Apple Financial Results Conference Call Q1-2007 Live Notes (in reverse-chronological order):

Conference Call replay: http://www.apple.com/quicktime/qtv/earningsq107/

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• Apple saw strong MacBook Pro sales in quarter
• Apple plans to open 35-40 new stores in fiscal 2007
• 6,600 Apple Store Retail employees; 21,500 employess for Apple overall
• Apple will support Parallels in their virtualization efforts as they have been
• Apple will not discuss future products (obvious, but someone always asks anyway).
• Apple TV will be included in “other music related products and services” line in financial reporting
• Apple has started “Get a Mac” ads in Japan
• Apple disappointed with Japan results – even though they are consistent with market conditions
• Apple Japan – PC market among weakest in world – 50% share of MP3 market for iPod in Japan
• Expect higher music sales from gift cards in Q2
• Apple: No price issue on iPod and Macs as evidenced by sales growth
• 14 week Q1 last year vs. shorter Q1 this year shows Apple did better with Mac sales this year vs. last.
• Apple: “we’re confident we’ll prevail” in the Cisco “iPhone” dispute.
• Apple: “Cisco iPhone trademark lawsuit is silly.” US. trademark by Cisco is “tenuous at best.” Several companies use iPhone already.
• Boot Camp downloads: 1.5 million, Apple intends to include Boot Camp in Leopard
• Apple Mac Pro market met Apple’s internal expectations. Tempered by wait for Adobe CS universal – due second calendar quarter (next quarter).
• Favorably commodity pricing environment and product mix contributed most to high gross margins
• Apple Retail Stores and rest of U.S. channel shows approximately 50% new-to-Mac users
• iPod is a significant line of different products at different prices and capacities/features
• iPhone cannibalization of iPod? “Too soon to tell. Hard to predict. Perhaps we’ll have more on this in future quarters.”
• Apple Mac outgrew the market in the last 8 out of 9 quarters
• iPod Halo exists according to Apple as evidenced by Mac sales outpacing industry
• Apple sees Apple TV as “the DVD player of the 21st century.” Clealrly not a niche product
• Apple TV will ship for only a few weeks this quarter (Q2)
• Does Apple expect iPhone capacity to be sufficient at launch? No comment until closer to launch
• Apple hopes to get 1% of 1 billion units or 10 million units for iPhone in 2008
• Is iPhone design fixed? Can “sealed battery” be changed? “Apple will provide more details on iPhone shortly before shipping in June.”
• iPod revenue and units sales decrease at Apple retail stores due to expanded channel
• iPod has 40,000 retails outlets worldwide
• Average revenue of retail stores was $6.7 million
• Apple sees no “pause” ahead of Leopard. There was no pause in Mac sales ahead of Tiger
• Apple has 7500 Mac outlets now worldwide
• Apple’s Best Buy pilot continues; evaluations continue
• Apple has no comment on question of stock split
• Mac OS X Leopard will ship in Spring 2007
• Apple: all three iPod models did exceptionally well
• iPhone will not ship until June, guidance at end of next quarter will look forward to iPhone launch
• Apple feels very good on Mac and iPod internationally, particularly in Europe
• Apple grew iPod sales faster outside of US in Q1
• Mac unit growth in Europe was 28%
• Apple saw Mac units down 16% sequentially – seasonal – due to Apple Mac’s strength in education sales
• iPod was key in achieving 31% gross margins
• Apple Macs delivering substantially above overall PC market growth
• We will be “where the technology is” in each market where iPhone is introduced (paraphrasing)
• iPhone and 3G: At this point we are very much sold on 2.5 G EDGE network – much more widely deployed in US
• 31% gross margin was well above where Apple had been operating. Do not get used to 18% operating margins. 12% operating margin guidance for Q2
• iPod shuffle did not start shipping until October
• Apple very pleased with retail stores’ performance
• Apple Retail Store revenue up 6% YOY, total Mac sales up 60%, lower iPod revenue due to Sept. price reductions and expanded iPod retail channels
• Component pricing was favorable across the board. Apple sees favorable pricing on LCDs and Flash memory for Q2
• Apple Board has expressed complete confidence in current maganement
• Apple has voluntarily and proactively provided information to SEC and others regarding stock options backdating
• iPod demand in Q1 was extraordinary; supply and demand in balance. Expect higher seasonal decline due to supply and demand being in balance
• Apple has factored in seasonality into expectations for Q2 07
• Looking ahead to the second fiscal quarter of 2007, we expect revenue of $4.8 to $4.9 billion and earnings per diluted share of $.54 to $.56.
• Apple very excited about Apple TV, iPhone and other new products coming this year
• Fiscal year 2007 off to a tremendous start
• 31% tax rate during quarter, expect 32% for remaining quarters of the fiscal year.
• Gross margin high due to favorable commodity prices, better product mix
• Apple Retails Stores: 170 stores. Retail stores sold 308,000 Macs during quarter
• iTunes gift card sales doubles YOY
• iTunes Store library: over 4 million songs, 350 TV shows, 250 movies
• U.S market share of MP3 player market was 72% in December according to NPD
• 57% of revenue was from music and services
• Channel inventory unchanged over last quarter, 4-5 weeks
• Mac products and services represented 43% of total revenue
• Apple CFO Peter Oppenheimer and COO Tim Cook are present for today’s call
• Apple shipped 21,066,000 iPods in the quarter, 50% growth YOY
• Apple shipped 1,606,000 Macs in the quarter, 28% growth YOY
• International sales accounted for 42 percent of the quarter’s revenue.
• Gross margin was 31.2 percent, up from 27.2 percent in the year-ago quarter.
• Apple Q1-2007 results ended December 30, 2006: record revenue of $7.1 billion and record net quarterly profit of $1.0 billion, or $1.14 per diluted share vs. revenue of $5.7 billion and net quarterly profit of $565 million, or $.65 per diluted share, in the year-ago quarter.