Notes from Apple’s Q1 2013 Conference Call

During Apple’s first quarter 2013 financial results conference call, Apple CEO Tim Cook and CFO Peter Oppenheimer made a number of comments related to Apple’s iPhone, iPad, and iPod businesses. The comments ranged from discussions of the iPhone 5 and iPad mini’s sales and manufacturing constraints, to continued iPad cannibalization of Mac computer sales, to the Apple TV.

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Cook welcomed participants to the call by reiterating record revenue, iPhone, and iPad sales.

He said “we’ve now sold well over half a billion iOS devices,” ten per second last quarter.

Oppenheimer noted that revenue was up $8.2 billion year over year, over a period one week shorter than the year ago quarter.

On its data summaries for the quarter, Apple will treat mainland China, Taiwan, and Hong Kong collectively as a region called Greater China going forward, given the major contribution it’s making to the company’s fortunes.

Hardware revenue will now be presented exclusive of service, software, and accessory revenue on data summaries for the quarter; accessory revenue is now its own category.

“We were very pleased to sell 47.8 million iPhones,” they noted, which is almost 3.7 million iPhones per week. An average increase of 39% per week.

Apple experienced strong growth in all geographic segments, most notably China, where marketshare doubled year over year.

The company ended the quarter with about 10.6 million iPhones in channel inventory.

Many US government agencies, including NASA, are adopting iOS devices, whether they are replacing other systems or adding smartphones for the first time.

Over 1.7 million iPads were sold per week in the quarter, above IDC’s estimates.

“We began and ended the quarter with about 3.4 million iPads in channel inventory.”

iPod touch was a popular item in the holiday season, and continues to account for over half of iPods sold.

The iTunes Music Store was rolled out to 56 countries, to a total of 119 countries. 20 million songs are available for download. December saw over 2 billion app downloads, with more than 775,000 apps available, and half billion account holders. Apple later confirmed that there are now over 800,000 apps available.

Over 2 billion iMessages are sent per day.

During the Q&A session, both executives made several comments of interest.

When asked about competitive phones using larger screens as differentiators, Cook reiterated the iPhone 5 offers a new 4-inch Retina display, and Apple believes it picked the right size.

Cook noted iPhone 5 sales were constrained across the quarter, and sales went up with production. iPhone 4 was also in constraint during the quarter.

Cook: “I know there’s been lots of rumors about order cuts and so forth… I would suggest it’s good to question the accuracy of any kind of rumor about build plans.” He said even if a data point is factual, it’s impossible for an outsider to interpret what it means, given the number of suppliers Apple deals with, and the variations in demand, supply, and other factors there.

Apple was asked “how important is market share preservation?” and “is holding share in the smartphone market in 2013 a priority for Apple?” Cook responded that “the most important thing to Apple is to make the best products in the world that enrich customers lives… we’re not interested in revenue for revenue’s sake.” With iPod, Apple does different products at different price points and is the market leader.

In discussing the drop in Mac sales, Cook said that “we could not build enough iPad minis to come into demand balance” and suggested iPads are cannibalizing Macs.

Asked about iOS 7 and new software, Cook didn’t commit to an imminent new iOS version, but stated Apple feels great about what it has in store. In regards to Maps, the company will roll out even more improvements across the rest of the year, until it lives up to Apple’s high standards. It’s already improved imagery, information, and more. “The usage in Maps is significantly higher than it was prior to iOS 6,” he said. Over 4 trillion notifications have been sent through Notification Center. Over 200 million users have registered for Game Center, and the company is considering what it can do to expand these services.

Oppenheimer restated that the iPad mini was constrained every week, and that the quarter ended with significant backlog. He said demand should be met in the March quarter.

When asked about how sales of individual iPhones are doing, Cook noted that the iPhone 5 has a similar mix compared to all iPhones as the iPhone 4S did when it was the top model last year.

Regarding Apple’s product refresh cycle and whether this year would be more staggered, Cook said he wouldn’t answer the question. “The number of ramps were unprecedented.”

There was triple digit iPhone growth in China, and “very nice” growth for the iPad. iPhone point of sales were increased to over 17,000, up from 7,000.

In reference to Apple TV and the TV market: over two million Apple TVs were sold last quarter, more than any other quarter. It remains an area of intense interest. “There’s a lot we can contribute in the space… but I don’t want to be more specific.”

In terms of new iPhone customers versus those upgrading, Cook said the iPhone 5 is selling to a lot of new customers, and would not comment on specific numbers.

Oppenheimer said “we would expect a large year over year increase in iPad sales, but a post-holiday sequential decline.” Cook said there were strong sales of iPad and iPad mini for the last quarter. In a somewhat concerning response to a question regarding Apple forecasts, which were historically a single target number and very conservative, Oppenheimer noted that Apple is now providing a range of possible numbers that its results are predicted to fall within. As a result, its forecasts will not likely be as far below its actual numbers as before.

Asked about the tablet market versus the Mac and PC market, Cook stated: “I see cannibalization as a huge opportunity for us… on iPad in particular, we have the mother of all opportunities… I believe the tablet market will be larger than the PC market at some point.” If someone buys an iPad or iPad mini as their first Apple product, a percentage will buy another type of Apple product, and the company is seeing some evidence of that with the iPad as well. 

In reference to a question about the speed of LTE rollouts, Cook noted there are already 24 LTE carriers. 36 new carriers will be added next week, in countries not currently supporting LTE such as Italy, Denmark, Switzerland, Philippines and several Middle Eastern countries.

Notably, Cook deflected a question about lower-priced iPhones.

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