MacDailyNews presents live notes from Apple’s Q316 Conference Call

MacDailyNews presents live notes from Apple’s Q316 Conference Call with analysts starting at 5pm EDT/2pm PDT today.

Apple will provide live audio streaming of its Q316 Results Conference Call using Apple’s industry-leading QuickTime multimedia software.

The live webcast will begin at 2pm PDT/ 5pm EDT today here.

Apple today announced financial results for its fiscal 2016 third quarter ended June 25, 2016. Apple posted quarterly revenue of $42.4 billion and quarterly net income of $7.8 billion, or $1.42 per diluted share. Analysts’ consensus estimates were looking for revenue of $42.09 billion and EPS of $1.38 (Thomson Reuters).

For their fiscal 2016 fourth quarter, Apple guided for revenue between $45.5 billion and $47.5 billion. Analysts surveyed by Zacks had expected revenue guidance of $45.91 billion.

Live notes from Apple’s Q415 Conference Call in reverse chronological order:

• End of conference call.
• AAPL After hours: $103.27, up $6.60 (+6.83%) as of 6:02PM EDT

• Cook: Apple TV last October and and tvOS are building the foundation for what Apple beleives can be a broader business over time. You shouldn’t look at what’s there today and think that’s all Apple wants to do.

• AAPL After hours: $103.25, up $6.58 (+6.81%) as of 5:59PM EDT

• iPhone SE is bringing more people into the iOS ecosystem
• Maestri: We believe the iPhone SE is doing exactly what is intended: Higher rate of switchers and current customers upgrading who prefer the 4-inch form factor
• Maestri: We’ve reduced more than 4 million units of iPhone channel inventory on the high end

• Cook: Quite a bit of R&D growth and expenditures are beyond products that Apple is currently shipping
• Cook: We do continue to invest significantly in R&D
• Cook calls them “Pokémans” when describing what game players are chasing. 🙂
• Cook: Apple has been and continues to invest in AR
• Cook: Augmented Reality (AR) and Pokémon GO phenomenon shows the power of App Store distribution model
• Cook: Apple Pay revenue are in the Service line, the growth is astronomical, but the base is very small

• The stores are to increase the value of the iPhone. Apple looks to run those stores back on in China ASAP
• Cook: In China for Books and Movies, our online stores are currently off (those two stores’ revenue during the several months they were operational were less than $1 million)

• Cook: I’m very optimistic on iPhone
• Upgraders: More and more people have joined upgrade programs. Apple’s plans and carriers’ plans will change out the iPhone every year or every 18 months – as of today, there are more people on these types of programs than ever before – these programs really just started in the last year
• Switchers: We really like what we’re seeing. As the smartphone itself becomes more and more essential in users’ daily lives, we think people will put more focus on what they’re buying and the user experience Apple offers will lead people to iPhone
• Cook: iPhone demand is made up of upgraders, switchers, and new-to-smartphone (penetration is at 42% currently worldwide; there’s much opportunity there)

• Maestri: The macroeconomic environment is slowing down in numerous places around the world, so we’ve accounted for that in our guidance
• Maestri: $3.6 billion channel inventory reduction during the quarter counts across all product lines, not just iPhone

• iPhone SE is opening the door to people Appel hasn’t reached before
• High rates of switchers – all of these vectors are positive for iPhone upgrade rates
• iPhone is becoming even more essential to people’s lives
• iPhone install base has gotten incredibly large
• Cook: I’m very optimistic about the future of iPhone upgrade rate
• iPhone 6 was significantly higher that 6S
• We have seen iPhone upgrade rates fro the iPhone 6S is very similar to the 5S
• Cook on iPhone upgrade rate: Won’t talk about unannounced products.
• Maestri: Gross margin impacted by specific product mixes, currency headwinds, hedging programs rolling off, etc. US dollar about 15% stronger than it was this time in 2014

• AAPL After hours: $103.79, up $7.12 (+7.37%) as of 5:34 PM EDT

• We want to do everything we can to help developers create and offer great apps
• We think to have a great platform you have to have a really healthy ecosystem
• We expect Services to grow “very briskly”
• Highest ever recorded number of iPhone switchers
• We saw double-digit growth in some important countries last quarter
• Cook: We will not discuss future products or product transitions

• Maestri: 37.5%-38% gross margin guidance (product transition costs, see overall commodity prices to decline)
• Cook: We see Didi Chuxing as a great financial investment and see things companies could work together on in the future and as a learning opportunity

• Cook on investments: We invest in our business (R&D and production). We’re constantly looking for great talent and great IP. We have been buying companies, on average, every 3-4 weeks and we continue to do that

• The dividend is payable on August 11, 2016 to shareholders of record as of the close of business on August 8, 2016
• Apple’s board of directors has declared a cash dividend of $.57 per share of Apple’s common stock

• Apple is providing the following guidance for its fiscal 2016 fourth quarter:
– revenue between $45.5 billion and $47.5 billion
– gross margin between 37.5 percent and 38 percent
– operating expenses between $6.05 billion and $6.15 billion
– other income/(expense) of $350 million
– tax rate of 25.5 percent

• Apple invested $1 billion in Didi Chuxing during the quarter
• Apple cash on-hand: $231.5 billion (+$1.4 billion this quarter)

• Apple has now returned over $13 billion to investors through share repurchases and dividends, and has now completed almost $177 billion of the company’s $250 billion capital return program
• Services business grew 19 percent year-over-year and App Store revenue was the highest ever, as our installed base continued to grow and transacting customers hit an all-time record

• NPD: iPad gained share in overall US tablet market and has 84% share of tablets over $200

• AAPL After hours: $103.14, up $6.47 (+6.69%) as of 5:20PM EDT

• App Store growth rate 37% in Q316
• 75% of corporate customer in USA intend to buy Apple iPhones (highest ever)
• Overall iPhone ASP was $595; Apple expects higher this quarter

• Product Summary:
– iPhone: 40.399 million units, $24.048 billion revenue (-15% units, -23% revenue YOY)
– iPad: 9.950 million units, $4.876 billion revenue (-9% units, +7% revenue YOY)
– Mac: 4.252 million units, $5.239 billion revenue (-11% units, -13% revenue YOY)
– Services: $5.976 billion revenue (+19% YOY)
– Other Products: $2.219 billion revenue (-16% YOY)

• Apple CFO Luca Maestri: Operating Segments:
– Americas: $17.953 billion (-11% YOY)
– Europe: $9.643 billion (-7% YOY)
– Greater China: $8.848 billion (-33% YOY)
– Japan: $3.529 billion (+23% YOY)
– Rest of Asia Pacific: $2.375 billion (-20% YOY)

• Cook: I am very bullish on the future
• Apple’s unparalleled Continuity across device will become even more powerful (and inimitable – MDN Ed.)
• Apple Pay now live in 9 markets; adoption outside USA has been explosive
• More than 11 million Apple Pay-ready locations, including 3 million in the USA
• Apple Pay customers up more than 450% YOY in June
• Differential Privacy will enhance Apple’s ability to deliver groundbreaking services without compromising security and privacy

• Cook thrilled by customers’ and developers’ response to software and services we previewed at WWDC in June
• Cook recaps WWDC announcements

• AAPL After hours: $103.40, up $6.73 (+6.96%) as of 5:12PM EDT

• Cook: Our biggest WWDC ever was held during quarter in June. We now have four platforms (macOS, iOS 10, tvOS, watchOS)

• Cook: In first three quarters, revenue from Greater China topped $40 billion, up 55% vs. same time frame two years ago, iPhone units up 47%
• Cook: Opened 41st retail store in China last quarter. Cook very excited about Greater China prospects

• Cook: We’re just getting started with Apple Watch and look forward to more exciting announcements in that space
• Apple Watch continues to be best-selling smartwatch in the world

• Best iPad compare in 10 quarters thanks to rollout of 9.7-inch iPad Pro

• Apple’s Services includes revenue from Internet Services, AppleCare, Apple Pay, licensing and other services.

• Apple’s Services business alone will be the size of a Fortune 100 company next year

• Switchers account for greatest Apple has ever seen for any 9 month period
• iPhone SE is bringing in new users are high levels
• iPhone SE is popular in both developed and emerging markets
• iPhone SE demand outstripped supply all quarter – just recently brought into balance
• Cook feels good about channel inventory levels
• Gross margin was 38 percent
• Net income of $7.8 billion
• Quarterly revenue: $42.4 billion

• Start of conference call

• AAPL After hours: $101.86, up $5.19 (+5.37%) as of 4:58 PM EDT
• Tim Cook told CNBC he feels fantastic about how the iPhone performed in Q3, and that iPhone will be more important than ever looking forward
• Apple shipped 40.4 million iPhones in the third fiscal quarter, above the 40.02 million expected by Street Account estimates
• CNBC: “Apple reported quarterly earnings and revenue that topped analyst expectations on Tuesday, as it continued to sell more iPhones than expected.”
• AAPL After hours: $101.55, up $4.88 (+5.05%) as of 4:47 PM EDT
• AAPL After hours: $101.85, up $5.18 (+5.36%) as of 4:44 PM EDT