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Apple Inc. (AAPL)

F2Q10 Earnings Call

April 20, 2010 5:00 pm ET


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


Gene Munster – Piper Jaffray

Benjamin Reitzes – Barclays Capital

Shannon Cross - Cross Research

Bill Shope – Credit Suisse

Toni Sacconaghi - Sanford Bernstein

Richard Gardner – Citigroup

Maynard Um – UBS

Brian Marshall – Broadpoint Amtech

Mike Abramsky - RBC Capital Markets

Katie Huberty – Morgan Stanley

Keith Bachman – BMO Capital Markets

Yair Reiner – Oppenheimer

Mark Moskowitz – JP Morgan



Welcome to the Apple Incorporated second quarter fiscal year 2010 earnings release conference call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Ms. 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 CFO, Peter Oppenheimer, and he will 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 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 2009 as amended, the Form 10-Q for the first quarter of fiscal 2010 and the form 8-K filed with the SEC today along with 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 thrilled to report outstanding March quarter results that exceeded our expectations. The strong momentum we experienced in the holiday quarter continued in the March quarter. As a result, we are reporting our best non-holiday quarter revenue and earnings ever, the highest quarterly iPhone sales ever and a new record for Mac sales in the March quarter. We are delivering the best products in Apple’s history and our customers are responding enthusiastically.

Revenue was $13.5 billion, a 49% increase over the prior March quarter’s results. This very strong performance was due primarily to the more than doubling of iPhone sales and the strong momentum of our Mac products. This resulted in a much smaller sequential revenue decline from the December to March quarters than we normally experience. Operating margin was $4 billion representing 29.5% of revenue. Net income was $3.1 billion up 90% over the year-ago quarter and earnings per share were $3.33.

Turning to the details of our results I would like to begin with our Mac products and services. We generated record March quarter sales of 2.94 million Macs. This represents 33% year-over-year growth compared to IDCs latest published estimate of 24% growth for the market overall in the March quarter. We were very pleased with Mac sales growth in each of our geographic segments and we experienced strong, double digit growth for both desktop and portable categories.

We made our portable lineup even stronger last week by introducing an updated MacBook Pro line with faster processors, more powerful next generation NVIDIA graphics and even longer battery life. We began and ended the quarter with between 3-4 weeks of Mac channel inventory.

Moving onto our music products we sold 10.9 million iPods, about equal to the 11 million we sold in the year-ago quarter. iPod Touch continued to be very strong with units growing 63% year-over-year. The strong mix of iPod Touch resulted in overall iPod revenue growth of 12%, the strongest iPod revenue growth rate in the last two years. Our share of the U.S. market for MP3 players remains at over 70% based on the latest monthly data published by NPD. iPod was also the top selling MP3 player and continues to gain share internationally year-over-year in nearly every country we track including high market share countries such as Australia, the U.K., Canada and Japan based on the latest data published by GFK.

The iTunes store delivered its best quarter ever with sales of $1.1 billion due to continued strong demand for music, video and apps. iTunes has the world’s largest online music catalog with a selection of over 12 million songs and in February we crossed the 10 billion mark for songs purchased and downloaded. The App Store continues to be a phenomenal success with more than 185,000 apps and well over 4 billion downloads to date by iPhone and iPod Touch users in 90 countries. We are very excited to have launched the iBook store as well as over 3,500 new apps designed for iPad. We ended the quarter within our target range of 4-6 weeks of iPod channel inventory.

I would now like to turn to the iPhone. We are thrilled to have sold 8.75 million iPhones during the quarter, an all-time high exceeding the previous record set in the most recent holiday quarter. This represents 131% year-over-year growth over the previous March quarter’s results and is more than three times the IDCs published estimate of 41% growth for the Smart Phone market overall in the March quarter. Recognized revenue from iPhone handset sales, accessory sales and carrier payments was $5.45 billion during the quarter compared to $2.43 billion in the year-ago quarter. The sales value of iPhones alone was about $5.3 billion and dividing this by the 8.75 million units yields an ASP of about $600.

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