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Notes from Apple’s Q3 2014 earnings call

Apple’s conference call after announcing its Q3 2014 financial results kicked off with Apple CEO Tim Cook discussing Yosemite, iOS 8, and Swift. Cook also touched on CarPlay, HealthKit, HomeKit, in addition to the company’s new partnership with IBM.

Getting to the financial results, Cook announced that Apple set a June quarter record, with iPhones also setting a new third quarter record. “iPad sales met our expectations but we realize they didn’t meet many of yours,” Cook said, noting an overall decline in the tablet markets while moving on to citing surveys in which customers expressed satisfaction with iPad.

Cook expressed excitement with Apple’s acquisition of Beats, citing Beats’ subscription service, “access to rare talent,” and a growing lineup of products. As he’s done in the past, Cook briefly referenced upcoming new products and services.

Apple CFO Luca Maestri talked about the iPhone and its impressive results in the quarter. As for the iPad, he announced increased sales in the Middle East, China, and India, while adding that such growth was offset by lower sales in “more mature markets.” iTunes revenue was up to $2.6 billion. Apple expects $37 billion to $40 billion in revenue next quarter, with a gross margin between 37 and 38 percent. Maestri said he expects a busy fall, as Apple is “very excited” about what’s in the pipeline.

When asked about decreased tablet sales, Cook said that “significant innovation” can still come to the iPad, “and we plan on doing that.” Cook believes there’s a “substantial upside” in iPad sales within business, which led him to remark on the recently announced IBM partnership. “I honestly believe the opportunity is huge,” he said.

On sales in China this quarter, Cook said, “We thought it would be strong, but it well went past what we thought.” He noted that unit growth was “off the charts.”

Asked about trade-in programs for iPhone, Cook said trade-ins are “hugely beneficial for our ecosystem,” as those phones often go to “price sensitive” customers. Cook also believes the cannibalization factor is low due to that price sensitivity, while pointing out the high resale value of Apple products. But he also noted, “It’s very different to quantify with certainty.”

Cook said iPhone 5c had the highest growth of the current three iPhone tiers in the quarter.

When asked how Apple is changing, in reference to the Beats acquisition and the IBM partnership, Cook said that although the company is always on the lookout for acquisitions, “we don’t let our money burn a hole in our pocket.” Again, Cook referenced Beats’ subscription service and products, while taking the time to note that Beats has “a very rare set of talent that we think can do great things in Apple.”

Apple Q3 2014: 35.2M iPhones, 13.3M iPads, 2.9M iPods, $37.4B revenue

Apple reported its third quarter 2014 financial results today, selling 35.2 million iPhones, 13.27 million iPads, and 2.9 million iPods. The company posted quarterly revenue of $37.4 billion and quarterly net profit of $7.7 billion, or $1.28 per diluted share. In Q3 2013, Apple had revenue of $35.3 billion and net profit of $6.9 billion, or $1.07 per diluted share. Gross margin was 39.4 percent compared to 36.9 percent a year ago. International sales contributed to 59 percent of the quarter’s revenue.

“Our record June quarter revenue was fueled by strong sales of iPhone and Mac and the continued growth of revenue from the Apple ecosystem, driving our highest EPS growth rate in seven quarters,” Apple CEO Tim Cook said. “We are incredibly excited about the upcoming releases of iOS 8 and OS X Yosemite, as well as other new products and services that we can’t wait to introduce.”

“We generated $10.3 billion in cash flow from operations and returned over $8 billion in cash to shareholders through dividends and share repurchases during the June quarter,” Apple CFO Luca Maestri said. “We have now taken action on over $74 billion of our $130 billion capital return program with six quarters remaining to its completion.”

Despite the year-over-year increase in iPhone unit sales, the results notably included a year-over-year decline in iPad sales, and a modest 6% sequential increase for iPods. iTunes/Software/Services and Accessories categories both posted healthy 12% gains.

Apple ‘iTime’ patent includes wristband sensors

Apple was granted a patent today for an electronic wristband that can be coupled to an electronic wristwatch. The wristband, which can interact with the watch, can include digital sensors, wireless hardware, and other electronics, and could respond to gestures such as shaking and tapping. Within separate embodiments of the patent, the watch could be integrated into the wristband, or the two pieces could be removably secured together. The device shows “iTime” on the watch face in one illustration.

The device is shown as being able to interact with a mobile phone, portable computer, and desktop computer. This new patent, which was filed in 2011, is simpler than Apple’s other well-known “wearable accessory device” patent published last year. [via Apple Insider]

iTunes 12 makes its first appearance with iOS-style design

Alongside the latest OS X Yosemite beta preview, Apple has issued the first beta of iTunes 12. This represents the first time the app has been seen at all, although a new red icon was visible in the dock during Apple’s Yosemite presentation at WWDC. iTunes 12.0 includes a new “streamlined,” iOS 7/8-style design, Family Sharing, improved playlists, and a redesigned info window. The app has shifted to using black and white iOS-influenced iconography, and lets you view device media and other content (“Apps,” “Music,” “Photos”) in vertical lists rather than with horizontal tabs.

The app is available to registered developers through the Mac App Store.

Apple releases fourth beta of iOS 8

As expected, iOS 8 beta 4 has been released to registered developers, and is available as an over-the-air update as well as a download from Apple’s developer portal. This release comes two weeks after the third beta. We’ll update this story if any major changes are found.

Eighth annual iTunes Festival announced

Apple has announced the eighth annual iTunes Festival, a concert series held in London at the Roundhouse. There will be 30 days of concerts throughout September, which will be broadcast live to an iOS app, iTunes on the desktop, and Apple TV. This year’s artists include Maroon 5, Pharrell Williams, Beck, and Blondie. Apple held its first ever U.S. edition of the iTunes Festival at SXSW in March. More information is available on iTunes.

EU criticizes Apple for in-app purchases (Update)

The European Commission said that Apple has “provided no concrete and immediate solutions” to in-app purchase problems, Reuters reports. Payment approvals within the App Store are still a sticking point for the EU. Google, on the other hand, was praised by the commission for taking measures to improve their in-app payment issues. “Over the last year we made sure any app which enables customers to make in-app purchases is clearly marked,” an Apple spokesman said. “We will continue to work with the EC member states to respond to their concerns.” Apple drew heat from Italian authorities in May for advertising free apps that required in-app purchases for continued use. The company could face legal action if the company is seen as breaking EU consumer protection law.

Update: Apple issued a response to Engadget, in which the company points out the strides it has made regarding clarifying in-app purchases. The statement concludes: “Our goal is to continue to provide the best experience for our customers and we will continue to work with the EC member states to respond to their concerns.”

Sue Wagner joins Apple board of directors as Bill Campbell retires

Apple has announced the retirement of one of its longest-serving members on its board of directors, Bill Campbell, and the election of Susan L. Wagner of BlackRock to the board. Campbell has been with Apple since 1983, and is behind only Steve Jobs and Mike Markkula in length of tenure on the board.

Wagner co-founded BlackRock, an asset management company, where she served in various roles including vice-chairman. She’s on the board of several companies, including BlackRock, DSP BlackRock, Swiss Re, Wellesley College, and Hackley School. “Sue is a pioneer in the financial industry and we are excited to welcome her to Apple’s board of directors,” Tim Cook said in Apple’s press release. “We believe her strong experience, especially in M&A and building a global business across both developed and emerging markets, will be extremely valuable as Apple continues to grow around the world.”

iTunes Pass service extends to U.S., other countries

After launching in Japan on Tuesday, Apple’s new iTunes Pass credit system has been rolled out in the United States, as well as Canada, Germany, and the United Kingdom. The system allows iTunes customers to refill their iTunes Store balance by having an Apple Store Specialist scan a QR code on a pass in Passbook; once payment is issued, the credit is automatically applied. To add iTunes Pass to Passbook, one must open the iTunes Store app on an iPhone or iPod touch, scroll down to the bottom, and then tap Redeem.

Apple agrees to $450 million settlement in e-book case

In the latest chapter of the e-book price fixing saga, Apple has agreed to pay a settlement of $450 million to resolve U.S. state and consumer claims, pending appeal in New York State, [via Reuters reports. Of that amount, $400 million is intended for consumers. Though the settlement was announced in June, the terms were not disclosed until now. If the 2nd U.S. Circuit Court of Appeals in New York reverses the ruling, the settlement amount could drop to $70 million, with $50 million for consumers, or be eliminated altogether.

Apple, IBM partner up for giant iOS business solution push

Apple and IBM have announced a new global partnership to bring “IBM’s big data and analytics capabilities to iPhone and iPad.” The partnership, which aims to “transform enterprise mobility,” will introduce more than 100 industry-specific enterprise solutions for iPhone and iPad, unique IBM cloud services for iOS, a new AppleCare service level focused on the enterprise, and new IBM offerings for device activation, supply, and management. The agreement, which is being called IBM MobileFirst for iOS, will see IBM selling iPhones and iPads with built-in industry-specific solutions.

A new class of business apps, IBM MobileFirst for iOS Solutions, will target retail, banking, healthcare, travel, transportation, telecommunications, and insurance. Those apps will be available this fall “and into 2015.” The IBM MobileFirst Platform for iOS will give business users on-premise software solutions necessary for end-to-end enterprise capability.

In an interview with Re/code, Tim Cook said of the new partnership, “We’re good at building a simple experience and in building devices. The kind of deep industry expertise you would need to really transform the enterprise isn’t in our DNA. But it is in IBM’s.” Explaining their ability to work together today despite once fiercely competing for customers and mind share, Cook also noted that Apple and IBM “do not compete on anything. And when you do that you end up with something better than either of you could produce yourself.” IBM CEO Ginni Rometty called Apple the “gold standard for consumers.”

Report: Former White House press secretary Jay Carney a candidate for Apple PR chief (Update)

In an article about Uber, Re/Code reports that name of former Obama White House press secretary Jay Carney is “being bandied about” for the open PR chief position at Apple. Carney, who is also reportedly being considered for a job at Uber, would replace longtime Apple vice president of worldwide corporate communications Katie Cotton, whose retirement was announced in May. A June report noted that Apple was looking for “high-profile external candidates” to fill the position.

Update: Jim Dalrymple of The Loop has issued a “nope” to the Carney-Apple connection.

Apple launches iTunes Pass credit system in Japan

Apple has launched a new Passbook feature in Japan called iTunes Pass, allowing iTunes Store customers to add purchasing credit at Apple’s retail Stores. Once the pass has been added to the user’s iPhone or iPod touch, a Specialist at the Store can scan a code on the screen, accept payment, then credit the payment toward the iTunes Store account—a process that seems rather challenging compared with just buying Store credit directly from the device. “Balance is updated on the fly, available immediately,” notes Apple. It’s rather unusual for Apple to launch a feature like this in only one country, so it’s not clear if it’ll be rolling out to other countries, or if its perhaps a test of a future mobile payment system. [via 9to5Mac]

NY Post: Apple to rely on Iovine for marketing help

Apple may part with longtime ad agency partner TBWA/Media Arts Lab after 30 years, as the company may look to Beats co-founder Jimmy Iovine “to help it regain its marketing mojo,” the New York Post reports. According to the report, unnamed ad executives believe Apple might “put its entire account up for grabs.” One business executive noted that Beats’ marketing acumen was a reason Apple purchased the company. It’s worth noting that a June report, which gave an in-depth look at Apple’s shifting marketing strategies, made only one brief mention of Iovine, and not as someone the company was looking toward for marketing help. That report also stressed an ongoing competition between TBWA/MAL and an Apple in-house ad team.

Apple responds to Chinese iPhone tracking concerns

Apple has issued a response on its Chinese website to concerns about iPhone location tracking raised by Chinese state-run media. The new post from Apple, titled “Your Location Privacy,” explains how the company uses location data, and how it offers customers choices over data collection. Curiously but perhaps not surprisingly, Apple offers a gracious note to China Central Television’s criticism in the piece: “We appreciate CCTV’s effort to help educate customers on a topic we think is very important.” Apple notes that it does not access a user’s location cache, nor does it create backdoors for government agencies or allow access to the company’s servers.

National Federation of the Blind praises Apple, looks to improve app accessibility

Responding to the fallout from last week’s problematic Reuters article, Mark A. Riccobono, President of the National Federation of the Blind, commented on Apple within a blog post. Riccobono called the original Reuters story “provocative and poorly reported,” and Reuters issued a partial correction for the story. He writes that “Apple has done more for accessibility than any other company to date,” suggesting that the company’s operating systems are indeed addressing the needs of sight-impaired users. But he also points out the federation is asking Apple “to do more,” as the federation recently issued a resolution in which the organization called upon Apple to work with them in order to “ensure the accessibility of all apps,” which may develop incompatibility issues, reducing their functionality and creating issues for some users.

Apple iBeacon hardware revealed in FCC filings

Apple has filed documents with the FCC that appear to reveal first-party iBeacon hardware. First discovered by Securifi, the hardware is registered as “Apple iBeacon.” The device has a highest working frequency of 2.4 GHz, which means that it’s a Bluetooth-specific product. It’s possible that the device is solely meant for Apple stores or other businesses; there’s also the possibility that this device will be compatible with Apple’s HomeKit for personal use.

Apple joins SupplierPay program to pay small suppliers faster

The Obama Administration said that Apple, along with about two dozen other companies, has agreed to join the administration’s voluntary SupplierPay program, according to The Wall Street Journal. President Barack Obama is preparing to announce the program, in which “companies commit to paying small suppliers faster or help them get access to lower-cost capital.” The goal of SupplierPay is to have larger companies pay small-business contractors within 15 days of delivering a product or service. The smaller companies will have a stronger cash flow, and should be less dependent on borrowing money.

China calls iPhone tracking a ‘national security concern’

State-run China Central Television has called the iPhone’s location-tracking a “national security concern,” The Wall Street Journal reports. The broadcaster criticized the “frequent locations” function in iOS 7; researchers quoted in the report claimed those with access to the data could learn state secrets. It’s noted that CCTV’s broadcasts are very influential in China, though not always accurately representative of the views of the country’s leaders. While Apple only holds a 6 percent share of the Chinese smartphone market, the company has an 80 percent share of the high-end $500+ market, according to research firms.

Apple has had a number of recent issues in China. Last April, Cook publicly apologized for misunderstandings with the company’s warranty policies; Apple made changes to those policies in China. That apology was met with praise from media and China’s Foreign Ministry. Last July saw Apple adding a power adapter page to its Chinese website to help users identify official Apple chargers, following two reported incidents in the country involving shocks from third-party chargers — soon after, the company announced its USB Power Adapter Takeback Program. In October, Apple was criticized for showing too much loyalty to the Chinese government after pulling an app that allowed anonymous browsing.

WSJ: TSMC shipping microprocessors to Apple

Taiwan Semiconductor Manufacturing Company has started shipping its microprocessors to Apple as of this year’s second quarter, The Wall Street Journal reports. There have long been reports of Apple using TSMC for its chips in order to decrease dependence on Samsung, which previously manufactured all the microprocessors for Apple’s smartphones and tablets. It’s unclear how many chips TSMC has shipped thus far; Apple will still use Samsung for some of its microprocessors for now. TSMC and Apple will continue working on “more advanced chips” next year, a source said. A previous report claimed TSMC would make A8 chips for this year’s new Apple devices, and would start producing A9 chips in this year’s third quarter for future iPhones and iPads.

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