Highlights From AAPL's Q4 Conference Call: Set New All-Time Records for Mac, iPhone and iPad Sales


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October 19, 2010 11:25 AM EDT Send to a Friend
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Last night (after the close), Apple (Nasdaq: AAPL) reported Q4 adj-EPS of $4.64, vs. the analyst estimate of $4.06. Revenue for the quarter was $20.3 billion vs. consensus of $18.86 billion. Sees Q1 EPS of about $4.80 vs. Street estimate of $5.04. Sees sales of about $23 billion vs. consensus estimate of $22.34 billion.

Highlights From AAPL's Q4 Conference Call:

  • (Peter Oppenheimer, Senior Vice President and CFO) Our innovative product lineup is the best ever, and customer response has been tremendous. As a result, we set new all-time records for Mac, iPhone and iPad sales in the September quarter and we are thrilled to report the highest quarterly revenue and earnings in Apple's history.
  • Revenue for the quarter was 20.34 billion, an increase of more than 8.1 billion over the prior September quarter's result, representing growth of 67%.
  • Operating margin was 5.45 billion, representing 26.8% of revenue.
  • Net income was 4.31 billion, which exceeded our previous quarterly earnings record by 930 million and represented 70% growth over the year-ago quarter's earnings. These results translated to earnings per share of $4.54.
  • Beginning with our Mac products and services: We set a new quarterly record with sales of almost 3.9 million Macs, exceeding the previous record established in the June quarter by over 400,000. This represents 27% year-over-year growth.
  • Moving to our music products, we sold nearly 9.1 million iPods compared to 10.2 million in the year-ago quarter.
  • iPod's share of the U.S. market for MP3 players remains at over 70% based on the latest monthly data published by NPD.
  • The iTunes store also had another strong quarter with revenue over $1 billion.
  • In September we launched iTunes 10 including a number of new features such as $0.99 TV rentals, AirPlay wireless music playback and Ping which offers social music discovery to millions of iTunes users in 23 countries.
  • We also introduced the new Apple TV which provides a simple way to watch movies and TV shows on your HDTV for the breakthrough price of just $99.
  • iPhone: We were extremely pleased to have sold 14.1 million iPhones compared to just under 7.4 million in the previous September quarter. This represents 91% year-over-year growth and is well ahead of IDC's latest published estimate of 64% growth for the global smartphone market overall in the September quarter.
  • Recognized revenue from iPhone handset and accessory sales was 8.82 billion during the quarter, compared with 4.61 billion in the year-ago quarter, an increase of 92%. The sales value of iPhones alone was about 8.6 billion, which yields an ASP of about $610.
  • We ended the quarter with about 3.3 million iPhones in channel inventory, a sequential increase of about 825,000 to support the launch of iPhone 4. We continue to have a sizable backlog and believe we could have sold even more iPhones if we had been able to supply them.
  • In fact, since we've shipped iPhone 4 we've seen extraordinary growth from 60% to more than 80% of Fortune 500 companies deploying or piloting iPhone. Enterprise CIOs continue to add iPhone to their approved device list worldwide. Most recently Fortune 500 companies like Procter & Gamble (NYSE: PG), General Electric (NYSE: GE), Pfizer (NYSE: PFE), Allstate (NYSE: ALL) and Cardinal Health (NYSE: CAH) and Global 500 accounts such as Aviva Group (NYSE: AV), Total (NYSE: TOT), Novartis (NYSE: NVS), Roche (OTC: RHHBY) and Sanofi-Aventis (NYSE: SNY) have made iPhone available to their employees.
  • Turning to iPad, we're thrilled with its momentum. In just Q2 of availability, we sold almost 4.2 million iPads with distribution in 26 countries by the end of the September quarter.
  • We're seeing great enthusiasm for iPad from consumers, educators and businesses. Enterprise CIOs are adding iPad to their approved device list at an impressive rate. Since the launch of iPad over 65% of the Fortune 100 are already deploying or piloting iPad. Some recent examples of companies approving iPad include Procter & Gamble, Lowe's (NYSE: LOW), Hyatt (NYSE: H), NBC Universal and Novartis.
  • We were able to increase the supply of iPads over the course of the quarter, building channel inventory by about 500,000 units to end the quarter with between three and four weeks of channel inventory, below our target range of four to six weeks.
  • We are expanding U.S. iPad distribution to include Walmart (NYSE: WMT), Target (NYSE: TGT), Verizon (NYSE: VZ) and AT&T (NYSE: T) stores. We are also expanding distribution internationally. Combining iPhones, iPad and iPod touch, we surpassed cumulative iOS device sales of 125 million last month.
  • The App Store continues to be an unparalleled success. There are now over 200,000 registered iOS developers who continue to bring outstanding and creative new apps to the iOS platform including over 65,000 game and entertainment titles and over 30,000 apps designed specifically for iPad.
  • I'd now like to turn to the Apple Retail Stores which had a record-breaking quarter. Retail revenue was 3.57 billion compared to 2.04 billion in the year ago quarter, an increase of 75%. Our stores sold a record 874,000 Macs compared to 670,000 Macs in the year ago quarter, an increase of 30%.
  • Our new Beijing and Shanghai stores opened on the last day of the quarter and first day sales from both stores exceeded all previous store openings.
  • That brings us to a total of 317 stores worldwide as of the end of the quarter with 84 of them outside the United States.
  • With an average of 301 stores open during the September quarter, average revenue per store was 11.8 million compared to 7.8 million in the year ago quarter, an increase of 52%.
  • Retail segment margin was 917 million compared to 564 million in the year ago quarter. We hosted a record 74.5 million visitors in our stores during the quarter, compared to 45.9 million visitors in the year ago quarter, an increase of 62%.
  • As we look ahead to fiscal 2011, we see great opportunity to continue our retail growth with our focus on international expansion. In total, we expect to open 40 to 50 stores in our fiscal 2011 with over 50% of them outside the United States.
  • Total company gross margin was 36.9%, which was 190 basis points above our guidance.
  • Operating expenses were 2.07 billion and included 185 million of stock-based compensation expense. OI&E was 14 million and the tax rate for the quarter was 21%, about 5 points below our guidance.
  • Turning to cash, our cash plus short-term and long-term marketable securities totaled $51 billion at the end of the September quarter compared to $45.8 billion at the end of the June quarter, an increase of 5.2 billion.
  • Cash flow from operations was 5.7 billion.
  • (GUIDANCE) As we move ahead into the December quarter, I'd like to review our outlook which includes the types of forward looking information that Nancy referred to at the beginning of the call. We expect revenue to be about 23 billion compared to 15.7 billion in the December quarter last year. We expect gross margins to be about 36%, reflecting approximately 52 million related to stock-based compensation expense. We expect OpEx to be about 2.325 billion including about 250 million related to stock-based compensation. We expect OI&E to be about 65 million and we expect the tax rate to be about 25.5%. We are targeting EPS of about $4.80.
  • (Steve Jobs, Chief Executive Officer) We sold 14.1 million iPhones in the quarter, which represents a 91% unit growth over the year ago quarter and was well ahead of IDC's latest published estimate of 64% growth for the global smartphone market in the September quarter. And it handily beat RIM's 12.1 million BlackBerries sold in their most recent quarter ending in August. We've now passed RIM (Nasdaq: RIMM). And I don't see them catching up with us in the foreseeable future.
  • I think it's going be a challenge for them to create a competitive platform and to convince developers to create apps for yet a third software platform after iOS and Android. With 300,000 apps on Apple's App Store, RIM has a high mountain ahead of them to climb.
  • Well, what about Google (Nasdaq: GOOG)? Last week Eric Schmidt reiterated that they are activating 200,000 Android devices per day, and have around 90,000 apps in their app store. For comparison, Apple has activated around 275,000 iOS devices per day on average for the past 30 days, with a peak of almost 300,000 iOS devices per day on a few of those days. And Apple has 300,000 apps on its App Store.
  • Unfortunately, there is no solid data on how many Android phones are shipped each quarter. We hope that manufacturers will soon start reporting the number of Android handsets they ship each quarter but today that just isn't the case. Gartner reported that around 10 million Android phones were shipped in the June quarter, and we await to see if iPhone or Android was the winner in this most recent quarter
  • Google loves to characterize Android as open and iOS and iPhone as closed. We find this a bit disingenuous and clouding the real difference between our two approaches. The first thing most of us think about when we hear the word open is Windows, which is available on a variety of devices. Unlike Windows, however, where most PCs have the same user interface and run the same Apps, Android is very fragmented.
  • Many Android OEMs including the two largest, HTC and Motorola, install proprietary user interfaces to differentiate themselves from the commodity Android experience. The user is left to figure it all out. Compare this with iPhone where every handset works the same.
  • Twitter client, TwitterDeck, recently launched their app for Android. They reported that they had to contend with more than 100 different versions of Android software on 244 different handsets. The multiple hardware and software iterations presents developers with a daunting challenge. Many Android apps work only on selected Android handsets, running selected Android versions.
  • We see tremendous value in having Apple rather than our users be the systems integrator. We think that this is a huge strength of our approach compared to Google's. When selling to users who want their devices to just work, we believe integrated will trump fragmented every time. And we also think our developers can be more innovative if they can target a single platform rather than 100 variants. They can put their time into innovative new features rather than testing on hundreds of different handsets.
  • Second, I'd like to comment on the avalanche of tablets poised to enter the market in the coming months. First, it appears to be just a handful of credible entrants, not exactly an avalanche. Second, almost all of them use 7-inch screens as compared to iPad's near 10-inch screen. Let's start there. One naturally thinks that a 7-inch screen would offer 70% of the benefits of a 10-inch screen. Unfortunately this is far from the truth. The screen measurements are diagonal, so that a 7-inch screen is only 45% as large as iPad's 10-inch screen. You heard me right, just 45% as large.
  • Third, every tablet user is also a smartphone user. No tablet can compete with the mobility of a smartphone, its ease of fitting into your pocket or purse, its unobtrusiveness when used in a crowd. Given that all tablet users will already have a smartphone in their pockets, giving up precious display area to fit a tablet in their pockets is clearly the wrong tradeoff. The 7-inch tablets are tweeners, too big to compete with a smartphone and too small to compete with an iPad.
  • Fourth, almost all of these new tablets use Android software, but even Google is telling the tablet manufacturers not to use their current release, Froyo, for tablets and to wait for a special tablet release next year. What does it mean when your software supplier says not to use their software in your tablet? And what does it mean when you ignore them and use it anyway? Fifth, iPad now has over 35,000 apps on the App Store. This new crop of tablets will have near zero.
  • And sixth and last, our potential competitors are having a tough time coming close to iPad's pricing, even with their far smaller, far less expensive screens. The iPad incorporates everything we've learned about building high value products, from iPhones, iPods and Macs. We create our own A4 chip, our own software, our own battery chemistry, our own enclosure, our own everything.


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