcribed my father. Prepare to type.
2:49 Dan Moren: Cook: We value the input of every developer and very much listen to them and modify our programs when we can. Very open to any kind of feedback.
2:50 Dan Moren: Next question: Shaw Wu, Kaufman Brothers.
2:50 Dan Moren: Q: Normally Mac is up sequentially from March to June, any color you can share there?
2:50 MacJournals.com: Now THAT, ladies and gentlemen, is what ducking a question is about. Cook turned the clearly arbitrary App Store rejection rules into something about filtering “bugs” and “porn.” Absolutely no attempt to address the substance of the question.
2:50 Jason Snell: Yes, Apple is still playing the pornography card as its rationale for App Store rejection policies.
2:50 Dan Moren: Cook: A little bit of yin and yang when we announce new portables, you’ll see a substantial move to portables when there’s no new desktop announce at same time. Clearly a move to mobility, and you’ll see portables grow in the long long long run.
2:51 Dan Moren: Q: On FaceTime, you talked about how you wanted to turn that into an industry standard. How do you plan to roll that out? Available on Windows? On the Mac? Any color?
2:51 Dan Moren: Cook: We want to make sure we get to all financial questions. Punt that one for another day.
2:51 Dan Moren: (Ouch.)
2:51 [Comment From Glenn Fleishman ] Wish Apple would stop trotting out porno/graphic violence as reason for app rejection, when that’s not what anyone’s complaining about in terms of inconsistent approval process.
2:51 Dan Moren: Next question: Katy Huberty, Morgan Stanely.
2:51 [Comment From Neven] That was a remarkably lame answer to the question about App Store rules and how they are applied. The question was about the cases where the rules are inconsistently applied (or not even known), the answer was about iAds and apps which break obviously known rules.
2:51 [Comment From kishba] Wow, great questions on behalf of developers…if only Apple could provide a better answer.
2:52 [Comment From MPH] Didn’t really answer the question on the app store transparency…. it’s not the rules on bugs or porn, it’s the random new rules they invent as they go along.
2:52 Dan Moren: Q: iPhone revenue units in Asia, Europe, and Japan. Why not North America? Law of large numbers? Anything to reaccelrate growth in domestic market?
2:52 [Comment From KBeat] It’s been a while since I’ve read a report of an arbitrary app store rejection. Seems to have cleared up some. You guys aware of any in the past month or so?
2:52 [Comment From Humbledaisy ] I am a developer. I give feedback. Hello? Not rejected for bugs our porn! Frustrated, saddened and tired…
2:53 Dan Moren: Cook: Not law of large numbers. Phone market will increasingly come a smartphone market, as Steve said long ago. We’ve seen that that forecast has come true as the smartphone market has grown at multiples of basic handset market, which is shrinking. Lot of opportunity domestically and in other parts of America. Peter’s comment was more that our growth as a company, whether you look at Mac, iPhone,iPod, we’re growing faster internationally than domestically. Can see that in revenues as well. Revenues in America are growing over 40 percent, though.
2:53 Dan Moren: Cook: It’s just that the international numbers are absolutely killer.
2:53 Dan Moren: Q: On the global basis, lot of the growth has come from broadening growth, new carriers and countries. Opportunity to broaden markets you’re already in? India and China? Prepaid markets?
2:54 Dan Moren: Cook: Both on the Mac and the iPhone and later the iPad as we roll it out to more places, still extraordinary opportunity left. Look at the Mac as an example.
2:54 Dan Moren: Cook: In Asia Pacific, Macs grew 73% year over year. This is phenomenal that we could grow this month. In China, we grew 144%, in Korea, 184%, in Hong Kong we almost doubled. Even in Spain, with difficult economy, Mac grew 59%.
2:54 [Comment From Humbledaisy ] Our app SonicPics was rejected (thrice) for something Apple explicitly told us was ok! Sure, they approve after being confronted, but it takes more that a week often!
2:55 Dan Moren: Cook: Very extraordinary numbers. In iPhone space, we are doing well in all of the key markets, and so in terms of expanding that, learning what we’ve learned with the exclusive deals, and continuing to look market by market, we’ve elected to open Spain up, will go from exclusive carrier market to having 3 carriers. That’s one example.
2:55 MacJournals.com: Not wanting to let App Store policy take over the chat, but wanted to show that lots of you think this is an important issue, just as many of you think it probably is not.
2:55 Dan Moren: Cook: There are still countries left, and market penetration (enterprise and consumer) and move in marketplace from basic phone to smartphone, all of this is in iPhone favor. Enormous amount of opportunity. Our biggest challenge is to decide which to deploy resources against.
2:56 Dan Moren: Next question: J.P. Morgan, Mark Moskowitz.
2:56 Dan Moren: Q: Coming back to the iPad for a second, speculation about potential cannibalization down the road? Reverse effect where people buy iPad, and buy more devices? Data shown that? See someone buy iPad and then buy MacBook or iMac or iPhone?
2:57 Dan Moren: Cook: That’s a very good question. Internally we focused on the synergy between, both technically and from a demand point of view.
2:57 MacJournals.com: They’re likely going to wrap up the call very soon. If this isn’t the last question, the next one or two will be.
2:58 Dan Moren: Cook: All of the people here thought the iPod created a halo for the Mac, you saw a takeoff for Mac sales. Could that happen on iPhone and iPad? We’ll see, I don’t want to predict it. I do think that with Mac outgrowing market 17 straight quarters, however the Mac share is still low. Still a huge opportunity for the Mac, so the more people we can introduce in the market via iPhone, iPad, iPod, then there may be synergy there. That’s the way that we look at internally.
2:58 Dan Moren: Cook: Everboyd’s more focused on the negative (i.e. cannibalization). This is where it’s great to have a lower share, because if the iPad cannibalizes PCs, because there’s a lot of PCs to cannibalize, it’s still a big market.
2:58 Dan Moren: [That’s ZOMBIE talk, Tim!]
2:59 Dan Moren: Q: If the sub-contractors you work with have to put in significant wage hikes, how does that affect you?
2:59 Dan Moren: Cook: We don’t want to get into the terms of commercial agreements. We hold these to be competitive advantages and don’t want to release these.
2:59 [Comment From Ukflo ] Did I miss it or was there no question re. iPhone coming to Verizon
2:59 Dan Moren: Christ Witmore, Deustche Bank
2:59 Jason Snell: here it is!
2:59 Dan Moren: Q: Plenty of headroom with AT&T or looking to expand?
2:59 Jason Snell: @Ukflo, great timing.
3:00 Dan Moren: Cook: Very happy to be partnered with AT&T. Have really pioneered the smartphone growth from a network point of view in the U.S. That’s all I have to say about that.
3:00 [Comment From bc] Mac still growing, outgrowing overall market 17 straight quarters? hardly seems like Mac is of no interest to Apple, as some pundits seem to say these days…
3:00 Jason Snell: Right on, @bc.
3:00 MacJournals.com: There was no specific Verizon question because they all know Apple won’t answer it; it just wastes their time to ask questions. This more vague question is about as close as anyone will probably get.
3:00 Dan Moren: Q: Gross margin question. iPhone margins down quarter on quarter? Provide a little more color on which components are driving that, seems to contradict third-party estimates?
3:00 MacJournals.com: BC: We’ve pointed out (sporadically) that since Mac sales are growing DESPITE Apple not pouring significant “excitement” into the platform, it’s a strong indicator that they don’t need to take huge risks to get huge rewards.
3:01 Dan Moren: Peter: Don’t put a lot of credence into third-party reports that you see. Always seems that things don’t make it into those reports. With iPhone 4, we’ve been very aggressive here. Best iPhone we’ve ever shipped and it has a higher cost structure and I don’t want to comment on its specific gross margin.
3:01 Dan Moren: Q: Ballpark size of supply/demand gap for iPhone/iPad. Couple million iPhone units short of demand and 500,000 units short? Is that the kind of gap we’re talking about?
3:02 Dan Moren: Cook: That’s very difficult to answer. The way you find out is that you have enough supply to serve the demand and then you figure out what the gap is. We have taken bets internally and we have rolled those into the guidance. We’re pretty confident with being able to pick up the supply.
3:02 MacJournals.com: Apple will put an audio file of this in the quarterly results podcast on iTunes, but download it SOON, because they’re usually removed after about 3 weeks and never made available again.
3:02 Dan Moren: Annnnnnd that’s the show.
3:02 [Comment From Moltz] No question about Jobs’ health? Who replaced our regular analysts with human beings?
3:02 Jason Snell: And that’s the show. Pick up the podcast available on iTunes. Collect them all!
3:02 Dan Moren: That’s because they kept asking about cannibals, Johnny boy.
3:02 MacJournals.com: Also, seekingalpha.com will have an automatically-produced transcript up later tonight, if history is any indicator
3:03 Jason Snell: We’ll have more later on Macworld.com, as always. Snazzy graphs. Searing analysis. Teary anecdotes.
3:03 [Comment From KBeat] Great job as always guys.
3:03 [Comment From Alex Brooks] Thanks again guys. Fantastic coverage as always.
3:03 Dan Moren: I miss my new analyst friends already.
3:03 Jason Snell: Charlie would like to have a word with all of us.
3:03 Dan Moren: See you in 3 months, everybody.
3:03 MacJournals.com: I think they’re finally getting used to what questions they’re not going to get answered.
3:03 Dan Moren: It only took how many years, Matt?
3:03 Jason Snell: See, even financial analysts can be trained!
3:04 MacJournals.com: 14?
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