Apple Financial Results Conference Call Q1-2007 Live Notes

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

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

– – – End of Conference Call – – –
• 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.

23 Comments

  1. Look at gross margins, they’re WAY up. I can’t remember when Apple’s margin was over 30%. Notice Intel’s gross margins fell from something like 60% to 48% the other day, which got them hammered. So, chip margins down, device margins up.

    The CPU number is lower than expected. I wonder how many were laptops and how many were desktops.

  2. With those margins, I wonder if anyone will explain to Steve Jobs how he can dramatically increase overall revenue by reducing prices on Apple products?

    Oh, I almost forgot, Steve already knows everything so any suggestion from lowly shareholders like me will never be heard.

  3. The most important point for investors is that the current 18% operating margin is unsustainable, and a figure close to 12% is more appropriate going forward. The change is owing to the current favorable commidity pricing will probably not continue.

    This is huge for investors. This one fact alone caused AAPL to drop from $95.40 down to $93.49. The stock has now rebounded a little to $94.14.

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