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Apple (AAPL)

Q1 2012 Earnings Call

January 24, 2012 5:00 pm ET


Peter Oppenheimer - Chief Financial Officer and Senior Vice President

Nancy Paxton -

Timothy D. Cook - Chief Executive Officer and Director


Keith F. Bachman - BMO Capital Markets U.S.

Richard Gardner - Citigroup Inc, Research Division

Benjamin A. Reitzes - Barclays Capital, Research Division

Mark A Moskowitz - JP Morgan Chase & Co, Research Division

Kulbinder Garcha - Crédit Suisse AG, Research Division

Shannon S. Cross - Cross Research LLC

Katy Huberty - Morgan Stanley, Research Division

Chris Whitmore - Deutsche Bank AG, Research Division

A.M. Sacconaghi - Sanford C. Bernstein & Co., LLC., Research Division

Mike Abramsky - RBC Capital Markets, LLC, Research Division

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Charles Eugene Munster - Piper Jaffray Companies, Research Division



Good day, and welcome to this Apple Incorporated First Quarter Fiscal Year 2012 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.

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 CEO, 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 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 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 dates.

I'd now like to turn the call over to Peter Oppenheimer for introductory remarks.

Peter Oppenheimer

Thank you, Nancy. We are thrilled to report the results of a tremendous quarter, generating the highest quarterly revenue and earnings in Apple's history. We established numerous new records during the quarter, including all-time highs for quarterly iPhone, iPad and Mac sales. We are very proud of these results and are extremely pleased with the momentum of our business.

Revenue for the quarter was $46.3 billion, representing year-over-year growth of 73%. The increase was fueled primarily by strong growth in iPhone, iPad and Mac sales, and was also aided by the inclusion of a 14th week in the quarter, which we indicated previously.

Operating margin was $17.3 billion, representing 37.4% of revenue. Net income was $13.1 billion, increasing 118% over the prior December quarter's results, and equaling half of the net income generated in all of fiscal 2011. The quarter's net income translated to earnings per share of $13.87.

Turning to the details of the quarter. I'd like to begin with our Mac products and services. We established a new all-time quarterly record with sales of 5.2 million Macs, setting new records for both desktops and portables. Mac sales grew 26% year-over-year compared to IDC's latest published forecast of 0 growth for the market overall in the December quarter. While total Mac sales benefited from the 14th week, average weekly Mac sales were up strongly year-over-year across the quarter. Mac sales outgrew the market in each of our geographies with particular strength in our Asia-Pacific segment where sales were up 58% year-over-year. The increase in Mac sales was fueled by very strong growth of MacBook Pro and MacBook Air, as well as the continued strong performance of iMac. We began and ended the quarter with between 3 and 4 weeks of Mac channel inventory on a look-forward basis.

As we announced last month, the Mac App Store has been a great success with customers downloading over 100 million apps in less than a year. The Mac App Store offers thousands of apps in education, games, graphics and design, lifestyle, productivity, utilities and other categories, and has rapidly become a favorite shopping destination for Mac software.

Moving to our music products. We sold 15.4 million iPods compared to 19.4 million in the year-ago quarter. Total iPod sales were ahead of our expectations and iPod touch continued 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 on a look-forward basis. The iTunes Store generated record results with revenue in the quarter of $1.7 billion. During the quarter, we launched iTunes music stores in Brazil as well as 27 other countries in Latin America and Europe, now offering a catalog of over 20 million songs from major recording labels, as well as thousands of independent artists. And iTunes customers were amazingly busy on December 25, generating over 140 million downloads of apps and content that day.

I'd now like to turn to iPhone. We were thrilled to sell a record 37 million iPhones compared to 16.2 million in the previous December quarter. This represents 128% year-over-year growth compared to 40% growth for the smartphone market overall in the December quarter, based on the latest published estimate from IDC. We experienced very strong iPhone sales growth in all of our segments, thanks primarily to the tremendous popularity of iPhone 4S.

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