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Apple Inc. (AAPL)

F2Q13 Earnings Conference Call

April 23, 2013 5:00 pm ET

Executives

Nancy Paxton – Senior Director-Investor Relations

Tim Cook – Chief Executive Officer

Peter Oppenheimer – Senior Vice President and Chief Financial Officer

Analysts

Katy Huberty – Morgan Stanley & Co. LLC

Bill C. Shope – Goldman Sachs & Co.

Steven M. Milunovich – UBS Securities LLC

Toni M. Sacconaghi – Sanford C. Bernstein & Co. LLC

Ben A. Reitzes – Barclays Capital, Inc.

Gene E. Munster – Piper Jaffray, Inc.

Shannon S. Cross – Cross Research LLC

Mark A. Moskowitz – JPMorgan Securities LLC

Presentation

Operator

Please standby, we are about to begin. Good day, ladies and gentlemen, and welcome to this Apple Incorporated Second Quarter Fiscal Year 2013 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 are Apple's CEO, Tim Cook; and CFO, Peter Oppenheimer; and they'll be joined by 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 revenues, gross margins, operating expenses, other income and expense, stock-based compensation expense, taxes, future products and capital allocation plans. 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 2012, the Form 10-Q for the first quarter of 2013 and the Form 8-K filed with the SEC today along with the associated press releases. Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

I'd now like to turn the call over to Tim Cook for introductory remarks.

Tim Cook

Thanks, Nancy. Hello everyone, and thank you for joining us. We have a lot of news to share with you today about the details of our March quarter as well as a significant increase to our capital return program.

First, I would like to talk about our business and the road ahead. We are now half way through our fiscal 2013, and we’ve accomplished a tremendous amount. We’ve introduced and ramped production of an unprecedented number of new products, and we’ve set many new sales records. Our revenue for the first half was over $98 billion and our net income was over $22 billion. During that time, we sold 85 million iPhones and 42 million iPads. These are very, very large numbers, unimaginable even to us just a few years ago.

Despite producing results that met or beat our guidance as we have done consistently, we know they didn't meet everyone's expectations, and though we’ve achieved incredible scale and financial success, we acknowledge that our growth rate has slowed and our margins have decreased from the exceptionally high level we experienced in 2012.

Our revenues grew about $13 billion in the first half of this fiscal year. Even though that’s like adding the total first half revenue of five Fortune 500 companies, our average weekly growth slowed to 19% and our gross margins are closer to the levels of a few years ago. Our fiscal 2012 results were incredibly strong and that’s making comparison very difficult this year. Last year, our business benefited from both high growth and demand for products and a corresponding growth in channel inventories along with a richer mix of higher gross margin products, a more favorable foreign currency environment, and historically low costs.

These compares are made further challenging until we anniversary the launch of the iPad mini, which as you know, we strategically priced at a lower margin. As Peter will discuss, we are guiding to flat revenues year over year for the June quarter along with a slight sequential decline in gross margins.

The decline in Apple’s stock price over the last couple of quarters has been very frustrating to all of us. But Apple remains very strong and we will continue to do what we do best. We can’t control items such as exchange rates and world economies and even certain cost pressures, but the most important objective for Apple will always be creating innovative products and that is directly within our control.

We will continue to focus on the long-term, and we remain very optimistic about our future. We are participating on large and growing markets. We see great opportunities in front of us, particularly given the long-term prospects of the smartphone and tablet market, the strength of our incredible ecosystem, which we plan to continue to augment with new services, our plans for expanded distribution, and the potential of exciting new product categories.

Take the smartphone market for example, IDC estimates that this market will double between 2012 and 2016 to an incredible 1.4 billion units annually, and Gartner estimates that the tablet market is growing at an even faster rate from 125 million units in 2012 to a projected 375 million by 2016.

Our teams are hard at work on some amazing new hardware, software, and services that we can’t wait to introduce this fall and throughout 2014. We continue to be very confident in our future product plans.

Apple has many distinct and unique advantages as the only company in the industry with world-class skills in hardware, software, and services. We have the strongest ecosystem in the industry with App Stores in 155 countries, iTunes music stores in 119 countries, hundreds of millions of iCloud users around the world, and most importantly, the highest loyalty and customer satisfaction rates in the business. And of course, we have a tremendous culture of innovation with a relentless focus on making the world’s best products that change people’s lives. This is the same culture and company that brought the world the iPhone and the iPad, and we’ve got a lot more surprises in the works.

Read the rest of this transcript for free on seekingalpha.com