lukmachara: Apple Q3 2013 conference call highlights

Apple Q3 2013 conference call

Apple has just announced their Q3 2013 financial results and now they're doing the conference call. There'll be a lot of boiler plate, repeated, and some interesting questions from analysts, typically answered with more boiler plate. But, there could be some sparks as well. We'll update with highlights as the come up!

31.2 iPhone sold, 20% up from last year. Ahead of expectations.
iPhone 5 the most popular. Happy with iPhone 4S and iPhone 4 as well.
51% increase in the US. Once again #1 in US smartphones. 39% share.
10,000 of custom enterprise apps. American Airlines, Cisco, GE, SAP, have deployed more than 25K iPhone each. NASA, NOAA, ATF, NGIA are supporting thousands of iPhones. iOS 6 was granted validation by DoD to connect to networks.
14.6 million iPads. Tough comparison. 1.9 channel inventory swing. Down 3% YoY.
Novartis, SAP, other have deployed over 20K iPads each.
3.8 million Macs, 7% decline but higher than expectations. Global PC market declined 11%, so Mac "growing". People love the new MacBook Airs!
New Mac Pro still coming later this year.
OS X Mavericks bringing more than 200 new features. Coming in the fall.
State of Maine 94% selected Apple products. LA school board approved massive iPad rollout.
2.4 billion for iTunes, up 29%. Both content and apps. Total 4 billion iTunes, software, services.
HBO Go, Watch ESPN on Apple TV. 1 billion TV episodes to date.
5 year anniversary of App Store. Over 900k iPhone apps, 375k iPad apps. 11 billion to developers, 50% in the last 4 quarters.
320 million iCloud, 420 million Game Center, 900 billion iMessages, 8 trillion push notifications.
Good Technologies says iPhone 5 most frequently activated device of any kind, iPad 83% of tablets.
Continuing to invest.
iWork for iCloud coming this fall.
Excited about iOS 7 coming this fall.
4.1 billion Apple Retail. Strong growth in iPhone sales, MBA launch.
6 new stores, 408 stores, 156 outside US. 9 new stores in September quarter, 27 new openings in fiscal 2013. 23 relocations in f2013.
10.1 million average per store, down from 11 last year. 84 million visitors. 16k per store, per week.
106 billion in cash offshore.
Retired over 4 million shares of Apple stock. 17 billion of debt issued. 2.8 billion in dividends. 16 billion cash on share repurchasing.
9 million additional shares retired via open market.
Expectations: 34-37 billion next quarter, 36-37 gross margin.
Pleased with record iPhone, growth in software and services, continued popularity. Excited about OS X and iOS, new products coming fall, 2014.
Q&A time!!
Q: New products this fall, usually gross margins come down but not this time. Why?
Peter Oppenheimer: Largely flat, slightly down. On track for busy fall. More detail in October.
Q: Why channel inventory down? Balance sheet?
PO: More stores this year than last. Component inventory up as well.
Tim Cook: iPad and iPhone reduced inventory significantly. iPad down 700k, iPhone down over 600k. Typically don't like to have more inventory than they need, if can reduce, do so. Slight decrease in Mac, iPod.
Q: High end of smartphone market saturated, growth harder to come by? New innovations, services, reinvigorate high end of market?
TC: Key catalyst will always be new products and services, existing categories and new categories. Distribution opportunities, carrier relationship, expanding retail, online, and indirect channels. Also have market expansion opportunity. Already over 60% in enterprise, think there's growth opportunity. Doesn't subscribe to view higher end has hit its peak.
Q: iPad more of a pause ahead of refresh, broader dynamic?
TC: YoY 2.4 million unit decline, 80% were just due to changes in channel inventory. Reduced this year, increased last year. Overall declined by just 3%. Year ago had just announced first iPad with Retina display. Hit within mid point of their expectations for iPad sales. Not a surprise. Most recent data is iPad web share accelerated further, now 84% of web traffic from traffic. Incredible. If other tablets are selling, doesn't know what they're being used for. Incredible quarter in US education. (Repeating PO's comments from earlier.)
Q: Gross margin bridge? Down 150 basis points. Mix of products similar.
PO: Very pleased with gross margin in the quarter, high end of the range. Sequential decline not a surprise, understood effects. 1) Lower sequential revenue, lost leverage. 2) Expected a different product mix. Had some puts and takes, ultimately ended up in range.
Q: iPhone ASP down 5% sequentially, 10% last 2 quarters. Higher mix of 4 and 4S?
PO: Down 4% YoY, about $27, primarily due to mix, headwinds. iPhone 4 accelerated. Sequentially $32, mix.
TC: iPhone POV, moves on 4 and iPhone 5 being most popular. Very strong sales in emerging pre-paid markets. India up 400%. Very strong in US, up 50%, Japan up 60%, UK 50%. iPhone accelerated from previous. Unusual pattern for Apple. Very happy.
Q: China absent?
TC: China was weaker in quarter, although data sheet doesn't tell the complete story. Sell through with inventory changes only down 4% for year ago. HK was down more. Mainland China up 5%. Lower growth rate, attribute it to many things, including economy there. In HK, international shopping haven. More dramatic down turn there, not totally clear why. Down 20% on sell through. Weighed greater China down.
Q: Trade in program?
TC: Haven't announced anything. Rumors only. Number of channels do trade-ins now, US and different reasons. Reason is that iPhone residual value stays high, high demand, more lucrative. Win/win from many points of view. Nothing from Apple.
Q: Opposed to it?
TC: Not opposed, like environmental aspect. Encouraging.
Q: How do we turn China around?
TC: Put it into perspective. 4.9 billion. 14% of the company. Very significant. Grown significantly. Very strong market. 27 billion on trailing basis in the last year. iPad sell through was up 8%, mainland was up 37%. Share numbers for iPad over 50%. In arc of time, China huge opportunity. Don't get discouraged over 90 day cycle.
Q: More affordable pricing, think about growth in emergency markets, could address with more appropriate products? Both levers?
TC: Reference to iPhone 4. Number of 1st time smartphone buyers iPhone 4 is attracting is very impressive. Want to attract as many of those as we can. Saw that beginning to happen end of Q2. iPhone 5 most popular by far, really happy to provide high quality iPhone 4 running iOS 6 to as many first time buyers as they can. Great product for that buyer?
Q: More weapons you could use?
TC: Always more weapons, more tools in the toolbox, but great way for buyer to get in. Customer sat!
Q: Growth, last Q new product categories. Are there categories big enough to move the needle for Apple?
TC: We'll see. Working on products they're really proud of, will announce when ready.
Q: Russia, pricing?
TC: Good. If you look at Russian market, 80% of phones are sold retail, outside of carriers. Sell through a number of national chains. Activation's in Russia for iPhone set a record. Really happy. Contribution from carriers exist but much less. Not well understood. Continually looking for other relationships. Opportunity.
Q: Commodities? Pricing?
TC: DRAM pricing increased, upper pressure. NAND pricing stable, following seasonal trends. LCD prices fallen, expect further reductions. Others in balance, expect decline at historical levels.
Q: New products assumed shipping next quarter?
PO: Can't comment.
Q: You say better, Wall Street wants more. Does your organization limit?
TC: here to make great products, focus on that and financial metrics will come. Not mutually exclusive.
Q: Don't need to find products to get growth?
TC: Start at the product, most important is customer wants products. Don't start there, create things people don't want. Try hard to focus on making great products, enriching customers.
Q: Don't think high end is saturated, yet ASP down? Will continue to trend lower?
TC: Don't project ASP, give guidance that has assumption. Underneath iPhone numbers saw significant growth in iPhone 4, lower price point. iPhone 5 doing well. Allowed us to significantly beat vast majority of expectations. Sell more low end, mix changes. 3GS last year, comparable position. Selling a lot more 4 than 3GS. Understand market and distribution better. Will get better and better at that over time. How that changes mix, he doesn't know. Product has highest mix during first few months of sale. Natural seasonal decline. iPhone, iPad, on Mac. Doesn't see anything fundamentally change that.
Q: What are puts and takes in September quarter?
PO: tailwind is component costs favorable. Conversely, some effects pressure. Dollar and Yen.
Q: Share buyback.
PO: Before any further buybacks, issuances, 11 million share benefit.
Q: iOS in the Car?
TC: Very important. Part of ecosystem. Just like App Store, iTunes, content, services, messages, Siri, having something in the automobile is important. Something people want. Apple can do it in a unique way, better than anyone else, key focus.
And that's it!