Notes from Apple’s Q2 2011 Earnings Conference Call

During Apple’s Second Quarter 2011 Financial Results Conference Call, Apple CFO Peter Oppenheimer and Apple COO Tim Cook made several comments concerning its media-related products, including the iPod, iPhone, and iPad. In his opening statements, Oppenheimer said that it was the highest March quarter in revenue and earnings ever for the company, with the highest year-over-year revenue growth ever generated. The numbers were boosted by an single-quarter record for iPhone sales, plus “robust” iPad sales—he said the company was “thrilled” with the iPad’s momentum—and 28% year-over-year growth in Mac sales, which totaled 3.76 million.

Oppenheimer also said that the iTunes Store had its best quarter ever, and the iBookstore saw 17,000 eBooks added during the quarter; the iBookstore now offers eBooks from 2,500 publishers, and has seen over 100 million downloads. While overall iPod sales were down, they were ahead of internal expectations, and were comprised of 60 percent iPod touch units, enabling Apple to maintain a 70 percent share of the MP3 player market. Overall, just under 189 million iOS devices had been sold, cumulatively, by the end of the quarter.
Discussing the iPhone, Oppenheimer said that the product’s 113 percent year-over-year growth outpaced the 74 percent growth of the smartphone market as a whole. He added that the iPhone saw very strong growth in all the operating segments across the world, as a capacity boost enabled a much-needed supply increase to partners, and the company added important carriers such as Verizon Wireless in the U.S., SK Telecom in Korea, and Saudi Telecom in Saudi Arabia. Overall, the iPhone is now available on 186 carriers in 90 countries, and is now being tested or deployed by 88 percent of the Fortune 500.

Tim Cook later added that the company did very well everywhere, but sales grew 155 percent year-over-year in the U.S. thanks to the Verizon rollout, while sales in greater China were up almost 250 percent, and “catapulted” overall revenue for the first half of the fiscal year to over $5 billion. Cook said that the company’s focus has very much been on China, and that it is seeing a “sea change” in sales in China, and noted that considerably more than half of China is prepaid. Oppenheimer also commented, saying that the company expects to see a significant year-over-year sales increase in the third quarter. Repeatedly, both executives downplayed any opportunity to discuss future product transitions, and uncharacteristically gave no hints as to their next-generation products or services of any kind.

Regarding the iPad, Oppenheimer said that the company is working hard to get the new iPad 2 into customers’ hands, and the iPad as a whole was available in 59 countries at the end of the quarter. As expected, iPad inventory declined to just 850,000 units, as the company sold every iPad 2 it made, and the company said it wants more inventory. Cook described the demand as “staggering,” adding that the company was amazed that “the mother of all backlogs” still existed. Still, he said the company was happy with its production ramp up—which he described as “materially better” than that of the original model—so much so that it plans to expand distribution to 13 more countries next week.

The company remains happy with the incredible success of the App Store, which now offers over 350,000 apps, and has seen more than 10 billion downloads, as well as $2 billion paid out to iOS developers. Regarding the company’s Retail Stores, the company is set to hit a “major milestone” in the “next few days” with the welcoming of the one billionth visitor; Apple plans to open 40 new stores in fiscal 2011.

The executives also discussed the tragedy in Japan and its affect on Apple as a company. COO Tim Cook said the company’s hearts go out to everyone involved, and said that Apple has undertaken various actions to assist in the relief effort, adding that the business impact pales by comparison with the human impact. The impact to Apple’s business during the second quarter was described as not material to the results, but the company does expect to take a hit of roughly $200 million in the third quarter due to circumstances related to the disaster, which include problems at many suppliers and power interruptions. Cook added that Apple employees in Japan were working with suppliers to implement a variety of contingency plans, saying that they preferred to work with their partners in Japan, and that they have displayed “incredible resilience.” He said that the company does not currently see any unsolvable problems related to the disaster, but that it is difficult to predict anything beyond the next quarter.

Finally, regarding the company’s lawsuit with Samsung, Cook noted that Apple is Samsung’s biggest customer, described them as a very valued component supplier, and said he expected their strong relationship to continue. That being the case, Apple felt that Samsung’s mobile communications division had crossed the line, and after trying to work the issue out directly, decided to turn to the courts.

Latest News