Here are the highlights:
• CFO Peter Oppenheimer: We’re extremely pleased to report record results for the December quarter that includes surpassing $10 billion in quarterly revenue for the first time in Apple’s history, setting a new record for iPod sales and generating all-time high quarterly earnings… Revenue for the quarter was $10.17 billion, representing 6% growth over the prior December quarter’s result and exceeding the high end of our guidance range… Net income was $1.6 billion, which translated to earnings per share of $1.78… In terms of non-GAAP measures, adjusted sales totaled $11.8 billion for the December quarter, which was $1.6 billion higher than our reported revenue. Adjusted gross margin was $4.5 billion, which was $1 billion higher than our reported gross margin, and adjusted net income was $2.3 billion, which was $700 million higher than our reported net income.
• Peter Oppenheimer: Customer response to the new MacBook and MacBook Pro introduced in October was very strong, driving year-over-year portables growth of 34% and an overall portable mix of 71%, the highest ever for Apple. Desktop unit sales declined by 25% year-over-year. It’s important to remember that in the prior December quarter, desktop sales grew by a phenomenal 53% year-over-year, given the very successful launch of the new iMac in August 2007. In addition to this tough comparison, we believe the year-over-year decline in desktop sales is a reflection of the shift towards portables in the overall market in customer response to our October announcements.
• Peter Oppenheimer: We sold over 22.7 million iPods, a new quarterly record, representing 3% growth over the previous record sales in the year ago quarter… Our share of the US market for MP3 players was over 70% in the month of December, based on the latest data published by NPD. And we continue to gain share year-over-year in international markets based on the latest data published by GFK. For the latest period reported, iPod’s share of the MP3 market was over 70% in the UK and Australia, over 60% in Japan and over 50% in Canada. We were also pleased with continued year-over-year share gains in France, Germany, Italy and Spain.
• Peter Oppenheimer: The iTunes Store had a record quarter had a record quarter; thanks to strong music and video sales and the continued tremendous success of the apps store. We experienced our biggest music quarter ever including our highest sales ever for both Christmas day and Christmas week. We are continuing to change the value proposition for mobile devices with the apps store and developer and customer excitement has been incredible. We now offer over 15,000 applications, an increase of over 10,000 since our last quarterly conference call with many more apps being added each day. We are also thrilled that customer downloads since the July 11 launch had surpassed 500 million.
• Peter Oppenheimer: Turning to the iPhone, we sold 4.4 million handsets in the December quarter which brings our cumulative counter 2008 iPhone sales to $13.7 million, well ahead of the 10 million unit goal for the year that we set when we introduced the iPhone. We continue to expand iPhone’s geographic reach and we’re selling in over 70 countries by the end of the quarter… Recognized revenue from iPhone handset sales, accessory sales, and carrier payments was $1.25 billion compared to $241 million in the year ago quarter. The sales value of iPhones sold was over $2.6 billion.
• Peter Oppenheimer: Apple retail stores which hosted a record 46.7 million visitors during the December quarter or 14,400 visitors per store per week. Revenue of $1.74 billion also established a new record and grew 2% year-over-year. Our stores sold 515,000 Macs during the quarter, almost half of which were to customers who have never owned a Mac before… We ended the quarter with 251 stores, and we now operate retail stores in 10 countries… We plan to open about 25 stores in fiscal 2009, about half of those will come internationally.
• Peter Oppenheimer: Our cash plus short-term and long-term marketable securities totaled $28.1 billion at the end of the December quarter compared to $24.5 billion at the end of the September quarter, an increase of over $3.6 billion… Cash flow from operations in the December quarter was over $3.9 billion.
• Peter Oppenheimer: Looking ahead to the March quarter… We expect revenue to be between about $7.6 billion and $8 billion. We expect gross margin to be about 32.5%, reflecting approximately $28 million related to stock-based compensation expense compared to 34.7% gross margin in the December quarter. This sequential decline reflects the impact of the stronger US dollar. The favorable supply chain adjustments and settlements from the December quarter are not reoccurring, and the sequentially lower revenue as we have seen in past years.
• Peter Oppenheimer: Steve [Jobs] is the CEO of Apple and plans to remain involved in major strategic decisions and Tim will be responsible for our day-to-day operations.
• COO Tim Cook: There is extraordinary breadth and depth and tenure among the Apple executive team, and they lead 35,000 employees that I would call wicked smart – and that’s in all areas of the company from engineering to marketing to operations and sales and all the rest. And the values of our company are extremely well entrenched. We believe that we are on the face of the earth to make great products and that’s not changing.
We are constantly focusing on innovating. We believe in the simple not the complex. We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution.
We believe in saying no to thousands of projects, so that we can really focus on the few that are truly important and meaningful to us. We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot.
And frankly, we don’t settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we’re wrong and the courage to change. And I think regardless of who is in what job those values are so embedded in this company that Apple will do extremely well. And I would just reiterate a point Peter made in his opening comments that I strongly believe that Apple is doing the best work in its history.
• COO Tim Cook: [With iPhone], we still believe that we’re years ahead of the competition from a software point of view. And when you throw in the Applications Store with the statistics that Peter pointed earlier with over 15,000 Apps and over half a billion downloads in a very, very short period of time, we feel very, very good about our competitive position.
• COO Tim Cook: You know us. We’re not going to play in the low-end voice phone business. That’s not who we are. It’s not why we’re here. We’ll let somebody else do that. Our objective is not to be the unit share leader in the cell phone industry. It’s to build the world’s best phones.
• COO Tim Cook: We’re watching [the “netbook”] space. But, right now from our point of view the products in there are principally based on hardware that’s much less powerful than we think customers want. Software technology that is not good, cramped keyboards small displays… And so, we don’t think that people are going to be pleased with those types of products. But we’ll see. We are watching the space, as you know about 3% of the industry or the PC industry last year was in this netbook kind of category. And so, it’s a category we watch. We’ve got some ideas here. But, right now we think the products there are inferior and will not provide an experience to customers that they’re happy with.
• COO Tim Cook: [Regarding Apple TV], there was a tremendous pickup year-over-year. In fact Apple TV unit sales were up almost three times versus the year ago quarter. However, let me be clear. We still consider this a hobby. It is clear that the movie rental business has really helped Apple TV and there are more and more customers that want to try it. And we’re going to continue to invest in it, because we fundamentally believe there is something there for us in the future.
• COO Tim Cook: We’re very excited about the next [Mac OS X] release, but we do not have a specific launch date [for Mac OS X 10.6 Snow Leopard] to announce today.
• COO Tim Cook: If you look at the US, the iPod sales contracted at the unit level about 3% year-over-year. So all of the growth that you — that you see in our number — that 22.7 was all international. If you look at the linearity at a worldwide level, it would look very similar for each of the weeks until you get to the last week of the quarter. We saw a rush of buying the last week of the quarter. Specifically, all of our growth occurred in the last week of the quarter. We attribute that to the macroeconomic environment and its effect on consumer buying behavior.
• COO Tim Cook: [Regarding iPhone seasonality], the fear that we would have, and I think that everyone has in this market, is that the economy may slow the adoption rate of smartphones, because generally smartphones generally command higher monthly fees and that may keep some customers to not signing up for higher contracts. But we will see. We feel very good about our competitive position as I said before and extremely good about our product pipeline.
• COO Tim Cook: We just started working with Wal-Mart on iPhone at the very end of December, and so we have not enough data to draw any conclusion about performance. From a reach point of view, what Wal-Mart does is reach a tremendous amount more people than we could reach in our stores. Obviously, they have over 4,000 or so storefronts and they are in areas of the country that we have no Apple stores and so they provide a level of reach beyond of what we would provide ourselves or beyond what AT&T stores would provide. And so that’s the reason we’re there. As you know, we also sell iPods in Wal-Mart and have a good relationship with them and have seen what they can do in that space and it was with that data and knowledge that we entered into this relationship with iPhone.
• COO Tim Cook: Macs sales were the second highest in our history as Peter alluded to earlier and only surpassed by just 3% from the previous quarter which had a materially better macroeconomic landscape than we did last quarter. As you might guess, when we announced our portables, sell-through accelerated tremendously in October and the team here did an excellent job on the production ramp and therefore we were able to quickly serve those customers and so the October year-over-year data on the Mac is very good, and the portables all quarter as a matter of fact led to this which is a pretty stunning number a 34% year-over-year unit increase on portables for the whole quarter despite the tough environment… People were delaying purchases on rumors of the new portables and then for the balance of the quarter we saw again a spike at the end of the quarter which I think was not as strong as iPod but something that was created by the economic environment and the consumer behavior reaction to it.
• COO Tim Cook: [Regarding iPhone clones], I would say first of all, it’s difficult to judge products that are not yet in the market. But the iPhone has sold over 17 million units thus far. It’s received the highest overall customer satisfaction of products from many different surveys. And, we’ve said since the beginning software is the key ingredient and we believe that we’re still years ahead on software. And I would include in that software umbrella, the Applications Store, and you can see the explosion that has happened in applications with over half a billion downloads.
If you look at others, I think when you think about having multiple variations of displays, multiple variations of resolutions and input methods, and many different forms of hardware, it’s a big challenge to a software developer and is not very enticing for them to build a different App for every one of these things. But, we shall see what people will do.
We approach this business as a software platform business, and so I think we approach it fundamentally different than people that are approaching it only from a hardware point of view. And so, as I’ve said before, we’re very, very confident with where we are competitively. We are watching the landscape. We like competition. As long as they don’t rip off our IP and if they do we’re going to go after anybody that does.
I don’t want to talk about any specific company. I’m just making a general statement that we think competition is good. It makes us all better. And we are ready to suit up and go against anyone. However, we will not stand for having our IP ripped off, and we’ll use whatever weapons that we have at our disposal. I don’t know that I can be clearer than that.
The audio webcast of Apple’s conference call discussing Q109 financial results is available via Apple (QuickTime required) here.
