It’s the moment you’ve all been waiting for: Apple’s Q1 2007 earnings. If you’re not pumped with excitement, well, go get pumped. We’ll wait. Okay, ready now? Excellent. We’re on the conference call right now, listening to some pleasant, if staticy, classical music that’s probably not streaming from iTunes.
Apple, of course, has stolen some of the thunder by releasing preliminary numbers, so let’s break it down for you. The quarter ended December 30, 2006, and the company (that’s Apple Inc.) posted record revenue of $7.1 billion, with a record net quarterly profit of $1.0 billion (that’s $1.14 per diluted share, if you must know). Last year’s Q1 raked in $5.7 billion in revenue, $565 million in profit ($.65 per diluted share), so it’s pretty clear that Apple’s ahead of the ballgame. More than 1.6 million Macs were shipped, and over 21 million iPods. Cash on hand is up to $11.9 billion.
For Q2, Apple’s expecting $4.8 to $4.9 billion in revenue, and earnings of $.54 to $.56 per diluted share. For more fiduciary fantasticsness, hit the jump below.
Still listening to classical music.
Here comes Nancy Paxton, Senior Director of Investor Relations and Corporate finance. We’ll be hearing from CFO Peter Oppenheimer, COO Tim Cook, and someone else whose name I didn’t catch.
And here’s Oppenheimer. “Stellear results…another record breaking quarter.” Very strong iPod sales during holiday season, “continued robusted demand” for Macs. Revenue is up 78% over last year same quarter.
28% growth in Mac sales over year ago quarter, ahead of projections (but sounds flat from previous quarter). MB and MBP refreshes to C2D. Portable shipsments grew 65% year over year, 60% of total Macs sold.
57% of total revenue was from music products. 50% growth in iPods vs. year ago quarter. Share of the US market for MP3 players was 72% in December. Share gains for every country in iPods. Store includes over 4 million songs, 350 televison shows, 250 movies. iTunes continues to lead market, over 85% of market (Nielsen SoundScan). iTunes gift card sales doubled year over year.
Retail sales were $1.1 billion. Now 170 stores, 5 opened. $6.7 million average revenue. 60% year over year growth for Mac sales in retail. 13,000 customers per store per week. Confirmed that iPhone would be in Apple Stores in June.
Very strong cash balance, ending with $11.9 bilion, bolstered by strong earnings and cash management. Q2 projections, as per above.
A lot of talk on stock-based and non-stock-based compensation expense. And a lot of other numbers that are going in one year and out the other.
Very excited about Apple TV and iPhone, and very excited about new products coming from Apple this year.
Now opening the floor for questions.
UBS: Any pause in iPod demand waiting for iPhone in Q2; seasonality for iPhone?
Oppenheimer: Too soon to tell. May share some observations next quarter. Seasonality: for iPods, holiday season is a big draw. Supply and demand were in balance, as opposed to last year. Higher decline coming out of the quarter. For Macs, education buying will increase in spring.
Backdating: any news from SEC or DoG?
Oppenheimer: Voluntarily and proactively provided all details of internal and independent investigation to government. No misconduct found, and board expressed complete confidence in management team.
No formal investigation?
Oppenheimer: Contuning to voluntarily and proactively inform them of findings.
Richard Gardiner of CitiGroup: Which commodities were better?
Favorable pricing continuing on LCD and Flash memory; DRAM will be supply-demand balance.
Stanford-Bernstein: Dramatic deceleration year over year in iPod shipments in retail stores?
Oppenheimer: Retail store revenue grew 6%; Mac sales increased by 60%. Partially offset by lower iPod revenue, resulting from price reductions in Sept. and well-supplied distribution channel. Very pleased with stores performance. Come June, they’ll sell a lot of iPhones.
Richard Farmer, Merill-Lynch: Why no 3G in first model? Could that change?
Cook: Very much sold on EDGE (2.5G), much more widespread and widely deployed in US. Don’t comment on roadmap, obviously we would be “where the technology is.”
David Bailey, Goldman Sachs: Pricing more aggressively on Macs to accelerate Mac growth?
Cook: Substantially above market growth. 8 of the last 9 quarters, Mac has outgrown market. Very competitive product offerings, deliver above market growth.
Rebecca Runkle, Morgan Stanley: Units dropped in US and in retail for Macs? What drive sequential drop?
Cook: Mac units down sequentially 16%, same as previous year. Strong Q4 demand from education, drops in Q1, seasonal in nature. Same number of total units as Q4, expected bigger drop.
Gross margins = over my head. Wheeee! Oh, please stop talking now.
Keith Bachman, Bank of America: International sales, iPods vs Macs? iPods traditionally US, lot of upside in iPods driven by outside of US sales?
Cook: Europe in particular, Mac unit growth 28% compared to market growth of 9%. Several countries did exceptional. Many countries gained 10-20 points of share. Feel very good about Mac and iPod internationally, especially in Europe.
Shannon Cross: iPod demand on product line?
Cook: No specific units
Cross: Anything on Leopard?
Cook: Ship Leopard in spring. We’ve got a lot of people working on it. (Yes, I would hope so.)
Bill Shope, JP Morgan: Numbers on Best Buy pilot? Any pause on Mac purchases vis-a-vis Leopard?
Cook: Continuing to selectively expand Mac channel. 7500 storefronts around the world. Working with Best Buy to evaluate holiday quarter. Don’t see any pause as people wait for Leopard (just as with Tiger).
Harry Blount of Nieman Brothers: Number of distribution locations, iPod and Mac?
Cook: iPod, 40,000; Mac, 7500.
Blount: iPod units down?
Oppenheimer: iPod units down, as well as revenue slightly (Have to check details on that later). Supply and demand in balance.
It’s time for the “We don’t comment specifically on product line gross margin game.” Don’t you think the analysts would know this by now?
Andrew Ness with Bear Stearns: Is the iPhone design fixed (i.e. the battery sealed) or could it change?
Cook: We’ll provide more details on iPhone right before we begin shipping in June.
Gene Munster, Piper Jaffray: 10 million iPhone units: fiscal ‘08 or calendar year ‘08?
Cook: Worldwide market for cellphone is 1 billion, so 1% is 10 million.
Munster: 10 million for ‘08 seems pretty low. Should be easily achievable. Do you expect to have capacity constraints at beginning of iPhone?
Cook: Share more details as we get closer to June.
Munster: Apple TV. Projected units? Best-selling product on the website right now.
Cook: Plan to ship in Feb. For this quarter, just a few shipping weeks. Included in Q2 guidance.
Munster: Niche market or broader platform?
Cook: From demand point of view, too early to tell. Positioning product as the DVD player of the 21st century. Not a niche.
Munster: Halo effect. Mac numbers disappointing? Seasonality?
Cook: There is a halo effect: in US, 31% growth vs. 3% market. Intent to buy a Mac is up substantially. Intent to buy: 17%-28% on portables in a year. 8th quarter of the last 9 that Mac outgrew market. Thrilled with number, as higher than projected.
Munster: Of 21 million iPods, how many new owners?
Cook: I don’t know.
Robert Simple, Credit Suisse: iPhone cannabilization of iPods at the video iPod level?
Cook: Too soon to tell. Hard to predict. Believe great line of iPods shipping today to meet lot of different needs. We’ll see. (Vagueness, incorporated).
Simple: Convergence or separate devices?
Cook: [Basically reiterates first answer].
Simple: 50% of all Macs sold to new users. Where was that number tracking previously?
Cook: Retail stores were hitting around 50%; this has now expanded to rest of channel in US. Total of all sources produced this result.
On the Mac Pro?
Cook: Pro market met expectations internally. Expectations tempered by some customers are still awaiting Creative Suite (zing!). Did release Beta, and have announced release in second calendar quarter this year. Should bolster Pro sales once released.
Boot Camp?
Cook: 1.5 million downloads of Boot Camp. Still intend to include it in Leopard.
Kevin Hunt, Thomas Weisel partners: Cisco lawsuit? Any potential impact on June shipping?
Cook: Cisco trademark lawsuit is “silly.” Several companies use “iPhone” for VoIP; believe Cisco’s Trademark registration is tenuous at best. First company to use iPhone for cell phone, if Cisco wants to challenge, we’re confident we’ll prevail.
Chris Whitmore: More aggressive pricing on iPods to take advantage of commodities?
Cook: Don’t disclose pricing plans. Not a pricing problem on iPods (or on Macs)—21 million units sold.
Think Equity partners: What happened in Japan? [Did I miss a Godzilla attack?]
Cook: PC market in Japan is among weakest in the world. Disappointed with results, even though consistent with market in PC and MP3. Putting additional emphasis there; running localized Get a Mac ad, getting good reviews.
Will Apple TV be broken out?
Oppenheimer: Be part of “Other music related products and services line.”
Is iLife still January refresh?
Oppenheimer: Don’t announce future products, but stay tuned.
Brian Blair, wedge partners: Additional software applications download opportunities on iPod?
Cook: We’ll talk more as we get closer to shipment.
Charlie Wolff with Needham: Poor guy, most of his questions have been answered. Boot Camp: will Apple support Parallels and VMWare?
Cook: We support Parallels today. Very key partner.
Steve Lippard: Store rollouts in ‘07; employee head count?
Oppenhimer: 6600 retail employees (21,500 in Apple overall). Opened 5 stores in December quarter. Open 7 in March quarter. 35-40 in FY07.
Oppenheimer: Very strong MacBook Pro quarter.
Webcast will be available at 5PM Pacific at http://www.apple.com/investor.
And that’s it!
