Highlights From AAPL's Q4 Conference Call: Visionary, A Creative Genius = An Amazing Human Being

Apple, Inc. (NASDAQ: AAPL) reported Q4 EPS of $7.05, $0.23 worse than the analyst estimate of $7.28. Revenue for the quarter came in at $28.3 billion versus the consensus estimate of $29.45 billion. Apple shares continue to be beaten down throughout the session...down 19.21 (-4.55%).

Apple, Inc. sees Q1 2012 EPS of $9.30, versus the consensus of $8.98. Apple, Inc. sees Q1 2012 revenue of $37 billion, versus the consensus of $36.63 billion.

Highlights From AAPL's Q4 Conference Call:

• (Peter Oppenheimer) Revenue for the quarter was $28.3 billion, representing year-over-year growth of 39%. The year-over-year increase was fueled primarily by strong growth in iPad, Mac and iPhone sales.
  
• Operating margins was $8.7 billion representing 30.8% of revenue.
  
• Net income was $6.6 billion increasing 54% year-over-year, and translating to earnings per share of $7.05.
  
• I'd like to begin with our Mac products and services. We established a new all-time quarterly record with sales of 4.89 million Macs, exceeding the previous record set in the last December quarter by 760,000 Macs, representing a 26% increase over the year-ago quarter's results.
  
• That is more than six times IDC's most recently published forecast of 4% growth for the PC market overall in the September quarter. Mac sales increased strongly in each of our operating segments led by Asia-Pacific with growth of 61% year-over-year.
  
• The increase in Mac sales was fueled by the very strong growth in MacBook Air as well as the continued strong performance of MacBook Pro. In July we updated the MacBook Air with the next generation processors, high speed Thunderbolt I/O technology and a backlit keyboard. And while the portables represented 74% of the total Mac mix, we also generated record desktop sales in the quarter primarily due to continued strength of iMac.
  
• Moving to our music products, we sold 6.6 million iPods compared to almost 9.1 million in the year-ago quarter. Though down year-over-year, total iPod sales were ahead of our expectations and iPod Touch continued 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 and iPods continue to be the top selling MP3 player in most countries we track based on the latest data published give by GFK.
  
• The iTunes store generated record results with revenue in the quarter of almost $1.5 billion. The iTunes catalog continues to grow and customers have downloaded over 16 billion songs and 650 million TV shows to date. We've also been very pleased with the growing popularity of the iBookstore with over 180 million downloads of iBooks to date.
  
• I'd now like to turn to iPhone. We were very pleased to sell 17.1 million iPhones compared to 14.1 million in the previous September quarter. This represents 21% year-over-year growth and a new September quarter record. We experienced particularly strong iPhone sales growth in our Asia-Pacific segment where iPhone sales more than doubled year-over-year.
  
• We ended the quarter with about 5.75 million iPhones in channel inventory, a sequential decline of about 180,000, which placed us within our target range of four to six weeks of iPhone channel inventory. Recognized revenue from iPhone handset and accessory sales was $11 billion during the quarter compared to $8.8 billion in the year-ago quarter, an increase of 24%.
  
• IPhone continues to be adopted as the standard across the enterprise with 93% of the Fortune 500 deploying or testing the device, up from 91% last quarter, and 60% of the Global 500 testing or deploying iPhone, up from 57% last quarter.
  
• A recent example of iPhone's enterprise success is Lowes. Lowes is in the process of rolling out over 40,000 iPhones with a custom application to allow their store associates to execute real time inventory checks, product orders, and interact with customers with how-to videos.
  
• We continue to be thrilled with its incredible momentum. We set a new record with sales of 11.1 million iPads during the September quarter compared to 4.2 million in the year-ago quarter, an increase of 166%.
  
• We said from the beginning that the tablet market is a huge opportunity for Apple, and we're very excited with our current performance and the tremendous customer enthusiasm for iPad.
  
• We launched iPad to an additional 28 countries and ended the September quarter with distribution in a total of 90 countries. Recognized revenue from sales of iPad and iPad accessories during the quarter were $6.9 billion compared to $2.8 billion in the year-ago quarter, an increase of 146%.
  
• We ended the quarter with about 2.5 million iPads in channel inventory, a sequential increase of about 1.45 million, which placed us within our target range of four to six weeks.
  
• Combining iPhones, iPad and iPod Touch, we surpassed 0.25 billion cumulative iOS device sales in the September quarter. We were very pleased to begin delivering iOS 5 last week and customers are loving its many new features including Notification Center, iMessage, newsstand and Reminders.
  
• The App Store continues to be incredibly successful with over 500,000 apps available and over 18 billion downloads to date. We expanded the App Store to 33 additional countries during the September quarter, ending with a total of 123 countries
  
• I'd now like to turn to the Apple Retail Stores. Revenue was $3.6 billion, an increase of 1% over the prior-year quarter.
  
• The stores experienced very strong year-over-year growth in Mac and iPad sales, which was largely offset by a decline in iPhone sales given the tough comparison to year-ago quarter when iPhone 4 was launched and compounded by speculation about a new iPhone this year. The stores generated record-breaking Mac results with sales reaching $1.1 million compared to $874,000 in the year-ago quarter, an increase of 25%. And about half the Macs sold in our stores during the September quarter were to customers who had never owned a Mac before.
  
• We opened 30 new stores in the quarter, 21 of which were outside the United States.
  
• On the last weekend of the quarter, we opened seven stores in six countries including our first store in Hong Kong. With our highest opening day for Mac sales ever, our Hong Kong store joins our five other China stores as the highest traffic and among our highest revenue stores in the world.
  
• We ended the quarter with a total of 357 stores. With an average of 336 stores open, average revenue per store was $10.7 million compared to $11.8 million in the year-ago quarter.
  
• Retail segment margin was $679 million compared to $917 million in the year-ago quarter. Store traffic continues to be very strong.
  
• We hosted a record 77.5 million visitors in the September quarter.
  
• Total company gross margin was 40.3%, which was 230 basis point higher than our guidance. This difference was almost entirely due to lower component and other product costs. Operating expenses were $2.67 billion and included $253 million of stock-based compensation expense. OI&E was $81 million, the tax rate for the quarter was 24.7%.
  
• Turning to cash, our cash plus short-term and long-term marketable securities totaled $81.6 billion at the end of the September quarter, compared to $76.2 billion at the end of the June quarter, a sequential increase of $5.4 billion.
  
• This increase was net of cash paid for the acquisition of Nortel patents and the Nokia (NYSE: NOK) settlement during the September quarter.
  
• Cash flow from operations was $10.4 billion, an increase of 84% year over year.
  
• (Q&A) I have a few iPhone questions if I could. Given that the 4S was launched so close to the holiday selling season, can you give us an idea of your confidence in the production ramp and the distribution ramp and how you've mitigated the risk of a shortage here during peak consumer demand? (A) Hey, Bill, it's Tim. We've gotten off to a great start with the 4S. We've sold over four million in just three days after launch. We're thrilled with the start that we have. We are confident that we will have a large supply but I don't want to predict when supply and demand might balance because the demand is obviously extremely high right now. But I'm confident that we will set an all-time record for iPhone this quarter.
  
• Now, and just a question on the September quarter iPhone dynamics. So it sounds Like the primary negative impact on shipments was purely from a sell through pause? You didn't have any real channel inventory draw down issues affect shipments, is that correct? (A) Not entirely. If you look on a sell through basis, the sequential comparison is down 2.4 million units. That's 19.7 from the previous quarter which had an inventory build in it to bring it to a sell in of over 20. And to 17.3 this quarter, which had an inventory reduction of a little less than 200,000, which Peter talked about in his opening remarks. That 2.4 was much less of a reductio than what we were expecting and was a large factor in our revenue exceeding our guidance by over $3 billion. We expected it to be greater than 2.4 because we knew that there was a great anticipation of a June or July new iPhone because that was the pace that we have been on for the last several years. And as we had predicted that sell through decline did occur in the quarter, but not nearly to the extent that we thought and therefore we significantly beat our guidance. The reduction happened largely in the back half of the quarter as the speculation hit extreme highs. However, we're thrilled to be shipping the new iPhone 4S and iOS 5 and iCloud. And we are very confident that we will set an all-time record in the December quarter for iPhone sales. We - in our wildest dreams we couldn't have gotten off to a start as great as we have on the 4S.

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