7:02am We’re about to kick off proceedings
We’ll be hearing from Peter Oppenheimer and Tim Cook as usual, along with treasure Gary Wifler.
7:03am Pleased to report results of third fiscal quarter. New all time quarterly record for iPad quarterly sales, and new June quarter records for iPhone and Mac sales, and highest June quarter revenue ever.
Revenue was US$35 billion. Driven by iPhone and iPad sales. Net income was US$8.8 billion, up 21 percent year over year.
Diluted earnings per share were US$9.32.
7:04am Starting with Mac products and services. 4 million Macs, 2 percent growth year over year, setting new June quarter record. Compared to 1 percent contraction of global PC market.
Last month updated MacBook line, also introduced new MacBook Pro with Retina display, and customer response has been excellent.
Best quarter ever for U.S. education institution Mac sales; portables representing nearly 3/4s of Mac sales.
7:05am Rutherford county NC, purchased 6,000 MacBook Airs, and Pueblo Colorado district 70, in which all will convert to MacBook Air.
3-4 week of Mac channel inventory, slightly below usual.
Tomorrow Mountain Lion gets released, with Messages, Notification Center, systemwide Sharing, and more. Built in iCloud to keep customers’ content up to date.
7:06am Moving to music. Sold 6.8 million iPods, compared to 7.5 million in year ago quarter. Total iPod sales better than Apple’s expectations, and touch accounted for more than 50 percent of sales.
iPods share remains over 70 percent, and iPod is still best selling MP3 player in most countries.
Ended quarter within target range of 4-6 weeks of channel inventory.
iTunes Store revenue over US$1.8 billion. Pleased to launch iTunes Store in 12 countries last month, including Hong Kong and Singapore.
7:07am Still great interest in iTunes U. Since rolling it out in January, almost 14 million downloads of app. Over 700 new schools and 125 colleges and universities have enrolled in iTunes U program.
iPhone. Sold 26 million, compared to 20.3 million in previous June quarter. 28 percent year over year growth and ahead of amount factored into guidance following very strong sales and channel inventory build achieved in March quarter.
Added several small regional carriers, and over 250 carriers worldwide.
8.3 million iPhones in channel inventory, remaining in target range of 4-6 weeks.
Recognised revenue was US$16.2 billion in the quarter, compared to US$13.3 in year ago quarter. Increase of 23 percent.
7:08am Estimate number of iPhones in Fortune 500 have doubled in past year. PepsiCo has deployed thousands of iPhones with app for field sales.
German insurance company built in-house app to process claims.
Over 17 million iPads, compared to 9.2 million in year ago quarter, increase of 84 percent. Very strong year over year growth, and pleased to be selling iPad in 97 countries. Recognized revenue was US$9.2 billion, compared to US$6.0 billion in year ago quarter, an increase of 52 percent.
7:09am Just within target range of 4-6 weeks of iPad channel inventory. Still a great success, with sales setting a new quarterly record and nearly doubling year over year.
Even though all time record Mac sales to US education institutions, sold twice as many IPads as Macs to US institutions.
7:11am iPad continues its rapid adoption within enterprise. Estimate number of iPads in Fortune 500 has more than tripled in the past year.
British Airways has used thousands across its company in various places.
Combining iPhone, iPod, and iPad touch, more than 410 million iOS devices cumulatively.
7:12am App Store now offers more that 650,000 apps, with 255,000 iPad apps.
More than US$5.5 billion in payments to developers.
More than 150 million using iCloud services.
Showed off iOS 6 in June, including maps, Siri improvements, shared Photo Streams, and Passbook.
Can’t wait to get it into hands of customers this fall. Now turning to Apple retail stores.
7:13am Revenue was $4.1 billion, an increase of 17 percent over the year ago quarter. Fueled by record iPad sales.
791,000 Macs sold, and almost half the Macs sold during the quarter to new Mac customers.
9 new stores opened in the quarter, with 373 stores; 123 stores outside the U.S.
Average revenue per store US$11.1 million. US$868 million segment margin.
7:14am 83 million visitors to stores during quarter, compared to 74 million during year ago quarter, an increase of 17 percent.
Total company gross margin was 42.8 percent, 130 basis points higher than guidance.
Better than expected commodity, warranted, and other sources. Higher mix of iPad sales, and a stronger US dollar.
Operating expenses US$3.4 billion.
OI&E $288 million.
7:15am Cash + short term and long term securities US$117.2 billion at end of June, compared to US$110 quarter before. US$81 billion in cash was offshore at beginning of quarter.
Today, announcing that board of directors has announced a dividend of US$2.65 per share of common stock.
Going forward, subject to declaration by board, expect to announce payment amounts and dates at the same time with results.
Starting in fiscal 2013, which begins on September 30 2012, company will be initiating stock buyback plan.
7:16am For Q4, expect revenue of US$34 billion, gross margin of 38.5 percent.
Expect OPEX of $3.5 billion, including US$390 million related to stock based compensation.
OI&E to be US$175 million, tax rate 25.5%.
EPS of about US$7.65.
Pleased with record June quarter results, including sales of 17 million iPads. New records for June quarter of iPhones and Macs.
7:17am Very excited to be launching Mountain Lion tomorrow and iOS 6 in fall, and have exciting new products in pipeline.
First question coming up.
Peter: About 38.5%, down about 430 basis points sequentially. Most of decline driven by fall transition and by impact of US dollar, warranty benefit of June not repeating, and full quarter of back to school promotion.
Huberty: Followup, China growth has been impressive. Asia-Pacific growth rate did decelerate. What you see in China, related to overall demand?
7:19am Tim Cook: Difference was a result of Greater China, which represents about 2/3rds of our revenue for the region. For Q2, it was US$7.9 billion, for Q3 it was US$5.7 billion. 48 percent year-over-year increase. Virtually all of the decline was due to iPhone sales decline in Greater China. About half of it was related to changes in channel inventory, not sell-through.
7:20am Tim: Launched iPhone in China in January. Increased channel inventory throughout quarter. Remainder of sequential decline attributed to normal seasonality after 4S launch.
Tim: Did not see something that we would attribute to the economy in China. In terms of iPhones in general in mainland China, we were incredibly pleased with our results; we were up over 100% year over year.
7:21am Tim: Just last Friday, in Q4, launched our new iPad in China, after resolved trademark issue. So sales didn’t benefit from iPad sales in the last quarter in China.
Tim: Also, new Mac portables started to ship in China last week, so June quarter didn’t benefit from that product.
Tim: Very much looking forward to incorporating more local services in iOS 6 in the fall.
7:22am Bill Shope, Goldman Sachs: Thoughts on individual segment trends? Coming off of sequential decline, particularly in iPhone?
7:23am Peter: For iPhone, expect to have year-over-year increase in sales in Sep quarter; for iPad, would expect year-over-year increase. But increased iPad channel inventory in June quarter. For Mac, expect sequential increase. As we think about revenue, providing revenue guidance that is up 20 percent year over year and included several things in our thinking.
7:24am Peter: Not expecting economies in Europe, Brazil, Australia, etc. to change in the next quarter. Weekly iPhone sales continue to be impacted by rumors and speculations on new products. No new significant countries or carriers in next quarter. Increased iPad channel inventory in June, ended just in range of target range.
7:25am Peter: These increases in channel inventory will impact year over year and sequential. Current iPad lineup includes very successful US$399 price point, which we didn’t have last year, and US dollar has strengthened against foreign currency. Expect this to have adverse impact to revenue in those countries.
Peter: That said, very much look forward to introducing iOS 6 in the fall, and very confident in business and product pipeline.
Shope: Trends for iPhone demand, sequentially, in other international regions?
7:26am Tim: At a global level, important to understand as you compare Q2 iPhone sales to Q3, there’s a fairly large channel inventory difference embedded in that. In January, completed iPhone 4S rollout in all major countries, including China. Fastest rollup ever. Got channel within target inventory by end of March; increased sell-in over sell-through by 2.6 million units. In last quarter, sell-in was less than sell-through by 300,000 units.
7:27am Tim: So net change in inventory across quarter is about 3 million units. Important to understand that to look at underlying sell through trend. In terms of what we see happening in different geographies. US ran at 47 percent, Japan at 45 percent, Greater China was up 66 percent, but Mainland China was over doubled. Geography that did not perform well was Europe: Europe was essentially flat, slightly positive year on year and that really hampered total results.
This channel inventory thing is a big deal to everyone but customers. Apple tries to keep 4-6 weeks’ worth of products in inventory, transit, and stores at all time. If Apple stopped making iPads today, there should still be 4-6 weeks’ worth of them already built and on the way to customers.
Tim: Switch from iPhone to talking about gross revenue. Marked difference between countries in Europe. UK relatively solid at 30 percent growth; France, and Greece, and Italy were particularly poor and Germany was also only single digit positive growth for quarter. Eastern Europe was strong, but Western European countries drive preponderance of revenue in that segment.
7:28am Tim: Certainly seeing a slowdown in business in that area. Fortunately, U.S. and China, not seeing anything there that we’d classify as an economic issue.
7:29am Ben Reitzes at Barclays: Fall transition you mentioned? Talk a little about that? What’s the sequential impact on margins and revenue, and qualitatively how much would you get back in December?
To do that, obviously, they have to sell more units to retailers and distributors. In March, they sold over 2.6 million more units to eventual resellers than sold to actual end users (people who open the boxes). In the just-ended quarter, this reversed by 2.9 million units.
Peter: I don’t want to frustrate you or others, but fall transition we’re talking about is driving most of decline sequentially in gross margin, and not something we’re talking about in any level of detail today.
7:30am Reitzes: In regard to iPhone in general, you mentioned speculation on new products and rumors. Any quantification on how much that hurts you and how much channel inventory reduction you’ll need to do in next quarter?
Tim: I think there’s a lot of speculation out there. It’s difficult to sort out, but I’m fairly convinced based on what I’ve seen that there’s an incredible anticipation out there for future products, and, as you would expect, given what we’ve been able to deliver in the past. I think it’s a reasonable amount.
7:30am Tim: In terms of channel inventory, we put our current thinking in the guidance that Peter provided you.
7:31am Shannon Cross, Cross Research: Talk a bit about the Mac business? 2 percent up year over year, but how much of the slower growth was from the product transition vs. weaker economy. Any thoughts on cannibalization?
7:32am Tim: Clear PC market is weak, but believe primary factor of lower growth rate was timing of portable announcement in last quarter. Announced entirely new portable lineup that was well received, done with less than 3 weeks remaining in quarter. Year ago, made portable transition in February, so selling new lineup for entire Q3.
Tim: Prior to WWDC, weekly Mac sales were running lower than prior year. After WWDC, MacBook Pros and MacBook Airs drove year over year increases in weekly sell through. To the level that got us back to overall positive territory for the quarter, and 25th consecutive quarter of outselling the market.
7:33am Tim seems to be saying that without the new MacBook units at WWDC, Apple would not have had unit sales growth in Macs for the quarter. That’s notable.
Tim: Retina MBP incredibly well received, ended quarter in backlog, but haven’t caught up with demand yet. Anticipate doing so next month. Also, to illustrate portable point, NPD data that came out for US showed Apple’s portable share at 25.5 percent and a record 47 percent revenue share for the month of June.
Tim: Attribute large amount to what has happened in terms of the timing of portable announcement.
Cross: Talk a little about conversations with carriers about pricing/subsidies?
7:34am Tim: Let me avoid talking about this product transition, but you’re very smart to ask that. Don’t want to get into specifics, but generally would say that our role is to make the very best smartphone in the world, that has an incredible user experience. At the end of the day, the carriers want to provide their customers with what their customers want to buy.
7:35am Tim: Most important thing for Apple by far is to keep making best products by far, and we are maniacally focused on it. From carriers’ perspective, important to remember that tool subsidy they pay is relatively small compared to the payments collected over 24 month contract period.
Tim: iPhone advantages: Churn rates for iPhones are much less, carriers focusing on shared data plans, and iPhone customer is more likely to have a tablet or an iPad. And so, they really value these customers quite a bit. Also, our engineer teams are very sensitive to working with these guys to find the best way to work with data.
Tim: And so, we’re going to continue focusing on making the best product. And I think that the customers will be very motivated to be sure they provide that to customers.
7:36am Toni Sacconaghi, Sanford Bernstein: Peter, you talked about how you were above expectations relative to your guidance on iPhones, and above expectations on iPod, and thrilled with iPad. Help us illustrate where you were disappointed relative to guidance?
Peter: Toni, given what’s going on around us, we are happy with our quarter. Sales of each of our products did exceed what we had factored into the guidance. Especially true of iPad, with new record of $17 billion. $35 billion of revenue reported, grew by $6.5 billion year over year.
7:37am Peter: Some things did impact us in the quarter. Economy in Europe not doing well. Some economic impact in the natural resource based economies, like Australia, Brazil, and Canada. As Tim said with regards to iPhone, reading same rumors about new iPhone, and think has caused some purchasing delays.
7:38am Peter: Portable release impacted sales in April and May. Tim said after WWDC, change in weekly sales. And did not get the benefit of launching the new iPad in China or the new portables in China because of regulatory approval. Finally, dollar strengthened against most currencies around the world, reducing revenue growth sequentially. Think these things impacted the quarter, but very happy with how business is performing.
7:39am Sacconaghi: Tim, Talk a little bit about smartphone growth in emerging markets. China’s obviously the biggest ones. Some data suggests that over 70 percent of smartphones are under $300 and under $200. Do you agree with that market characterization, and at some point does that limit your ability to gain share in a marketplace where 70 percent of the units are at a price point that you don’t play in. When does that math prevent you from gaining share?
7:40am Tim: Toni, the specific data that you quoted, the 70 percent doesn’t map to what I’ve seen, but let me try to answer your general question. We’ve been very focused as you know on China, because we see it as an enormous opportunity for us. Very pleased that we were able to grow our iPhone sales over 100 percent last quarter. Firmly believe people in emerging markets want great products, like they do in developed markets.
Tim: We’re going to stick to our knitting and make the best product. We think that if we do that, we have a very good business ahead of us.
7:41am Sacconaghi: Share, either happens or doesn’t? Or is that an explicit objective for iPhone?
Tim: Our north star for the company in general is to make the very best product. that’s more important and shadows all other things. But we do believe that by doing that we will have a great business, and we think our results show that.
Andy Hargreaves, Pacific Crest: Channel inventory commentary all on a look-forward basis?
7:42am Tim: Weeks that we closed are forward looking because inventory is in the channel.
Hargreaves: Commentary on iPad being just in target range would seem like slowdown?
7:43am Tim: Keep in mind that the channel inventory is only for the indirect channel, doesn’t support direct sales like Apple retail sales, Apple online sales, Apple education sales. Don’t want to give you specific guidance on iPad sales, but you should keep that in mind. That’s the case with all products. Some companies refer to channel inventory on gross sales, but we don’t do that.
Hargreaves: Obviously talked a fair amount about pricing umbrellas in the past. How are you thinking about that now on the iPad side, now that there’s slightly higher compeition at lower price points?
7:44am Tim: You know, we re-priced the iPad 2 to $399 and it did very well in the quarter. Most popular iPad was the new iPad, but the iPad 2 did very well and was particularly popular in the K-12. Sold about 1 million in the quarter. Have been very aggressive in this space, and don’t see that changing. In terms of competition, have seen many different tablets—100s in last year—and I have yet to see any of them gain any traction at all.
7:45am Tim: We have over 225,000 apps that have been optimized for iPads. Most customers feel that they’re not really looking for a tablet, they’re looking for an iPad. We’re going to keep innovating and making great products. 17 million iPads was up 84 percent year over year, and now shipped over 84 million iPads as of last quarter. Look at that on a trajectory rate; took us more than twice as long to achieve that on iPod and achieved in a third less time on iPad than iPhone. Feel really really good.
Gene Munster, Piper Jaffray: Talk a little bit more about which segments have been driving: US consumers, corporate market? Any more feedback?
7:47am Tim: With an 84 percent up year over year, we’re seeing triple-digit growth rates in many many geographies. Generally speaking, int’l markets in aggregate are extremely strong, in the triple digits internationally. US is a bit lower, but important to keep in mind that US was on a faster adoption curve on iPad. Latin America’s tripling, we’re seeing growth out of countries that border on being shocking, in terms of the growth rate. Would not have dreamed of shipping over 17 million last quarter, and very very thrilled on it.
Munster: Any updates on Apple TV numbers, or thoughts going forward?
Tim: Sold 1.3 million last quarter. Brings fiscal year to 4 million units, which is pretty incredible. Still at a level that we would call it a hobby, but continue to pull the string to see where it takes us. Not ones to keep around products we don’t believe, so we continue to invest in us.
Munster: Don’t do hobbies for sake of hobbies, do it to hope that there’s something bigger?
7:48am Tim: Do it because we think it will lead us somewhere, so we’ll see. But 4 million is not a small number; small number relative to iPhones and iPads, but there’s a lot of believers in it.
Mark Boskowitz, JP Morgan: iPhones and iPads, blended ASPs seem to have declined a little more this quarter than previous quarters?
7:49am Peter: The iPhone ASP, we don’t talk specifically about iPhone and iPad ASPs, but would like to give you a little bit of color, because did change sequentially and year over year for iPad. ASP was down for iPhone due to mix of lower price models and stronger US dollar. Regarding the mix, largely driven by all the new product rumors, economic conditions particularly in Europe, and change in ending inventory by model that also influenced .
7:50am Peter: For the iPad, it was down more year over year than it was sequentially. Year over year decrease due to four things: 1) higher mix of lower priced models. 2) Reduced price of iPad 2 to $399. 3) With expanded distribution, higher mix of indirect sales. 4) The dollar impacted us as well.
Boskowitz: What about Passbook? Could it be perceived as a stepping stone to Apple having a greater role in a digital wallet?
7:51am Tim: Wouldn’t want to comment specifically on that point, but Passbook in general is a very key feature. All of us have found that we’ve gotten lots of tickets and cards scattered all over our iPhones in different apps, so Passbook does an incredible job of pulling all of those into one place. Whether it’s passes or tickets or what have you. It’s an important feature of iOS 6, wouldn’t want to speculate about where it might take us.
Chris Whitmore, Deutsche Bank: Following up on pricing question, specifically around iPad. Lower price point drove elasticity of demand for that product? Sales incrementally higher, or customers migrate downmarket to lower priced products?
7:52am Tim: Reason that we did it was that we believed that sales would be incrementally larger, that there was price elasticity, and that there was a buyer that really wanted the best product, but needed it to be a little less expensive.
Tim: I think it did help our sales, particularly in K12. The adoption rate of iPad in education is something that I’ve never seen from any product in history. Usually education tends to be fairly conservative, and not seeing that at all on the iPad. It’s been a big help for us, and I’m really glad that we did it.
7:53am Whitmore: The opportunity that you see in India. You talked about having cracked the China code, why hasn’t Apple been more successful in India? Outlook for growth?
7:54am Tim: You know, Chris, I love India, but I believe that Apple has some higher potential in the intermediate term in some other countries. That doesn’t mean we’re not putting emphasis in India, we are. We have a business there; that business is growing, but multilayer distribution there really adds to the cost of getting products to market. So we’re going to continue putting some energies there, but from my own perspective, in the intermediate term there will be larger opportunities outside of there.
Shaw Wu, Sterne AG: Component availability, particularly new components?
7:55am Tim: We factored supply into the guidance that Peter has given you. Generally, we have been short of the MacBook Pro with Retina displays. Entered the quarter with backlog and working really hard to deliver those to customers quickly, and believe we will be in supply-demand balance in August. In terms of new products, don’t talk about them or the parts that are in them. Anything that we know about, we have included it in the guidance. And if we were short of something, we’d be sending our energies on trying to fix that.
Wu: In terms of new iPad, any constraints there?
7:56am Tim: The new iPad ended the quarter just over 4 week line, which we associated with our target of 4-6 weeks of channel inventory. That said, as a reminder, we did not ship the new iPad in mainland China until the quarter that we are now in, in Q4. But in Q3, we feel like we ended in balance situation.
Brian Marshall, ISI: Clearly, Apple’s design philosophy has been about building great products, but how do you think about addressing those opportunities at lower price points without comprising core features that make Apple’s products great?
7:57am Tim: Our north star is to maniacally focus on making the world’s products. Economic turmoil may push us side-to-side, but we’re going to stay on that journey and stay focused on making the best products, and not deviate from that. We’ve seen again and again that during these periods is where we distance ourselves further from those that don’t innovate, and it increases the gap between us. Now, when we can do that and hit more aggressive price points, we’re going to do that.
7:58am Tim: I think you see that with the $399 iPad 2 a few months ago, and iPhone 3GS is free in the US and several other countries. So, our north star will be making the best products in the world. That’s why we breathe, that’s why we live, and we’re not changing that.
Marshall: When you think about how the iPhone has penetrated the planet, there’s been tremendous success. There’s been a downside, with volatility. Talk a little bit about how you try to manage the iPhone transitions and carriers, etc. Widely speculated we’re going to see something.
7:59am Tim: We try very hard to keep our product roadmap secret and confidential, and we go to extreme activities to try to do that. That, however, doesn’t stop people from speculating and wondering, and we’ll never do that. So, it’s a great thing about this country, people can say what they think. I’m not going to spend any energy to try and change that; that’s just the environment we’re in. I’m glad that people want the next thing; I’m super happy about it. There are obviously quite a few that want what we’re doing now as well.
8:00am Tim: Not going to put any energy into stopping people from speculating. Not worth anything.
And that’s it.
We’ll have some further details later today. Tune in tomorrow for our coverage of Mountain Lion’s release.