We’re here today to talk about numbers. 3.1415926; 4; 8; 15; 16; 23; 42; 18.5. Just a few of my favorites, there. I hope you enjoy them just as much as I have. Now comes the interactive part of this post: match those numbers to the following options.
Any who manage to line up the correct values and descriptions will get a special prize from me (that prize? A fabulous handmade iCard).
But your thirst for numbers is not slaked, you say? Very well, then. Perhaps these figures will sate the eternal hunger: $5.41 billion in revenue, quarterly profit of $818 million, $.92 per diluted share. Compare that to last year’s Q3, which showed a “mere” revenue of $4.37 billion, profit of $472 million, and diluted earnings per share of $.54, and I think you’ll agree those are some fine looking numbers.
But that’s not all, folks. Apple shipped 1,764,000 Macs last quarter, a growth of 33% over last year and beating the last record of quarterly shipments of Macs by 150,000. The company also moved 9,815,000 iPods, itself 21% growth over the year-ago quarter. Estimates for the next quarter are $5.7 billion in revenue, with diluted share earnings of around $.65, and a side of fries. Sorry, no, onion rings.
Peep the full details, with more tawdry numbers, at the link above, or hit the jump for our liveblog coverage.
(4:49:42 PM) Muzak engine engaged.
(4:55:53 PM) Still being entertained by classical music. I’m waiting for the day when they finally make a deal with The Beatles so that can be their “on hold” music. Hey, either that or Jay-Z.
(5:04:09 PM) If they ask me to “continue to standby” one more time, they’re going to have a mutiny on their hands!
(5:06:56 PM) Kind of nifty: if you go to the live broadcast page on your iPhone it says “iPhone version available later.” Yeah, the iPhone needs it some streaming support, boys and girls.
(5:08:28 PM) Here we goes! Opening remarks are now under way. We’ve got Peter Oppenheimer, Tim Cook, and treasurer Gary Whistler for the Q&A session. The usual boilerplate about forward-looking statements applies; but no problem with backward-looking statements!
(5:09:46 PM) Here’s OPP: Landmark quarter. $5.41 billion revenue is the highest June quarter ever. Record-breaking Mac sales and continued demand for iPods. Operating marings 19.2%, very favorable commodity cost environment (porkbellies?). $818 million profit, or $.92 earnings per share.
(5:10:43 PM) 60% of quarterly revenue was Macs. Apple’s sales was more than double IDG’s estimates worldwide, more than 4x their domestic estimates. 64% of Macs sold were notebooks. Between 3-4 weeks of Mac channel inventory.
(5:11:46 PM) 40% of quarterly revenue was music-related. 9.8 million iPods, 21% growth over last year’s quarter. 71% share of market share for MP3 players, according to NPD. Other music revenue rew 33%, very strong iTunes sales. iTunes is 3rd largest music retailer in the US, over Amazon and Target. DRM-music tracks, but no figures. During the quarter, they sold a total of 270,000 through AT&T and Apple Stores, with 146,000 activations. Apologizing for activation problems in the first week. Since then, it’s been mainly corrected. Very high percentage of “problem-free activations.” 90% of iPhone owners surveyed were extremely or very satisfied, according to USA Today. Reputedly, 100% preferred them to the origami paper versions. 7 quarters to sell 1 million iPods; hope to sell 1 million iPhones by September 29th, first full quarter. On track for Europe in Q4, starting with a few major countries, and expanding through 2008. Announcing initial plans with European partners later this quarter. 10 million iPhones in calendar 2008.
(5:14:45 PM) New software features for iPhones coming over time, with no charge. Hence, subscription accounting (none of those annoying little subscription cards, though). $5 million from iPhones and iPhone accessory. No revenue recognized from AT&T payments this quarter, but will in the next quarter.
(5:15:32 PM) Total deferred revenue for iPhone and Apple TV were 180 million.
(5:15:50 PM) Time for stores. Explaining how stores performance is measured. Sounds like some sort of quadratic equation. But now, with the iPhone, will begin measuring operating segments by cost-of-sale similar to those of other operating segments. Also changing how they measure .Mac and Apple Care. Now recognizing revenue over the life of the products (so that means over the year for .Mac and over the multi-years of Apple Care).
(5:17:54 PM) Retail stores results: outstanding. $915 million. 33% growth. 185 stores total now. Average revenue per store was $5.1 million, compared to $4.7 million in year ago quarter. 330,000 Macs sold via the stores. 50% were new to the Mac again. 21.9 million visitors to the stores. Stores launched new One to One, 270k members.
(5:19:10 PM) Education channel set new all time record for quarterly Mac sales. MacBook sales particularly strong in K-12 and college. 36.9% gross margin. Operating expenses were $954 million including $55 million in stock-based compensation. Cash balance is over $13.8 billion (how about a loan, guys?).
(5:20:20 PM) Looking ahead, here’s the outlook. Sunny, with a chance of rain-whoops. Revenue of about $5.7 billion; total quarterly cost of non-cash stock-based compensation ~ $69 million. Gross margins 29.5%, $10 million stock-based compensation. Gross margins down because of back to school, commodity costs, and product transitions. Earnings per share around $.65.
(5:21:37 PM) Broke Mac records by 150,000. Very positive about momentum going into next quarter. Now we’re onto questions.
(5:22:09 PM) UBS: Why should we believe $.65?
Opp: Confident guidance. Guided gross marging down as a result of three factors: back to school (expensive, but many new customers), higher commodity costs, and product transitions which he can’t get into. Damn!
UBS: Any more flavor on the iPhone? Number sold to date? (Ha ha, like he’s going to answer that). Demand right now, and building in year end?
Cook: (Timmy!) 270k units in first 30 hours. More iPhones sold in first weekend than first month of any other wireless device in their history. And customers very satisfied. “We’ve gotten off to a great start.” But primary focus is not on initial sales, but on long term alongside Mac and iPod busineses. Competitors are large and entrenched, and will not be done overnight. “Perspective is measured in years, not months.” Rewards are huge for Apple, and they clearly have the skills. Next step is to begin selling in Europe next quarter, and then expand over the whole of 2008. Grow sales step-by-step, year-by-year, and model-by-model, like prior product lines. Interesting to note the 7 quarters to sell 1 million iPods (whoopsie, analyst tried to talk over Tim; naughty).
UBS: Shortage for components for iPhones?
Cook: Most all stores have the iPhone in stock; shipping units of online store in 1-2 days.
Cross Research: No payment from AT&T this quarter. Can you clarify why not?
Opp: Really can’t go into it. We’re not discussing terms of the agreement. Recognize payments from AT&T as revenue over time as earned. Did not recognize any in June quarter, but will beging to do so in September quarter.
Cross: Can we come up with a per unit contribution of the iPhone? Is there anything else in the number?
Opp: Just hardware revenue from iPhone and Apple TV.
Cross: Have you given any thought to cashflow guidance per share?
Opp: Will continue to report what cash flow from operations. No forecast on balance sheet items, and not sure I see that changing.
Cross: Gross margin side. (Oh man, now we’re talking points and guidance, and I’m not sure what we’re getting at).
Opp: Prior year comparisons probably not a great way to look at gross margins. Look at more of a sequential basis.
(5:30:31 PM) Piper Jaffray (Come on, Munster!): Big picture on how to file revenue share between Apple and AT&T?
Opp: Can’t go into any more detail. [And it’s reiteration time!]
Munster: How do you think about initial wave of tech nerds? Think alpha geek bubble is still going on, or is that just standard?
Cook: 270k in 30 hours of last quarter, 1 millionth by end of Sept. quarter. Lot of confidence that 10 million across 2008.
(5:32:51 PM) Goldman Sachs: In addition to payments from AT&T? Any money from other vendors for placement on main screen of iPhone? (So YouTube and Google, I presume).
Opp: We don’t discuss. Can’t answer if we are or not.
Goldman Sachs: (missed question)
Opp: More stable price environment for some of our hardware products. More favorable product mix.
(5:34:10 PM) Citi Group: Update on Best Buy rollout? How many stores at beginning and end of quarter? Material contributor to Mac unit shipment?
Tim: Around 50 at beginning, around 75 by end of quarter. By end of this quarter, 200, and 300 by the end of the year. Going very well: both parties are very happy.
Citi: What was better than expected, and trends for component prices?
Tim: DRAM bottomed later and lower in the quarter than predicted. Component prices more favorable, and contributed to higher-than-expected gross margins. In terms of going forward, commodity market tightens in second half of the year. Flash market tightening, DRAM is stablizing from oversupply, LCDs greater than typical imbalance of supply and demand. More historic trend for other components.
Citi: Forward purchases on flash memory contribute to gross margin in Q2?
Tim: Don’t want to go into that level of detail.
(5:36:42 PM) Sanford Bernstein: 270k iPhones include shipments to AT&T stores? If so, how many in inventory at the end of quarter?
Opp: Shipped some of 270k to AT&T (gee, Peter, what a surprise). Most stores were stocked out during initial launch, though some inventory in transit at the end of quarter.
(5:37:30 PM) Merrill Lynch: Clarifications. AT&T payments will be recognized as revenue, not deferred?
Opp: Record as revenue over time as earned. Talk about next quarter, well, next quarter (What an idea!).
ML: Price points shifted a lot in iPod. Can we assume a broader of line and lower prices in iPhone family?
Cook: We don’t comment our product plan. We believe iPhone provides tremendous value. 3 products in one…oh, he’s channeling Jobsy! Cute!
(5:40:11 PM) Credit Suisse: Seasonality for iPods and Macs?
Opp: June begins education buying for Macs. Some years slight increase, some years slight decrease. For iPods, market is driven by innovative product launches and December quarter holiday buying. Last year, up 8% from June to September, driven by new products in Septemeber.
CS: Any slowdown for Leopard?
Cook: Past quarter is highest Mac sales that company has ever had. Macs shipping today are absolute best products. Upgrade process is straightforward and simple.
CS: iPod cannibalization?
Cook: Absolute no obvious evidence in June quarter. Will monitor this quarter and report next quarter.
(5:42:08 PM) Bear Stearns: Corporate email on iPhone; thoughts about addressing that? Clarify accounting treatment?
Cook: Corporate market, we think the iPhone is a breakthrough product for all customers, including corporate. Best email, best web browser. Very little bit of help for corporate IT can be set up to work with corporate email. So that seems like a “No.”
Opp: Explaining deferred revenue of $180 million, related only to hardware from iPhone and Apple TV.
(5:44:10 PM) Bank of America: On the CPUs: retail was standout in terms of unit growth rate. Japan was weak. Color? What’s up in retail for such good results? Expect help from iPhones (halo effect?).
Opp: Retail stores had outstanding quarter. Revenue up 33%; Mac shipments up 53%. 24% on a per store basis. Very strong traffic. Selling a lot of Macs and other products. Tremendous interest in the phone. Stores have benefited from all three product areas.
BoA: Expectations on store openings for next couple quarters?
Opp: Expect to open 12 stores in Sept. quarter, to end the year with 197 stores (wonder where the 200th will be?).
(5:46:02 PM) Lehman Brothers: How much expenses for the quarter on iPhone?
Opp: Extra staffing in stores for launch, online stores and support areas. Tremendous marketing and advertising. Added expenses, certainly.
LB: AppleTV units?
Cook: We don’t announce that level of product detail (not many, I’m guessing).
LB: Cash assets are 2/3 of total assets. Different thinking about cash usage?
Opp: No change to share with you today.
LB: Gross margin guidance. Simple math says $600 million absolute sequential decline, even with back to school promotions, and perhaps product transition. Awful large number. Help? Math doesn’t work unless they cut cost or commodities go way up.
Opp: Can’t answer the question this quarter, but will discuss next quarter.
(5:48:56 PM) Morgan Stanley: [Wow, I totally didn’t understand this question at all.]
Cook: It was the right approach [whatever it was].
Morgan Stanley: Consumer macs very strong. Desktop units were stronger than expected. Good acceleration from April product announcements?
Cook: Blowout quarter. Sold more portables and more total units than ever. Education market was best ed quarter ever. Pro business had a nice uptick due to CS3 and new version of Final Cut Studio. All markets kicked in nicely.
(5:50:34 PM) RBC Capital Markets: Similar reception in Europe when you launch the iPhone? Little bit of different market. Competitors are very entrenched.
Cook: We look at it as the iPhone is great for Americans and Europeans and everybody else (those penguins in Antarctica are all abuzz!). Announcing details on carriers later in quarter.
RBC: Anything surprising adapted to from early experiences in sales?
Cook: Only been at this for a few weeks. Very much beginners. So everyday, there’s something to learn. Very focused on building the business over the very long term. Expanding geographically into Europe next quarter.
(5:52:13 PM) FTN Midwest: Product transition for next quarter. Any effect on revenue mix or revenue growth?
Opp: We’ll have to talk about that in 90 days.
FTN: Direct mix was helping margins. Direct vs. indirect mix for quarter.
Opp: 53% of revenue, up from 49% in year ago quarter.
FTN: Any issues with availability of components in past or current quarter?
Cook: For last quarter, ended with channel inventory in 3-4 week range for the Mac. Outside of our range on the low side. Announced new MBP in early June, not able to get enough inventory in channel by end of quarter. Projected both supply and demand in revenue guidance.
FTN: Any availability on components?
Cook: Components generally drives supply. Factored that into guidance.
(5:54:49 PM) JP Morgan: Any color on incremental OPEX in iPhone going forward? Qualitative color.
Opp: (You know, Oppenheimer sounds like my uncle Jim a bit). OPEX is a period expense. Spreading revenue over two year period. (Ooh, he used the word amortizing. Awesome).
JP Morgan: Any early demographics on iPhone buyers?
Opp: Nope. (Here’s a demographic: they’ve all $500-$600 to blow.) Reiterates 90% satisfaction.
(5:56:43 PM) WR Ambrecht: iPhone ASP? Any qualitative on 8GB vs 4GB?
Cook: Mix skewed to the 8GB for early sales in June.
WR: Is iPhone gross margin above corporate average for June quarter?
Opp (stalling for time?): Off to a great start with iPhone. 270k in the last 30 hours revenue contribution in the quarter was $5 million, vast majority of that was accessories.
Cook: Plan to go into major countries in Europe next quarter. Move across Europe (like the Allies) in 2008, and in Asia.
WR: Terrific quarter for Macs. Any marketshare aspirations vis-a-vis to grow market share?
Cook: Focused on making the very best products. Believe that if we do that, our shares will rise. But not setting specific marketshare goals.
(5:59:45 PM) And that’s it! Replay will be available on the iTunes Store, webcast on apple.com and on telephone 719 497 0820 (listen on your iPhone). Confirmation code: 5947832. Available at 5PM pacific.
(6:00:25 PM) Hope you enjoyed our quarterly liveblog. We’ll see you in 90 days.
either you are a LOST fan, or the numbers are coming to get me....
While the results came in at the higher end of expectations, they do reinforce Apple's reliance upon the Jobs machine.
For more consideration click:
http://sneakybusiness.typepad.com/sneaky/2007/07/apple-earning-1.html
Thanks for doing this. I can never get the thing to stream! Dang, that's a lot of macs.
Nobody asked about when the iPhone would be available in Canada? Pffff...
@Andrew: Nothing to say it couldn't be both. :)
@Thomas: Good point. Maybe it's time to start bugging Apple PR. ;)