Apple 2Q14 Earnings Call Notes

posted in: Notes | 0

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Record revenue, highest earnings growth in 7 quarters

“we are reporting record June quarter revenue, thanks to the very strong performance of iPhone, Mac and the continued growth of revenue from the Apple ecosystem. Our teams executed brilliantly during the quarter with earnings per share up 20% year-over-year, our highest growth rate in seven quarters”

Mac sales grew much more than the market

“We also had a record June quarter for Mac sales, with growth of 18% year-over-year in a market that is shrinking by 2% according to IDC’s latest estimate. Demand has been very strong for our portables in particular and we’ve have had a great customer response to the new higher performance, lower priced MacBook Air.”

iPad weak, other tablets weak too

“Our sales were gated in-part by a reduction in channel inventory and in-part by market softness in certain parts of the world. For example IDC’s latest estimate indicates a 5% overall decline in the U.S. tablet market, as well as a decline in the Western European tablet market in the June quarter.”

Beats gives Apple a subscription music service/talent

“Beats provides Apple with a fantastic subscription music service, access to rare talent and a fast growing line up of products that we can build upon.”

Nearly 40% GM

“Gross margin was 39.4%, above our guidance range and operating margin was $10.3 billion, representing 27.5% of revenue. ”

iPhone grew at all 3 price points

“iPhone sales grew well across all three of our entry-price, mid-tier and lead product categories.”

iPhone gaining back market share in the US

“In the U.S., iPhone accounts for 41.9% of the smartphone subscriber base according to the latest data from ComScore, up from 41.3% in the previous measurement period. Also based on the latest survey by ChangeWave, iPhone earned a 97% customer satisfaction rate and among responders planning purchase a smartphone within 90 days, 50% planned to purchase an iPhone, up from 42% in the March quarter and 44% a year ago.”

Developers have sold $10 B worth of merchandise in last 12 months on App Store

“we are extremely proud that our developers have now earned over 20 billion for sales of their apps through the App Store, nearly half of which have been earned in the past 12 months.”

Ended quarter with 164B in cash

“We ended the quarter with $164.5 billion in cash plus marketable securities, a sequential increase of $13.9 billion. Our domestic cash was $26.8 billion at the end of the June quarter, a sequential increase of $8.3 billion and $137.7 billion or 84% of our total cash was offshore.”

GM was a surprise to us too

“it was obviously a surprise also to us…we were expecting some cost improvements. These cost improvements came in. They came in stronger than we were anticipating. The commodity markets continue to be favorable, the product quality continues to be excellent, our teams executed really, really well. And all these things came together at the same time and it was a very nice surprise for us.”

Tablet market should still grow

“The market is still predicted in 2018 — I think these are Gartner numbers — to be about 350 million in size and put that in some context, I think the PC market right now is about 315 million.”

We still think the tablet market can surpass the PC market, but in order to do that we have to get business adoption. That’s where IBM comes into play

” think our theory that has been there honestly since the first time that we shipped iPad, that the tablet market would eventually surpass the PC market, that theory is still intact. I just think we have to do some more things to get the business side of it moving in a faster trajectory and I think we’re now on to something that can really do that. So as I look at it and sort of back up from the 90 day clock kind of thing, I’m incredibly excited. I’m excited about the plans that we have on the product side and also on the go to market side, and in particular the IBM announcement.”

iPad growth was bifurcated. Very strong in EM

“the market’s very bifurcated on iPad. In the BRIC countries, iPad did extremely well. The growth was very high. Like in the China it was in the 50%s, in the Middle East it was in the 60%s. Luca may have mentioned those numbers. In the developed countries like the U.S., the market is clearly weaker there. It’s interesting to note however that the U.S. as an example, we had a very, very strong Macintosh market in the U.S. and so there is probably a bit of higher add kind of stuff beginning to play out too, where higher add is clearly still very much notebook oriented. K12 on the other hand, we sell 2.5 iPads for every Mac in the K12.”

China growth was way better than we thought

“China, honestly was surprising to us that it was — we thought it would be strong but it well went past what we thought. We came in at 26% of revenue growth, including retail and if you look at the units, the unit growth was really off the charts across the board.”

Mid tier grew fastest of any tier

“if you look at year-over-year growth rates and so this would be comparing the 5C to last year. It would be comparing the 4S, which was in the mid-tier. The growth in that sector was the highest growth during the quarter we just finished.”

Only 1/4 iphones now sold on a subsidy plan

“And actually last quarter, as we estimated and this is subject to estimating but we’re estimating that less than one out of four iPhones were sold on a traditional subsidy plan. And so that number is markedly different than it would have been two years ago”

IBM deal because we both get the importance of mobile in the enterprise

“in this particular case, I think arguably the companies are so complementary, and I’ve gotten to know Gini fairly well over the last couple of years and I think we see the importance of the customer, a lot of the same way and both feel that Mobile and Enterprise is just an enormous opportunity.”

Beats was strategic

“We’re always looking in the acquisition space, but we don’t let our money burn a hole in our pocket and we don’t do things that aren’t strategic.

And so with Beats we felt we were getting an incredible subscription service, a very rare set of talent that we think can do great things in Apple and access to a very fast growing businesses in their headphone and earphone space. And culturally we felt there was a match and music has been deeply embedded in Apple’s DNA for many, many years.”

Not going to acquire to check a box

” it’s not my goal to acquire certain number of companies or spend a certain amount of money. We want to do things that help us make great products that are great for our customers and so forth.”

Enterprise goal is 60% penetration

“we win if we can drive that penetration number I spoke about from 20% to 60%. That would be incredibly exciting here. The walls would shake.”