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Apple, Inc. (AAPL)

F2Q09 (Qtr End 03/28/09) Earnings Call Transcript

April 22, 2009 5:00 pm ET

Executives

Nancy Paxton – Senior Director, IR and Corporate Finance

Peter Oppenheimer – SVP and CFO

Tim Cook – COO

Analysts

Richard Gardner – Citigroup

Keith Bachman – Bank of Montreal

Ben Reitzes – Barclays Capital

Bill Fearnley – FTN Equity Capital

Bill Shope – Credit Suisse

Gene Munster – Piper Jaffray

Toni Sacconaghi – Sanford Bernstein

David Bailey – Goldman Sachs

Scott Craig – Banc of America

Charles Wolf – Needham & Co.

Shannon Cross – Cross Research

Chris Whitmore – Deutsche Bank

Presentation

Operator

Good day and welcome to this Apple Incorporated Apple Second Quarter Fiscal Year 2009 Earnings Release Conference Call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Nancy Paxton, Senior Director of Investor Relations. Please go ahead, ma'am.

Nancy Paxton

Thank you. Good afternoon and thanks to everyone for joining us. Speaking today is Apple's CFO, Peter Oppenheimer, and he will be joined by Apple's COO, Tim Cook; and Treasurer, Gary Wipfler, for the Q&A session with analysts.

Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, stock-based compensation expense, taxes, earnings per share, and future products. Actual results or trends could differ materially from our forecasts.

For more information, please refer to the risk factors discussed in Apple's Form 10-K for 2008, the Form 10-Q for the first fiscal quarter of 2009, and the Form 8-K filed with the SEC today and the attached press release. Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

With that, I'd like to turn the call over to Apple's CFO, Peter Oppenheimer, for introductory remarks.

Peter Oppenheimer

Thank you, Nancy. Thank you for joining us. We are extremely pleased to report the best non-holiday quarter revenue and earnings in our history. These results exceeded our expectations and we continue to be very pleased with our performance in this economy.

Revenue for the quarter was $8.16 billion, representing 9% growth over the prior March quarter’s results. Operating margin percentage for the quarter was one of our highest ever at 20.4%, primarily due to higher than anticipated revenue and gross margin. Net income was $1.2 billion, which translated to earnings per share of $1.33.

In terms of non-GAAP measure, adjusted sales totaled $9.06 billion for the March quarter, which was $900 million higher than our reported revenue. Adjusted gross margin was $3.62 billion, which was $650 million higher than our reported gross margin, and adjusted net income was $1.66 billion, $450 million higher than our reported net income.

We continue to believe that these non-GAAP financial measures provide added transparency to our business and hope they are helpful to you in your analysis and understanding of our performance.

Turning to the details of our results, I’d like to begin with our Mac products and services. For the March quarter, we sold 2.22 million Macs compared to 2.29 million Macs in the year-ago quarter, a 3% decline. In the year-ago March quarter, Mac sales increased 51% year-over-year due in part to January 2008 launch of the MacBook Air, creating a very difficult compare.

Our Mac shipments in this year’s March quarter compares favorably to the 7% year-over-year contraction in the market overall, based on the latest estimate for the quarter, published by IDC. We successfully transitioned the entire Mac desktop line in March and continue to see a strong year-over-year growth in MacBook shipments. Our overall units sell through of Macs was flat year-over-year and given the tough year-over-year comp and the challenging economic environment, we feel very positive about our Mac performance.

We began and ended the quarter with between three and four weeks of Mac channel inventory. We experienced strong sales with January releases of iLife ’09 and iWork ’09. We believe the outstanding features of iLife and iWork are among the very compelling reasons why customers are drawn to the Mac experience.

Now, I’d like to discuss our music products and services. We sold over 11 million iPods, representing a new March quarter unit record and 3% growth over the year-ago quarter. We generated very strong year-over-year growth in sales of iPod Touch as customers continue to embrace the superior features of the platform, coupled with the rapidly growing array of applications available through the App Store.

Customers and reviewers responded favorably to the March introduction of the all-new iPod Shuffle, the world’s smallest music player, featuring a great new industrial design, voice-over technology, and convenient new earphone cord controls. We remain very pleased with iPod market share. Our share of the U.S. market for MP3 players was over 70% based on the latest monthly data, published by NPD, and we continue to gain share year-over-year in both international markets based on the latest data published by GFK.

We saw healthy year-over-year iPod unit sales growth in a number of large markets including the U.K., France, Germany, Japan, Australia, and China. We began and ended the quarter within our target range of 46 weeks of iPod channel inventory.

The iTunes Store delivered another great quarter, fueled by strong sales of music, video, and apps. We recently introduced a number of changes to the iTunes Store including the availability of DRM-free iTunes Plus titles from all four major labels, as well as thousands of independent artists.

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