There were some stunning one-liners from Tuesday’s Q1 Earnings Report hosted by Apple’s CFO Peter Oppenheimer and Apple’s COO Tim Cook that summarized Apple’s stellar financial performance. But there were also some lengthly, revealing comments that provided significant insight into Apple’s operations and plans. Here they are with some added commentary and analysis. [Emphasis in italics are mine.]
Oppenheimer: “Revenue for the quarter was $26.7 billion.”
This is incredible when one considers that when Steve Jobs returned from exile, Apple was generating about US$6B per year.
Oppenheimer: “We established a new quarterly record with sales of 4.13 million Macs, representing 23 percent growth over the year ago quarter. That is almost eight times IDC’s most recently published estimate of 3 percent growth for the PC market….The growth was fueled primarily by strong demand for the new MacBook Air.”
Personally, I never would have thought that a Mac with a Core 2 Duo would generate so much demand. It’s that SSD that makes the MBA feel so snappy.
Oppenheimer: “The Mac App Store is available in 90 countries, and features more than 1,000 free and paid apps in categories like education, games, graphics and design, lifestyle, productivity and utilities. We have been very pleased with customer response with over 1 million downloads on the first day alone.”
Once again, Apple has correctly assessed the frustration majority of customers have had with the application install and update process.
Oppenheimer: “We sold 19.4 million iPods compared to 21 million in the year ago quarter. We experienced continued strong sales of iPod touch, which grew 27 percent year-over-year and accounted for over 50 percent of all iPods sold during the quarter.”
Maybe the traditional iPod is dying, but the iPod touch is marketing genius and is holding the fort.
Oppenheimer: “And as we announced a few weeks ago, iTunes users are now renting and purchasing over 400,000 TV episodes and 150,000 movies per day.”
This is great data to use in future articles that compare Apple to the TV competition.
Oppenheimer: “We were thrilled to have sold 16.2 million iPhones compared to 8.7 million in the previous December quarter. This represents 86 percent year-over-year growth compared to IDC’s latest published estimate of 70 percent growth in the global smartphone market overall in the December quarter. Recognized revenue from iPhone handset and accessory sales was $10.47 billion during the quarter, compared to $5.58 billion in the year ago quarter, an increase of 88%. The sales value of iPhones alone was over $10.1 billion, which yields an ASP of about $625. At the end of December quarter we had iPhone distribution through 185 carriers in 90 countries.”
A few things. Apple’s revenue from iPhones in the quarter wad over US$10 billion. No matter what you say about Android, this is mind boggling. Also, ASP = Average Selling Price, and that’s how much money Apple is averaging from all the carriers for each phone. When I think about that, my brain overloads.
Oppenheimer: “Enterprise customers continue to embrace iPhone, with 88 of the Fortune 100 companies and also 60% of the Financial Times Europe 100 companies now testing or deploying iPhone…. Most recently Fortune 500s like Wells Fargo, Archers Daniel Midlands, DuPont, Staples, Starbucks and Genworth Financial, and Global 500 accounts such as Nissan Motor, BBVA, Standard Chartered Group and [Denun] have made iPhone available to their employees.”
Some laughed at the enterprise capabilities of the original iPhone in 2007, but Apple’s philosophy is to not try to do too much too soon. No one is laughing now.
Oppenheimer: “And we are thrilled to begin working with Verizon next month to offer iPhone 4 to its more than 93 million customers, as well as to new customers who want iPhone 4 on Verizon.”
Oppenheimer: “We sold 7.3 million iPads, a sequential increase of over 3 million, with distribution in 46 countries by the end of December quarter.”
Some analysts expect Apple to sell over 40 million iPads this year.
Oppenheimer: “Today over 80 percent of the Fortune 100 are already deploying or piloting iPad, up from 65 percent in the September quarter. Some recent examples include JPMorgan Chase, Cardinal Health, Wells Fargo, Archer Daniels Midland, Sears Holding and DuPont. Recognized revenue from sales of iPad and iPad accessories during the quarter was $4.61 billion….The sales volume of iPods alone was over $4.4 billion, which yields an ASP of about $600.”
Oppenheimer: “Combining iPhone, iPad and iPod touch we reached over 160 million cumulative iOS device sales through the end of the December quarter.”
Oppenheimer: “Additionally, our four stores in China were on average our highest traffic and our highest revenue stores in the world.”
That says something about China as well as Apple’s placement of the stores.
Oppenheimer: “We hosted a record 75.7 million visitors in our stores during the quarter compared to 50.9 million visitors in the year ago quarter, an increase of 49 percent.”
Oppenheimer: “Turning to cash, our cash, both short-term and long-term marketable securities, totaled $59.7 billion at the end of the December quarter compared to $51 billion at the end of the September quarter, an increase of $8.7 billion.”
Apple uses some of that cash for up-front payments under contract for component parts, gets great prices, squeezes out the competition, and recoups the profits very nicely later. It’s an amazing money machine.
Oppenheimer: “As we move ahead into the March quarter, I would like to review our outlook, which includes the types of forward-looking information that Nancy [Paxton] referred to at the beginning of the call. We expect revenues to be about $22 billion, compared to $13.5 billion in the March quarter last year.”
Apple is essentially doubling its 2009 performance.
Tim Cook: “To give you some numbers there and some specifics — and we look at Greater China as a region. Greater China, just for clarity is Mainland China, Hong Kong and Taiwan. The revenue from Greater China for Apple for last quarter was $2.6 billion, which was up four times from the prior-year quarter. And to further — just an exclamation point by that, we did a little over $3 billion for the entire year, fiscal year 2010.”
Bill Shope of Goldman Sachs asked: “Okay, that’s helpful. I understand. On the iPad side again, now that you have had the opportunity over the past few weeks to see more detailed specs, and in some cases, the price points for all the countless tablet devices coming in 2011, can you comment on how you’re currently viewing the competitive landscape for the iPad and how that has changed, if at all, over the past few months?”
Tim Cook: “If you look at what is shipping today there is not much out there, as you know. Generally speaking, there is two kind of groups today that are at least on the market today. The ones that are using a Windows-based operating system are generally fairly big and heavy and expensive. They have a very weak battery life. They require keyboard or stylus as an input device. And from our point of view and what we have seen customers, frankly, just are just not interested in them. Then you have the Android tablets. And the variety that are out shipping today, the operating system wasn’t really designed for tablet. Google has said this, and so this is not just an Apple view by any means. So you wind up having a size of a tablet that is less than what we believe is reasonable, or even one that would provide what we feel is a real tablet experience. So basically you wind up with kind of a scaled up smartphone, which is a bizarre product in our view. Then you’ve got a third group — so those are the two that are shipping today. And, frankly speaking, it is hard for me to understand if somebody does a side-by-side with an iPad, I think some enormous percentage of people are going to select an iPad there. Those are not tablets that we have any concern on. The next generation Android tablets, which are primarily what you mentioned in terms of the CES, there is nothing shipping yet, and so I don’t know. Generally they lack performance specs, they lack prices, they lack timing. And so today they are vapor. We will assess them as they come out; however, we are not sitting still, and we have a huge first mover advantage. We have an incredible user experience from iTunes to the App Store and an enormous number of apps and a huge ecosystem. So we are very, very confident with entering into a fight with anyone.”
That’s a fairly detailed assessment of Apple’s view of the competing tablet market. But there’s more…
Tim Cook: “What I have said before, and it has — we have seen this in every case literally that we have done is where we have moved from an exclusive carrier arrangement to a dual or multicarrier arrangement, our growth has changed significantly and our marketshare has increased. So that doesn’t mean that would happen in every country, nor does it mean that we are just out doing that in every country. We look at each one individual, because each market has its own individual characteristics and parameters and technologies. On the CDMA phone, specifically, I don’t have any specific thing to announce today, other than we are truly thrilled to be working with the Verizon team….
“We are also very happy that we have signed a multiyear nonexclusive deal with AT&T. And so we’re very happy that we will have shortly a dual carrier setup in the United States.
“I have generally found people really want to do business with us. And their customers are — very much desire to have the iPhone, so I don’t really see a lack of desire. I don’t want to comment about any specific country because I view any conversations that we have going confidential in nature. It is true, as you said, that we are not under a contractual exclusivity now in any country in the world. The last one was the United States. So we have moved away from those. I can guarantee you that we are — we always are looking at opportunities to grow. Of course, in the very short term I would also remind you that we are constrained on iPhone 4, and we are working around the clock to get as many of these out to our existing partners as we can.”
My translation: We’d love to add other U.S. carriers, but can’t do it right now because we’re barely able to meet current demand from AT&T and Verizon.
Tim Cook on Mac growth and impact of iPads: “Now was there any cannibalization by iPad? Honestly, I don’t know for sure, but, yes, I think there is some cannibalization. But I also think there is a halo effect. As we have seen on the Mac by the iPod some years ago, I think there is a halo effect from Apple product to Apple product. And, of course, we have introduced millions of people in Asia to Apple through the iPhone. And we are now introducing many were through the iPad, and I think some of those decide to buy Mac. So when you look at the Mac growth in Asia at 67 percent, and you look at the Japan growth at 56 percent, and you look at the U.S. and Europe growing in double digits against shrinking markets, if this is cannibalization it feels pretty good.
Tim Cook on internal competition and Mac OS vs. iOS: “I think, one of the — part of the magic of Apple is that there is not high walls between these product groups. They like each other, talk to each other. They are of the same DNA. They want to build the best products in the world. So if one has a great idea, there is not a not-invented here in the other group. So one of the key learnings from the iPad was that people love instant on. They really love that. So the MacBook Air incorporated that. And that is just one simple example, but there are tons of examples through all of our products where something started on one and went to a different one. And it is not always in the same direction either. It could start on the phone and then flow forward. It could start on the iPad and flow and so on and so forth. So it is a part of the way we run the Company. I think Steve said it great when he said, if the Mac company were a separate company and the iPad company were a separate company, what would the Mac company build to compete with the iPad? And I think the answer is the MacBook Air. I think that is a phenomenal insight, and I think a great way to look at it. It is not that the groups are competing, and they are sharing and coming up with these incredible products that people really want.”
All in all, these are some amazing insights. Seldom have Peter Oppenheimer and Tim Cook gone into such depth about Apple’s operations and results, but the thinking may have been to reassure investors that Apple could and will carry on without Steve Jobs if necessary. Apple stock [AAPL] today properly reflects the corresponding investor confidence.