Notes from the bleeding edge:  Apple’s Q1 08 financial results conference call

Welcome to live coverage of Apple’s Q1 08 financial results conference call.

Notes will be presented in reverse chronological order beginning 2pm PT/5pm ET:

• End of conference call

• Education market has record; grew about 5 times IDC’s market forecast of 6%
• iPhone retail outlets: 2,500 in Europe; 2,100 in U.S. Apple has no comment today on expansion of iPhone in retail
• Mac available at 9,500 retail locations up from 7,700 a year ago
• Desktop Mac business increases? iMac “extremely well-received”
• Most of other component costs should see historical declines
• Apple expects DRAM and NAND flash will remain in oversupply condition
• Apple “very happy with all of the iPhone launches so far” (U.S., UK, France, Germany)
• 4 million iPhones to date; Apple “very happy with iPhone momentum”
• Apple sees iPhone unlocking as a “good problem to have” and is a sign of iPhone’s popularity
• “Significant” numbers of iPhones sold with intention to unlock, but Apple is unsure how to measure as activation waits sometimes for existing contracts to expire, etc.
• Mac was very strong throughout the quarter
• Apple expects to open 35-40 stores in fiscal 2008; 25 are outside U.S. currently; first Apple Retail Stores in China and more stores in 2008 will open outside U.S. than in 2007.
• Retail Stores: 504,000 units up 64% YOY
• Unit sales YOY for iPod flat in the U.S. (due to iPod touch intro; higher-priced line)
• Apple TV take two: “We think we have it right this time.”
• Apple plans to enter Asia and additional Euro countires with iPhone in 2008
• Apple Retail Store traffic up 10 million in quarter vs. year ago quarter
• Apple will focus on mananging the business and leave the economy predictions to others
• Apple will not discuss terms of their agreements with iPhone carriers
• Apple Japan: desktop share went from 6% to 10% YOY on very well-received iMac; iPod touch also very well-received
• Apple shipping Leopard on very MAc; contributing to great MAc sales results
• Apple’s expectations for Mac OS X Leopard in the March quarter? Sales will be down sequentially, unknown if it will follow same trend as Tiger
• MacBook Air orders are “very strong.”
• Apple believes MacBook Air is “very, very, very competitively-priced”
• Apple’s objective is to run iTunes Store just over break even as it helps to sell iPods and Macs
• Current 286 Best Buy stores have added to Mac momentum – to go to 600 Best Buy locations over the next 6 months
• iPod touch sacrificed overall unit growth (higher price), but APple is very pleased with product results
• Apple established iPod touch which has the potential to become “the very first mainstream mobile platform running all kinds of applications”
• iPod sales meet guidance and set new company record
• Some of iPod’s share gains are “stunning” in UK, Asia, elsewhere
• Apple expects normal sequential decline in iPod sales in upcoming quarter vs. holiday quarter
• Will MacBook Air add or cannibalize? Customer reaction great; orders very strong; too early to know cannibalization factor
• Apple gave guidance that they “have reasonable confidence in achieving”
• Very confident in business, strategy, and products; very confident in products; confident going forward
• Share buybacks? Apple prefers to keep strong balance sheet to make strategic moves and/or acquisitions
• Apple business grew 47% YOY outside U.S.
• U.S. revenue grew 27% YOY (higher than last year’s Q1 YOY growth)
• iPod ASP increased due to very successful of iPod touch
• iPod vs. iPhone cannibalization? UK, France and Germany – no evidence; In US, where iPhone has been available longest, cannibalization could have been one factor in iPod growth, but there were other factors (not discussed)
• Oppenheimer: iPod market is bigger than market for just simple music players. iPod will become first mainstream Wi-Fi mobile platform
• Mac channel target 4-5 week of inventory; entered significantly less than range as Mac sales were higher than expected
• Apple “very confident” of hitting 10 million iPhone goal for 2008
• Pro audio up very significantly YOY; Pro video performing very, very well
• Oppenhemier: “Mac business is on fire”
• Macs in channel are below target range
• Apple’s guidance rationale: up 29% year-over-year, sequential declines for Leopard and iWork software expected as we move away from release dates
• Apple “very confident” in product pipeline for the rest of 2008
• Apple “extremely proud” of outstanding results and growth achieved
• $1.4 billion in operating expenses
• Over 300,000 personal training sessions in retail stores
• Apple Retail Stores: over 50% of Mac buyers were new to Mac
• $1.7 billion in Apple retail store revenue; 204 stores now open
• iPod market share growing on Europe and Asia
• Recent iPod touch software upgrade will add functionality
• iPod touch could become first mainstream mobile platform
• iPod channel inventory within target range of 4-6 weeks
• $170 million in Leopard revenue; 19% of Mac users already using Leopard
• iMac sales “robust,” portable sales “strong.”
• Cash generation for quarter was roughly $3 billion
• Apple very please with recent software releases
• CFO Oppenheimer guides Q2 08: “revenue of about $6.8 billion and earnings per diluted share of about $.94.”
• Quarterly iPhone sales: 2.315 million
• 22,121,000 iPods sold during the quarter representing 5% unit growth and 17% revenue growth over the year-ago quarter
• Apple shipped 2,319,000 Macs representing 44% unit growth and 47% revenue growth over the year-ago quarter
• International sales accounted for 45% of the quarter’s revenue
• Gross margin was 34.7%, up from 31.2% in the year-ago quarter
• Revenue of $9.6 billion and net quarterly profit of $1.58 billion or $1.76 per diluted share vs. revenue of $7.1 billion and net quarterly profit of $1 billion, or $1.14 per diluted share, in the year-ago quarter
• Apple financial results for its Q1 08 ended December 29, 2007
• Those in attendance include CFO Peter Oppenheimer, COO Tim Cook
• Awaiting start of conference call

The conference call replay will be available here shortly: http://www.apple.com/quicktime/qtv/earningsq108/

29 Comments

  1. “Apple shipped 2,319,000 Macs representing 44% unit growth and 47% revenue growth over the year-ago quarter”

    Who was the helmet-wearing troll on one of these threads that wrote no one buys Apple’s overpriced computers? Never mind. It doesn’t matter.

  2. Can we also note a higher average per sale on both Macs and iPods as a snapshot. Mac APS has also increased as a four-year rolling average, from $1425 to $1476.

    Please find me another computer or CE company that can maintain or increase the APS, has a growing business, is debt-free and increases its cash/short-term investments balance every quarter.

    On a slightly down note, I’m a little worried that the performance in the US was a little flat – hope that’s not a sign of things to come.

  3. And in other news, the Zunes are selling by the hundreds of dozens. Now with new firmware update that provides “zero” features all for free, yet every Zune purchase puts money in the Music Cartels pockets. Simply awesome.

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