Apple Q1 2012 Earnings Conference Call Notes

Posted on Jan 25 2012 - 5:17am by Editorial Staff

Apple announced its Quarter 1 financial results for its fiscal 2012. The company posted record quarterly revenue of $46.33 billion and net profit of $13.06 billion, or $12.87 per diluted share. The Company sold 37.04 million iPhones in the quarter and 15.43 million iPads during the quarter. The Company sold 5.2 million Macs during the quarter. Apple sold 15.4 million iPods.

Apple’s first quarter conference call notes – if you miss it out. These are the updates that they’re discussed during the call. The liveblog appears in chronological order, starting from the first to last updates.

Conference Call Notes:

  • 3:33 am Apple CFO Peter Oppenheimer is on the line, reading the press release as usual. Apple is proud of its record iPhone, iPad, and Mac sales.
  • 3:34 am Apple added an extra 14th week to the quarter, which helped its results. Apple made as much in Q1 2012 as it did in half of 2011 total.
  • 3:35 am Average weekly Mac sales were up throughout the quarter, and international Mac sales were up 58 percent. MacBook Pro and MacBook Air were strong, as was the iMac.
  • 3:35 am Onto the Mac App Store. Guess what? It’s doing great.
  • 3:36 am 15.4 million iPods compared to 19.4 million a year ago. iPod touch was over half the sales, and iPod sales are a little ahead of where Apple thinks they would be.
  • 3:36 am The iTunes Store did $1.7b in revenue in the quarter, as it expanded throughout the world. Over 20m songs in the store. $120m worth of downloads in apps and music sold on December 25th alone.
  • 3:37 am iPhone 4S has popularity is “tremendous,” but all iPhone models experienced a growth in sales.
  • 3:38 am iPhone handset and accessory sales accounted for $24.4b in revenue, up 133 percent.
  • 3:38 am Talking about iPhone in enterprise and how well it’s doing — Apple always talks about this on earnings calls. Playing to the suits, that sort of thing.
  • 3:39 am iPhone 4S now available in over 90 countries, including China.
  • 3:40 am 15.4m iPads sold in the December quarter, up 111 percent from 7.3m last year. $9.1b in iPad and iPad accessory sales, up 99 percent from last year.
  • 3:40 am By the way, the iPad is also doing pretty well in enterprise. This is really like the “Hello Peoria!” moment of financial results calls.
  • 3:41 am iPad is also popular in schools. 1.5m iPads are being used in schools. iBooks 2? Pretty rad.
  • 3:42 am Over 600,000 copies of iBooks Author have been downloaded since it was released last week.
  • 3:42 am On to iTunes U — over 3 million copies of the iTunes U app have been downloaded.
  • 3:42 am More than 62m iOS devices sold in the quarter.
  • 3:43 am That’s something like 11.6m iPod touches, then.
  • 3:43 am By the end of the month, devs will have earned over $4b from the App Store.
  • 3:43 am $6.1B in revenue from retail stores. New records for iPhone, Mac, and iPad sales.
  • 3:44 am Stores sold 1.1m Macs, and half the Macs were sold to people who’d never owned a Mac before.
  • 3:44 am $17.1m average revenue per store.
  • 3:45 am 110m visitors to the Apple retail stores — 22k visitors per store, per week.
  • 3:47 am Apple now has $97.6b in cash, compared to $81b last quarter. Apple is actively looking at uses for the cash, but “we’re not letting it burn a hole in our pockets.”
  • 3:48 am Apple is very proud of everything. And it’s question time!
  • 3:49 am First Q: Can you describe the iPhone momentum?
  • 3:50 am Tim Cook: We were thrilled with the 37m iPhones we sold. This is substantially above our 20m unit previous record. We would attribute it to a phenomenal customer reception. We made a very bold bet on demand, and it turns out we were short of supply throughout the quarter and ended with a significant backlog. We’re still short in key geographies.
  • 3:50 am Cook: People were anticipating a new iPhone. I think we made the right decision to go with a broad range of iPhones. I think the 14th week was a big part of this, but everyone knew that.
  • 3:51 am Cook: We could not be happier — we thought we were setting bold bets, but it turns out we didn’t bet high enough.
  • 3:52 am Q: As we’re doing the math here, it seems like the average selling price is up on the iPhone, is that more iPhone 4S sold?
  • 3:52 am Cook: The iPhone 4S was the most popular iPhone. We typically see a higher mix at launch.
  • 3:53 am Q: Can you talk about the pent up demand and whether it’s in places like the US and Japan that had the phone all quarter, or places where they just got it? And can you catch up on demand?
  • 3:53 am Cook: I don’t want to comment on current sales trends, but given that we just launched in China, I’ll say the demand there has been staggering. We’re not currently selling through our retail store and demand is off the charts.
  • 3:54 am Cook: The other countries we launched in earlier this quarter were smaller, we’ll see how the supply and demand goes. We did make progress, but we’ll see how we do.
  • 3:55 am Cook: Generally speaking the component environment is favorable, that let us over achieve on margin. Exception is hard drives, which is affected by tragic situation in Thailand. We didn’t have a supply issue, but we’re paying more for drives.
  • 3:55 am Q: Can you give more detail on the hard drive situation? Any impact on Mac sales?
  • 3:56 am Cook: No material supply or cost impact on any of the product lines in December quarter. March quarter, we’re expecting a cost increase.
  • 3:56 am Q: You saw some declines in Flash and DRAM pricing, can you talk about how favorable you expect pricing to be next quarter?
  • 3:57 am Cook: Last quarter we did receive better cost than we expected, particularly on displays and NAND DRAM, and we expect supply will exceed demand for the industry. The big exception is the hard drive, which is constrained across the industry, and I believe we can navigate the supply issue, but we’re paying more for them.
  • 3:59 am Q: On the iPad, obviously strong numbers — did you see any impact from the lower price tablets, and how do you think about competition from Amazon?
  • 4:00 am Cook: We’re really happy with the 15.4 million iPads that we were able to sell. This is consistent with our long term belief that we’ve had since before we launched the iPad that this is a huge opportunity for Apple. I believe that there will come a day that the tablet market will be bigger than the PC market. IDC’s recent data shows that tablet sales exceeded desktop PC sales in the US. There is significant momentum in this space.
  • 4:00 am Cook: In terms of competitiveness, the iPad ecosystem is in a class by itself. We now have 70,000 apps, compared to a few hundred for the competition. People really want to do multiple things with their tablets, and we don’t see these limited function tablets and e-readers in the same category.
  • 4:01 am Cook: We don’t think people who want an iPad will settle for limited function. Last year was supposed to be the year of the tablet, and most people will agree it was the year of the iPad. We’re going to continue to innovate like crazy in this area.
  • 4:02 am Q: Can you talk about the iPhone 3GS in the post- and prepaid market?
  • 4:03 am Cook: Each of the iPhone models were important in achieving the 37m total units sold, so we’re glad to cover the broad range. But the iPhone 4S is the most popular. In the postpaid market there’s a much smaller difference in what the customer pays than the prepaid, so it’s too soon to tell. But we’re thrilled with the early results.
  • 4:03 am Q: What are these active discussions of using your cash? Is that different than in the past, or is that a big nothing?
  • 4:04 am Oppenheimer: We’ve always talked about our cash, we know it’s growing. I would characterize our discussions as “active.”
  • 4:04 am Q: Is there a time frame that you’ll tell us that you’ve finished those discussions?
  • 4:04 am Oppenheimer: When we have something to announce, we’ll announce it.
  • 4:05 am Boring question about gross margin changes.
  • 4:05 am Equally boring answer.
  • 4:07 am Q: We just got back from CES and everyone is trying to solve problems only Apple can solve. How should we think about your strategy in the living room?
  • 4:07 am Yes, that’s Gene Munster.
  • 4:07 am Cook: Apple TV is doing extremely well; we just sold a record 104m units.
  • 4:08 am Cook: We still classify this as a hobby, but we continue to add things to it. I couldn’t live without it. We think it’s a fantastic product and we continue to pull strings and see where we can take it.
  • 4:08 am Q: What’s it like being Apple’s CEO?
  • 4:08 am Gene is such a suck up.
  • 4:08 am Cook: I love Apple.
  • 4:08 am Q: Anything else? Gene really digging.
  • 4:08 am Cook: Apple’s people are so great.
  • 4:09 am Another boring question for Oppenheimer. Let’s take a moment to imagine what it would have been like if Tim Cook had taken this moment to tell Gene Munster personally that Apple’s working on a TV.
  • 4:10 am Like, could the American phone system have contained the Munster joy explosion?
  • 4:11 am Cook: We’re thrilled with iCloud and the response from customers has been incredible. It was a fundamental shift, recognizing that people had numerous devices and wanted their content in the cloud. 85m customers in three months. It’s not a product; it’s a strategy for the next decade.
  • 4:11 am Q: Can you give us an update on where you are with distribution for the phone, and what your prospects are like in China?
  • 4:12 am Cook: We’re not at over 130,000 points of sale in the world; we’re adding points of distribution. That’s us, carriers, and key retailers. We added carriers last quarter: KDDI in Japan, Sprint in the US. We are extremely pleased with both companies, while the incumbents did incredibly well.
  • 4:13 am Cook: Nothing to announce on China expansion, but its important market and we continue to look at how to grow it farther.
  • 4:13 am Q: You started the quarter with strong iPhone demand and a backlog, why would you predict revenue be down next quarter?
  • 4:14 am Oppenheimer: We think iPhone will be up year over year but down from this quarter. Same with iPad and Mac.
  • 4:16 am Oppenheimer: Five reasons we’ll be down greater sequentially:
    1. 14th week.
    2. That extra week was in a different place last year.
    3. Last year we increased iPhone channel inventory in the quarter, so that benefitted the comparable.
    4. Significant pent up demand for the 4S headed into the quarter, year ago was the second full quarter of the iPhone 4.
    5. US dollar is strengthened.
  • 4:16 am Q: Can you talk about the Anobit acquisition?
  • 4:17 am Oppenheimer: We have done acquisitions of small and medium companies that have great talent and a great start on a product or technology that we’d like to bring into Apple. We tend to do several a years, and our track record is strong.
  • 4:17 am Q: Can you talk about how they’re integrated in — do you run them as standalone, or are they integrated?
  • 4:18 am Cook: We don’t believe in lots of divisions, we run the company as one. The semiconductor team under Bob Mansfield does the hardware engineering for the whole company — Bob’s integrating that team. We’re fortunate to have Anobit join us.
  • 4:19 am Q: You’re at 230 carriers, there are 500 carriers in the world — what’s the plan? When will you aggressively enter India and Russia with a retail presence?
  • 4:20 am Cook: We’re selling in Russia through reseller and carrier partners, same in India. I’ve tried to be clear in the past that we have a ton more energy in China today. That doesn’t mean there’s a lack of effort or focus on the others, there’s just lest investment. The next country on the list is Brazil — there’s a huge opportunity there. I don’t envision Apple Retail going there in the near term. India, where we’re small, revenue went up 3x, but that’s a small base.
  • 4:20 am Cook: We have to understand how we get to a large revenue figure.
  • 4:21 am Cook: We have been adding carriers; I think we’ll add more carriers. We’re looking at the same list you are. In terms of major carriers, the number is much smaller, and the same thing with countries. All of them are important; I’d like to get into all of them over time.
  • 4:22 am Q: Obviously the iPhone is doing well, but the iPad growth really outpaced expectations — do you think Apple benefitted from the reduced-cost competition? Do you see that happening with the MacBook Air and ultrabooks?
  • 4:23 am Cook: When I looked at the data, particularly in the US, after Amazon launched the Kindle Fire, there wasn’t an obvious effect plus or minus. I’ve heard from some customers that that occurred, whether that’s happening on a larger basis I don’t know. But looking at the data in the US, there was no change in the data.
  • 4:24 am Cook: There is cannibalization of the Mac by the iPad, but we think there’s more cannibalization of Windows PCs by the iPad — we love that trend. You can see the iPad begin to appear everywhere. The enterprise has adopted it, we sold twice as many iPads into education as we did Macs.
  • 4:24 am Cook: Of course the consumer has moved in a huge way to iPad. It’s winning market by market by market — consumers who look at it and think about the ecosystem and the overall experience; we’ll win a fair number of those. We couldn’t be happier. It’s remarkable we’ve sold 55m iPads and we’ve only been in the business since April of 2010.
  • 4:25 am Q: Are you seeing an accelerated refresh rate as people buy more things faster?
  • 4:26 am Cook: We’ve seen the iPhone be a catalyst — the iPad follows, and the Mac follows that. One product pulls another. On a macro level, it’s hard to put a finger on it, but many customers are pointing that out. We’ve seen this before with the halo the iPod created for the Mac. It’s not a phenomenon that is new to us.
  • 4:26 am Q: Android vs iPhone, is this a two horse race similar to Mac vs Windows, and how do you see the sustainability of integrated model?
  • 4:27 am Cook: I wouldn’t compare it to Mac and Windows. The Mac has outgrown the market 20 quarters in a row but still has single digit market share. We’ve sold over 315m iOS devices, and over 62m were in the last quarter alone. I don’t have comparable numbers on Android; I’ve found it hard to get crisp quarterly reporting that is transparent.
  • 4:28 am Cook: Nielsen shows iPhone at 45 percent and Android at 47, ComScore shows iPhone at 42 and Android at 41. It’s a close race.
  • 4:29 am Cook: I think on the iPad, we all inherently believe that iPad is way ahead and there’s no comparable product to the iPod touch out there.
  • 4:29 am Cook: I wouldn’t say it’s a two horse race, there’s a horse in Redmond that always suits up and always runs. There are always other players. We’ll just innovate and focus on making great products. We ignore how many horses there are — we just want to be the lead one.
  • 4:30 am Q: Let’s talk about 4G and larger screens. Has the popularity of larger screens on larger screen changed your view? 4G?
  • 4:30 am Cook: I wouldn’t comment on the future roadmap, but I would point out that we just sold a record 37m iPhones and we could have sold more if we had more supply. A lot of people love what we’re doing.
  • 4:31 am And we’re done! That was a little more sprightly than usual.
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Editorial Staff

Editorial Staff at I2Mag is a team of subject experts led by Karan Chopra.