Apple FY 4Q16 Earnings Call Notes

Apple (AAPL) Q4 2016 Results

Timothy Donald Cook

iPhone demand is outstripping supply

“In terms of iPhone 7, Gene, the carriers that had upgrade plans, the information that we have from them is that demand is very robust. But from a worldwide point of view, the truth is that demand is outstripping supply in the vast majority of places, particularly on the iPhone 7 Plus”

Weakness in China due to anniversary of surge in upgrade rate

“why was it down? There’s lots of reasons, but the largest one in our view is that when you look at what happened in 2015 in China, we had a surge of upgraders that came into the market for the iPhone 6 or iPhone 6 Plus, and the upgrade rate increased relatively more in Greater China than elsewhere around the world. And so when that upgrade rate in fiscal year 2016 returned to a more normal upgrade rate, which would be akin to what we saw with the iPhone 5S as a point, it had further to fall. And so that’s the main reason in our view that you see a difference.”

We’re open to acquisitions of strategic value

We are open to acquisitions of any size that are of strategic value where we can deliver better products to our customers and innovate more. And so we look at a whole variety of companies, and based on that, we choose whether to move forward or not. But we’re definitely open and we definitely look.

We have the strongest pipeline that we’ve ever had

“We have the strongest pipeline that we’ve ever had and we’re really confident about the things in it. But as usual, we’re not going to talk about what’s ahead…We have a strong sense of where things go and we’re very agile to shift as we need to.”

Smartphone has not done as well in India because infrastructure hasn’t been there, but that’s changing

“The smartphone has not done as well in India in general. However, one of the key reasons for that is the infrastructure hasn’t been there. But this year or this year and next year, there are enormous investments going in on 4G and we couldn’t be more excited about that because it really takes a great network working with iPhone to produce that great experience for people. And so I see a lot of the factors moving in the right direction there. I also think the government is much more focused on the infrastructure and on creating jobs, which is fantastic, because you really need the kind of infrastructure and the technology to do that.”

Luca Maestri – Apple, Inc.

65% of smartphone buyers in the US plan to purchase and iPhone

“Customer interest and satisfaction with iPhone remains extremely strong. In the U.S. for instance, the latest survey fielded by 451 Research found that among consumers planning to purchase a smartphone within 90 days, 65% plan to purchase iPhone, with the current iPhone owners reporting a 97% customer satisfaction rating. Among corporate smartphone buyers, the latest survey measured a 95% iPhone customer satisfaction rating and found that of those planning to purchase smartphones in the December quarter, 79% planned to purchase iPhone.”

iPad has 82% of high end tablet market

“We continue to be highly successful both in terms of market share and customer metrics in the segments of the tablet market where we compete. Recent data from NPD indicates that iPad gained share in the U.S. tablet market in the September quarter and had 82% share of tablets priced above $200. And in August, 451 Research measured a 96% consumer satisfaction rate for iPad mini, 95% rate for iPad Air, and a 93% rate for iPad Pro”

At some point the strong dollar becomes the new normal and we need to work with that

“It is very, very important I think for investors to understand that what’s happened during the last two years. During the last two years, the U.S. dollar has appreciated by 15% over the basket of currencies where we do business. And we’re a company that generates two thirds of our revenues outside the United States, 15% appreciation of the U.S. dollar. So on a year-over-year basis, just 2016 over 2015 was 340 bps impact from foreign exchange. This is something that we have offset almost entirely through a number of initiatives going from pricing actions to cost initiatives to our hedging program, but at some point, the strong dollar becomes the new normal and we need to work with that”