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Apple Inc. (AAPL)

F4Q09 Earnings Call

October 19, 2009 5:00 pm ET

Executives

Nancy Paxton - Senior Director, Investor Relations and Corporate Finance

Peter Oppenheimer - Chief Financial Officer, Senior Vice President

Timothy D. Cook - Chief Operating Officer

Gary Wipfler - Treasurer

Analysts

Richard Gardner – Citigroup

Benjamin Reitzes – Barclays Capital

Gene Munster – Piper Jaffray

Scott Price - Banc of America

Mike Abramsky - RBC Capital Markets

Shannon Cross - Cross Research

Bill Shope – Credit Suisse

David Bailey - Goldman Sachs

Mark Moskowitz – JP Morgan

Toni Sacconaghi - Sanford Bernstein

Maynard Um – UBS

Chris Whitemore - Deutsche Bank

Shaw Wu - Kaufman Brothers

Brian Marshall – Broadpoint Amtech

Bill Fearnley - FTN Midwest

Presentation

Operator

Good day, ladies and gentlemen and welcome to this Apple Incorporated fourth 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 Ms. Nancy Paxton, Senior Director of Investor Relations. Please go ahead, Madam.

Nancy Paxton

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

Please note that some of the information you will hear during our discussion today will consist of forward-looking statements including without limitation those regarding revenues, 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 Forms 10-Q for the first three quarters of fiscal 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 would like to turn the call over to Peter Oppenheimer for introductory remarks.

Peter Oppenheimer

Thank you, Nancy. Thank you for joining us. We are extremely pleased to report Apple’s most profitable quarter ever, and sales of more Macs and iPhones than in any previous quarter. We are thrilled with these record-breaking results, particularly given the economic environment around us.

Revenue for the quarter was $9.87 billion, representing 25% growth over the prior September quarter’s results. This was Apple's second-highest quarterly revenue ever, next to the record results reported for the last September quarter. Operating margin was Apple's highest ever at $2.19 billion, representing over 22% of revenue and higher than our guidance due to better-than-expected revenue and gross margin. Net income was $1.67 billion, which translated to earnings per share of $1.82.

In terms of non-GAAP measures, adjusted sales totaled $12.25 billion for the September quarter, which was almost $2.4 billion higher than our reported revenue. Adjusted gross margin was $5.21 billion, which was almost $1.6 billion higher than our reported gross margin. And adjusted net income was $2.85 billion, or almost $1.2 billion higher than our reported net income.

We 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 in the September quarter.

Turning to the details of our results, I’d like to begin with our Mac products and services. We generated outstanding Mac sales of 3.05 million, beating our previous record set in the year-ago quarter by over 440,000. The Mac is showing fantastic momentum, growing faster than the market in 19 of the past 20 quarters. We believe this is the result of our unmatched innovation and commitment to providing customers with the best hardware, the best software, and the best user experience in the world.

Quarterly Mac sales grew 17% year over year and this compares extremely favorably to IDC’s latest published estimate of 2% growth for the market overall in the September quarter. Customers continue to respond very positively to our Mac portable lineup which we updated in June. Portable sales increased 35% year over year and represented 74% of our Mac mix.

Our execution in the quarter was outstanding and we were particularly pleased with the 42% year over year growth in our Asia-Pacific segment. We once again had a very successful back-to-school season and we are very pleased with a 12% year-over-year increase in Mac sales to U.S. education institutions, which resulted in the highest quarterly Mac sales ever for our U.S. education business. The shipments to U.S. education institutions this quarter included 50,000 Macbooks to the State of Maine as part of its ongoing one-to-one initiative.

Customer response to the August 28th release of Snow Leopard has been tremendous. Through the end of the September quarter, we generated consumer box upgrade sales at twice the rate we experienced with the Leopard release. Snow Leopard delivers hundreds of refinements, is the only operating system to support Exchange out-of-the-box, and has successfully introduced new core technologies. Snow Leopard allows developers to take full advantage of hardware features, including 64-bit technologies, multi-core processors, and advanced graphics processing units.

We began and ended the quarter with between three and four weeks of Mac channel inventory.

Now I’ll turn to our music products. We sold almost 10.2 million iPods, which was down from just over 11 million in the year-ago quarter. Our latest research indicates that 50% of recent iPod buyers were purchasing their first iPod, including those in our high market share countries such as the U.S., Japan, Australia, Canada, and the U.K. Customers love the recently announced iPod Nano’s new features, including the built-in videocamera, FM radio, pedometer, and larger display.

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