Apple 4Q15 Earnings Call Notes

Revenue grew by $51B y/y

“we are proud to report revenue of $234 billion, an increase of 28% and $51 billion over 2014. This is our largest absolute revenue growth ever. To put that into some context, our growth in one year was greater than the full year revenue of almost 90% of the companies in the Fortune 500.”

Sold 231m iPhones in LTM

“In the past 12 months around the world we’ve sold over 300 million devices including 231 million iPhones, 55 million iPads and 21 million Macs setting new unit records and increasing our global market share for both iPhone and Mac.”

Apps represent the future of TV

“Yesterday, we started taking orders for the all new Apple TV and it was a huge first day for this exciting new product. We want to provide the same innovation in the living room that we delivered in our iOS devices. People are already watching more TV through apps today and we think apps represent the future of TV.”

Issued 5.8B of debt denominated in other currencies

“In the September quarter, we issued a total of $5.8 billion of term debt, consisting of 1.25 billion British pound denominated notes, 2.25 billion Australian dollar denominated notes and 2 billion euro denominated notes.’

Expecting 700bps headwind from FX in Q1

“You have to consider the constant currency growth rates. And so if you do that, our guidance is actually 8% to 11% because we have about a 700 basis point FX headwind in Q1′

We’re seeing a lot of switchers from android

“We believe that iPhone will grow in Q1 and we base that on what we are seeing from a switcher point of view, we recorded the highest rate on record for Android switches last quarter at 30%.’

There are also still a lot of upgrades ahead

“We also look at the number of people that have upgraded, that were in the installed base prior to iPhone 6 and 6 Plus. And that number is in the low 30 percentages. ”

A huge growth in middle class in China

“The latest study I have seen from Mackenzie indicates if you look back five years China’s middle class had about 50 million people in it. If you look ahead five years, it will have ten times that number in it.”

These drivers are long term drivers

“the macro things that I spoke about earlier, the upgrade programs, the Android Switcher rate, the iPhone momentum in the emerging markets and the LTE penetration in these markets these trends are not one quarter things. These are longer term things.”

Are continuing to hedge as hedges roll off

“We continue to hedge, so our program continues on an ongoing basis and we will continue to provide some level of protection to foreign exchange movement. ”

I don’t envision having a large enterprise sales force

“I do not envision Apple’s having a large enterprise sales force will certainly make – we continue adding some people more on the engineering side, but I don’t envision having a large direct sales force.”

iPhone number one selling phone in ChinaIf I just look at how many people are coming into our stores, I wouldn’t know there’s any problem in China

” if I were to shut off my web and shut off the TV and just look how many customers are coming in our stores regardless to whether they’re buying, how many people are coming online, and in addition looking at our sales trend, I wouldn’t know if there was any economic issue at all in China. And so I don’t know how unusual we are with that…I just think that the area that it’s currently operating within, it’s hard to tell the difference of the consumer level for us. I mean, you really can’t tell the difference, if you look at sort of our daily and weekly numbers.”

I don’t think China is growing as fast as it was but our results are not dependent on changes in the growth

“I think that there’s a misunderstanding probably particularly in the Western world about China’s economy, which contributes to the confusion. That said, I don’t think it’s growing as fast as it was, but I also don’t think that Apple’s results are largely dependent on minor changes than growth. I think it’s much more of contributing – I think other things contribute to that much more.”

There are a lot of people who haven’t upgraded yet

‘When I look at the upgrade rate, Steve, what I see is I feel good that it’s a low number because that’s low number means that there is 69% of the people that are out there prior to the iPhone 6 and 6 plus that haven’t bother to upgrade this year. That’s a large number.”

50% of people buying the iPhone 6 in China are buying their first iPhone

“if you look at China as an example, it’s over 50% of people that bought 6 and 6 Plus were buying their first iPhone’

Apple FY 3Q15 Earnings Call Notes

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.”

Apple FY 2Q15 Earnings Call Notes

Along with everything else, was able to defy trend in PC market

“We also continue to defy the trend of declining global PC sales, with double digit Mac unit growth in a market that IVC estimates contracted by 7%.”

Sold 135m iPhones so far this fiscal year

“We’re now halfway through fiscal 2015 and our year to date results have been simply staggering. We sold over 135 million iPhones, 34 million iPads, and 10 million Macs in the first six months of the year. Our revenue has grown by 28% to over $132 billion, net income has increased 36% to over $31 billion, and EPS has grown by 44%.”

Cedars linking up with HealthKit

“Just this past weekend, Cedars-Sinai in Los Angeles turned on the largest HealthKit integration to date, giving more than 87,000 patients the ability to share their health and fitness data seamlessly with their MyCS link app, which syncs with their electronic medical record.”

Heavily using renewable energy

“The two data centers we’re building will run on 100% renewable energy from day one. This is just part of the work we’re doing to protect the environment and leave the world better than we found it.”

193B in cash, 171 of which is overseas. Borrowed in Swiss franc

“Let me now turn to our cash position. We ended the quarter with $193.5 billion in cash, plus marketable securities, a sequential increase of $15.6 billion. Over $171 billion of this cash was offshore. In the March quarter, we issued 6.5 billion U.S. dollar denominated notes and 1.3 billion Swiss franc denominated notes as we continue to diversify our global debt investor base.”

Big dividend payers

“We also understand that the dividend is very important to many of our investors and we’re raising it for the third time in less than three years. The quarterly dividend will grow from $0.47 per share to $0.52 per share, an increase of 11%. This effective with our next dividend, which the board has declared today and is payable on May 14, 2015 to shareholders of record as of May 11, 2015.

We believe this is a meaningful increase for those shareholders who value income, and we continue to plan for annual dividend increases going forward. With over $11 billion in annual dividend ”

FX impact was as expected. Will be another negative impact next Q

“And I mentioned during the call in January that we were expecting FX to have a negative impact on a sequential basis of about 100 basis points after the effect of the hedges.

And that is exactly what happened in our actual results. So that was pretty much in line with what we were anticipating. Of course, we expect this headwind to continue. And on a sequential basis, when we look into the June quarter, we expect to see another 40 basis points of negative impact from currency.”

Lots of switchers and first time buyers of iPhone

“we continue to see a higher rate of switchers than we have seen in previous cycles, and so we’re extremely excited about that. We also continue to see a reasonable percentage of first time buyers, particularly in some of the emerging markets. ”

Demand is greater than supply of the watch

“Right now, demand is greater than supply. And so we’re working hard to remedy that. We’ve made progress over the last week or so, and we were able to deliver more customers an Apple Watch over the weekend than we had initially anticipated.”

What’s driving R&D spend ahead of revenue

“When you look at our current product portfolio, it is much broader than it used to be. We’ve now developed two new iPhones over the year. We were not doing that a few years ago. Developed two iPads. And of course now we have the Apple Watch.

We’re also developing some core foundational technologies more in house now than we were in the past. And of course we’re also spending ahead of some of the products that will generate revenues in the future. So when you combined all these factors, that is the reason why you see these research and development increases year over year. Research and development is the core of the company. Innovation is the core of the company.”

About 1/5 of installed base has upgraded so far

“Our current estimate is that about 20% of the active installed base has upgraded to a 6 or 6 plus. And so as I look at that number, that suggests there’s plenty of upgrade headroom in addition to we want to keep inviting over as many switchers as we can. So between both of those and the first time buyers as well, it seems really, really good right now.”

I’m thrilled with how the watch has done so far

“I’m thrilled with it, Tony, so I don’t want you to read anything I’m saying any way other than that. So I’m not sure how to say that any clearer than that. And in any situation, whether it’s the watch or in the past on iPad or on iPhone, when demand is much greater than supply, it’s difficult to gauge exactly what it is.”

Probably gained 9 points of share in China

“the current estimates from Kantar are that that would mean that we would gain more than 9 points of share on a year over year basis. And so by everything I can see, we did extremely well.”

There has clearly been cannibalization of iPad, but we wont worry about that

“have we had cannibalization? The answer is yes. We’re clearly seeing cannibalization from iPhone and on the other side, from the Mac. And of course, as I’ve said before, we’ve never worried about that. It is what it is. That will play out, and at some point, it will stabilize. I’m not sure precisely when, but I’m pretty confident that it will.”

The iPad is still a very good business over the long term

“I think still I believe the iPad is an extremely good business over the long term. When precisely it begins to grow again I wouldn’t want to predict, but I strongly believe that it will.”

Apple FY 1Q15 Earnings Call Notes

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

This volume is hard to comprehend

” Demand for iPhone has been staggering, shattering our high expectation, with sales of over 74 million units, driven by the unprecedented popularity of iPhone 6 and iPhone 6 Plus. This volume is hard to comprehend. On average we sold over 34,000 iPhones every hour, 24 hours a day, everyday of the quarter”

Apple may have accounted for half of all mobile activations globally

“Mac units were up 14% to $5.5 million, while the rest of the PC market continued to decline. App Store revenues was up a remarkable 41%. Demand was strong around the world. Flurry estimated that Apple products accounted for over half all mobile device activations globally from December 19th to December 25th.”

Watch should start shipping in April

“Development for Apple Watch is right on schedule and we expect to begin shipping in April. ”

Huge growth everywhere

“Our growth was broad based across the world, with revenue from developed countries up 20% and revenue from emerging countries up 58%. The performance of our Greater China segment was particularly impressive, with revenue up 70%”

iPhone revenue grew 57% y/y

“iPhone ASPs were $687, an increase of $50 over the year ago quarter. This led to iPhone revenue growth of 57% year-over-year, with quarterly sales exceeding $50 billion for the first time ever.”

Our customers love their iPhones

“Our customers love their iPhones. A December ChangeWave survey measured a 97% customer satisfaction rating for iPhone. A study published by Chitika Insights last month indicated that iPhone accounts for 53% of North America smartphone web traffic, almost twice the level of the next closest brand. And in the corporate market ChangeWave found that among IT buyers planning to purchase smartphones in the March quarter this year, 77% intend to purchase iPhones.”

Unprecedented currency impact

“Obviously, what we’ve seen during Q1 has been unprecedented movements in currencies. I would say during the course of the quarter the biggest impact came from the Japanese yen, the Russian rubel, but also from euro, Australian dollar, Canadian dollar. Our revenue growth during Q1 would have been four percentage points higher on a constant currency basis.”

Currency headwinds will be stronger in Q2 than Q1

“the foreign exchange headwinds will be stronger in Q2 than they were in Q1 for two main reasons. The first one is the fact that the U.S. dollar has continued to appreciate against foreign currencies during the last few weeks. And the other one is the fact that our existing hedges expire.”

Our hedges will continue to expire too

“our hedges continue to expire, they get replaced by new hedging contracts at current levels and so — and there is the impact that we would see during the course of the year.”

Just got to supply balance in Jan

“Just recently we became in supply demand balance on the 6 and 6 Plus in January. We were not able to reach a balanced state during our fiscal Q1.”

Lots of people still need to upgrade, lots of new customers. Very bullish on iPhone

“We believe that it’s the best smartphone in the world. Our customers are telling us that. The market is telling us that. We’re doing well in virtually every corner of the world. And so we’re very bullish that it does have legs. I would point out that only a small fraction of the installed base has upgraded. And so there is a lot more people within the installed base. But I would also point out that we had the highest number of customers new to iPhone last quarter than in any prior launch. And also that the current iPhone line up experienced the highest Android switcher rate in any of the last three launches in the three previous years.”

Very high expectations on the watch

“My expectations are very high on it. I’m using it every day and love it and I can’t live without it. So I see that we’re making great progress on the development of it. The number of developers that are writing apps more for it are impressive and we’re seeing some incredible innovation coming out there. ”

I think this is the year of Apple Pay

“given that we’ve launched in October, I’m actually unbelievably shocked, positively shocked at how many merchants were able to implement Apple Pay in the heart of their holiday season, because generally most people sort of lock down and don’t do very much. But we were able to get this in a lot of different merchants and I give them a lot of credit for that. But I think we’re just on the front end. And I think that this is the year of Apple Pay. ”

There are still a lot of potential new customers

“given there are fair amount of Android units out there, there is also an enormous amount of Android customers that could switch. And I’d also remind you that there is a lot of people that have not yet bought a smartphone. And I know it doesn’t feel like that when you’re sitting in the United States, but from a worldwide point of view there’s still lots of them. “

Apple 3Q14 Earnings Call Notes

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

26% growth in iPhone

“Demand for iPhone was strong across all geographies with global unit sell-through growth of 26% and we exited the quarter with significant backlog for both iPhone 6 and 6 Plus”

18% growth in Mac thanks to portables

“We established an all-time quarterly record for Mac sales with revenue growing 18% year-over-year, thanks in particular to the very strong performance of our portables”

Contraction in PC market means highest market share since 1995

“We’re especially proud of our Mac results considering the overall contraction of the global PC market this year and we achieved our highest quarterly market share since 1995.’

App store revenue grew 36%

“App Store revenue grew 36% over last year and cumulative app downloads have now topped 85 billion.”

Made 7 acquisitions last quarter

“We brought tremendous new talent and technology into Apple through 20 acquisitions in fiscal ’14 including seven alone in the September quarter.”

Mac sales driven by back to school

“We saw great demand in the back-to-school season for both desktops and portables with especially strong growth for MacBook Pro and MacBook Air.”

Particularly strong mac sales in emerging markets

“We achieved double-digit Mac growth across most markets around the world, with particularly impressive performance in emerging markets where Mac sales were up 46%.”

Cash declined by 10B

“We ended the quarter with $155.2 billion in cash plus marketable securities, a sequential decline of $9.3 billion. We are continue to execute our capital return program aggressively with the total spend of over $20 billion in just the September quarter.”

Returned $94 B so far

“e’ve already taken action on over $94 billion of our $130 billion capital return program including $68 billion in share repurchases with five quarters remaining to its completion.”

Apple watch sales aren’t going to be broken out on their own. Will be included in the same line item as beats

“we will begin to include iPod sales in the other products category and we will also reflect sales of Apple Watch in this line item once it begins shipping in early calendar 2015.”

Privacy is a big concern

“many people that have entered mobile payments are doing still in a way that they want to monetize the data that they collect from the customers and we think customers in general do not want this that they’d like to keep their data private. And so, we wanted to have ease of use, security and privacy and maximize all three.”

There are commercial terms between apple and the banks

“we do not charge the customer for the benefit. We do not charge the merchant for the benefit. However, there are commercial terms between Apple and the issuing banks, but we’re not disclosing what they are, like any other contractual arrangement those are private things.”

Stronger dollar didn’t have a huge impact on Q4 but is becoming a significant headwind in q1

“When we looked at our Q4 results actually the impact was fairly limited combination of the hedging program and the fact that the dollar really strengthened towards the very end of the quarter.

Not much impact in Q4. It is becoming a significant headwind in Q1 both on a year-over-year basis and on a sequential basis.”

USD strength creates headwinds

“it’s a fact of life if the U.S. dollar strengthens, that creates a headwind for us both in revenue and margins for our business outside the United States.’

The protection from hedging is temporary

“As you know, we have a comprehensive hedging program in place that mitigates the impact of foreign exchange. Over time, of course, these hedges roll off and get replaced by new hedges at new spot levels, and so the protection that you get from hedging program is temporary.”

Thinking we’ll get favorable margin impact from iPhone mix

“e think we’re going to be getting favorable impact from iPhone mix.”

We sold 2x more iPads than iPhones in the first 4 years

“If you look at, instead of looking at this thing each 90 days, if you back up and look at it, we’ve sold 237 million in just over four years. That’s about twice the number of iPhones that we sold over the first four years of iPhone”

50-70% of people buying iPads are still first time buyers. People hold onto an iPad longer than they hold onto an iPhone

“n the last market research data we have is in the June quarter, and let me give you some of this — the real data that we’ve got. is that if you look at our top six revenue countries, in the country that’s sold the lowest percentage of iPads to people who had never bought an iPad before that number is 50%.

And the range goes from 50 to over 70. And so when I look at number, our first time buyer rates in that area, it is saturated, that’s not a saturated market. You never have first time buyer rates at 50% and 70%. What you do see is that people hold on to iPad longer than they do a phone.”

I’m sure there will be cannibalization, but I’m fine with that

“There are obvious cannibalization; things that are occurring. I’m sure that some people looked at the Mac and iPad and decided on a Mac. I don’t have research to demonstrate that, but I am sure that will be just looking at the numbers and I am fine with that by the way.

I am sure that some people will look at an iPad and an iPhone and decide just to get an iPhone and I’m fine with that as well”

Could Apple Have More Room for Margin Expansion?

One positive takeaway from Apple’s earnings call yesterday was that the company showed very strong gross margins.  Management acknowledged that the gross margin strength even surprised them:

“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.”

Apple’s gross margin for the quarter was 39.4%, a very solid number, but in the long term there might be reason to believe that $AAPL’s gross margin could be substantially higher.

When you compare Apple’s gross margin to other branded consumer products companies, Apple’s margin looks relatively slim.  Companies like Nike, Procter and Gamble, and Coca Cola have 45-60% gross margins.  Luxury brands like Coach and Burberry have gross margins in the 70% range.

It may seem like a stretch to compare Apple to apparel, toiletries and sugar water companies, but in the long run there may not be a whole lot separating the two.  At its core Apple is a brand that sells a potentially commoditizable (see: Acer, Lenovo) product to people who will pay a premium for aesthetics, exclusivity and quality.  Other branded consumer products companies show that the value of a brand may be a gross margin in the 55% range.

One of the reasons that Apple does not have as high of a gross margin could be that the technology industry is still relatively young, so components have not become as commoditized as they might eventually become.  However as innovation slows, lower value unbranded components are likely to have trouble defending their margins, which allows a branded company like Apple to take those margins for itself.  In a time when it wasn’t so easy to produce cotton or leather, these apparel companies may not have been able to achieve such high margins either.

Apple gross margin

Apple 2Q14 Earnings Call Notes

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.”

Apple 1Q14 Earnings Call Notes

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.”

Apple 4Q13 Earnings Call Notes

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

Without some items clouding comparisons, revenue growth would have been 10%

“we’re especially pleased to have generated that record despite foreign exchange headwinds, the year over year decline in iPod sales, and the higher revenue deferral rates from iOS devices and Macs that we discussed last quarter.

These three factors negatively impacted revenue by about $2.5 billion, and without them, our year over year revenue growth would have been about 10%.”

51 million iPhones is 7% growth

“Despite supply constraints on iPhone 5S, we sold 51 million iPhones compared to 47.8 million in the year ago quarter. That’s an increase of over 3 million phones, or 7%, and a new quarterly record.”

41% iPhone market share in US

” In the U.S. market, Apple remains the leading smartphone manufacturer, with iPhone accounting for 41% of smartphone subscribers in the three-month period ending in November, according to ComScore.”

Reasons for weak revenue guidance

“We expect four factors to negatively impact the year over year revenue comparison by over $2 billion. These are channel inventory increases in the year ago quarter that we don’t expect to repeat: lower iPod sales, a stronger U.S. dollar against a number of currencies, particularly the yen and the Australian dollar, and the higher per unit deferral for Mac and iOS devices that I talked about in my prepared remarks.”

China mobile deal ramping through the end of the year

“at this moment, we’re just selling in 16 cities with China Mobile, and as Peter alluded to, this number is projected to be over 300 cities by the end of this year. And so we’ve got quite the ramp in front of us, and we’re incredibly excited.”

Intrigued by mobile payments, part of the reason for touch ID

“The mobile payments area in general is one that we’ve been intrigued with, and that was one of the thoughts behind Touch ID. But we’re not limiting ourselves just to that. So I don’t have anything specific to announce today, but you can tell by looking at the demographics of our customers and the amount of commerce that goes through iOS devices versus the competition that it’s a big opportunity”

North America iPhone we did not do as well, partially because misestimated 5s demand, also some carriers changed upgrade policies

“In North America, we did not do as well, and this weighed our results. Our North American business contracted somewhat year over year. And if you look at the reason for this, one was that as we entered the quarter, and forecasted our iPhone sales, where we achieved what we thought, we actually sold more iPhone 5Ss than we projected.”

“The other thing that happened in North America specifically was that some carriers changed their upgrade policies. And this affected last quarter, and will have some effect on the current quarter.”

Upgrade policy effect should wash through after 3 to 6 months

“I think part of what’s happening in North America is a short term effect because of these upgrade policy changes. This affects the period of time, three to six months, I would think, and then it washes through. ”

We are still confident in growth

“I think it’s important to listen to what Peter said about the guidance, and about the compares year over year, and the point that he made that the underlying sell through, that we’re very confident of growth year over year. And that is the way we look at it. Some people just look at the numbers on a piece of paper, but the way I’d look at the business is our business from a sell through point of view”

I guess Tim Cook isn’t a price sensitive investor

“we’re a big believer in buying back the stock, and that doesn’t change today, whether the stock goes up or down.”

Side stepping a simple question about what are the plans for the 5c

“I’ll sidestep the last question, of course, because it’s about future products.”

Innovation deeply embedded

“I would just say, innovation is deeply embedded in everybody here, and there’s still so much of the world that is full of very complex products, etc. We have zero issue coming up with things we want to do that we think we can disrupt in a major way. The challenge is always to focus to the very few that deserve all of our energy. And we’ve always done that, and we’re continuing to do that.”

Apple 3Q13 Earnings Call Notes

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. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“[for the fiscal year] We generated record total company revenue of $171 billion, earnings of $37 billion and operating cash flow of $54 billion.”

“The smartphone category is expected to grow significantly in the next few years from about 1 billion units per year this year to over 1.7 billion in 2017. And the tablet market is growing at an even faster way from about 225 million units this year to over 400 million in 2017.”

“the number of unique listeners who have tried iTunes Radio is now 20 million and growing.”

“We are projecting a total of approximately 30 new store openings in fiscal year ’14, about two-thirds of which will be outside U.S”

“$111.3 billion or 76% of our total cash was offshore at the end of the September quarter”

“given that our capital return program must be funded from domestic cash, and as a result of our payments to date, the cash that we can net domestically and return to shareholders to stop accumulating. In fact we give return to shareholders who invested essentially all of the increase in available net cash generated since the beginning of our capital return program in 2012.”

“we’re pleased to be guiding gross margin about flat sequentially given all the new products that we have launched in the last few weeks. During the quarter we expect gross margin to benefit from the leverage on the substantial sequential increase in revenue. Offsetting these benefits we see a few factors including the higher deferred revenue relating to the software that I talked about in my prepared remarks. And as I said we expect the sequential increase in our deferral which is not only revenue but affects margin as well to be $900 million. Second, a richer mix of new iPad’s with higher cost structures and lower pricing. Third, FX headwinds primarily from the Yen and fourth, the new lower priced MacBook Pro and iMac which have higher cost structures and credit structures.”

“I realize that some people were reading rumors about that the entry phone would be the 5c, but that was never our intent obviously. Our entry iPhone is the iPhone 4s and as you know from comments that I’ve made previously we were selling the iPhone 4 in very good volumes and as we began to experiment in different regions at somewhat lower price points we saw a fair amount of price elasticity and so we’re hoping and thinking that, that will continue with the 4s.”

“I have said that you would see some exciting new products from us in the fall of this year and across 2014. And I obviously stand by that and you’ve seen a lot of things over the last couple of months.”

“we were able to launch in our first round this time in China and that was a big change in the result of a close work relationship with the carriers in China and the government”

“We have been deferring revenues for the sale of each iOS device and Mac given that we have been providing updates to software. Given the announcements that we made last week and that I went through it in my prepared remarks, we have actually increased those deferrals. iPhone and iPad, we are differing between $15 and $25. That’s up as much as $5 per device and Mac has been some $20 to $40, so up an additional $20…We will then record that revenue that we’ve deferred for iOS devices across a two year period of time ratably and for Max over a four year period of time.”

“I feel really good about the way the MacBook Pros have gotten off last week. They’ve gotten off to a huge start. I feel great about Mac growing year-over-year this quarter. I feel great about iPad growing year-over-year this quarter as well. You can tell that from the strong guidance numbers that Peter gave earlier.”