Apple 1Q14 Earnings Call Notes

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A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Quarter even better than numbers describe

“Our underlying business performance was even stronger than our reported results imply. When you take into account changes in channel inventory this year versus last year and foreign exchange headwinds that we faced in several of our international markets. Setting foreign exchange and inventory changes aside, our underlying growth rate would have been close to double digits.”

Highest EPS growth rate in 6 quarters

“earnings per share growth of 15%, which is our highest earnings growth rate in the last six quarters.”

800 million itunes accounts

“We now have an almost 800 million iTunes accounts, most of these with credit cards. This is a staggering number.”

Weak iPad sales because they reduced channel inventory

“iPad sales came in at the high end of our expectations, but we realized they were below analyst estimates, and I would like to proactively address, why we think there was a difference. We believe almost all of the difference can be explained by two factors. First, in the March quarter last year, we significantly increased iPad channel inventory, while this year we significantly reduced it. ”

Still think that tablets will out number PCs

“We continue to believe that the tablet market will surpass the PC market in size within the next few years ”

Great growth/market share in Japan

“Japan, where revenue was up 26% in spite of the foreign exchange headwinds and where our smartphone market share reached an incredible 55%.”

Angela Ahrendts joining next week

“I’m looking forward to welcoming our new retail and online leader, Angela Ahrendts, who will be joining Apple’s Executive Team next week.”

Chinese buying 4s

“The addition of China Mobile coupled with great response to our more affordably priced iPhone 4S led to an all time quarterly record for iPhone sales in Greater China.”

Most of the cash is offshore

“$132.2 billion or 88% of our total cash was offshore. ”

Apple selling debt again

“To execute our updated capital return program in a tax efficient manner and leverage our very strong balance sheet, we intend to access the debt markets again. We plan to be active in both the domestic and international bond markets during 2014 for an amount of term debt financing similar to what we issued in 2015”

iPhone took market share all over

“We saw some pressure in the quarter because of the stricter enforcement of upgrade policies. So this was primarily in the U.S. as I mentioned last time. But if you really look at iPhone, the strength of iPhone was very broad-based and as I’ve mentioned, we gained share in a whole host of markets, from developing markets like the U.S., U.K., France, Germany to more of the emerging markets like China, Vietnam, and had the largest total sales of iPhone in the BRIC countries that we’ve ever seen in our history”

Carrier changes may help fuel upgrade cycle in some ways

“some of the programs that the carriers are running may serve to increase the upgrade cycle because there are some areas where customers can pay a bit more in the beginning and have the ability to essentially upgrade each year.”

Still tremendous growth to be had in smartphones

“what I see as the bigger opportunity for Apple is that the smartphone market is still only 1 billion or so units and it will eventually take over the entire mobile phone market. We’ve seen our ability to attract new users to iPhone to be very significant in the emerging markets.”

Remember, the carrier stuff is only in the US

“the things you’re seeing in the U.S. are not occurring in many of the other geos in terms of the upgrade policies and so forth. I mean, each country has its own kind of cadence associated with this, and the U.S. is – it’s in the 30% of our business, not 100%.”

Some of the weakness in iPad may be due to the fact that it’s grown so much so fast

“if you really look at it in just four years after we launched the very first iPad, we’ve sold over 210 million, which is more than we or I think anyone thought was possible at that period of time. And it’s interesting to note that that’s almost twice as many iPhones that we’ve sold in a comparable period of time, and over seven times as many iPods as we’ve sold in the period of time. ”

No degradation in customer satisfaction with iPad

“The other things you look at on iPad that are just blow away as customer sat is 98. There is almost nothing in the world with a 98% customer sat and the intention to buy numbers look good with two-thirds of the people planning to buy a tablet or planning to buy an iPad. The usage numbers are off the chart, far and exceeding Android tablets, four times the web traffic of all Android tablets combined.”

On acquisitions, we think it’s best to focus on what we’re good at

“The key thing for us, Steve, is to stay focused on things that we can do best and that we can perform at a really high-level of quality that our customers have come to expect.”

We’ve got some great things coming up

“we currently feel comfortable in expanding the number of things we’re working on. So we’ve been doing that in the background and we’re not ready yet to pull the string on the curtain. But we’ve got some great things there. We’re working on them. Very, very proud of and very, very excited about.”

We pay attention to detail, so it takes us some time to get things out

“for us, we care about every detail and when you care about every detail and getting it right, it takes a bit longer to do that and that’s always been the case, that’s not something that just occur”

We’ve always been this way

“we didn’t ship the first MP3 player, nor the first smartphone, nor the first tablet. In fact, there were tablets being shipped a decade or so before then, but arguably, we shipped the first successful modern tablet and the first successful modern smartphone and the first successful modern MP3 player. And so it means much more to us to get it right than to be first.”

Hopefully you see that we do well in all markets

“if you were unsure, hopefully this quarter demonstrates to you that we can do well in a number of geographies from emerging markets to develop markets.”