Live blog: Apple’s Q1 2011 financials conference call
We’ll be providing live play-by-play coverage of Apple’s first-quarter 2011 financial results conference call today, expected to feature Apple COO Tim Cook and CFO Peter Oppenheimer discussing gangbuster results from October through December 31, 2010. Key points from the call include the revelation that the company has signed a new, multi-year, non-exclusivity deal with AT&T (5:35PM), the fact that over 160 million iOS devices have been sold—meaning that 55 iPod touch units have been sold (5:08PM), that the ASP of the iPhone is expected to hold steady next quarter despite the recent price drop on the iPhone 3GS, suggesting that interest in the iPhone 4 far exceeds that of the 3GS (5:35PM), and that the company targeted the Chinese market as a growth opportunity, and has seen revenue from that region jump 4x from the prior quarter (5:18PM). Continue reading to see more information about these and a host of other topics.
This story will be updated in reverse chronological order as the call proceeds starting at 5:00PM ET/2:00PM PT; refresh it for regular updates.
6:01PM: End of call.
5:58PM: Q: Consumerization of enterprise technology is taking place; are there still barriers to developer training at corporate level or other issues to work through to get more penetration in enterprise? A: It’s a megatrend that’s occurring, most forward-looking CIOs are realizing that enabling creativity of employees is materially more important than everyone using the same thing. Ability to write apps easily for a phone is incredibly powerful, you can run an entire business from the iPhone. So the numbers are already incredible—iPad shipped in April and now in 80% of largest companies deploying or piloting, which is unheard of, as enterprise is generally much slower and more cautious. To everyone’s credit, they’ve seen value of this from productivity/creativity point of view and are really moving fast. In terms of inhibitors, iPad has huge advantage because as you can recall with iOS releases, we always put in a huge chunk of enterprise features, and this isn’t something we just started working on—we started with the first iPhone. So there’s a huge place here for us.
5:56PM: Q: Peter, more insight on iPad gross margins going forward? Should we assume Apple will improve feature set and hold pricing stable? A: Can’t answer that question. In terms of what we’re shipping today, we’re always looking to lower our costs and have a good track record of doing so. We feel very, very good about performance of our products and costing of our products. Q: MacBook Air - given initial success and momentum, how are you looking at it now, premium tablet or notebook? A: The Mac of the future shipping today. It was a phenomenal part of the growth of the Mac last quarter. Customers love the precision, thinness, weight, instant on. We’re really happy with how it’s doing. We’ve only been shipping it for less than 90 days, just gotten going on it.
5:51PM: (Re-reciting boilerplate; declines predicted in sales, keeping with all holiday quarters in the past, though iPhone numbers would likely be up.) Q: Last call, Steve had a lot of comments re: Android. Are there any other observations now that we’ve had a few more months to see the market develop, feedback from developers, etc. re: battle with Android? A (Tim): We had record sales of iPhone, could have sold more; from estimates we’ve seen, we grew faster than market, and are trying to increase supply, countries, and carriers. We’re getting enormous enterprise traction, 88% of Fortune 100, 83% of Fortune 500, highest customer sat ratings versus Android, RIM, or anyone, largest App Store; now sold over 160m iOS devices, this is huge. We fundamentally believe that our integrated approach delivers a far superior customer experience than the fragmented approach, versus the number of app stores out there, payment methods, updating methods; surveys show who is on the latest OS and iOS is always off the charts versus the other guys. We launch with Verizon next month, there’s huge pent-up demand there, and think that will help us in the U.S. But we think our integrated approach is better for the end-user because it takes out all the complexity for the user, who needs not to be a systems integrator, which consumers don’t want to be. The more iPhones we get out there, the more people love them. Same thing about iPad. Same issues at end of the day, difference on iPad is that we’ve run 3 quarters without any significant competition of any type. Customer sat ratings are also off the charts.
5:46PM: Q: What’s the new-to-brand data? A: We don’t want to share that data, but any product looks a little different in early adopter cycle versus mainstream; iPad went through cycle very quickly. Data still needs to settle before we put a lot of weight in it. Bulk of question - look at Asia-Pacific, incredible growth, size of business we’ve built there is massive and growing at great pace. It’s clear that we’re introducing a lot of people to Apple who previously had not been introduced to the company. Q: In the U.S., how do you see the tablet market more broadly having greater penetration in established versus emerging markets. What are the absolute unit opportunities for both? A: Tablet market opportunity is large everywhere. Huge.
5:41PM: Q: Talk about Mac and iPad cannibalization. A: We grew almost 8x market rate. In almost every region. Asia-Pacific led growth at almost 10x market; Japan roughly 6x market, as did contracting markets elsewhere. Was there cannibalization? Honestly, I don’t know for sure, but yes, there probably is. But there’s also a halo effect. Mac and iPod had a halo some years ago, and from Apple product to product, millions of people in Asia have been introduced to Apple through iPhone, and iPad, and I think some of those decide to buy the Mac. If this is cannibalization, it feels pretty good. If iPad or tablets cannibalize the PC market, keep in mind that we have less share of the PC market, so other guys have a lot more to lose than we do. Q: How much of Lion is coming from iPad? Are you merging the OSes? A: Part of the magic of Apple is that there aren’t high walls between product groups. The people like each other and talk with each other. If one has a great idea, that’s no problem for the other group to use it. We learned from iPad that people love instant on, so MacBook Air incorporated it; that’s just one example and there are tons of others. It’s not always in the same direction, it can come from Mac to iPhone or vice versa. If the Mac company were a separate company and iPad company were separate, what would one build to compete with the other? The MacBook Air. But instead of competing, we come up with incredible products that people really want. (Steve’s insight.)
5:39PM: Q: What are other impediments/hinderances beyond technology that may be limiting Apple’s ability to sign important agreements in other countries? A: People generally want to do business with us; their customers desire the iPhone. I don’t want to comment on any specific country. But we’re not under contractual exclusivity now in any country in the world, last one was the United States, and we’ve moved away from that. We’re always looking at opportunities to grow, but in short term, we’re constrained on iPhone 4 supply side.
5:35PM: Q: You said before that move to iPhone non-exclusivity outside of U.S. has had no impact on average selling prices. Comment on it today. Given that you now have CDMA phones, can we expect more CDMA carriers going forward? A (Tim): I want to be specific that this comment isn’t related to the U.S. or any specific carrier or region, but to answer your question, I don’t envision overall iPhone ASP decreasing from last quarter to this one. (In other words, no Apple price drops this quarter.) Relative to other carriers, we look in every country to see who we should be doing business with, we’ll continue to do that. In every case, when we move from exclusive to non-exclusive/dual/multi-carrier arrangement, growth has changed significantly and market share has increased. It doesn’t mean that it will always happen, with every carrier, but we look at each country and carrier. Re: CDMA, nothing specific to announce today besides thrill to work with Verizon team, which has earned great deal of respect from customers, some of whom have waited a long time to get an iPhone. We’re also happy that we’ve signed multi-year non-exclusive deal with AT&T. We will shortly have a dual-carrier setup in the USA.
5:30PM: Q: Anything different about iPad that would make margin changes difficult to predict going forward? A: I don’t think you can take a single product out by itself and speak about it with any accuracy; there are lots of factors that go into the (evolution of a) product. Q: On iPad again, can you comment on competitive landscape? A: Look at what’s shipping today, there’s not much out there as you know. Generally speaking, there’s two groups today: ones that are using Windows OS are fairly big and heavy and expensive, with weak battery life, keyboard or stylus required, and customers are frankly just not interested. Then there are Android tablets; variety shipping today, OS was not designed for a tablet (Google has said), so you wind up having a size of a tablet that is less than what we believe is reasonable, or even one providing a real tablet experience. So you have a scaled-up smartphone which is a bizarre product in our view. Third group isn’t shipping yet. People compare first 2 with iPad and will pick an iPad. Next-gen Android tablets… nothing’s shipping, they don’t have performance specs, timing, pricing, so they’re vapor. We’ll discuss them as they come out. But we’re not sitting still, and have a huge first-mover advantage and incredible user experience because of iTunes and the App Store and the huge ecosystem. So we’re confident in entering into a fight with anyone.
5:25PM: Talk about what component prices and commodities will be like during the March quarter. A: We expect favorable pricing for DRAM, supply exceeds demand, some prices for materials such as key metals are increasing. Bulk of others, including NAND flash, batteries, screens, are generally in supply-demand balance, so this group would be expected to fall in prices consistent with historical trends. In most areas, we saw favorability last quarter and helped us overachieve guidance. Q: What are your long-term investments on components? A: We don’t want to discuss it specifically because of competitors; A4 chip we didn’t have to invest in the fab, but we did have to invest in the design. We have historically entered into agreements to secure supply, and the largest one in the past was with flash suppliers for $1b of flash because we felt it would be important across entire product line. We think it was a fantastic use of Apple’s cash, and constantly look for more of these. In past several quarters we’ve ID’ed another area and came into recent agreements with pre-payments for both parts and equipment/tooling for a specific competitive advantage. Same kind of thinking that led us to flash deals.
5:22PM: How far out are you planning on business - how long is the roadmap? One year? Five year? A: That’s part of the magic of Apple; we don’t want to let anyone know because we don’t want anybody copying it. Apple is doing its best work ever; we’re very happy with the product pipeline and the team here has unparalleled breadth and depth of talent, excellence has become a habit thanks to Steve. We feel very confident about the future of the company. I’d also note: we’ve done outstanding in our Mac business, 19q straight of outpacing market, but still have low share, so it seems there are enormous opportunities there. Handset market, too; 1b market per year, smartphone market growing faster than a weed. So incredible momentum. iPad just got started, we believe the market is huge. IDC predicting it to quadruple in 2 years. In terms of specific numbers, I don’t know what to predict, but it’s huge. We feel very, very confident. Q for Peter: any way to understand how many more iPhones you could have sold? A: No.
5:18PM: How comfortable are you now with availability of iPhones and iPads, Tim? On iPad, we increased dramatically last quarter from 4 to 7, getting us into supply/demand balance while expanding to 46 countries. We’re confident enough to add 15 more countries in January to take us into more than 60. Relative to iPhone 4, we feel good about what we’ve done but it’s not enough. We’re working around the clock to build more; it’s great that demand is so high but at this point I won’t predict when supply and demand will be in balance. We think the demand from Verizon customers will be huge. Q: What about Asia-Pacific growth? A (Tim): Brazil, Russia, India, China - of these, we ID’ed China as our top priority and put enormous energy into it, results have been staggering. Greater China is a region - mainland China, HK, and Taiwan. Revenue for last Q was $2.6B, up 4x from prior quarter. We’re proud of the team and results. Korea has also been very, very good market for us. Outstanding Q1 for us, sales driven by iPhone + iPad, and several other Asian countries are doing well. Japan by itself revenue was up 83% YOY, which given how their economy is doing, is stunning. More and more resources in these areas, continuing to look for expansion possibilities throughout Asia.
5:15PM: Verizon iPhone expansion and new product pipeline are key for the year. COO Tim Cook and Treasurer Gary Wipfler are on call. iPhone availability question: backlog from December quarter - what is Apple doing to ensure more availability? Tim Cook: we made a very bold bet on iPhone capacity in September quarter, taking it up to 14m, and sold over 14m—this was up from previous number in 8 range. This was stepped up to 16m for this quarter, and obviously have continued to work on increasing it further. It takes some time. Relative to Verizon, we’re thrilled to offer it to Verizon’s 93m customers as well as any new customers who want Verizon iPhone 4. (No commitment on numbers.) Any question on Mac App Store: top apps are all Apple apps, any thoughts on it going forward? Tim: we’re thrilled by the numbers.
5:13PM: Long-term supply agreements for inventory component prepayments made during the quarter, with billions invested in upcoming parts.
5:11PM: Retail; international stores are doing even better than very strong U.S. stores. 323 stores now worldwide, 87 outside of U.S. Average revenue per store was $12m for the quarter. Retail worth $1b for the first time. 75.7m visitors for the quarter.
5:08PM: Thrilled to be working with Verizon for iPhone 4. Re: iPad, thrilled with momentum. Distr. in 46 countries as of quarter. Tremendous enthusiasm, plus strong demand in corporate environments. Amazing uptake by Fortune 100 - 80%. iPad + accessories made $4.61b, ASP of about $600 for the iPad alone. Inventory increased to support increased sales and channel expansion. 160m iOS device sales reached by end of quarter. November’s iOS 4.2 launch brought iPad and other devices new features; App Store now has 300k apps available, 9b downloads to date. iAd also very pleasing to Apple; iAd spread to Europe and Japan in the quarter.
5:03PM: 4.13m Macs is 23% growth over year ago quarter, and nearly 8 times industry growth; international growth and MacBook Air sales fueled it, as did MacBook Pro. Mac App Store opened January 6, 2011, making discovering and installing apps easier. More than 1,000 free and paid apps now in the Store. Over 1m downloads on first day alone. Music products: 19.4m iPods, versus 21m in year ago quarter. iPod touch grew 27% year over year and now over 50% of iPods sold in quarter. 70% iTunes share in U.S., iPod #1 selling MP3 player in most countries. iTunes Store generated $1.1b for quarter. Beatles. 400,000 TV episodes selling per day. iPhone: 16.2m iPhones versus 8.7m in previous December quarter, 86% year over year growth, beating 70% industry growth rate. Sales value of iPhones alone was over $10.4b, $625 average selling price per phone. 185 carriers in 90 countries. Sales in Asia-Pacific and Japan doubling year over year; 88 of Fortune 100 companies now testing or deploying iPhones. Demand from employees and custom apps are driving growth. Apple could have sold even more iPhones if it could have manufactured them.
5:01PM: The call is about to start. Opening remarks by Nancy Paxton, reading boilerplate. Oppenheimer says he’s very pleased to report outstanding results, more Macs, iPhones and iPads than in any previous quarter in Apple’s history; all-time best quarter with $11b in revenue.
4:47PM: The conference call is 13 minutes away at this point. Twice in recent quarters, Apple CEO Steve Jobs has unexpectedly joined the call in order to take questions from financial analysts and make occasionally brutal comments regarding competitors’ products. Due to his just-announced medical leave, it’s unlikely that Jobs will be on the call today, but highly likely that analysts will use the opportunity to ask questions about the leave and Apple’s succession plans, which will certainly be the subject of further discussion at an annual shareholders’ meeting on February 23.
4:31PM: Earnings released ahead of the call show an absolute blowout quarter for Apple: 19.45m iPods, 16.24m iPhones, and 7.33m iPads were sold in the last three months, along with 4.13 million Mac computers. This brings the iPod total as of the end of 2010 to 298 million, versus 89.9 million iPhones, and 14.79 million iPads—almost as many iPads in one quarter as in the rest of the year combined.
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