Apple FY 3Q15 Earnings Call Notes

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Results include reduction of channel inventories and challenging FX

“We achieved these incredibly strong results despite reducing channel inventories across our product lines by over 1 million units and despite the challenging FX environment.”

112% growth in China

“Our results from Greater China were outstanding with revenue growth of 112% and iPhone unit growth of 87%. This is particularly impressive given IDC’s estimate of only 5% growth for the Greater China smartphone market. ”

Been able to catch up with watch demand to add three more countries

“And in just the past few days, we’ve been able to catch up with demand, enabling us to expand Apple Watch availability to a total of 19 countries currently with three more countries to be added at the end of this month.”

97% customer satisfaction rate for Apple Watch

“Market research from Wristly measured a 97% customer satisfaction rate for Apple Watch and we hear from people every day about the impact it’s having on their health, their daily routines, and how they communicate. Our own market research shows that 94% of Apple Watch owners wear and use it regularly, if not every day.”

Higher iPhone ASPs despite foreign exchange impact

“The strong mix of iPhone 6 and 6 Plus led to an iPhone ASP of $660, an increase of $99 year over year, despite the significant negative foreign exchange impact I referred to earlier. We reduced iPhone channel inventory by about 600,000 units during the quarter, which left us at the low end of our target range of 5 to 7 weeks of channel inventory’

9% growth in Mac vs 12% decline in PC market

“We sold 4.8 million Macs, representing 9% year-over-year growth. As we have done for several years in a row, we continued to gain significant market share based on IDC’s latest estimate of a 12% global PC market contraction”

Only 27% of the iPhone installed base has upgraded, so there’s still a lot of room for growth. We are also seeing a high android switching rate.

“In terms of the percentage of customers that have upgraded to a 6 and 6 Plus versus that have not upgraded, it’s 73%, or meaning that 27% of the installed base of customers prior to the launch of 6 and 6 Plus have now upgraded. And so we view that as a very bullish sign on the future, that there’s a lot of headroom left for upgraders. We also are incredibly happy to see the highest Android switcher rate that we’ve observed. And so from our point of view, the iPhone is doing outstanding.’

There’s still growth in the smartphone market too

“if you look at the IDC numbers, is projected to grow from 1.3 million in 2014 to over 1.9 billion – this is billion, rather, billion in 2019. And so it’s an incredible market. I think everybody’s going to own a smartphone, and I think we’ve proven that we can compete for a fair number of those, as you can see from our results.”

The watch did exceed our expectations. Sell through was higher than comparable launch periods of the original iPhone or original iPad

“to provide a bit more color, sales of the Watch did exceed our expectations and they did so despite supply still trailing demand at the end of the quarter. And to give you a little additional insight, through the end of the quarter, in fact the Apple Watch sell-through was higher than the comparable launch periods of the original iPhone or the original iPad. And we were able to do that with having only 680 points of sale. And as you probably know, as I had reviewed earlier, the online sales were so great at the beginning, we were not able to feed inventory to our stores until mid-June. And so those points of sale pretty much, the overwhelming majority of the low numbers of sales were not there until the last two weeks of the quarter.”

The objective on this launch wasn’t just sales. We’re starting a new category

“so as I look at all of these things, we feel really great about how we did. Now our objective for the quarter wasn’t primarily sales. Beyond the very good news on sales, we’re more excited about how the product is positioned for the long term because we’re starting a new category.”

The most important thing is that customer satisfaction is off the charts

“most importantly of all of this is that customer sat is off the charts because we’ve constantly seen if you can get the customer sat off the charts you can wind up doing fairly well over time.”

Our job is to focus on the product

“We look at it as our job is to grow our products regardless of the price, which means that we need to convince in some cases people to move from one price band to the other. And that we think if we do a great job with the product that people will be willing to spend more because they get so much more out of it. And I think you can look at the results on the iPhone and see that in action.”

We don’t do the MBA analysis

“We don’t do the MBA analysis of there’s only X people buying in a price band and therefore we can only get X minus Y percent. That’s not the way we’ve ever looked at it. If we did, we wouldn’t be shipping any products.”

We still think the phone has a lot of legs to it

“We think the phone has a lot of legs to it. I mean, many, many, many years. There’s tons of innovation left at the phone. I think we’re in the early innings of it, not in the late innings, and I think the market rate of growth over the long haul will also be impressive. And so there will be multiple winners here. And so that’s how I see it.”

In case you were wondering about Tim Cook’s thoughts on the Chinese stock market

“Also, the stock market participation among Chinese household is fairly narrow. And the stock ownership is very concentrated in a few people who put what appears to be a smaller portion of their wealth in the market than we might. And so I think generally this has been, at least as we see it, maybe it’s not true for other businesses, that this worry is probably overstated. And so we’re not changing anything. We have the pedal to the metal on getting to 40 stores mid next year. ”

Those of us who travel to China a lot can see that the rise of the middle class is continuing

“I can’t overstate this. The rise of the middle class there is continuing, and it is transforming China. McKinsey, I saw a recent study from McKinsey that’s projecting the upper middle class to grow from 14% to 54% of households over the ten-year period from 2012 to 2022. So we’re within that period at this moment, and you can see for all of us that travel there so much, with every trip you can see this occurring.”

Even though we’ve increased prices in some markets in response to currency, sales have still gone up

“It has been remarkable so far to see that we did take prices in a few markets. But really remarkable to see how resilient iPhone sales have been, because we have increased, in spite of these price increases, we’ve increased sales and we’ve increased market share in all our geographies around the world, without exception.”