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Apple (AAPL)

Q3 2011 Earnings Call

July 19, 2011 5:00 pm ET


Peter Oppenheimer - Chief Financial Officer and Senior Vice President

Timothy Cook - Chief Operating Officer

Nancy Paxton - IR


Brian Marshall - Gleacher & Company, Inc.

Keith Bachman - BMO Capital Markets U.S.

Mike Abramsky - RBC Capital Markets, LLC

Benjamin Reitzes - Barclays Capital

Richard Gardner - Citigroup Inc

Charles Munster - Piper Jaffray Companies

Brian Blair - Wedge Partners

Toni Sacconaghi - Sanford C. Bernstein & Co., Inc.

Scott Craig

Mark Moskowitz - JP Morgan Chase & Co

Bill Shope - Goldman Sachs Group Inc.

Katy Huberty - Morgan Stanley



Good day, everyone, and welcome to this Apple Inc. Third Quarter Fiscal Year 2011 Earnings Release Conference Call. [Operator Instructions] At this time, for opening remarks and introductions, I would now like to turn the call 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's CFO, Peter Oppenheimer; and he'll be joined by Apple COO, Tim Cook; and Treasurer, Gary Wipfler for the Q&A session with the analysts. Please note that some of the information you'll hear during our discussion today will consist 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 forecast. For more information, please refer to the risk factors discussed in Apple's Form 10-K for 2010, the Form 10-Q for the first 2 quarters of fiscal 2011, 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 date. 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're thrilled to report the highest quarterly revenue and earnings in Apple history. We also set a new all-time quarterly record for iPhone and iPad sales and a new June quarter record for Mac sales and we're extremely pleased with the momentum of our business. Revenue for the quarter was $28.6 billion, representing year-over-year growth of 82%. This record quarterly revenue topped the previous record established in the most recent December quarter by $1.8 billion and was almost $13 billion over the year ago quarter's result. The tremendous year-over-year increase was fueled primarily by dramatic growth in iPhone and iPad sales in addition to strong growth in Mac sales. Operating margin was a record high of $9.4 billion, representing 32.8% of revenue. Net income was $7.3 billion, topping the previous quarterly record set in the December quarter by $1.3 billion.

Net income grew even faster than revenue, increasing 125% year-over-year and translated to earnings per share of $7.79. Turning to the details of the quarter. I'd like to begin with our Mac products and services. We established the new June quarter record with sales of 3.95 million Macs representing a 14% increase over the year ago quarter's result. This growth is more than 4x IDCs most recently published forecast of 3% growth for the PC market overall. Mac sales were particularly strong in our Asia-Pacific segment, where we experienced a 57% year-over-year increase in total Macs sold. We generated healthy Mac growth in both desktop and portable categories. In May, we updated the iMac with the next-generation quad core processors, powerful new graphics, high speed portable I/O technology and a new space time, HD camera. The growth in Mac portable sales was driven by strong sales of MacBook Pro, as well as MacBook Air. We began to enter the quarter with between 3 and 4 weeks of Mac channel inventory.

We are very excited to be launching Mac OS X Lion tomorrow. The Lion includes more than 250 new features such as a multi-touch gestures, system wide support for full screen apps, Mission Control, which is an innovative view of everything running on your Mac and much more.

Moving to our music products. We sold 7.5 million iPods compared to 9.4 million in the year ago quarter. Total iPod sales were ahead of our expectations and iPod touch continues to account for over half of all iPods sold. iPod share of the U.S. market for MP3 players remains at over 70% based on the latest monthly data published by MPD. And iPod continued to be the top-selling MP3 player in most countries we track based on the latest data published by GFK. We ended the quarter within our target range of 4 to 6 weeks of iPod channel inventory.

The iTunes store generated strong results with revenue of almost $1.4 billion. iTunes revenue was up 36% year-over-year, thanks primarily to continued strong sales of music, video and apps. With more than 225 million accounts, iTunes is the #1 music retailer in the world and customers have downloaded more than 15 billion songs today.

I'd now like to turn to the iPhone. We were thrilled to sell a record 20.3 million iPhones compared to 8.4 million in the previous June quarter. This represents 142% year-over-year growth, which is more than double IDC's latest published estimate of 67% growth for the global smartphone market overall in the June quarter. Recognized revenue from iPhone handset and accessory sales were $13.3 billion during the quarter compared to $5.3 billion in the year ago quarter, an increase of 150%. We continue to experience very strong year-over-year iPhone sales growth in all of our operating segments. iPhone sales momentum in the Asia-Pacific region was particularly robust with sales almost quadrupling year-over-year. We continue to increase our overall iPhone manufacturing capacity in the quarter. We were pleased to launch a number of new carrier relationships. And by the end of the quarter, iPhone was available through 228 carriers in 105 countries, compared to 186 carriers in 90 countries as of the end of the March quarter. We ended the quarter with about 5.9 million iPhones in channel inventory, a sequential increase of about 700,000 to support strong iPhone demand, carrier addition and expanded distribution. We remained within our target range of 4 to 6 weeks of iPhone channel inventory.

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