MacDailyNews presents live notes from Apple’s Q217 conference call

MacDailyNews presents live notes from Apple’s Q217 Conference Call with analysts starting at 5pm EDT/2pm PDT today.

Apple will provide live audio streaming of its Q217 Results Conference Call using Apple’s industry-leading QuickTime multimedia software.

The live webcast will begin at 2pm PDT/ 5pm EDT today here.

Apple today announced financial results for its fiscal 2017 second quarter ended April 1, 2017. The company posted quarterly revenue of $52.9 billion and quarterly earnings per diluted share of $2.10. According to a Thomson Reuters analysts’ consensus estimates called for revenue of $53.02 billion and EPS of $2.02.

For their fiscal 2017 third quarter, Apple guided for revenue between $43.5 billion and $45.5 billion. Analysts’ consensus was for guidance of $45.6 billion.

Live notes from Apple’s Q117 Conference Call in reverse chronological order:

• AAPL after hours: $144.21 -$3.30 (-2.24%) @ 5:59PM EDT

• End of call

• Cook: India is moving impressively into 4G at a speed I have not seen anywhere else
• Cook: We think Apple is a great opportunity; we are bringing all of the things that we brought to bear (channel, stores, ecosystem, developer center) in other markets previously. Apple is currently under-penetrated in India, so we are putting a lot of energy into the country
• Cook: With 4G infrastructure expansion in India, that is good for Apple and iPhone
• Cook: We have been investing quite a bit in India; it is the 3rd largest smartphone market in the world today

• Maestri: We have fairly consistently reduced iPhone channel inventory in the June quarter

• Cook: Demand for iPhone 7 Plus is growing incredibly fast around the world
• Cook: We saw the largest number of upgraders ever in the first half of Apple’s fiscal year
• Cook: YOY performance was similar for iPhone
• Cook: iPhone channel inventory reduced by 1.2 million units in Q2; sell-through grew YOY

• Cook on Apple v. Qualcomm: “That’s what courts are for.”
• Cook: Qualcomm is trying to charge Apple on a percentage of non-Qualcomm components
• Cook: We are withholding royalties to Qualcomm, because we do not know how much to pay as there is a dispute on the terms; Apple needs the courts to decide that unless they can settle on a agreed upon amount
• Cook on Qualcomm: Anyone who has a standards essential patent is obligated to offer it to everyone on a FRAND basis. Qualcomm has not made such an offer to Apple

• Cook believes there might be signs of an iPhone pause ahead of a highly anticipated tenth anniversary iPhone
• Apple is excited about the future of Apple Watch
• Smartwatches are difficult, so Cook is not very surprised that other companies are falling out of it
• Cook: We are not close to supply/demand balance on AirPods
• Cook: When you combine Watch revenue with AirPod/Beats revenue that business was well into the Fortune 500
• Cook: We see Apple Watch as a very important product for Apple; units more than doubled in 6 of Apple’s top 10 markets in Q2

• People worldwide start at a certain level of spending on Apple’s Stores (iTunes Store, App Store) and then spend more over time
• Very large number of people coming into Apple’s ecosystem and then start buying on Apple Stores (iTunes Store, App Store)
• Sequential increase of 15 million subscribers to Apple services from 150 million to 165 million at end of quarter

• With taxes, and repatriation, theres’ a lot that has to happen there; Apple will reassess with any U.S. corporate tax changes
• Maestri: For the last 5 years, we’ve run the company to return about 100% of free cash flow to the shareholders

• Performance continues to be weak in Hong Kong as tourism market continues to slump
• Currency devalued by 5%; not an insignificant headwind
• Seven of Apple’s Top 10 retail stores are in China
• Apple Retail Store traffic was up 27% YOY in China
• Mac sales up 20% in China
• Cook: We sold the highest number of Plus models with iPhone 7 Plus in China

• iPhone 7/Plus supply now in balance
• Cook: We did not get the mix between iPhone 7 and 7 Plus right; demand for iPhone 7 Plus was stronger than Apple expected

• Apple received no benefit from Qualcomm withholding as they are accruing those payments
• Some level of gross margin compression in June quarter expected
• Maestri: Apple up 40 basis points sequentially; that’s with 100 basis points of currency headwinds

• Questions from analysts begin

• Apple is providing the following guidance for its fiscal 2017 third quarter:
– revenue between $43.5 billion and $45.5 billion
– gross margin between 37.5 percent and 38.5 percent
– operating expenses between $6.6 billion and $6.7 billion
– other income/(expense) of $450 million
– tax rate of 25.5 percent

• Apple will continue to issue debt to fund the capital return program
• Apple continues to plan annual dividend increases in the future
• Apple BoD approved a 10.5% increase to the Company’s quarterly dividend, and has declared a dividend of $0.63 per share of the company’s common stock, payable on May 18, 2017 to shareholders of record as of the close of business on May 15, 2017
• Apple has returned over $211 billion to shareholders, including $151 billion in share repurchases
• 66.3 million AAPL shares retired during the quarter
• Apple now has $256.8 billion in cash on-hand
• 16% increase in visitors to retail stores over the quarter

• AAPL after hours: $143.87 -$3.64 (-2.47%) @ 5:21PM EDT

• Apple set new enterprise revenue record for the quarter and company expects that momentum to continue throughout the year

• iPad remains very successful in the segment where Apple competes; 81% market share of tablets costing above $200
• iPad revenue grew in the U.S.
• 8.9 million iPad units was ahead of Apple’s expectations
• MacBook Pro demand was very strong

• App Store generated twice the revenue of Google Play Store in the quarter
• Last year’s Q2 contained the busy week between Christmas and New Year’s. This year’s Q2 did not.
• iPhone customer sat very high
• iPhone ASP in Q117 was $665 vs. $642 in Q216
• Apple CFO Luca Maestri: iPhone performance slightly better than last year on a sell-though basis

• Cook: Apple is a company that could have only been started in America
• Apple excited to move into Apple Park

• Cook touts Apple’s environmental programs

• Apple’s BoD has increased its share repurchase authorization to $210 billion from the $175 billion level announced a year ago
• Apple’s Board of Directors has authorized an increase of $50 billion to the company’s program to return capital to shareholders and is extending the program timeframe by four quarters. Under the expanded program, Apple plans to spend a cumulative total of $300 billion by the end of March 2019

• 495 Apple Retail Stores worldwide
• We are excited about India
• We continue to be very enthusiastic about our business in China

• Revenue from wearables alone (Apple Watch, AirPods, Beats headphones) = size of a Fortune 500 company
• AirPods: 98% customer satisfaction according to Creative Strategies
• Apple Watch sales nearly doubled year over year

• We are investing in Mac and every excited about the future of the platform
• String demand for new MacBook Pro

• Clips, a free, new Apple app, lest you make expressive videos to share via Messages/social media
• We are seeing great momentum in Messages

• Apple Pay seeing strong, growing usage, transactions up 450% over last 12 months
• Seeing strong growth in paid subscriptions – now exceed 165 million apid subscriptions (iCloud storage, Apple Music, etc.)
• Our Services business is well on its way to becoming the size of a Fortune 100 company
• We’ve seen great customer response to both models of the new iPhone 7 (PRODUCT)RED Special Edition
• We gained market share with iPhone in nearly every country that we track
• We are very proud of the quarter
• Apple CEO Tim Cook: Today we are reporting a strong March quarter, with accelerating revenue growth

• Start of call.

• Other Products revenue was $2.873 billion (includes sales of Apple TV, Apple Watch, Beats products, iPod and Apple-branded and third-party accessories) vs. $2.189 billion YOY, or +31%.
• Services revenue was $7.041 billion (includes revenue from Digital Content and Services, AppleCare, Apple Pay, licensing and other services) vs. $5.991 billion YOY, or +18%

• Unit sales:
– iPhone: 50.763 million (vs. 51.193 million YOY, -1%)
– iPad: 8.922 million (vs. 10.251 million YOY, -13%)
– Mac: 4.199 million (vs. 4.034 million YOY, +4%)

• AAPL after hours: $145.26 -$2.25 (-1.53%) @ 4:52PM EDT
• Awaiting start of call

Apple Q217 data

26 Comments

  1. Right so the major product that is most neglected by Apple ie the Mac, was the only major physical product platform to actually up its sales Year on Year. Let’s hope that Cook doesn’t decide he can sell more by neglecting the other prodcts too, as accountancy seems to be the most important factor these days going on at Apple to squeeze more profit out of doing as little as possible.

    1. But Tim…what’s in the pipeline?

      Sad that Mac isn’t updated and it’s so valuable to the base of customers that buy every single other product that Apple makes. I don’t plan to by a new *anything* at all until some new Macs arrive. Sorry iPhone, sorry iPad, sorry Apple TV…no more of you in my home until Apple demonstrates it can walk and chew gum at the same time again. Ignoring the mac means ignoring your customer base.

  2. look at the most neglected hardware product, the thing that my flamers say apple should throw away….
    MAC

    – The only main hardware product to grow ( iPhone, iPad down)
    – mac makes more than iPad (again !) and near twice Other Products that holds Watch, Tv, AirPods, iPods, Beats , accessories COMBINED.

    – all done with some machines from 2013 and near ZERO marketing (go count the Watch ads vs Mac)
    If they had not neglected the Mac, the extra sales annually COMPOUNDED over years might have added a few billion this quarter.

    WAKE T-F up apple Coffee Table book, Christmas trees, one and half year for Campus door handles, fashion show… Apple SVPS.
    and those idiots who keep saying Macs are ‘over’ can you STFU now…. ?

  3. To all the naysayers…

    Steve Jobs left $50 billion in the bank.

    In about six years Tim has accumulated $200 billion more, while also having returned another $200 billion to shareholders.

    1. probably 95% of all revenues today are made from products masterminded by Jobs. Watch, AirPods (the only two major hardware products under Cook) I think are great products but just look at the ‘other product’ category, the earnings are very small relatively. As Spotify loses money with more paid subscribers I don’t think Apple Music makes much. TC has been a Great CARETAKER, but visionary entrepreneur not so much….
      still I’m giving TC more of a chance ( he just needs to focus on products), haven’t sold my aapl in years

      1. I assume you understand that interest rates have been so low recently that a top-rated borrower like Apple can actually borrow money for less than it makes on its cash reserves.

        Suggesting that they should use the reserves for the buybacks (even if that were possible without a major tax penalty) is like telling a homeowner with a 4% mortgage that he should pay it off with money that could make 8% if it were invested somewhere else.

        1. And for every share they buy back with that borrowed money, they save more in dividends that no longer need to be paid than they pay in interest to maintain the loan.

        2. Actually TxUser you are assuming incorrectly. Apple could make more money on its cash reserves, it just has leadership that is too lazy to do so. So Cook has engaged Wall Street to launder his money for him, which doesn’t make money but does avoid taxation.

          Apple regularly makes a 35+% margin on hardware sales. Compare that to the interest rate Cook is settling for on his Wall Street games. Imagine if Apple actually invested in growing the Mac business.

    2. No Steve did NOT leave $50B in the bank. He left $250B – $300B to be banked. Tim is merely shoveling it into the safe. It takes time to shovel that amount in through the vault.

    3. @ disposable identity:

      That is like saying the founder who built the factory and personally involved himself in the development of the first several generations of products should be forgotten. With him now resting in peace, the current caretaker CEO who hasn’t designed or produced anything on time or on budget should receive all the glory for cashing the checks mostly coming from Apple’s incumbent businesses that the founder created.

      Go ahead and compare Mac revenue to Wearables. See the difference between a great product and a Cook product?

      1. No one said we should forget the founder. None of it would have happened without Jobs. But keep in mind that Tim Cook largely helped create the modern Apple we’ve known for the last 20 years. He was the one who figured out how to make mountains of money producing and delivering these brilliant products.

        I agree the jury is still out on their ability to dream up new product lines under Cook. But there were 1000 ways to screw it up, and instead he did the opposite.

        1. Cook hasn’t created shite. The modern Apple is a bloated and lethargic embarrassment. All Cook has done is skim 30% profit off of iOS app sales from the store Jobs created.

          I fail to see why anyone would sing praises of the kid who inherits his father’s wealth. The executive caretakers at Apple do not have an impressive track record on using the money wisely, by any objective analysis. That’s part of why Wall Street continues to punish Apple. Apple is doing the bare minimum to reward investors, the bare minimum of product improvements, and practically nothing on expanding its legacy business lines.

          1. And what kind of shite, pray tell, have you created?
            Only the most envied, admired, largest company in the world.
            I wonder why SJ (father) made sure that TC (child) took charge after he passed on?
            Are you saying SJ was a fool?

            1. Steve Jobs a fool? In hindsight, he had to have been, to set up a total collapse of his beloved company the way he did — by setting up the delicate ethos of the company in the first place; by leaving the sales guy in charge; by giving the lead designer unlimited power; and by okaying all the products in the pipeline that are now blamed on those unfortunate guys. The only possible explanation for this debacle is not that Jobs’s lieutenants betrayed him, but that they were acolytes faithfully following his strictures, whom he rewarded out of misguided sentimentality.

              That doesn’t imply that Cook, Ive, et al. oughtn’t to be fired. It implies that flamers are aiming their canisters at the wrong blokes. They ought to be roasting Steve Jobs, instead of casting him in an idealised and frozen mould like a saint who once benignly presided over a sunnier land of technology. That past exists only in the inflamed imagination.

  4. Mixed call: upbeat in the beginning, but BS answers in the end.

    There is a recent pause in iPhone sales? The S8 must be literally dropping a bomb on iPhone sales. This is what happens when innovation stops. It also means the iPhone 8 has to be spectacular (lightyears ahead of the competition), and on time.

    1. Good points. Apple had no way to put a positive spin on taking iPad sales. A mere increase of 4% on Mac revenue following the underwhelming introduction of what was the most anticipated and pent-up demanded Mac release, the most important model lineup for Apple of all, the MacBook Pro, has got to be disappointing.

      I think the soft sales of the iPhone 7 are not just because people are waiting for the 8. I also think many potential customers were turned off by the loss of headphone jack and the $100 price hike, so a significant number of people bought older iPhone models in the last few quarters.

      But don’t worry, Tim reminds us that Cue is going to save the day with exciting services revenue. That’s the future, sure.

  5. They have flatlined: Sales in the first 6 fiscal months of 2015 was $132.6B. Sales in the first 6 months on this year (2017) is slightly lower at $131.2B. EPS in basic shares has increased from from $5.43 in the first six months of 2016 to $5.50 this year, but this includes almost 556 million in share repurchases (basic shares).

    And remember, this includes the huge increases in service revenue and the other category over the last couple of years. The problem is, the bread and butter products like the recent iPhone and the iPad are just not cutting it. So, can they right the ship, or is it too late? Are people finally bored with the smartphone and tablet form factors? And, if yes, then when will the next paradigm shift be ready, if ever?

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