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Apple, Inc. (AAPL)

Q3 2015 Earnings Call

July 21, 2015 5:00 pm ET

Executives

Nancy Paxton - Senior Director, Investor Relations and Treasury

Timothy Donald Cook - Chief Executive Officer & Director

Luca Maestri - Senior Vice President and Chief Financial Officer

Analysts

Kathryn L. Huberty - Morgan Stanley & Co. LLC

William Charles Shope - Goldman Sachs & Co.

Eugene Charles Munster - Piper Jaffray & Co (Broker)

Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC

James Dickey Suva - Citigroup Global Markets, Inc. (Broker)

Steven M. Milunovich - UBS Securities LLC

Shannon S. Cross - Cross Research LLC

Presentation

Operator

Good day everyone, and welcome to the Apple Incorporated Third Quarter Fiscal Year 2015 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 - Senior Director, Investor Relations and Treasury

Thank you. Good afternoon, and thanks to everyone for joining us. Speaking first today is Apple CEO Tim Cook, and he'll be followed by CFO Luca Maestri, and after that we'll open the call to questions from 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, taxes and future business outlook. 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 2014, the Form 10-Q for the first two quarters of fiscal 2015 and the form 8-K filed with the SEC today along with the associated 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 Tim for introductory remarks.

Timothy Donald Cook - Chief Executive Officer & Director

Thanks, Nancy. Good afternoon everyone, and thanks for joining us. It's been a busy and exciting quarter and I'm delighted to talk to you about the highlights. Today, we're proud to report record June quarter results with revenues of $49.6 billion and earnings of $10.7 billion. Our year-over-year growth rate in the fiscal third quarter accelerated over the first half of fiscal 2015. Revenues were up 33%, our fastest growth rate in over three years, and earnings per share were up 45%. We achieved these incredibly strong results despite reducing channel inventories across our product lines by over 1 million units and despite the challenging FX environment.

Revenue exceeded the high end of our guidance by $1.6 billion as we topped our internal expectations for sales of iPhone, iPad, Mac and Apple Watch. We had another stellar quarter for iPhone, establishing a new June quarter record. iPhone unit sales grew 35%, which is almost three times the rate of growth of the smartphone market overall and we gained share in all of our geographic segments. iPhone revenue grew even more strongly, up 59%. The strong iPhone results were broad-based in both developed and emerging markets and we experienced the highest switcher rate from Android that we've ever measured.

Most importantly, iPhone customer metrics are tremendous. ChangeWave's most recent survey of US customers found that iPhone has the highest customer satisfaction rate of any smartphone brand by a wide margin, and that among iPhone owners planning to purchase a new phone, 86% plan to purchase another iPhone. That compares to 50% repurchase intent for the next highest brand measured.

We also had a tremendous record quarter for Mac, continuing to defy the industry trend with unit growth of 9% in a market that IDC estimates contracted by 12%. Growth was fueled by great response to our new MacBook and we're working hard to catch up with customer demand.

We generated over $5 billion in services revenue, setting a new all-time record. Within services, the App Store produced its best quarter ever with revenue growing 24%.

Our results from Greater China were outstanding with revenue growth of 112% and iPhone unit growth of 87%. This is particularly impressive given IDC's estimate of only 5% growth for the Greater China smartphone market. We also achieved our highest ever PC market share in the segment with Mac sales growing 33% over last year. And our ecosystem in China continues to grow at a very fast pace, with App Store revenue more than doubling in the quarter. Luca will go into more detail on our product and financial results in a moment.

A major highlight of the past quarter for all of us here at Apple was the launch of Apple Watch in April. As you know, we've been very excited to get this revolutionary product to customers. We started taking preorders in nine countries on April 10, and demand immediately exceeded supply by a wide margin. To prioritize those first orders and to deliver the best experience for our customers, we delayed the availability of Apple Watch in our own retail stores until mid June. We made huge progress with the production ramp across the quarter and near the end of the quarter expanded into six additional countries. And in just the past few days, we've been able to catch up with demand, enabling us to expand Apple Watch availability to a total of 19 countries currently with three more countries to be added at the end of this month.

The feedback from Apple Watch customers is incredibly positive and we've been very happy with customer satisfaction and usage statistics. Market research from Wristly measured a 97% customer satisfaction rate for Apple Watch and we hear from people every day about the impact it's having on their health, their daily routines, and how they communicate. Our own market research shows that 94% of Apple Watch owners wear and use it regularly, if not every day.

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