Last night, Apple held its quarterly earnings call to announce the company’s overall sales performance for the second quarter of this year. Revealing a strong quarter for iPhone, and a slump for iPad (compared to the year-ago quarter), the call also revealed a few other tidbits we think are worthy of sharing.
On overall smartphone share, Cook said:
“We gained smartphones share in many developed and emerging markets including the U.S., the U.K., Japan, Canada, Germany, France, Vietnam and Greater China, just to mention a few. In fact, we established a new all-time record for total iPhone sales in the BRIC countries.”
Cook next turned his attention to iTunes, where he said revenue was growing at a “double-digit rate.”
“iTunes, software and services revenue continue to grow at a double-digit rate, thanks to an incredible ecosystem and our very large loyal and engaged customer base. With its strong momentum and growing profitability, iTunes is very important driver of our business, not only here in the United States, but around the world.”
He also revealed that there are now 800 million iTunes accounts. Most of these, the CEO noted, have “credit cards” attached to them, “this is a staggering number,” Cook said. “Total revenue from iTunes, software and services was $4.6 Billion, an increase of 11% year-over-year and an “all-time quarterly record,” according to Apple’s controller, Luca Maestri.
“Our iTunes stores generated record billings of $5.2 billion in the March quarter, up 24% year-over-year driven by very strong growth in App Store sales,” Maestri highlighted. “iTunes billings translated to quarterly iTunes revenue of over $2.6 billion, up 9% from the year ago quarter and also a new all-time record,” the VP said.
Related to this, Cook then touched on OS X – saying:
“We continue to gain share in the personal computer market as well. We defied industry trends again by growing, while the market contracted. Our bold decision to make OS X free has resulted in the largest ever percentage of the Mac install base running on the latest version of the operating system, just months after its release.”
On slumping iPad sales, the CEO said:
“iPad sales came in at the high end of our expectations, but we realized they were below analysts’ estimates and I would like to proactively address why we think there was a difference.” Apple believes “almost all of the difference” can be explained by two factors. The first being that, in the March quarter last year, the company “significantly increased” its iPad channel inventory, while this year it “significantly reduced it.”
“Second, we ended the December quarter last year with a substantial backlog of iPad mini that was subsequently shipped in the March quarter whereas we ended the December quarter this year near supply demand balance,” Cook responded. “We continue to believe that the tablet market will surpass the PC market in size within the next few years, and we believe that Apple will be a major beneficiary of this trend.”
On growth in China:
“When we look at our Company performance on a geographic basis, we are especially proud of our very strong results in Greater China where we established an all-time quarterly revenue record of almost $10 billion including the results from our retail stores, and in Japan, where revenue was up 26% in spite of the foreign-exchange headwinds and where our smartphone market share reached an incredible 55%.”
The addition of China Mobile led to an “all-time quarterly record for iPhone sales in Greater China,” Luca Maestri, Apple’s VP and Corporate Controller, said. In Japan, iPhone sales were up over “50% year-over-year resulting in significant market share gains,” the controller highlighted.
On user growth (in general):
“We estimate that over the last six months, we’ve added over 60 million new registered users of our four product categories,” Cook said, with the executive adding that “two-thirds of people registering an iPad in the last six months were new to iPad while over half of the people registering iPhones were new to iPhone.”
On future products, Cook alluded:
“We will continue to innovate by investing in research and development and capitalizing on our strength in hardware, software and services,” adding that Apple is already expanding its products and services into new categories, and it is “not going to under invest in this business.”
On acquisitions:
“We’re also investing through acquisition and we’ve acquired 24 companies in the past 18 months,” Cook said. “To invest organically and to make acquisition strategically, we need to maintain financial flexibility,” he added.
On expansion into the enterprise:
“Deutsche Bank has nearly 20,000 iPhones running on its network and has created 40 internal apps that extend the capabilities of its mobile workforce. Siemens has 30,000 iPhones on its network and has deployed over 50 internal apps for field service teams, sales associates and corporate executives for solutions that are only possible with iOS and iPhone. We’re really happy with the continued growth and strength of the Apple ecosystem,” Luca said.
On Offshore momentum:
This is “incredibly strong” said Luca. “[...] cumulative app downloads have topped 70 billion. 87% of iOS devices are now running iOS 7 and our highly engaged users are a great audience for developers.”
On Mac:
“Macs have now gained global market share for 31 of the last 32 two quarters. Response to Mavericks has been great, and we’re very proud of the fact that so many of our Mac customers have taken advantage of the most advanced and secure experience possible,” Luca said.
On actual cash flow:
“Cash flow from operations was very strong at $13.5 billion for the quarter.”
On Peter Oppenheimer transitioning from CFO:
“As you know, Peter will be transitioning from the CFO role in June. Peter has been Apple’s CFO for 10 years and the list of his accomplishments is immense. Apple is now more than 20 times the size it was when Peter became our CFO and his expertize, leadership and incredibly hard work have been instrumental to the Company’s success,” Cook said.
“I’d like to thank him very publicly for his contributions to Apple from the very bottom of my heart and wish him all the best in his approaching retirement at the end of September,” the executive added.
Q & A
Apple then opened up the floor to questions from investors and analysts:
Q: Tim, I understand that the iPad is not as weak as it appears on a sell-through basis, but still it’s relatively flat over the last year in terms of sell-through. What are your thoughts in terms of why that is and can that accelerate with Office on the iPad going forward?
A (Cook): It’s a good question. Let’s talk about iPad a little more than we did in the comments. When I backup from iPad, here is what I see. It absolutely has been the fastest growing product in Apple’s history, and it’s been the only product that we’ve ever made that was instantly a hit in three of our key markets, from consumer to business including the enterprise and education. And so, if you really look at it in just four years after we launched the very first iPad, we’ve sold over 210 million, which is more than we or I think anyone thought was possible at that period of time.
Q: One other question. When you look at Google and Amazon and Facebook, they’ve very much diversified their business over time in a way that one has rarely seen. Apple, sort of the opposite. People say you ought to buy this or that and you’ll do acquisitions, but you’re obviously very focused. Is that because it’s just a management philosophy of wanting to be more focused than some of these other companies or is there something about Apple’s products that particularly being more hardware oriented that kind of prevents you from saying, yeah, let’s go make TV shows or let’s go often do something else, even though you probably have the money and the technical capability to do other things?
A (Cook): The key thing for us, Steve, is to stay focused on things that we can do best and that we can perform at a really high-level of quality that our customers have come to expect. So we currently feel comfortable in expanding the number of things we’re working on. So we’ve been doing that in the background and we’re not ready yet to pull the string on the curtain. But we’ve got some great things there. We’re working on them.
Q: Can you talk a bit about the competitive landscape for smartphone? If you look at some of your competitors seem to be have cut prices fairly quickly in the most recent product cycle, perhaps faster than before. You’ve got Microsoft about to close on Nokia. Lenovo is buying Motorola, there is a lot going on from a sort of competitive standpoint. So I’m curious as to how you’re seeing the market?
A (Cook): Yeah, there is a lot of moving parts, a lot of acquisitions, a lot of people giving up to some degree and deciding to do other things. But at the end of the day we see it much like we’ve always seen it, as the part of the market that we’re interested in is the market of people that really want the best smartphone and that doesn’t mean that they’re all at the high end of the price stand.
Q: Tim, I wanted to talk a little bit about some of your comments at the recent shareholder meeting, you mentioned that Apple TV is no longer a hobby. Wanted to hear a little bit about why you made that distinction?
A (Cook): Good questions Gene. The reason that I stripped off the hobby label is that when you look at the sales of the Apple TV box itself, and you look at the content that was bought directly off of Apple TV for the – for 2013, that number was over $1 billion. So, it didn’t feel right to me to refer to something that’s over $1 billion as a hobby. Also from an investment point of view, we continue to make the product better and better. So it doesn’t feel right from that point of view either. We had HBO GO already on Apple TV and you have to authenticate in order to use it, but you have to do that with Amazon service as well from my brief read of their announcement.
I think they in addition to that got some older content from HBO to put on there. I haven’t had a chance to evaluate exactly what it is and don’t have a personal point of view on that yet. But if I look broadly at the content on Apple TV, I think it compares extremely favorable to the content that is on the Amazon box. We’ve sold now, Gene, about 20 million of the Apple TV, and so we’ve got a pretty large installed base there. I’m feeling quite good about that business and where it can go.
Read the full transcript on MorningStar.
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