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Apple FQ2 Conference Call Notes

Apple Shatters Expectations in Down-Turn Economy — Turns out Best Non-Holiday Quarter in Company’s History

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Apple’s financial call today had some interesting highlights, duly noted below. 

  • 9% growth y-y in a down turn economy.
  • 2.22 million Macs, 3% decline y-y. (Mac Book Air last year contributed to difference)
  • Continue to see strong y-y growth in Mac performance
  • Began and ended quarter with 3-4 weeks of Mac inventory
  • iLife and iWork are strong reasons why Macs are attractive to users
  • iPod touch is a strong product for Apple
  • Customers responded positively to iPod mini with voice-over-control
  • UK, France, Germany and Japan and China saw strong y-y growth in iPods
  • AppStore now offers over 35k apps for iPhone and iPod touch
  • Within hours of 1 billionth app download
  • Continue to “believe we are years ahead of competition”

Turning to the iPhone

  • Continue to believe the AppStore is a key differentiator between the competition
  • 3.8 million iPhones sold this quarter, (123% y-y) growth
  • iPhone now selling in 81 countries
  • +300% growth in revenue due to iPhone and accessories (y-y)
  • 100 customer features in new iPhone OS 3.0
  • 252 Apple Stores – Now Open
  • 39 million visitors in the stores this quarter, increase of 16%
  • Open 25 stores in next year, half outside the US
  • software and accessories were better than planned, 1 of 3 factors in better performance
  • cash in short term $28.9 billion
  • preservation of capital is Apple’s focus
  • $7.7 and 7.9 billion estimate for next quarter (3rd)

Key Notes and Quotes from the Call

(1) Apple’s mix of pro versus consumer computers slanted towards the consumer side more than in past quarters. Apple said they believe this is a direct reflection of the global economy and down turn, especially here in the US where Mac Pro sales were particularly hard hit. “The consumer is holding up much better than the business customer in the US,” Apple’s executive staff noted in today’s call. Businesses are holding off on new equipment and the educational market in particular has been hit hard by state budget deficits of unprecedented levels. 

The take-away point here is that Apple’s consumer strength is helping the company weather this global recession better relative to its more enterprise-centric rivals. 

(2) Apple updated its entire desktop lineup on the same day, an unprecedented event for the company, and did accelerate sales noticeably for the company. However, this took place in March late in the quarter with a smaller effect on the balance sheet.

(3) Netbooks are often junky and not worth the association to the Apple and Mac brand. That was the essential message today regarding questions about Apple and its plans to enter the Netbook market. The company deems them to be low-quality products that are not consistent to the standards of user experience that Apple builds into its products. If Apple sees an opportunity to make a noticeable contribution in innovation to this space the company will enter it. Apple did mention today that the company does have some interesting ideas and is studying the market. 

(4) Apple now has a user-base and eco-system of 34 million iPhones and iPod touches combined, marking a lucrative, large and fast-growing market for developers who want to target the next generation of mobile Internet devices. This sizeable market, plus the iPhone OS 3.0 software, is helping explain the explosive growth in software titles in the Apple AppStore, the company explained.

(5) On Steve Jobs. “We look forward to Steve returning to Apple at the end of June.”  — from the conferene call. 

(6) Regarding Intellectual Property and Apple Protecting Their Own:  “We think that Apple’s innovation is leading the industry by years…we think competition is great, it makes all of us better, as long as other companies invent their own stuff.” — Tim Cook, Apple CTO.

 

Apple’s Quarterly Results press release is here.

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