Apple Earnings Call, Cook Calls Android Tablets “Bizarre”

Apple has announced its financial results for the first quarter of fiscal year 2011. The company would appear to be way over consensus estimates, as it has posted yet another record quarter. ...
Apple Earnings Call, Cook Calls Android Tablets “Bizarre”
Written by Chris Crum
  • Apple has announced its financial results for the first quarter of fiscal year 2011. The company would appear to be way over consensus estimates, as it has posted yet another record quarter. 

    We’ll be covering the call live, which is scheduled to begin at 5pm Eastern. Press release info below.

    Live coverage begins (paraphrased)…

    Apple CFO Peter Oppenheimer:

    Extremely pleased: announces all time record quarterly revenue and earnings. (see release below).

    Robust rev growth fueled by ipad, iphone, mac sales….

    23% growth in macs. 8 times idc’s most recently published estimate.

    Strong growth in each geographic market. 

    Continued strong sales of macbookpro. Mac app store available in 90 countries.

    Very pleased with customer response with over a million downloads in the first day

    19.4 million ipods…..ipod touch accounted for 50% for the quarter.

    iPod continued to be top selling mp3 player in most countries. iTunes store generated strong quarter – strong sales of music, video, and apps (beatles, movies in Japan)…

    86% YoY growth in iPhone sales. Continue to experience strong YoY growth in all segments.

    Enterprise customers continue to embrace iPhones. Strong employee demand….enterprise CIOs continue to add iphone to approved device list worldwide. 

    Thrilled to begin working with Verizon next month…

    iPad – thrilled  with momentum and customer interest – sequential increase of over 3 million in sales.

    Consumer, business, and education customers. Employee demand in corporate environment strong. CIOs adding to approved device list. 

    Channel inventory increased by 525k units. 

    Combining iphone/ipad,iphone touch – 160 million cumulative ios devices.

    Very pleased with iAd…expaned beyond US into europe and japan

    Apple retail stores – retail rev almost doubled yoy stores delivered record mac quarter. Half of macs sold in quarter were to customers who never owned a mac before.

    323 stores worldwide – 87 outside of US

    Hosted record 75.7 million visitors in the stores during the quarter – increase of 49% YoY.

     Expect revenue to be about 22 billion in march quarter. 

    Extremely please with record breaking results….


    Availability of iphones with verizon launch?

    COO Tim Cook: We made a very bold bet…we are thrilled…we’re going to do everything possible to get the iphones into as many of the hands of those customers as possible. 

    Comfortable with availability of iphones/ipads?

    Tim: iPad – we increased dramatically last quarter. Got us into supply demand balance and expand into more countries…confident to add another 15 countries to get to over 60 in the month of January.  iPhone 4 – feel very good, but it’s not enough. We do have a significant backllog. Working around the clock to build more. Feel great that demand is so high, but won’t predict when supply/demand will meet. We believe that reaction and results from verizon customers will be huge. I don’t want to give a prediction right now…

     Tim: Several years ago, we identified China as our top priority…we look at greater China as a region – Mainland/Hong Kong/Taiwan…revenue for last quarter was 2.6 billion…we did a little over 3 billion for entire year for fiscal year 10. Korea has also been a very good market for us. We had an outstandint q1 there dirven by iphone/ipad. 

    Japan by itself the rev was up 83% YoY

    Long term business planning – how far out you guys plan in terms of long term business plan? Product roadmap? How far do you guys go? 

    Tim: "Part of the magic of Apple. I don’t want to let anyone know our magic because I don’t want anyone copying it."

    We’re all happy with the product pipeline. Team has unparalleled breadth and depth of talent…

    We feel very very confident about the future of the company. I would also note….We’ve done outstanding in our Mac business…but we still have a relatively low share of a very large PC market. It would seem like there’s enormous opportunity still there. Low share in handset market….there’s enormous opportunity here and we have incredible momentum in that space. iPad just got started…We believe the market is huge…

    I don’t know what to predict in terms of specific numbers, but we believe it’s a huge market. We’re in some great markets….we have the best products we’ve ever done and an incredible pipleline…

    Which component areas are you making long term commitments in?

    Tim: Something I don’t want to give out. Something I just don’t want our competition knowing. 

    Anything different about the iPad that would make it difficult for margins to follow pattern?

    Tim: Margins consist of a number of different factors….I don’t think you can take a single product out by itself and speak about it with any accuracy. We don’t guide at the product level. 

    How are you viewing the competitive landscape for the iPad?

    Tim: If you look at what’s shipping today, there’s not much out there…generally speaking, there’s two kinds of groups – the ones that are using a windows based os are fairly big and heavy and expensive, weak battery life, require keyboard/stylus/input device. ….customers are just not interested in them. …then you have the Android system – the os wasn’t really designed for the tablet – google has said this – you end up having a size of a tablet is less than what we believe is reasonable or one that would provide a real tablet experience – you end up with a scaled up smartphone which is bizarre in our view – the next generation of android tablets – there’s nothing shipping yet, so i don’t know. we’ll assess them as they come out, however, we’re not sitting still. we have a huge first mover advantage and an incredible user experience from itunes to the app store, and an enormous number of apps and huge ecosystem, so we’ve very very confident in entering into a fight with anyone. 

    We’re truly thrilled to be working with Verizon team….some of their customers have been waiting a very long time for an iPhone. We’re also very happy that we’ve signed a multi-year non exclusive deal with AT&T. 

    Updated thoughts on the Mac side – address the impact of iPads – cannibalization? 

    Tim: What we saw in the Macs this quarter – we grew 23% at the worldwide level….stunning. At every region it grew….Asia Pacific led the growth….almost ten times what the market did there. Europe and U.S. both grew in double digits despite both markets contracting overall. Cannibalization by iPad? honesty, i don’ know for sure, but yes, i think there is some cannibalization, but i also think there is a halo effect. …from apple product to apple product – we have introduced millions of people in Asia to Apple through the iPhone. and now many more through the iPad, and I think some of those decided to buy a Mac. "If this is cannibalization, it feels pretty good."

    Keep in mind we have low share in the pc market. the other guys lose a lot more, and we have a lot more to win because of that. Cannibalization is not something we spend one minute on here. Both groups believe they can continue to grow and do great stuff, and I believe that. 

    Are these two platforms merging into one?

    Tim: Part of the magic of apple is that there’s not high walls between these product groups. they like each other, talk to each other – they’re of the same DNA….One of the key learnings from the  iPad was that they loved instant on – so the macbook air incorporated that. that’s just one example, but there are tons where something started on one product and went on to another one. it can start on the phone, it can start on the ipad, and so forth…..

    Live coverage ends.

    From the press release:

    Apple® today announced financial results for its fiscal 2011 first quarter ended December 25, 2010. The Company posted record revenue of $26.74 billion and record net quarterly profit of $6 billion, or $6.43 per diluted share. These results compare to revenue of $15.68 billion and net quarterly profit of $3.38 billion, or $3.67 per diluted share, in the year-ago quarter. Gross margin was 38.5 percent compared to 40.9 percent in the year-ago quarter. International sales accounted for 62 percent of the quarter’s revenue.


    Apple sold 4.13 million Macs during the quarter, a 23 percent unit increase over the year-ago quarter. The Company sold 16.24 million iPhones in the quarter, representing 86 percent unit growth over the year-ago quarter. Apple sold 19.45 million iPods during the quarter, representing a seven percent unit decline from the year-ago quarter. The Company also sold 7.33 million iPads during the quarter.

    “We had a phenomenal holiday quarter with record Mac, iPhone and iPad sales,” said Steve Jobs, Apple’s CEO. “We are firing on all cylinders and we’ve got some exciting things in the pipeline for this year including iPhone 4 on Verizon which customers can’t wait to get their hands on.”

    “We couldn’t be happier with the performance of our business, generating $9.8 billion in cash flow from operations during the December quarter,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the second fiscal quarter of 2011, we expect revenue of about $22 billion and we expect diluted earnings per share of about $4.90.”




    Apple Inc.

    (in millions, except share amounts which are reflected in thousands and per share amounts)

      Three Months Ended

    December 25, 2010


    December 26, 2009

    Net sales $ 26,741   $ 15,683
    Cost of sales (1)   16,443     9,272
    Gross margin   10,298     6,411
    Operating expenses:          
    Research and development (1)   575     398
    Selling, general and administrative (1)   1,896     1,288
    Total operating expenses   2,471     1,686
    Operating income   7,827     4,725
    Other income and expense   136     33
    Income before provision for income taxes   7,963     4,758
    Provision for income taxes   1,959     1,380
    Net income $ 6,004   $ 3,378
    Earnings per common share:          
    Basic $ 6.53   $ 3.74
    Diluted $ 6.43   $ 3.67
    Shares used in computing earnings per share:          
    Basic   919,294     903,542
    Diluted   933,154     919,783
    (1) Includes stock-based compensation expense as follows:          
    Cost of sales $ 52   $ 37
    Research and development $ 113   $ 74
    Selling, general and administrative $ 134   $ 94
    Apple Inc.


    (in millions, except share amounts)

      December 25, 2010   September 25, 2010
    Current assets:          
    Cash and cash equivalents $ 10,734   $ 11,261  
    Short-term marketable securities   16,243     14,359  
    Accounts receivable, less allowances of $62 and $55, respectively   6,027     5,510  
    Inventories   885     1,051  
    Deferred tax assets   1,724     1,636  
    Vendor non-trade receivables   4,847     4,414  
    Other current assets   3,467     3,447  
    Total current assets   43,927     41,678  
    Long-term marketable securities   32,730     25,391  
    Property, plant and equipment, net   5,868     4,768  
    Goodwill   741     741  
    Acquired intangible assets, net   522     342  
    Other assets   2,954     2,263  
    Total assets $ 86,742   $ 75,183  
    Current liabilities:          
    Accounts payable $ 14,301   $ 12,015  
    Accrued expenses   5,953     5,723  
    Deferred revenue   3,541     2,984  
    Total current liabilities   23,795     20,722  
    Deferred revenue – non-current   1,216     1,139  
    Other non-current liabilities   7,065     5,531  
    Total liabilities   32,076     27,392  
    Commitments and contingencies          
    Shareholders’ equity:          

    Common stock, no par value; 1,800,000,000 shares authorized;
    921,035,475 and 915,970,050 shares issued and outstanding, respectively




    Retained earnings   43,050     37,169  
    Accumulated other comprehensive income/(loss)   114     (46 )
    Total shareholders’ equity   54,666     47,791  
    Total liabilities and shareholders’ equity $ 86,742   $ 75,183  
    Apple Inc.

    (in millions)

      Three Months Ended

    December 25, 2010


    December 26, 2009

    Cash and cash equivalents, beginning of the period $ 11,261     $ 5,263  
    Operating activities:          
    Net income   6,004       3,378  
    Adjustments to reconcile net income to cash generated by operating activities:          
    Depreciation, amortization and accretion   356       209  
    Stock-based compensation expense   299       205  
    Deferred income tax expense   823       425  
    Changes in operating assets and liabilities:          
    Accounts receivable, net   (517 )     271  
    Inventories   166       (121 )
    Vendor non-trade receivables   (433 )     (95 )
    Other current and non-current assets   (558 )     (369 )
    Accounts payable   2,346       956  
    Deferred revenue   634       606  
    Other current and non-current liabilities   653       316  
    Cash generated by operating activities   9,773       5,781  
    Investing activities:          
    Purchases of marketable securities   (19,575 )     (12,922 )
    Proceeds from maturities of marketable securities   3,279       6,216  
    Proceeds from sales of marketable securities   6,853       3,199  
    Payments for acquisition of property, plant and equipment   (1,214 )     (376 )
    Payments for acquisition of intangible assets   (49 )     (5 )
    Other   (23 )     (70 )
    Cash used in investing activities   (10,729 )     (3,958 )
    Financing activities:          
    Proceeds from issuance of common stock   208       374  
    Excess tax benefits from stock-based compensation   454       252  
    Taxes paid related to net share settlement of equity awards   (233 )     (103 )
    Cash generated by financing activities   429       523  
    (Decrease)/increase in cash and cash equivalents   (527 )     2,346  
    Cash and cash equivalents, end of the period $ 10,734     $ 7,609  
    Supplemental cash flow disclosure:          
    Cash paid for income taxes, net $ 826     $ 980  
    Apple Inc.
    Q1 2011 Unaudited Summary Data
            Q4 2010   Q1 2010   Q1 2011                
                                    Sequential Change   Year/Year Change
    Operating Segments  


    Units K






    Units K






    Units K




      CPU Units   Revenue   CPU Units   Revenue
        Americas   1,460   $ 7,186   1,187   $ 6,092   1,360   $ 9,218   – 7 %   28 %   15 %   51 %
        Europe   978     5,458   1,068     5,024   1,245     7,256   27 %   33 %   17 %   44 %
        Japan   118     1,401   105     783   162     1,433   37 %   2 %   54 %   83 %
        Asia Pacific   455     2,732   313     1,813   516     4,987   13 %   83 %   65 %   175 %
        Retail   874     3,566   689     1,971   851     3,847   – 3 %   8 %   24 %   95 %
    Total Operating Segments   3,885   $ 20,343   3,362   $ 15,683   4,134   $ 26,741   6 %   31 %   23 %   71 %
                                    Sequential Change   Year/Year Change
    Product Summary  

    Units K





    Units K




      Units K  



      Units   Revenue   Units   Revenue
        Desktops (1)   1,242   $ 1,676   1,234   $ 1,692   1,227   $ 1,731   – 1 %   3 %   – 1 %   2 %
        Portables (2)   2,643     3,194   2,128     2,758   2,907     3,699   10 %   16 %   37 %   34 %
    Subtotal CPUs   3,885     4,870   3,362     4,450   4,134     5,430   6 %   11 %   23 %   22 %
        iPod   9,051     1,477   20,970     3,391   19,446     3,425   115 %   132 %   – 7 %   1 %
        Other Music Related Products and Services (3)         1,243         1,164         1,431       15 %       23 %
        iPhone and Related Products and Services (4)   14,102     8,822   8,737     5,578   16,235     10,468   15 %   19 %   86 %   88 %
        iPad and Related Products and Services (5)   4,188     2,792   0     0   7,331     4,608   75 %   65 %   N/M     N/M  
        Peripherals and Other Hardware         477         469         593       24 %       26 %
        Software, Service and Other Sales         662         631         786       19 %       25 %
    Total Apple       $ 20,343       $ 15,683       $ 26,741       31 %       71 %
    (1)   Includes iMac, Mac mini, Mac Pro and Xserve product lines.
    (2)   Includes MacBook, MacBook Air and MacBook Pro product lines.
    (3)   Includes iTunes Store sales, iPod services, and Apple-branded and third-party iPod accessories.
    (4)   Includes recognized revenue from iPhone sales, carrier agreements, services, and Apple-branded and third-party iPhone accessories.
    (5)   Includes recognized revenue from iPad sales, services, and Apple-branded and third-party iPad accessories.
    N/M: Not Meaningful K = Units in thousands $M = Amounts in millions


    Stay tuned for liveblog of earnings call.

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