the iphone guru

Apple held their Q3 Earnings and Financial Results conference call today, announcing that the company as a whole posted a revenue of $8.34 billion, with 5.2 million iPhones sold in the quarter. Steve Jobs, Apple’s CEO had this to say:

“We’re making our most innovative products ever and our customers are responding …We’re thrilled to have sold over 5.2 million iPhones during the quarter and users have downloaded more than 1.5 billion applications from our App Store in its first year.”

Apple also hosted an accompanying conference call, highlights from the call and my observations about some of the more interesting points after the break!

Some observations regarding the conference call and press release that follow here. First, there has been a steep increase in iPhone sales, %626 percent to be exact, up to 5.2 million units, while the iPod has been descendant at 10.2 million units sold. This is not a huge surprise as each iPhone sold is basically an iPod sold as well. note that the drop in iPod sales was related specifically to the “mp3 player” devices only, not the the iPod Touch. In fact, the Touch actually grew 130%, which makes the 7 percent drop in iPod sales only the tip of the iceberg, as those sales included the Touch.

As was noted by Techcrunch, the amount of iPhones sold is more than double the amount of Mac’s sold. This indicates both a heavier push by Apple toward the more profitable mobile device, and the tendency of the consumer to consider a mobile computing device like the iPhone to be much more of a substitute for a laptop than it once was.

Apple is still struggling to keep consumers supplied with 3GS iPhones as the demand is still extremely high, Apple having sold 1 million phones in three days alone.

The App Store dwarfs the other app marketplaces, including Nokia, RIM and Android, by far, with over 65,000 current apps available. This isn’t surprising as Apple basically created this market all by themselves, or at least took the inlkings of what some of the Treo marketplaces had begun and really made it a reality.

Tim Cook continues to beat around the bush as far as both Netbooks and Apples choice of exclusive US carrier are concerned:

Asked if the iPhone is constrained by carriers with limited capacity (read: AT&T), Tim Cook says, “without talking about specific ones, I see them making more investments to have faster networks and see them being very happy about” making more money.

And about Apple releasing a Netbook in the future, like the rumored tablet:

“At this point we don’t see a way to build a great product for this $399, $499…for this kind of pricepoint unit. Some customers, maybe many customers buying these become disappointed and disenchanted buying these.”

He also goes on to make several comments about the current crop of Netbooks on the market being slow, with outdated software and cramped keyboards, all things that he has stated before, but nothing that I can argue with. Frankly the Netbook question is a lot less interesting than it used to be, with the new Macbook Pro models available at almost $1000 less than the previous price.

A question was asked about separating crappy apps from good apps by some form of better review system or categorization system, wo which he replied:

“We’re always looking for ways to categorize apps differently and we have some ideas…we realize there’s an opportunity there for further improvement.”

There has been a call recently for Apple to update the way the App Store works on many levels, from search to the App apreoval process to the way that Mature 17+ apps are handled.

The Press Release has hit and the conference call is ongoing, here are some highlights provided by The iPhone Blog:

• iPhone in China? Tim Cook: Nothing to add today but continues to be priority project. Hopes to be there within a year.
• Supply constraints to effect international rollout? When will it balance? Tim Cook: Won’t balance in short term but won’t give prediction. Too hard to judge demand without supply. Vast majority will be selling 3GS by end of quarter, may move date by a week or more.
• iPod touch user base, how many upgraded? Tim Cook: a good number, won’t be specific. Priced aggressively. Want to get platform out there, good for ecosystem, developers. Try to get people to upgrade.
• Competitors tinkering with pre-paid model. Apple interested? Tim Cook: Apple doing that as well in markets that are predominantly pre-pay. Apple has lots to learn. Still a beginner. Can make improvements. Model works well in post-paid, but pre-paid could be interesting. Have multiple things going on. Hope to improve going forward.
• Asking about iPhone activations. US represents 40% of activations. Shouldn’t international side pick up, grow faster? Tim Cook: don’t release sales by geography. Smartphones in general sell better in post-pay environment. Not unique to Apple, reality of market.
• Follow up on netbook. Think an emerging market for a truly mobile device, larger screen, do more than with iPhone? Tim Cook: Never discount anything, won’t answer about new products. Customers want full featured notebooks. Apple delivers those, delivers value. Customers very happy. Current netbooks are very slow, software is old, don’t have robust computing experience, lack horsepower, small screens, cramped keyboards. People not happy. Apple will only play where they can deliver products that are innovative, proud of.

Official Press Release Follows:

Apple Reports Third Quarter Results

Best Non-Holiday Quarter Revenue and Earnings in Apple History

CUPERTINO, Calif., July 21 /PRNewswire-FirstCall/ — Apple® today announced financial results for its fiscal 2009 third quarter ended June 27, 2009. The Company posted revenue of $8.34 billion and a net quarterly profit of $1.23 billion, or $1.35 per diluted share. These results compare to revenue of $7.46 billion and net quarterly profit of $1.07 billion, or $1.19 per diluted share, in the year-ago quarter. Gross margin was 36.3 percent, up from 34.8 percent in the year-ago quarter. International sales accounted for 44 percent of the quarter’s revenue.

In accordance with the subscription accounting treatment required by GAAP, the Company recognizes revenue and cost of goods sold for iPhone(TM) and Apple TV® over their estimated economic lives. Adjusting GAAP sales and product costs to eliminate the impact of subscription accounting, the corresponding non-GAAP measures* for the quarter are $9.74 billion of “Adjusted Sales” and $1.94 billion of “Adjusted Net Income.”

Apple sold 2.6 million Macintosh® computers during the quarter, representing a four percent unit increase over the year-ago quarter. The Company sold 10.2 million iPods during the quarter, representing a seven percent unit decline from the year-ago quarter. Quarterly iPhones sold were 5.2 million, representing 626 percent unit growth over the year-ago quarter.

“We’re making our most innovative products ever and our customers are responding,” said Steve Jobs, Apple’s CEO. “We’re thrilled to have sold over 5.2 million iPhones during the quarter and users have downloaded more than 1.5 billion applications from our App Store in its first year.”

“We’re extremely pleased to report record non-holiday quarter revenue and earnings and quarterly cash flow from operations of $2.3 billion,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the fourth fiscal quarter of 2009, we expect revenue in the range of about $8.7 billion to $8.9 billion and we expect diluted earnings per share in the range of about $1.18 to $1.23.”

Apple will provide live streaming of its Q3 2009 financial results conference call utilizing QuickTime®, Apple’s standards-based technology for live and on-demand audio and video streaming. The live webcast will begin at 2:00 p.m. PDT on July 21, 2009 at http://www.apple.com/quicktime/qtv/earningsq309/ and will also be available for replay for approximately two weeks thereafter.

[iphoneblog]

Will Apple invest in NOC to take pressure off carrier? Cook: No plans to do so. When they entered business, they came to conclusion they could deliver world class handset, deliver something revolutionary. Other people have better skills at networks. Apple working with them as partners.

AP asks if growth of Apps constrained by network capacity of carrier partners? Tim Cook: better question for them. Without singling out [AT&T] Cook sees them investing in making better networks, happy with rising ARPU, lower churn. Changes customer acquisition. Thinks they will continue to make investments to deliver faster networks.

Has outgrown market 18/19 quarters. Cook thinks that means they have right approach.

Asking about netbooks. Tim Cook: Apple’s goal is not to build most computers but to build the best. Will play at whatever price point they can build the best. Don’t see a way to build a great product at $399/$499. Thinks customers, many customers, become disenchanted after they buy them. Continue to focus on building best and giving tremendous value.

Additional distribution and pricing model needed to sustain growth? Tim Cook: Just took major change with intro of $99 product. Reason to do that was view of elasticity. Working hard to continue expanding distribution in countries they’re in, (where it makes sense) and adding new countries. Still large markets left uncovered. [China?]

RBC Capital asking about competitive App Stores and software. How to out innovate in user experience and leadership? Tim Cook: Won’t talk about future plans. Summarize last 30 days: shipped iPhone 3.0, App Store now available in 77 countries. Install base more than 45 million (iPhone + iPod touch). Quotes App Store stats. 65,000 apps compares RIM/Nokia, Android. Substantial lead in Apps and innovation. Years ahead of other people.

Asking why iPod channel was reduced. Tim Cook: to support new Shuffle and easter holiday, they increased. When that was done, they decreased, and also demand was lower and iPhone cannibalized. Shuffle, nano, and classic demand also lowering (”classic MP3 player market”). Still in target range, however.

Apple benefitting from higher iPhone revenue. [No doubt!]

Asking if $99 iPhone 3G actually served as traffic driver for iPhone 3GS. Was that it’s role, or is it really part of iPhone story. Tim Cook: Focused on total iPhone story. Too early to tell ultimate mix due to only shipping in 18/80 countries and supply constraints. Also upgrades happen early, upgraders likely to pick newer version.

Talking about $999 MacBook vs. cheaper MacBook Pro pricing mix. Tim Cook: competitive info.

Asking why Snow Leopard was priced so low. Tim Cook: Even better Leopard, redefines 90% of projects. Something about not even Windows building in (Exchange support?). Priced aggressively so all users can upgrade. Hoping they do. Expect to ship later this quarter.

Talking about MacBook pricing elasticity. When they can do it at lower prices, they will but won’t put Apple brand on products that don’t innovate.

Asking about 5.2 million iPhone sales in Q3 and supplies still constrained. How’s inventory. Tim Cook: Flat sequentially. What that means is selling more units at the end, don’t have a channel loaded. Haven’t seen anything like it. About 1.83 million inventory, including in transit, invoice, demo — counted conservatively.

Talking about reduced margins due to back to school promotions, lower MacBook prices, etc.

Questions on guidance and margins…

Follow up question on progress in enterprise accounts? Tim Cook: Growing interest with release of iPhone 3GS and iPhone 3.0 due in part to new hardware encryption and security policies. Doing best in corporate and government who allow individual purchases. 20% of Fortune 100 customers bought 10,000 iPhone, some have bought 25,000. In over 300 higher education institutions.

David Baily asks how $99 iPhone is doing. Change in mix since launch? Tim Cook: Acceleration of total unit sales, can’t tell exact mix since it’s competitive data. iPhone 3GS supply is still constrained, so demand very robust.

Nothing to announce about U-Verse, 3G in laptops. Happy with AT&T relationship.

Tim Cook answering Gene Munster on how carrier relationships will evolve: most of the carriers they’re doing business with are thrilled with lower churn and higher ARPU. Customers demanding iPhone. Looking to expand.

Closing canned remarks. Can has Q&A soon?

$500M prepayment to Toshiba for NAND flash memory

31.1 BILLION in cash on hand(!)

1.5 billion in revenue for Apple Stores.

iTunes experience getting better. 8 billion songs purchased.

Didn’t recognize iPhone revenue until iPhone 3.0 became available on June 17.

1.69 billion from iPhone, accessories, carriers, etc.

App Store stats: 65,000 apps. 3.0 will create even more innovative apps.

Continuing to roll out 3GS to 80 countries this summer.

iPhone 5.2 million sold in June quarter! 1 Million iPhone 3GS in 3 day launch. Cannot make enough to meet demand. Working to address this.

70% of US market. iPod top selling MP3 player. Gaining share in almost every country tracked.

iPod touch grew 30% year over year.

50% of iPod buyers are still new buyers, even in established markets

Traditional MP3 players declined, as internally forecast. Reason why they developed iPod touch and iPhone. They’re cannibalizing themselves. Business will still last for years.

10.2 million iPods. Down from last quarter. Reduced channel inventory and sell-through declines.

13% increase in laptop sales. Customers favorable on new portables.

2.6 million Macs. Sales increased 100K units over prior year.

Lots of financial info we shan’t bore you with. Read press link below…

Record June revenue. Highest non-Holiday revenue in history.

“We’re making our most innovative products ever and our customers are responding,” said Steve Jobs, Apple’s CEO. “We’re thrilled to have sold over 5.2 million iPhones during the quarter and users have downloaded more than 1.5 billion applications from our App Store in its first year.”

Press release is live: The Company posted revenue of $8.34 billion and a net quarterly profit of $1.23 billion, or $1.35 per diluted share. These results compare to revenue of $7.46 billion and net quarterly profit of $1.07 billion, or $1.19 per diluted share, in the year-ago quarter.