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Apple Inc. (AAPL)

F4Q10 (Qtr End 09/25/2010) Earnings Call

October 18, 2010 5:00 pm ET


Nancy Paxton - Senior Director of IR

Peter Oppenheimer - CFO

Steve Jobs - CEO

Tim Cook - COO


Richard Gardner - Citi

Gene Munster - Piper Jaffray

Mike Abramsky - RBC Capital Markets

Benjamin Reitzes - Barclays Capital

Katy Huberty - Morgan Stanley

Toni Sacconaghi - Sanford Bernstein

Shannon Cross - Cross Research

Chris Whitmore - Deutsche Bank



Good day everyone and welcome to this Apple Incorporated fourth quarter fiscal year 2010 earnings release. (Operator Instructions) At this time for opening remarks and introductions, I would like to turn the call over to Nancy Paxton, Senior Director of Investor Relations.

Nancy Paxton

Thank you. Good afternoon and thanks to everyone for joining us. 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 forecast.

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 three quarters 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 speaks as of their respective dates.

And 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're extremely pleased to report the conclusion of a great fiscal year for Apple with outstanding results for the September quarter. Our innovative product lineup is the best ever and customer response has been tremendous. As a result, we set new all-time records for Mac, iPhone and iPad sales in the September quarter, and we are thrilled to report the highest quarterly revenue and earnings in Apple's history.

Revenue for the quarter was $20.34 billion, an increase of more than $8.1 billion over the prior September quarter's result, representing growth of 67%. The very strong growth was fueled primarily by record iPhone sales, the tremendous popularity of iPad and our best Mac quarter ever.

Operating margin was $5.45 billion, representing 26.8% of revenue. Net income was $4.31 billion, which exceeded our previous quarterly earnings record by $930 million and represented 70% growth over the year-ago quarter's earnings. These results translated to earnings per share of $4.64.

Turning to the details of the quarter, I'd like to begin with our Mac products and services. We set a new quarterly record with sales of almost 3.9 million Macs, exceeding the previous record established in the June quarter by over 400,000. This represents 27% year-over-year growth, more than double IDC's latest published estimate of 11% growth for the market overall in the September quarter.

We experienced strong double-digit growth in both Mac desktop and portable categories led by very strong sales of iMac which was updated in July and the continued popularity of the MacBook Pro and MacBook. Mac growth was strong in each of our geographic segments, led by Asia-Pacific at 56% year-over-year and Japan at 49%. We began and ended the quarter with between three and four weeks of Mac channel inventory.

Moving to our music products, we sold nearly 9.1 million iPods compared to 10.2 million in the year-ago quarter. In September, we announced a great new lineup of iPods for the holiday season, including our redesigned iPod Shuffle featuring clickable buttons, the reinvented iPod Nano with multi-touch and the new iPod touch with Retina display and FaceTime video calling.

iPod's share of the U.S. market for MP3 players remains at over 70% based on the latest monthly data published by NPD. iPod also continues to be the top selling MP3 player and gained share internationally year-over-year in most of the countries we track based on the latest data published by GfK. We remain within our target range of four to six weeks of iPod channel inventory on a look-back basis.

The iTunes Store also had another strong quarter with revenue over $1 billion. In September, we launched iTunes 10, including a number of new features such as $0.99 TV rentals, AirPlay wireless music playback and Ping, which offers social music discovery to millions of iTunes users in 23 countries. We also introduced new Apple TV which provides a simple way to watch movies and TV shows on your HDTV for the breakthrough price of just $99.

I'd now like to turn to iPhone. We were extremely pleased to have sold 14.1 million iPhones compared to just under 7.4 million in the previous September quarter. This represents 91% year-over-year growth and is well ahead of IDC's latest published estimate of 64% growth for the global smart phone market overall in the September quarter.

Recognized revenue from iPhone handset and accessories sales was $8.82 billion during the quarter compared with $4.61 billion in the year-ago quarter, an increase of 92%. The sales value of iPhones alone was about $8.6 billion which yields an ASP of about $610.

At the end of the September quarter, we had iPhone distribution through 166 carriers in 89 countries. We continue to experience very strong year-over-year growth, particularly in Asia, Europe and Japan where iPhone sales more than doubled year-over-year. We were very happy to be shipping iPhone 4 in China as of the last day of the September quarter, and we've been very pleased with the customer response to date.

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