Highlights From AAPL's Q3 Conference Call: Record Year-Over-Year Revenue Growth of 82%

Apple, Inc. (NASDAQ: AAPL) reported Q3 EPS of $7.79, $1.99 better than the analyst estimate of $5.80. Revenue for the quarter came in at $28.6 billion versus the consensus estimate of $24.92 billion. Shares are currently up $10.31 (+2.74%) today.

Highlights From AAPL's Q3 Conference Call:

• (Peter Oppenheimer) Revenue for the quarter was $28.6 billion, representing year-over-year growth of 82%. This record quarterly revenue tops the previous record established in the most recent December quarter by $1.8 billion and was almost $13 billion over the year-ago quarter's result.
  
• The tremendous year-over-year increase was fueled primarily by dramatic growth in iPhone and iPad sales in addition to strong growth in Mac sales.
  
• Operating margin was a record high of $9.4 billion, representing 32.8% of revenue.
  
• Net income was $7.3 billion, topping the previous quarterly record set in the December quarter by $1.3 billion. Net income grew even faster than revenue, increasing 125% year over year, and translated to earnings per share of $7.79.
  
• I'd like to begin with our Mac products and services. We established a new June quarter record with sales of 3.95 million Macs, representing a 14% increase over the year-ago quarter's results. This growth is more than four times IDC's most recently published forecast of 3% growth for the PC market overall. Mac sales were particularly strong in our Asia-Pacific segment, where we experienced a 57% year-over-year increase in total Macs sold.
  
• In May, we updated the iMac with the next-generation quad-core processors, powerful new graphics, high-speed Thunderbolt I/O technology, and a new FaceTime HD camera. The growth in Mac portable sales was driven by strong sales of MacBook Pro as well as MacBook Air.
  
• Moving to our music products, we sold 7.5 million iPods compared to 9.4 million in the year-ago quarter. Total iPod sales were ahead of our expectations. And iPod touch continues to account for over half of all iPods sold. 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 generated strong results, with revenue of almost $1.4 billion. ITunes revenue was up 36% year over year thanks primarily to continued strong sales of music, video, and apps. With more than 225 million accounts, iTunes is the number one music retailer in the world, and customers have downloaded more than 15 billion songs to date.
  
• I'd now like to turn to the iPhone. We were thrilled to sell a record 20.3 million iPhones compared to 8.4 million in the previous June quarter. This represents 142% year-over-year growth, which is more than double IDC's latest published estimate of 67% growth for the global smartphone market overall in the June quarter. Recognized revenue from iPhone handset and accessories sales was $13.3 billion during the quarter compared to $5.3 billion in the year-ago quarter, an increase of 150%.
  
• We continued to experience very strong year-over-year iPhone sales growth in all of our operating segments. IPhone sales momentum in the Asia-Pacific region was particularly robust, with sales almost quadrupling year over year.
  
• And by the end of the quarter, iPhone was available through 228 carriers in 105 countries compared to 186 carriers in 90 countries as of the end of the March quarter.
  
• We ended the quarter with about 5.9 million iPhones in channel inventory, a sequential increase of about 700,000 to support strong iPhone demand, carrier additions, and expanded distribution.
  
• IPhone continues to be adopted as a standard across the enterprise, with 91% of the Fortune 500 deploying or testing the device, up from 88% last quarter.
  
• We are also seeing great growth in scale worldwide. Today, 57% of Global 500 companies are testing or deploying iPhone, fueled by strong employee demand and opportunities for custom app development.
  
• Turning to iPad, we continue to be thrilled with its incredible momentum. We sold a record 9.2 million iPads during the June quarter compared to 3.3 million in the year-ago quarter, an increase of 183%. We were able to increase production sequentially by over 4.5 million, and we sold every iPad we could make. We launched iPad 2 in an additional 36 countries. And combining the original iPad and iPad 2, we ended the quarter with distribution in a total of 64 countries.
  
• Recognized revenue from sales of iPad and iPad accessories during the quarter was over $6 billion compared to $2.2 billion in the year-ago quarter, an increase of 179%.
  
• We ended the quarter with about 1.05 million iPads in channel inventory, a sequential increase of about 200,000, which was well below our target range of four to six weeks.
  
• Today, 86% of the Fortune 500 are deploying or testing iPad within their enterprises, up from 75% last quarter. We're also seeing strong adoption internationally, with 47% of Global 500 companies testing or deploying iPad.
  
• In the 15 months since iPad has shipped, we've seen iPad used in the enterprise in ways we could have never imagined. Companies like Boston Scientific, Xerox, and Salesforce.com are deploying thousands of iPads and revolutionizing how their sales teams engage with customers.
  
• Combining iPhone, iPad, and iPod touch, we reached over 222 million cumulative iOS device sales through the end of the June quarter.
  
• The App Store continues to be incredibly successful, with over 425,000 apps available and over 15 billion downloads to date.
  
• I'd now like to turn to the Apple Retail Stores, which generated record June quarter results. Revenue grew to $3.5 billion from $2.6 billion in the year-ago quarter, an increase of 36%. This growth was driven primarily by higher volumes of iPads, iPhones, and Macs. The stores sold 768,000 Macs compared to 677,000 Macs in the year-ago quarter, an increase of 13%. And about half the Macs sold in our stores during the June quarter were to customers who had never owned a Mac before.
  
• We opened four new stores in the quarter, including two in France, one in the UK, and one in Germany, ending with a total of 327.
  
• With an average of 325 stores open, average revenue per store was $10.8 million compared to $9 million in the year-ago quarter, an increase of 20%. Retail segment margin was $828 million compared to $593 million in the year-ago quarter.
  
• We plan to open 30 new stores in the September quarter, including our first store in Hong Kong. That will bring us to a total of 40 store openings in fiscal 2011, including 28 new stores outside the United States.
  
• Turning to cash, our cash plus short-term and long-term marketable securities totaled $76.2 billion at the end of the June quarter compared to $65.8 billion at the end of the March quarter, a sequential increase of $10.4 billion. Cash flow from operations was $11.1 billion, an increase of 131% year over year.
  
• I'd now like to talk about the accounting implications of some of the new aspects of our products and services. First, when we deliver Mac OS X Lion to customers, we are now including the right to receive future unspecified minor software upgrades and features when and if they become available for both the Mac operating system and our suite of Mac OS iLife applications.
  
• Purchasers of iOS devices will also have access to iCloud. So beginning on June 6, we began deferring a portion of the revenue from each iOS device sold to represent the estimated value of the right to receive iCloud services when they become available.
  
• As we move ahead in the September quarter, I'd like to review our outlook, which includes the types of forward-looking statements that Nancy referred to at the beginning of the call. We expect revenue to be about $25 billion compared to $20.3 billion in the September quarter last year. We expect gross margin to be about 38%, reflecting approximately $55 million related to stock-based compensation expense. We expect OpEx to be about $2.725 billion, including about $245 million related to stock-based compensation expense. We expect OI&E to be about $50 million, and we expect the tax rate to be about 24%. We are targeting EPS of about $5.50.
  
• (Q&A) The 12% revenue downtick, Peter, in September is much more conservative than your typical September guidance and what you end up reporting in September, which is usually a 20%-plus increase over the last four years. Can you help us understand why you expect this next quarter to trend softer than seasonal, and maybe how you handicap the impact from some of the new software, services, and products that you expect to launch in the quarter? (A) Sure. Let me start with the units, and I'll give you some thoughts on revenue. For the education buying season, September has historically been more weighted to higher education, and we would expect this to be the same this year. We have the best lineup of Macs ever and would expect to see a year-over-year increase in sales. We also expect a year-over-year increase in iPhone sales. And for iPad, we're continuing to expand our quarterly production capacity and points of sale, and would expect a significant year-over-year increase in sales. For iPod, we would expect to see a sequential year-over-year decline. As we announced at WWDC, we have a lot going on in the fall with the introduction of iOS 5 and iCloud. We also have a future product transition that we're not going to talk about today, and these things will impact our September quarter. We remain very confident in our business, our new product pipeline, and our momentum.
  
• Peter, as it relates to future product transitions, can you just remind us how you approach working those into your guidance? Do you tend to be conservative and wait to see what happens with those products? (A) As I said a moment ago, we're not going to talk about this in any detail today. We've factored our thinking into our guidance. We are incredibly confident about our business, our new product pipeline, and what we're doing.

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