Live Coverage: Apple Computer Q2 2005 Conference Call

Notes from Apple’s Q2 2005 Conference Call will be updated live in reverse chronological order:

– End of Conference Call.
– Q1 is normally very strong in Europe and Q2 in Europe normally shows a decline historically.
– Apple cash on hand is maintained for flexibility to invest in the business.
– iPod inventory is roughly 4-6 weeks. iPod shuffle hit full throttle production in February. Supply/Demand in balance.
– Japan revenue increased fairly significantly in Q2. 72% growth year over year. iPod has done “extremely well” in Japan.
– Apple will not project iPod sales.
– iPod shuffle expanded “total opportunity.” Impossible to measure cannibalization of other iPod lines.
– Hard drive iPod market share is 90%, Flash-based iPod share already at 43% as reported by NPD. About 70% overall market share in portable music players.
– iTunes Music Store operated “a little above break even” for the quarter.
– Positive impact on iPod Windows customers can be seen in Mac units shipments. Low to mid 40% on CPU sales through retail stores were to Windows users.
– “Apple iPod by HP” made up less than 3% of all iPod shipments last quarter.
– NAB begins next week, “pro” business usually picks up afterwards.
– Power Mac G5 sales largely driven by “Pro” business. It is an important part of Apple’s lineup.
– Mac mini at Best Buy: units began to be sold in beginning of April, now in all Best Buy stores.
– Apple has no comment on new products in pipeline.
– “Made for iPod” logo program terms are confidential.
– Displays, Airport line, other accessories are strong direct sellers.
– “iPod Halo Effect” – iPod sales to Windows users “played a very strong role” in Mac unit sales.
– Higher Ed. continues to be strong for Apple.
– K-12 Education impacted negatively by state budget issues, especially California.
– “Mother of all thermal challenges” = PowerBook G5. No news to report.
– Air freight was “not abnormal” for Q2. Not expected to be abnormal for Q3.
– Anecdotally, Mac mini sales were strong to both Mac and Windows users. Apple will not break out Mac mini unit sales.
– Apple will not breakout individual iPod line unit sales for competitive reasons.
– Direct unit sales 48% online, compared to 44% in year ago quarter.
– iPod gross margin overall was just above 20% in Q2.
– Component prices were lower than anticipated. Q3 looks favorable for component pricing, as well.
– PowerBook trackpad issues were isolated and are now resolved. Call AppleCare if you have a problem.
– Difficult to tell whether Mac sales were negatively impacted as customers waited for Tiger.
– Q3 begins the education season, especially for K-12. Lower margin units such as iMac and eMac sales.
– iLife and iWork sales were very successful in Q2.
– Gross margin of 28.5% percent for June.
– 2Q margin (30+%) was better than expected due to strong direct sales, especially on PowerBook and accessories.
– Supply/demand balance for iPod, channel inventories: Apple is in balance with supply/demand on all iPod lines.
– Apple looks forward to Mac OS X Tiger release and a strong second half of 2005.
– Apple is very pleased with the Q2 2005 results.
– Next quarter, Apple will report CPU units only as “desktops” and “portables,” not broken down by model, in Q3 2005.
– Apple expects revenue of about $3.25 billion and earnings per diluted share of about $.28 for Q3 2005.
– Apple now has $7.05 billion in cash on hand.
– 70 percent revenue growth and a 530 percent increase in net income year over year.
– Education revenue is strong.
– 103 Retails stores now open. Foot traffic continues to grow in stores.
– iTunes Music Store now has sold over 350 million songs; 70% market share.
– 43% of flash player market share worlwide
– Shipped over 5.3 million iPod units in 2nd quarter; strong iPod shuffle sales.
– Music business generated 38% of total Apple revenue.
– CFO Peter Oppenheimer: strong Mac sales: we shipped record number of Mac units for a second quarter: 1,070,000 Macintosh units.
– Conference call begins.

Conference Call webcast reply will be available at approximately 5pm Pacific here.

17 Comments

  1. First: Don’t they realize the G5 runs at over 130º

    Second: Why would you ask about up coming products?
    Good answer though: “Apple could never be out of ideas”

  2. Anyone else notice that Apple will only be reporting CPU sales in two categories next quarter: Desktop and Portable? It seems to me there may be a less-than-obvious reason for this: (1) that their portable line may be expanding to more than iBooks and PowerBooks and Apple wants to consolidate reporting rather than breakout individual sales for individual products that may have fledgling sales in their intial introduction (can you say iTablet or some other portable computing device like iScreen – Apple’s answer to the PSP?), or (2) Apple wants a little more time for iMac mini sales to kick ass before alerting the other computer makers (for free) as to how much of a market there is for those beauties.

    Just my outside, not-affiliated-with-inside-Apple-sources opinion…

    MDN Magic Word: didn’t, as in DIDN’T some of those analyists open thier eyes when looking at the facts before making such ignorant statements?

  3. Given that iPod ads are all over TV and street corners, I really wish someone would ask if Apple plans to market OS X and new computer hardware similarly. Aaarrggh.

  4. And should we be surprised at that answer? No. That’s how they operate, and rightly so. Better to keep ’em guessing until it’s time than signpost to others who might attempt to take advantage…

  5. I mentioned earlier today that it seemed that Apple was no longer reporting the 50 million increments in cumulative iTMS sales, given that 350 million milestone was due around 7th April.

    Well that is obviously the case and whilst I suspect there is more than one reason for the change in policy, I suspect that a key reason is that, as the motivation behind the announcements is largely designed to demoralise the opposition and to make customers of the opposition question their purchasing decisions, it no longer makes sense to report 50 million increments every 30 days or so when you can grind the point home by announcing 100 million increments every 60 days.

    In short, Apple has effectively decided to say that it no longer matters how quickly you ship tens of millions of tracks, but rather how quickly you ship [B]HUNDREDS[/B] of millions of tracks – a standard that 90% of the WMA download industry can only ever aspire to when under the influence of psychotropic drugs.

    Say what you like about Jobs, Schiller and the rest of the crew but when it comes to elegantly making their competitors seem irrelevant, they are without peer.

  6. On another point, from 0% of the flash-player market to 40%+ share in a single month (!)

    If I was iRiver, Creative et al, I would already be starting to work out a Plan B for survival, because Apple is probably going to start stealing their lunch money relatively soon. Creative do have other markets to fall back on, but most of the rest are going to have problems particularly if their really is an iPod-class personal video device coming anytime soon.

  7. SirROM – you think the breakdown into “Portables” and “desktops” next time is to hide slow sales of iTablets?

    Maybe, but i’m more inclined to think it’s to hide sliding PowerMac sales. But I’m pretty cynical.

    (actually, they can hide all sorts of things by doing this. I’m surprised they broke it down as much as they did anyway.)

    Huh, my Magic Word is “sales”. How appropriate.

  8. And finally, from The Department Of Arcane Statistics…

    For the same quarter last year, Apple sold a total 749,000 CPUs at an average of $1548 per CPU. But this year, they sold 1,070,000 CPUs at an average of $1396 per CPU – a drop of $150 per unit.

    Now in the iMac/eMac/Mac mini category, the stats are 217,000 CPUs for 2004 at an average of $1161 whilst this quarter reports 483,000 units at $1034 per unit – a drop of $127 per unit.

    Given the dilution of income/unit in every sector other than Power Macintosh (which has increased by over 13%, or $263/unit), it’s fair to assume that a fair proportion of these statistics can be attributed to Mac mini: personally, I’d guess at around 250,000 Mac mini units at around $900/unit – which probably means that a lot of people are buying their units fully loaded. That kind of take-up of the Mac mini means that Apple would have sold 820,000 non-mini Macs at around $1550/unit, which would be consistent with a 9.5% year-on-year change in income.

  9. MCCFR,
    You obviously have spent a good deal of time going over numbers and statistics. Just want you to know that your efforts are appreciated, and I for one enjoy reading your projections and estimates…always much more interesting than what the “analysts” have to say.

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