Fortune Article

This is a live blog of Apple’s (AAPL) Q4 earnings call, which began at 5 p.m. ET (2 p.m. PT) and lasted about an hour.

3:38 p.m. With the markets minutes away from the closing bell, Apple’s shares were getting clobbered: down more than 7 points (7.14%) on a day in which the Dow fell 2.5%. Conventional wisdom has it that Yahoo (YHOO) and Apple got caught in the slipstream of Texas Instrument’s (TXN) bearish news, but why Apple would fall harder than TI or Yahoo is beyond me.

4:20 Apple closed at 91.49, down 6.95 (7.06%) for the day. It’s up about half a point in after hours trading.

4:22: No sign yet of Apple’s press release, which usually comes out about half an hour after the closing bell. The conference call isn’t letting anyone in for another 10 minutes.

4:34 We’re in. Classical music. Flute and violins. Conference starts in 26 minutes.

4:43 Apple’s press release with its Q4 earnings results has hit the wires. The headlines:

Revenue: $7.9 billion, up from $6.22 billion in Q4 2007
Profit: $ 1.14 billion, up more than 26% from $904 million in 2007
EPS: $1.26 per diluted share, up from $1.01 in 2007
Gross margin: 34.7%, up (!) from 33.6%
International sales: 41% of revenue, up from 40% in 2007, down from 42% in Q3
Adjusted sales (including deferred rev. from iPhone and Apple TV): an astonishing $11.68 billion
Adjusted net income: $2.44 billion, more than double its net without the deferred revenue
Macs shipped: 2.611 million (21% unit growth, 17% rev. growth from same quarter 2007)
iPods sold: 11.052 million
iPhones sold in quarter: 6.892 million, up from 1.119 in Q4 2007

Sound bite from Steve Jobs: “We sold more phones than RIM” (AAPL)

Guidance for 2009 Q1: A “wide range,” says CFO Peter Oppenheimer. Targeting revenue between $9.0 and $10.0 billion and EPS between $1.06 and $1.35.

That revenue number is below the Street’s consensus — and way below the whisper numbers — but the gross margin is better than anyone thought it would be. Given Oppenheimer’s warning that it would take a big cut this quarter, he’s got some explaining to do.

4:59 Please stand by. Below the fold: The earnings call begins, right on time.

5:00 It’s starting. Nancy Paxton gives the standard warning about forward looking etc.

5:02 CFO Peter Oppenheimer on broken records. More iPhones, more Macs than ever. Going over the numbers in the press release. Gross margins “higher than anticipated.” Hmm.

5:04 Explaining deferred revenue on the iPhone and Apple TV. If iPhone rev. hadn’t been deferred, it would have accounted for 39% of quarterly revenue.

5:05 From now on providing the adjusted sales and adjusted income. These numbers are reported in the press release summary above.

5:07 Adjusted gross margin: 4.6 billion.

5:08 Going over the iPhone numbers. Have already exceeded goal of 10 million for the year. (Did I hear that right? 6.892 sold million in Q4 plus 2.42 million sold before Q4 still leaves Apple almost 700,000 shy of the mark, albeit with more than 10 weeks left in the year.)

5:09 Expanded number of countries carrying iPhone from 6 to 51. 3,100 points of sale in U.S. More than 30,000 world wide.

5:10 Mac sales impacted by anticipation of new models and perhaps the economy. 3-4 weeks inventory.

5:11 Shifting to music. Promo for new iPod, iPod touch. Share of U.S. market over 70% of MP3 players. Growing in several other countries. 4-6 weeks channel inventory.

5:12 Stores: Sales grew 37% to $1.72 billion. Sold 596,000 Macs in the quarter, up 26% year to year. 1/2 new customers. Opened 31 new stores, 13 outside U.S. 226 million visitors in the quarter.

5:17 Steve Jobs comes online (a rare appearance) to talk about global economic slowdown. Once more explains subscription accounting, explaining why they’re including non GAAP (general accepted accounting procedures) results. Deferred revenue is now too big to ignore. Non GAAP results “truly stunning.” Rev: 49% higher, income: 115% higher. “If this isn’t stunning I don’t know what is.” Repeats that Apple outsold RIM. After only 15 months on the market. Even more remarkable: measured by revenue, Apple has become the 3rd largest mobile phone supplier, after Nokia and Samsung. Sony No. 4, LG No. 5. “Both of these things are amazing feats. But who knows what the future will be given the world wide market slowdown? Not bad for being in the market for only 15 months.”

5:20 Jobs on App Store. Tomorrow, the 200 millionth iPhone app will be downloaded, 102 days since the store opened. 5,500 apps. Number of new submissions still accelerating.

5:23 Hawks the new notebooks. Anxious to see the demand curve. “Mindblowing” price/performance. Greenest products ever offered, etc.

5:24 Turns to the economy. We are not economists, but we do know a few things. Best customers in world (violin music). “While they may postpone purchases, they are unlikely to abandon… more likely to delay than to switch.” Still have a tiny share of market in PCs and cell phones. Best product lineup in Apple’s history. (That’s probably true.) Most talented and creative employees in world. (For the PC market, ditto.) Almost $25 billion in the bank and zero debt. In last downturn, invested in new businesses, like the Apple Stores.

5:27 Jobs opens it up for Q&A for himself, Oppenheimer and COO Tim Cook.

Q: Prudence? A: Jobs: October and April are foggy months for us.

Q: Opportunities to buy companies. A: Jobs: Cash not burning a hole in our pocket.

Q: How big a factor is cost of aluminum unibodies. A: Oppenheimer: These notebooks were part of why he warned that gross margins would be down in ’09.

Q: Aluminum costs coming down, how soon will that flow into P&L. A: Jobs: it would be cheaper if we sold blocks of aluminum, but milling is expensive.

Q: Price position of Macs with netbooks coming? A: Jobs: This downturn is not creating a market for cheaper computers. It’s been around for awhile. Not a market we choose to be in. Is downturn going to drive our customers to these cheap computers? I would be surprised. And there are a lot of potential customers who can afford to buy Apple products. We’re not tremendously worried. As we look at nascent “netbook” category, as near as we can tell there are not a lot being sold. Talks of the iPhone as being an entry into that market. We’re watching the category evolve and we have some pretty interesting ideas if it does.

Q: iPhone in this economy. A: We’ll be glad to tell you how it does.

Q: Inventory levels? A: Tim Cook gives more detail.

5:36 Apple shares were up more than 7.2% in after-market trading as of 5:21, reversing the day’s losses.

Q: Steve, will this [your presence in the earnings call] be a recurring event? A: Jobs: Not likely.

Q: iPhone 2009, with iPhone wannabees cluttering market? A: Jobs: We have to be the best, and we can’t leave a price umbrella beneath us. I think we’re way out ahead and we’re investing a lot to stay that way. Great partner in AT&T (hmm).

Q: Can you provide numbers for the split phones between U.S. and Int iPhone sales? A: No.

Q: Margin impact? More impact to come? How do we reconcile your guidance last quarter with today’s results. A: The new products cost more, and that’s why the margins declined sequentially (but they didn’t). We’re going to work to get down the cost curves.

Q: Did you see any deceleration in the last weeks of quarter. A: In last weeks of Sept. and early weeks of Oct. we were running flat. Difficult to see if that continues into holiday. We did see purchasing delays before the new notebooks, and school purchases were slower than usual. But the rebound last week was great.

Q: iPhone activations — how many new users and how many owners of gen 1. A: Confidential to AT&T. But expanded the number of countries, so we’re selling extraordinary numbers to people for first time. Steve: We’re just happy to beat RIM in number to number comparisons.

Q: iPhone volumes for Q4. Strong seasonal growth in Dec? A: Channel build of about 2 million units. We will expand into more than 70 countries by end of year, although those are smaller countries than the 50 we’re in so far. We’re confident that year over year they will be up significantly, but can’t say whether they will be up quarter to quarter.

Q: What “extraordinary opportunites” for companies with cash did you mean? You could hire every engineer in Silicon Valley and have money left over. A: Jobs: Ducks the question. But hiring every engineer in Silicon Valley is a good idea. (laughs in the room). There are some customers we choose not to serve. We can’t make a $500 computer that is not a piece of junk. We’ve seen great success not trying to be everything to everybody.

Q: Apple TV? A: Jobs: I think the whole category is still a hobby, and a lot of experimentation has faded away. I think it will still be a hobby in 2009.

Q: Tablet computing? A: Jobs: Can’t talk about future products.

Q: New cell phones? A: Jobs: From what I’ve heard, Babe Ruth only had one home run. He just kept hitting it over and over again. (Cute metaphor; Apple as the Bambino.) We approach this market as a software platform company.

5:58. That’s it. Replay available beginning at approximately 8 p.m. ET (5 p.m. PT). Click here for instructions.

UPDATE: By 6:22 p.m., Apple had soared 12.26% in after hours trading.

For background in advance of today’s earnings report, check out these posts: