Apple 1Q16 Earnings Call Notes

Tim Cook

Seeing extreme conditions unlike anything we’ve experienced before

“Our results are particularly impressive, given the challenging global macroeconomic environment. We’re seeing extreme conditions unlike anything we’ve experienced before just about everywhere we look. Major markets, including Brazil, Russia, Japan, Canada, Southeast Asia, Australia, Turkey and the eurozone, have been impacted by slowing economic growth, falling commodity prices and weakening currencies.”

Foreign currency fluctuations have a meaningful impact

“66% of Apple’s revenue is now generated outside the United States, so foreign currency fluctuations have a very meaningful impact on our results. ”

Began to see economic softness in China

“Notwithstanding these record results, we began to see some signs of economic softness in Greater China earlier this month, most notably in Hong Kong. ”

The mother of all balance sheets

“We had the mother of all balance sheets, with almost $216 billion in cash, which translates to nearly $39 per diluted share of Apple stock.”

Customer loyalty still high

“recent consumer surveys by 451 Research, formerly known as ChangeWave, measured an incredible 99% customer satisfaction rate for iPhone 6S and 6S Plus and an equally impressive 97% rate for the iPad Air 2. They also indicate that our iPhone loyalty rate is almost twice as strong as the next highest brand.”

Install base has crossed 1B devices

“our install base has been growing very fast and has recently reached a major milestone, crossing 1 billion active devices for the first time. ‘

The level of Android switchers we had was the highest ever by far

“I would say we were blown away by the level of Android switchers that we had last quarter. It was the highest ever by far. And so we see that as a huge opportunity.”

I don’t think VR is a niche

“Yeah. In terms of virtual reality, no, I don’t think it’s a niche. I think it can be — it’s really cool and has some interesting applications.”

Next quarter should be our toughest compare

“we do think that iPhone units will decline in the quarter. We don’t think that they will decline to the levels that you’re talking about. We aren’t projecting beyond the quarter, as Luca mentioned earlier. But at this point in time, we see that Q2 is the toughest compare.”

I don’t think smartphone penetration is saturated yet

“as I look at sort of your — maybe your broader umbrella point about a question on saturation, the metrics I see would strongly suggest otherwise. For example, almost half of the iPhones that we sold in China last quarter were to people who were buying their first iPhone. And certainly if you go outside of China into the other emerging markets, our share is much lower and the LTE penetration is so low, I mean in some cases, it’s zero, that it indicates to me that there’s still a lot of people, a tremendous number of people in the world, that will buy smartphones and we ought to be able to win over our fair share of those.”

Our expansion plans have not changed even in markets where it looks fairly bleak

“our expansion plans in China have not changed. We are maintaining our investment profile and plans there. We are also continuing to invest in markets where we believe they are great places for Apple for the long-term, like India, as an example of that one. And finally, even in the markets where today, grandly, it looks fairly bleak, from Russia and Brazil and some of the other economies that are very much tied to our oil-based economies. We do believe that this, too, shall pass and that these countries will be great places and we want to serve customers in there and so we’re not retrenching. ”

Luca Maestri

79% of corporate buyers planning to purchase smartphones plan to purchase iPhones

“Among corporate buyers planning to purchase smartphones in the March quarter, 451 Research found that 79% planned to purchase iPhones. That is the highest iPhone purchase intent in the eight-year history of the survey.”

The macroeconomic environment is weakening

“The macroeconomic environment is weakening. When you think about all the — particularly all the commodity-driven economies, Brazil and Russia and emerging markets, but also Canada, Australia in developed markets, clearly the economy is significantly weaker than a year ago. We talked about the unfavorable FX, which again is 400 basis points.”

Data centers are a growing expense as installed base keeps growing

“data centers is a growing expenditure for us, because, as we mentioned in our prepared remarks, our installed base of customers and devices is growing, and is growing very significantly. And the data center capacity that we put in place is to provide the services that are tied to the installed base.”