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Live updates from Apple Q1 2009 Conference Call

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By Jeremy Horwitz

Editor-in-Chief, iLounge
Published: Wednesday, January 21, 2009
News Categories: Apple, iPhone, iPod

During the company’s Q1 2009 Conference Call, Apple CFO Peter Oppenheimer and COO Tim Cook made several comments during the call relating to the company’s iPod, iPhone, and Apple TV businesses. According to Oppenheimer, customers love the sleek design and colors of the fourth-generation iPod nano. He also said the feature set and App Store have helped iPod touch establish as gaming, entertainment, and communications platform. According to the latest data from the NPD Group, iPod MP3 player marketshare is over 70% in the U.S., and gained in international markets as well, with marketshare of over 70% in the U.K. and Australia, over 60% in Japan, and over 50% in Canada.

The December quarter was the biggest ever for the iTunes Store, including the highest sales ever for Christmas day and week. Although the company had already reached its goal of selling 10 million iPhones in calendar 2008, Oppenheimer reiterated the fact, with Q1 sales pushing the total up to 13.7 million units. The phone was selling in over 70 countries by the end of the quarter, and recorded iPhone revenue was $1.25 billion for the quarter, compared with just $241 million in Q1 2008. Finally, the executives revealed that Apple TV unit sales were up almost 3x from the year-ago quarter, although the company still considers the product a hobby.

The complete record of our live coverage is below.

Customer response to the MacBook and MacBook Pro was very strong; desktop unit sales declined substantially year-over-year, but note that the iMac launched in the prior year. But Apple thinks it’s a shift towards portables in the overall market.

Music products and services. 22.7m iPods sold, new quarterly record, 3% growth over prior record sales. Thrilled with response: customers love the sleek design and colors of the nano. Feature set and App Store have helped iPod touch establish as gaming, entertainment + communications platform. iPod share was over 70% of US NPD. Share gained in international markets as well. iPod share of MP3 market was over 70% in UK and australia, over 60% in Japan, over 50% in Canada.

iTunes Store: Biggest music quarter ever, including highest sales ever for Christmas day and week. App Store - dev and customer excitement is incredible. 15,000 applications is up 10,000 from prior conf. call. Customer downloads over 500m.

iPhone: 4.4 handsets sold in Dec. Quarter, 13.7m is cumulative - over the 10m goal set for the iPhone. Selling now in over 70 countries by end of quarter. Rec’d revenue was $1.25b versus $241m. Proud of how rapidly it has achieved traction; positive JD Power ranking and AdMob percentages for requests of their ads. Customers are attracted to iPhone for features, as well as its ability to add applications, games, social networking, financial management, etc. Competitors are scrambling to copy the success: this proves Apple’s theory that software is the key ingredient to a great mobile experience.

Retailers have used iPod discounting to drive traffic to their stores. Apple Stores have achieved record volumes, as well. Going forward, Apple’s goal for its cash is to preserve capital and make investments as necessary. Visibility for the company’s revenue remains low, making forecasting challenging. Very excited about new product pipeline.

Q: How’s Steve? How will you run the company differently than him, Tim? And if the worst case scenario was to happen, would you, Tim, steer the helm.

Peter: Steve remains CEO of Apple. Tim is running operations. Tim: There is an extraordinary depth, breadth + tenure of the Apple executive team. Wicked smart employees. Our values are entrenched. We are focused on innovating, simplicity, owning and controlling the technologies we make, and participating in markets we can compete in; saying no to products that don’t make sense, cross-pollination; self-honesty to admit when wrong and be willing to change. Those values are so imbedded in Apple.

Q: iPod segment is price elastic; Mac is inelastic. What about iPhone - is it elastic? Inelastic? Would price reductions make sense?

Tim: It’s clearly elastic. The price, talking to the US market, moving from $599 to $399, then to $199 iPhone 3G, significant jumps in the run rate have taken place. The $199 level contract inclusive is a compelling value and we see nothing in the marketplace that is anything close to it. We are years ahead of the competition in software, throw in the Apps and downloads, and we feel very good about our competitive position.

Q: What about in markets where the iPhone is priced too high?

Tim: Some countries are non-subsidized markets, largest market is India. Sales are clearly materially less in those markets than in subsidized markets. We’re evaluating the best way to play in these markets; we know there’s a huge market opportunity there and will make adjustments there to participate in a more material way. We’re not going to play in the low-end voice phone business. That’s not who we are and not why we’re here. We’re building the world’s best phone.

Q: Apple TV?

Unit sales were up almost 3x over year ago quarter; let me be clear, we still consider this a hobby. But it is clear that movie rental business has really helped Apple TV, and will continue to invest in it because we think something will be there in the future.

Q: iPhone channel inventory was previously 2m units. What about now?

Tim: We had a channel build before for iPhone 3G; in Q1, despite launching in 20 countries and expanding prior channels, we had lower than normal inventory. Our current level is something we’re comfortable with.

Q: But how many weeks of inventory are you at?

Tim: We’ve drawn down the inventory by 250,000. We can’t be certain about seasonal patterns of demand right now, but we feel comfortable with our current inventory level.

Q: Relative strength of iPod business in U.S. domestic versus international?

Tim: In terms of geography, US - iPod sales contracted 3% YOY at the retail level. So all of the growth that you see in our numbers was all international. Linearity at worldwide level would look similar worldwide, but we saw a rush of buying at end of quarter. All of growth was in the last week of quarter. We attribute to macroeconomic environment.

Q: How did retailers discount iPods?

Peter: Gift cards and the like; we haven’t seen as much of this post holiday.

Q: There are a number of competitors coming to the market, many with their own variance on the experience iPhone initiated… Palm Pre, Android, etc. Beyond a powerful leadership in applications, how will you sustain?

Tim: It’s difficult to judge products that are not yet in the market. iPhone has sold over 17m units thus far, highest overall customer satisfaction in many different surveys. Said since the beginning that software is the key ingredient. If we had many different types of hardware, that wouldn’t be enticing to software developers. We approached this as a software platform business, and approach it fundamentally different from those who view it from a hardware point of view. As long as they don’t rip off our IP - we’ll go after anyone who does - we are okay with competition.

Q: Until Palm came out… Palm seems to particularly directly emulate the kind of touch interfaces that you had innovated, and patented. Is that what you’re referring to?

Tim: I don’t want to talk about any specific company. We think competition is good; it makes us all better. We will go against anyone, but will not stand for having our IP ripped off and will use whatever weapons we have at our disposal.

Q: App Store split - paid versus free? Will you break revenues out from iTunes?

Peter: We won’t discuss the split of apps. And won’t split the revenues out of iTunes.

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