In its second-quarter 2008 Quarterly Results Conference Call, Apple Inc. executives CFO Peter Oppenheimer and COO Tim Cook made several comments concerning its music-related products, which accounted for 36% of the company’s total revenue in the second fiscal quarter. During his opening remarks, Oppenheimer revealed that Apple’s share of the U.S. MP3 market was 73% for the quarter, according to data from the NPD Group. He also discussed the enthusiastic developer response to the iPhone SDK, which has now seen more than 200,000 downloads. Over one-third of the Fortune 500 has applied to Apple’s iPhone 2.0 beta Enterprise program, along with over 400 higher-education institutions. Due to the pre-announcement of the iPhone 2.0 software on March 6th, Apple also plans to defer revenue of new iPhone sales until after the release of the 2.0 software, which both executives repeatedly said will come in “late June.”
Speaking about iPhone inventory and recent supply problems, Tim Cook said, “In terms of the shortages, we expected iPhone to decline more on a sequential basis than it did… as we got towards the end of the quarter we began to experience stock-outs. Our US stores have experienced more stockouts, relatively more… we believe that more iPhones are bought there with the intention of unlocking.” Cook went on to explain that iPhone revenue would be deferred “because the customers who purchased after March 6th were presumably aware of the free software upgrade when they purchased the phone,” and also said that iPhone carrier partners “are free to price the iPhone as low as they wish.”
Cook declined to comment on whether Apple sold more iPhones in Europe specifically than expected — there was a suggestion that it did not — but he did say, “In total, we sold more than we expected. We expected a sharper seasonal decline than what we experienced.” He also noted that once units have been shipped to one of Apple’s carrier partners, they can’t be easily pulled out and re-shipped to another partner. “Once the unit’s already shipped and designated to a carrier, the ability to move them around is very low,” Cook said.
Reporting its second quarter financial results today, Apple said it sold 10.6 million iPods during the quarter—on par with most analyst predictions, and pushing the total number of iPods sold to just over 152 million. Despite Apple’s dramatic iPod shuffle price drop during the quarter, which saw the iPod family for the first time become accessible at the $49 price point, iPod sales were almost flat compared to the year-ago quarter, with only 1% growth in unit sales, and 8% growth in revenues. It also sold 1.7 million iPhones in the quarter, bringing the total number of units sold up to 5.4 million as of March 31, a number that is likely over 6 million by now.
The company posted revenue of $7.51 billion and net quarterly profit of $1.05 billion, or $1.16 per diluted share, compared with revenue of $5.26 billion and net quarterly profit of $770 million, or $.87 per diluted share in Q2 2007. Sales of Other Music Related Products + Services were up 35% over the year-ago quarter and 9% over the first quarter of 2008, to $881 million total. That category includes iTunes Store sales, iPod services, and revenues from Apple and third-party iPod accessories. Total iPhone revenue, including carrier agreements and all iPhone accessories from Apple and third parties, was $412m, up 57% over the preceding quarter despite a 26% drop in unit sales.
“We’re delighted to report 43 percent revenue growth and the strongest March quarter revenue and earnings in Apple’s history,” said Steve Jobs, Apple’s CEO. “With over $17 billion in revenue for the first half of our fiscal year, we have strong momentum to launch some terrific new products in the coming quarters.”
“We’re thrilled to have generated $4 billion in cash flow from operations in the first half of fiscal 2008, yielding an ending cash balance of $19.4 billion,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the third quarter of fiscal 2008, we expect revenue of about $7.2 billion and earnings per diluted share of about $1.00.”
Despite any suggestion to the contrary, Nike’s official announcement today of the Nike+ Sportband—a new watch-like accessory that works without the iPod nano—does not represent a break between the shoe maker and Apple. Similar in appearance to the company’s earlier Amp bracelet for the iPod nano, Sportband allows runners to track distance, pace, time and calories burned when they run, and also allows their training data to be loaded onto a computer and uploaded to nikeplus.com, using a USB plug-in rather than an iPod as a data conduit. The similarities in functionality between the Nike + iPod Sport Kit and the Sportband have led some to suggest that there might be a rift between Apple and Nike, which Nike denied in a statement to iLounge today. “Absolutely not… we are simply expanding our Nike+ arena of products to allow those runners/walkers who do not want to use music to experience Nike+ and nikeplus.com,” answered Nike’s Kerry Sobol when asked if the release meant the end of Nike and Apple collaboration. “We are still very much working with Apple daily.”
A page posted on the Swiss Apple Store over the weekend showed a 802.11n-capable version of the company’s AirPort Express router, leading to speculation that the product is likely to be introduced this week. The page has since been removed. Originally introduced in 2004, the AirPort Express is a compact wireless router which also functions as an AirTunes client, allowing any iTunes user on the network to send audio to speakers connected to the AirPort Express. In addition, it also offers wireless printer sharing functionality. The 802.11g AirPort Express Base Station currently sells for $99.
Update: The 802.11n AirPort Express has been officially released for $99, and appears to be cosmetically and functionally identical to its predecessor except for the addition of 802.11n support.
ZapMedia Services has filed a patent infringement lawsuit against Apple over iTunes and its related media players such as the iPod. According to ZapMedia, the suit comes after multiple attempts to resolve its concerns with Apple, including offering Zap’s patents for license. In question are U.S. Patent Numbers 7,020,704 and 7,343,414, each of which is entitled “System and method for distributing media assets to user devices via a portal synchronized by said user devices.” The suit was filed in the Marshall Division of the District Court for the Eastern District of Texas. “The Complaint alleges that ZapMedia Services’ property is being exploited in a manner which is unlawful, and by law ZapMedia Services is therefore entitled to a reasonable royalty on Apple’s revenues related to the infringement,” said Steven G. Hill, of Hill, Kertscher & Wharton, LLP, lead litigation counsel to ZapMedia Services. Robert J. Frohwein, general counsel of ZapMedia Services, said, “When someone takes our vision and our intellectual property without a license after several attempts, we have no option but to protect it through every means available to us.”
Apple has yet to begin making large procurements of NAND flash memory in 2008, according to a DigiTimes report. Citing sources at Taiwan memory makers, the article states that Apple bought $1.2-1.3 billion worth of NAND flash over a short time period in 2007, resulting in a rapid price fluctuation in the components. Due to the lack of major orders from Apple, the article suggests, current pricing on multi-level cell NAND flash is below cost, with little seen on the horizon to push prices upward. Apple currently uses MLC NAND memory in all flash-based iPods and iPhones. [via Electronista]
Fortune has published a series of excerpts from an interview with Apple CEO Steve Jobs, covering a broad range of topics including the iPod, iPhone, and Apple TV. Worth reading in their entirety, the excerpts include several interesting details on each of Apple’s major initiatives, such as:
iPod. Before the iPod, Jobs explained, slow Mac sales had led Apple to a crisis of confidence; the company had to “wonder sometimes whether [we were] wrong,” said Jobs. “Maybe our stuff isn’t better, although we thought it was. Or maybe people don’t care, which is even more depressing.” Strong iPod sales were “a great shot in the arm for everybody.”
iPhone. After an extended period of living with the originally designed enclosure for the iPhone, Jobs concluded that he didn’t “love” the shell, an emotion that he would need to feel for what he believed was the company’s most important release ever. “[W]e pushed the reset button. We went through all of the zillions of models we’d made and ideas we’d had.” And, with too little time remaining before the device’s announcement, he challenged the designers to do better, quickly. “It was hell because we had to go to the team and say, ‘All this work you’ve [done] for the last year, we’re going to have to throw it away and start over, and we’re going to have to work twice as hard now because we don’t have enough time.’ “
Apple TV. Jobs suggests that the original version of Apple TV failed because people didn’t really want to send iTunes content from a Mac or PC to a widescreen TV; they wanted, he says, to watch movies—the reason the company negotiated with Hollywood studios for rentals, and dropped the starting price to $229. “Will this resonate and be something that you just can’t live without and love? We’ll see. I think it’s got a shot.”
Control. Being able to write and control software is, Jobs explained, the key to the company’s current and future product plans. “[W]e didn’t want to get into any business where we didn’t own or control the primary technology because you’ll get your head handed to you.”
On PDAs. Despite years of pressure to release a Newton-like PDA, Jobs said that the company was smarter not to release such a product. “I realized one day that 90% of the people who use a PDA only take information out of it on the road. They don’t put information into it. Pretty soon cellphones are going to do that, so the PDA market’s going to get reduced to a fraction of its current size, and it won’t really be sustainable.” Instead, Jobs said, the company put its efforts and resources into the iPod.
During an appearance at the Goldman Sachs Investment Symposium, Apple COO Tim Cook spoke about the iPod and iPhone, and calmed investors by stating that the company is on track for its goal of ten million units sold by the end of the year. “We are right on track for where we want to be,” Cook said. “The four million units we’ve sold over the first 200 days gives us confidence that we can achieve ten million units in 2008.” Describing the iPhone as more of a platform than a device, Cook said that post-SDK, developers would “only be limited by [their] imagination.” Cook also defended Apple’s decision to go with an exclusive carrier, revenue-sharing model for the initial iPhone rollouts, but added that the company is “not married to any business model.”
Regarding iPods, the Apple executive said that weaker-than-expected fourth quarter iPod unit sales numbers might be attributable to the iPod shuffle, which fell 17 percent year-over-year in unit sales globally, and even more than that in the US. Cook said that Apple wasn’t seeing signs of iPod market saturation, adding that 40 percent of iPods sold last quarter were purchased by first-time iPod owners. Finally, Cook admitted that although the iPod touch might have cannibalized some iPhone sales, he’d rather Apple cannibalize Apple than an outsider, adding that the launch was “very successful.” An audio webcast of the event is available from apple.com/investor.
Keith Bachman, analyst with BMO Capital Markets, has cut his price target for Apple’s stock, saying that iPods and iPhones were no longer “growth drivers” for the company. “Apple’s three growth drivers [iPods, iPhones and Macs] has now turned to one,” Bachman said in an analyst note. Bachman went on to say that the Mac will begin to take on more importance because the iPhone is not likely to experience growth on the scale of what the company has projected for this year. He also pointed out that the iPod is starting to show signs of market saturation, leading to slower growth rates for the device. Despite the somewhat gloomy predictions, Bachman maintained his outperform rating on Apple’s stock, noting that “more carriers and lower handset [prices]” could improve the iPhone’s prospects. Bachman reduced his forecast for iPhone sales in fiscal 2008 from 9.3 million to 7.7 million units, and also reduced his iPod sales forecast for the same period, from 54.6 million to 51.1 million units.
Apple’s legal team has issued a Cease & Desist letter to the developers of the Hymn Project, software that allows users to strip the FairPlay DRM from files purchased from the iTunes Store. A post in the Hymn Project forums says that the letter demanded that all downloads be removed from the site. The post continues: “Until further notice, no links are to be posted anywhere on the site to programs that can strip DRM from any of Apple’s music or videos. Any user who does so will get the link removed and a warning from us. Any further infraction will get you banned permanently. The site will remain open for now and we won’t have a problem as long as we abide by the C&D.” In addition to the C&D sent out to the main developers, at least one individual user has also received a letter from Apple, following the user announcing publicly that he would offer a version of the DRM-stripping software to interested parties via email.
Apple today unveiled a new by-mail iPod and cell phone recycling program that enables consumers to safely dispose of their cell phones, regardless of the manufacturer or model. Phones and iPods can be recycled in any quantity, through the mail, a program that appears to be separate from Apple’s in-store iPod recycling initiative, which allows users to bring iPods (not cell phones) directly to a local Apple Store, and receive a 10% discount on any iPod purchased that day. To participate in the new mail-in program, users need to visit a dedicated page on Apple’s site that allows them to enter the quantity of items being recycled, fill out an address form, and choose whether to print out a pre-paid shipping label to affix to their own packaging, or have Apple send them a pre-paid mailer, both free of charge. No discount is offered for items mailed in for recycling.
Apple has lowered its 2008 NAND flash memory order forecast, a new report indicates. According to iSuppli, the company “has slashed its 2008 NAND order forecast significantly and has informed suppliers that its demand growth will slow in 2008 compared to 2007.” The reports states that this is expected to have a large impact on the NAND market overall, as Apple was the world’s third largest OEM buyer of NAND memory in 2007, with purchases of $1.2 billion, which represents 13.1 percent of the global market. Apple currently uses NAND flash memory in most of its portable consumer devices, including the iPod shuffle, iPod nano, iPod touch, and the iPhone. Prior to learning of Apple’s lowered forecast, iSuppli had predicted that the company’s NAND purchases would rise 32.2 percent this year, helping to encourage significant market growth.
A new report suggests that Apple’s catchy TV advertisements for the iPod nano, iPod touch, and iPhone are having a ripple effect on online searches. According to the latest numbers from Compete, U.S. consumers made nearly 1 million queries for iPod related commercials or the underlying music from August 2007 to January 2008. 15 of the top 20 searches contained the word “song” or “music,” suggesting that many consumers are searching for the song in the commercial, as very little information is given about the songs and artists featured in Apple’s spots. In particular, research shows that over 425,000 people were actively searching in September for the song used in Apple’s popular spot for the iPod nano, Feist’s “1-2-3-4.” Traffic for the song’s music video on YouTube grew 1200% from the month prior to the commercial’s launch, and over 45 times when views of the actual commercial were included. Similar growth was seen for CSS’ “Music is my hot hot sex,” featured in a user-inspired iPod touch ad, and for Yael Naim’s “New Soul,” which is featured in Apple’s recent commercial for the MacBook Air.
In a separate interview with the BBC, Canadian singer Leslie Feist admitted to being pleasantly surprised with the impact the iPod nano advertisement has had on career. “I felt a definite shift, it seemed to pique a lot of curiosity which luckily led back to an album and video that I believe in. It just shows you the power of that kind of thing, as opposed to some preconceived marketing ploy,” she said. “I was a little naive as to the impact it would have because I really didn’t have any idea it would be like that. But it did me nothing but favours because I’ve continued doing what I do, but with so many new open ears from so many more people than there were before.”
Apple has launched its Corporate Gifting and Rewards Program, which enables large businesses and corporations to easily make bulk orders of iPods, iTunes Gift Cards, iPod accessories, and certain models of Mac computers. The new program page states that the company is offering “special pricing on volume orders.” The minimum for iPod orders is 50 units, with a minimum of 250 units for iPods pre-loaded with content, which may include “training talks, product overviews, CEO speeches, promotional videos, or other custom content.” The program will also include points programs for customers to earn points towards iPods and gift cards. To participate in the offer, interested parties need to either contact Apple by phone, or submit their contact information via online form. [via Ars Technica]
Apple has filed an application with the U.S. Patent and Trademark Office seeking trademark protection in relation to a variety of gaming products. On the application, Apple requests protection of its “Apple” trademark for products that include “Toys, games and playthings, namely, hand-held units for playing electronic games; hand-held units for playing video games; stand alone video game machines; electronic games other than those adapted for use with television receivers only; LCD game machines; electronic educational game machines; toys, namely battery-powered computer games.” Apple currently sells iPod games through the iTunes Store, several of which were developed internally by the company.
During Apple’s Financial Results Conference Call, Apple CFO Peter Oppenheimer and Apple COO Tim Cook made several comments concerning its music-related products, which accounted for 50% of the company’s total revenue in the first fiscal quarter. The average sale price of the iPod during the quarter was $181, up 17 percent year-over-year, largely due to the launch of the iPod touch, which the execs enthusiastically described as a success. More specifically, the iPod touch was described as a product that “has the potential to grow the iPod beyond being just a music player, into the first mainstream Wi-Fi mobile platform for all kinds of new mobile applications.” Although iPod unit sales were flat year-over-year in the U.S., the company saw the highest revenue growth for iPod in a year, thanks to the iPod touch, which was also a “big hit” in Japan. iPod market share was roughly flat compared with a year ago according to numbers from NPD, but was up internationally.
The Apple TV and iPhone accounted for $1.44 billion in deferred revenue, and total iPhone revenue booked during the quarter came to $241 million. Apple said that although it saw no evidence of the iPhone cannibalizing iPod sales in the UK, France, or Germany, it did admit that the phone “could have been a factor” in the relatively small year-over-year iPod unit growth in the U.S. Additionally, it said that a “significant” amount of iPhones were sold during the quarter with the intent to unlock, but that it doesn’t have a precise number, and considers it “indicative of very strong interest in iPhone globally.” Finally, the company reiterated its intentions to expand the iPhone to more European markets and to Asia in 2008, and that it remains “very confident” in its ability to hit the goal of 10 million iPhones sold by the end of 2008.
Reporting its first quarter financial results today, Apple said it sold 22.1 million iPods during the holiday quarter — a 5 percent increase compared to the same quarter last year, and a new single-quarter record for iPod sales. It also sold 2.315 million iPhones in the quarter, bringing the total number of units sold up to around 3.7 million. The company posted revenue of $9.6 billion and net quarterly profit of $1.58 billion, or $1.76 per diluted share, compared with revenue of $7.1 billion and net quarterly profit of $1 billion, or $1.14 per diluted share in Q1 2007. These results best analysts’ predictions, which called for revenue of $9.5 billion and earnings of $1.5 billion, or $1.62 per share. Sales of Other Music Related Products + Services were up 27% over the year-ago quarter, and up 34% from Q4 2007, to $808 million total. That category includes iTunes Store sales, iPod services, and revenues from Apple and third-party iPod accessories.
“We’re thrilled to report our best quarter ever, with the highest revenue and earnings in Apple’s history,” said Steve Jobs, Apple’s CEO. “We have an incredibly strong new product pipeline for 2008, starting with MacBook Air, Mac Pro and iTunes Movie Rentals in the first two weeks.”
“Apple’s revenue grew 35 percent year-over-year to $9.6 billion, an increase of almost $2.5 billion over the previous December quarter’s record-breaking results,” said Peter Oppenheimer, Apple’s CFO. “Our strong results produced cash flow from operations of over $2.7 billion during the quarter, yielding an ending cash balance of over $18.4 billion. Looking ahead to the second quarter of fiscal 2008, we expect revenue of about $6.8 billion and earnings per diluted share of about $.94.”
Continue reading a full play-by-play transcript of Apple CEO Steve Jobs’ keynote address from the 2008 Macworld Conference and Expo. Most of the announcements found in this transcript are explained in further detail in separate news articles; photos from the event can be found here.
You asked, we delivered. Our massive guide to what’s new at Macworld Expo, and what was shown at CES now covers announcements from over 75 different vendors, after 10 major updates. Be sure to check out the article to see what’s coming soon for the iPod, iPhone, and iTunes; we’ll be updating it throughout the show.
We’ve spent the entire morning and afternoon adding a massive collection of Macworld Expo show photos to our Flickr account for your enjoyment. You can currently see pictures from all across the show floor, including new hardware and software from major iPod, iPhone, Mac, and iTunes vendors; new pictures are constantly being added, so keep checking.