This is a live blog of Apple’s (AAPL) Q4 earnings call, which began at 5 p.m. EST (2 p.m. PST) and went on for an hour.
3:45 We’re 15 minutes away from the close of markets and the stock is up 4.3 points (5.5%), having opened the day at $78.20 — as low as it’s been since Oct. 9, 2006.
Apple investors have been on bumpy ride in those intervening 27 months, as the stock rose above $200, fell below $120, and then bungee-jumped back to nearly $190 before Steve Jobs showed up at a June conference looking like a Jenny Craig victim. The stock has been heading south ever since, on good news and bad.
4:00 The Street, for what it’s worth, is anticipating $1.38-a-share earnings for the quarter on sales of $9.74 billion, with sales of 2.5 million Macs, 18.5 million iPods and 4.5 million iPhones. This based on Thompson Financial’s usual survey of analysts.
4:17 Apple shares popped a bit in late trading to close the day at $82.83, up $4.63 (5.92%). Investors seem to have shaken off rumors of an SEC investigation.
4:20 No sign yet of Apple’s press release, which usually comes out 20-30 minutes before the conference call. The operator won’t let us in for another 25 minutes.
4:33 The numbers are in. The headlines:
- Revenue: $10.167 billion, up from $9.608 billion in Q1 2008
- Profit: $1.605 billion, up from $1.581
- EPS: $1.78 per diluted share vs. $1.76
- iPods: 22.727 million (this is way higher than anyone predicted)
- iPhones: 4.363 million, up 88% year-to-year (slightly below consensus)
- Macs: 2.524 million (slightly above consensus)
- Gross margin: 34.7%, no change
- International sales: 46%
- non-GAAP revenue: $11.8 billion
- non-GAAP earnings: $2.3 billion
- Cash: $28.1 billion, up $3.6 billion over Q4.
4:45 We’re in. Violin music.
4:50 Quick calculation shows quarterly sales beating the Street’s estimate by $427 million. Stock is up nearly 11% in after hours trading.
4:54 From the press release:
“Even in these economically challenging times, we are incredibly pleased to report our best quarterly revenue and earnings in Apple history—surpassing $10 billion in quarterly revenue for the first time ever,” said Steve Jobs, Apple’s CEO.
4:59 Guidance, as usual is conservative: Apple expects to earn 90 cents to $1 per share on $7.6 billion to $8 billion in sales in Q2. The Street was looking for $1.13 per share on $8.2 billion in revenue.
Below the fold: The conference call, starting right on time.
5:00 Nancy Paxton with the usual caveats.
5:01 Peter Oppenheimer. Extremely pleased to report record results. New record for iPod sales. Repeats the revenue numbers, 6% growth. Operating margins higher than expected. Net income as above. Talks about non-GAAP measures. Adjusted sales $11.8 billion, $1.7 billion higher than GAAP earnings.
5:03 Macs. 9% growth, a lot better than the rest of the PC market, which contracted last quarter. Portables up 34%, desktops down 25%. (Last quarter desktops were up, making for a tough comparison.) IDC says desktops down 16% globally. Praises iLife and iWork. 3-4 weeks of Mac inventory
5:05 Music. 22.7 million iPods. Share of US market MP3 over 70% in December. Market share: 60% in Japan, 50% in Canada. 4-6 weeks inventory. iTunes Store had a record quarter. Biggest music quarter ever. App Store offers 15,000 apps. Downloads: more than 500 million, as reported last week.
5:07 4.4 million iPhones. 13.7 million for calendar year, beating the promised 10 million. Now selling in over 70 countries. Recognized revenue $1.25 billion for quarter. Competitors scrambling to catch up. Software is key ingredient. We’re years ahead.
5:09 Apple Stores. 46.7 million visitors, 14,000 per week. Rev 1.74 billion, up 2%. 251 stores, 10 countries. Opening 25 next fiscal year, most of them overseas.
5:11 Talks about gross margin, reported above. Transportations costs down. Operating expenses $1.84 billion. Tax rate down slightly from guidance.
5:12 Cash now $28.1 billion, up $3.6 billion over the last quarter. Cash flow $3.9 billion.
5:13 Q2 guidance: GAAP only. (Darn!) Giving ranges. Revenue: between $7.6 and $8 billion Gross margin 32.5%. Operating expenses $3.33 billion. EPS .90 to $1
5:15 Q&A Starts.
Q: How’s Steve? How will Tim run the company differently? Tim, are you the likely candidate if the worst happened?
A: Peter: Steve is CEO of Apple and plans to stay involved.
Tim: There is an extraordinary depth and breadth in Apple’s executive team. The staff is wicked smart. We believe we’re on the face of earth to make great products, and that’s not changing. We believe in simple not complex. We believe in deep collaboration. We have the self-honesty to admit when we’re wrong. Values so embedded in the company that we will do extremely well. We believe Apple is doing the best work in its history.
Q: Price elasticity for iPhone? A: Tim: Saw big jumps at $399 and $199. Loves the $199 price point.
Q: Gross margin? Will they average at 30%? A: Peter: Sees them about 30% in second half fiscal 2009. March margins are benefiting from commodity prices and hedging. We’re not going to leave any pricing umbrellas.
Q: Guidance, how come range is narrower than last Q? A: Peter: Our models are not as precise had they had been.
Q: Commodity pricing for DRAM and flat panels? A: Tim: Last Q was incredibly favorable for us. DRAM and LCDs did great. We think further reductions not likely. We do in aggregate expect favorable environment for most commodities.
Q: (Munster): Pricing umbrella for iPhone in new markets where you are priced too high? Tim: You are right, some countries like India unsubsidized, and our sales are clearly less there. We’re constantly evaluating the best way to play in these markets. We’ll make adjustments in the future. Q: So pricing umbrella refers to subsidized markets? A: Yes. You know us.
Q: Netbooks? A: Tim: We’re watching that space, but right now the products in there are principally based on hardware that is not what customers want. Cramped keyboards. Bad software. 3% of PC industry was in this category. We have some ideas, but right now we think those products are inferior.
Q: Apple TV? A: Tim: Tremendous pickup. Sales up almost 3X year to year. Still a hobby. But movie rental business has really helped. We will continue to invest in it.
Q: Desktops and pro segment? Mac Pro percentage is not large. Primarily iMac.
Q: Education? A: K-12 is weak ’cause state funding low.
Q: Snow Leopard timeline? A: No comments to share. No launch date to announce.
Q: iPhone channel inventory levels? A: Channel build in last quarter of 2 million units. In Q1, we ended quarter with lower channel inventories, despite launches in new countries. Drawdown about 1/4 million units.
Q: iPod U.S. vs. International? A: Tim: iPod sales contracted 3% in U.S. year over year. All the growth was overseas. All the growth was in the last week of the quarter.
Q: iPhone margins and gross margins? A: Peter: We don’t talk about year over year margin changes.
Q: Operating expenses? A: Peter: We’re going to invest our way through this downturn just like we did last one. Investing in engineering to make best products. (Did that answer question?) Hedging program discussion that frankly I didn’t follow.
Q: iPhone seasonality? A: Tim: We don’t forecast at product level. But the fear that we would have is that the economy may slow the adoption rate of smartphones because of higher monthly fees. We feel extremely good about our product pipeline. (What’s that??)
Q: Wal-Mart pros and cons? A: Tim: We just started on iPhone, so not enough data. From a reach point of view, we reach way more people in parts of the country where we have no Apple Stores. That’s the reason we’re there. We’d seen what they could do with iPods. Mac sales were 2d highest in our history. When we announced new portables, sell-through jumped in October. The portables all quarter led to the 34% year to year increase. Int. vs. U.S. was much stronger (2% in U.S.; 16% international; 20% in Canada, Italy, Asia). Spike at end of quarter, not as strong as iPod, but created by econ. environment. Re iPhone, not as much history. We saw very strong end of quarter with iPhone, but just our second December in the business.
Q: Store velocity overseas? A: Performance outside U.S. a bit stronger than domestic. We think retail stores are helping in each geography. Great for new customers to experience products. Plan to open 25 new stores in fiscal ’09, about half of them international.
Q: Margin questions. A: We exceeded gross margins by about 420 basis points, partly because of adjustments from items in supply chain. Don’t expect to repeat in March quarter.
Q: non-GAAP numbers. What’s the reason gross margins are up so much in non-GAAP? A: Two things, reversal if iPhone costs. Overweighting again. On sequential basis gross margin was higher because of lower product costs and stronger dollar.
Q: iPhone competitors coming to market, Android, Windows, Palm. Beyond app leadership, how do you sustain? A: Tim: Difficult to judge products not yet in market. iPhone has sold over 17 million units so far. Highest customer satisfaction. We continue to believe software is what’s important. App store explosion. When you think of multiple displays, software, not very enticing for developer to write for a lot of different platforms. We approach as a software platform; others approach as hardware. We like competition, as long as they don’t rip off our IP (intellectual property), and if we do we’re going to go after anyone who does. I’m not talking about any particular company. In terms of competition: We are ready to suit up and go against anyone. However, we will not stand for having our IP ripped off.
(You could hear some strong feelings in this answer. Fallout from the Psystar suit? A shot across a particular competitor’s bow, like maybe Palm for using multi-touch in its Pre?)
Q: Mac trends going forward. A: Tim: If you look at the slight decline, I think it’s fantastic. We grew 9% year to year while the rest of the market contracted. If you look at the revenue share, it was more than 32% of U.S. market share.
Q: Apple Stores: Average no. of stores open during quarter? A: 249. Record no. of 1-1 sessions, but no number.
Q: 500 million downloads. How many were free? A: Not disclosing.
Q: Are you going to continue to report rev. within iTunes? A: Not planning to change.
And that’s it. We’re out of here. Thanks for your patience.
For background see: