Highlights of interest from Apple Q4 2013 conference call and Q&A

Apple has reported 33.8 million iPhones, 14.1 million iPads, 4.6 million Macs sold in Q4 2013 and now they’re going to talk about it! We’re listening in via Apple’s investor page and will be collecting notes of interest and highlights below. Refresh for updates. Face palm for inane iWatch or Apple television questions!

  • Tim Cook: Strong finish to an amazing year. Apple business stronger than ever. Worldclass hardware, software, services. (This is all preface to the results.)
  • TC: Winning in all the ways that are important. Satisaction, usage, loyalty. Extraordinary list of products launched in just the last months. (Listing them off.)
  • TC: Deep collaboration between design and engineering. (Cook’s new Apple structure.) iOS 7, OS X, iWork, iLife. All free. Want customers to have access to greatest new features. Products only Apple could deliver. Most would be happy with just one of them.
  • TC: (Talking total numbers, revenues). 400 million retail visitors. $50 million revenue per store.
  • TC: 15 acquisitions, one every 2 or 3 weeks. One of the largest dividends payers in the world.
  • TC: (Bunch of share holder stuff, basically telling Icahn to shove it?)
  • TC: Very confident, see significant opps in both current product categories and new ones. Large and growing market. Smartphone category expected to grow significantly from 1B to 1.7B in 2017. Tablets growing even faster. 225m to over 400m in 2017. Continue to invest in R&D and distro.
  • TC: Force for good in the world, standing up for human rights, trying to eliminate aids, working on education. Thanks to shareholders and employees. Passionate about making great products.
  • Peter Oppenheimer: Record iPhone sales, highest for quarter ever. 7.5 billion. Margin was 37%. Net income was 7.5 billion.
  • PO: 33.8 iPhones old. Up 26%. Record. Ahead of expectations. Grew strongly all segments. Pleased with growth in latin america, middle east, russian, india. Happy to add NNTDoCoMo. iPhone sales robust in US. Comscore estimates Apple leading supplier.
  • PO: 14 million iPhones in channel inventory. Low end of target range of 4-6 weeks. Customers love them. Singificantly higher customer experience rates than competition. 53% more time each day on iPhone than Android.
  • PO: 35K companies building custom apps for iPhone. (Bunch of companies using iPhones for tens of thousands of employees.)
  • PO: 14.1 iPads sold. Exceeded expectations. Robust growth in japan, russia, middle east, back to school in US, Canada. 4.1 million units in channels, within target range of 4-6 weeks.
  • PO: Interest remains strong. 99% customer satisfaction rate.
  • PO: iOS in Enterprise remains strong. iOS counts for 95% and devices 75% of total Good activations. (More on how companies are using it.)
  • PO: School continue to adopt iPads. UK more than doubled, Latin America 70K iPads across 800 schools. US school districts roll out large initiatives.
  • PO: Driven by great content. New iPads with A7 chip, 64-bit desktop class architecture. (Talking points on iPad Air and Retina iPad mini.)
  • PO: Mac 4.7 million above expectations. Global market contracted by 10%, Mac continues to gain share. Strong growth in sales of update MacBook Air. iMacs updated in September. Last week, MacBook Pro. (Talking points on new Macs.)
  • PO: (Mavericks talking points.) 200 new features. Now free. Mac channel inventory on low end.
  • PO: iTunes 2.4 billion, thanks to strong growth in apps. Up 15%. 60 billion downloads, 13 billion in payouts, half in the last year.
  • PO: iOS 7 is faster software upgrade ever. Nearly 66% already running iOS 7. Significantly higher than update rates on other platforms. More customers having most advanced experience possible, enables devs. (iOS 7 talking points)
  • PO: 20 million iTunes Radio users in US.
  • PO: Easier to configure and manage in Enterprise. (Going over Enterprise talking points.)
  • PO: Apple Retail. 4.5 billion, up 6%. Very strong iPhone sales. 36% growth per store, per week. Remodel 2 stores, opened 8. 416 total, 162 outside US. 30 new in 2014. 2/3 outside US.
  • PO: 99 million visitors.
  • (Going over OpEX, OINE, etc.)
  • $146 billion in cash + short/long term. Domestic 35.5 billion. Down due to share repurchase. 76% offshore.
  • (Share buyback/dividends stuff)
  • 47 million shares retired. 5%. 44 million have been retired in past 2 quarters.
  • PO: Revenue deferment. (talking about free stuff they give away). iWork + iLife as necessary as mail, calendar. Making future OS updates, software free. Deferring greater amount of deferral. Will result in 900 million sequential increase.
  • PO: 55-58 billion expected. 36.5-37.5% gross margins expected. (More expectations.)
  • PO: Very pleased. Incredible lineup of products.
  • Q&A time!
  • Q: Surprised gross margin guidance isn’t better. Walk through headwinds?
  • PO: Expect 36.5-37.5 percent. Pleased given all new products launched. Benefit from leverage on substantial increase on revenue. Offset by higher deferred revenue. Richer mix of new iPads with higher costs, less margins. Mac Pro/iMac have higher cost structures. Yen.
  • Q: Pleased with 5s, but A7, M7, TouchID, not sure what they enable. Why do you need 64-bit in a phone?
  • Tim Cook: Everything you mentioned is front end of long roadmap. 64-bit, first use of TouchID. Profound for security, purchase. Most important what customers think. Innovations combined led to best iPhone launch ever. 9 million units first weekend.
  • Q: iPhone 5c price point lower, what type of response are you seeing from cost sensitive regions? Make it more appealing for emerging regions?
  • TC: iPhone 4s as entry offer. iPhone 5c mid-tier. iPhone 5s. Goal is to, overall, have growth or total iPhone. Want to have each category grow. Total offers they’re making, low, mid-tier, high end, would like to grow in each one. Really pleased they did that. That’s how they partly measure success. Make a good product. Need growth. 5c was never intended to be entry phone. That was 4s. iPhone 4 very good volumes, experiment in other reasons. Fair amount of price elasticity. Will continue with 4s.
  • Q: iPhone ASP overall. iPhone ASP at mix tends to be highest first few months. Should assume same pattern now?
  • TC: All things being equal, normally see a large number of early adopters come into market right after announce, buy best product. That’s what they’d expect to see.
  • Q: New product categories? Can you re-iterate we should have that expectation? Haven’t been any yet?
  • TC: Didn’t say that. Just to be clear. You would see exciting new products in fall and across 2014. Stand by that. New categories. Look at skills Apple has from hardware, softare, services, app ecosystem. Unique. No one has skills like this. Believe we can use them to build other great products. Categories we do not participate today.
  • Q: Pricing strategy, elasticity on on iPhone 4? Lessons learned? Address lower price segments?
  • TC: 400 number is yours, not mine. This time lineup, 4s is replacing 4. US as example, 4s is now free like 4 used to be. Outside the US, depends on the market. Currency changes, strength of dollar doesn’t play in their favor in some geos. 4s is entry iPhone offer. Gives someone ability to access entire ecosystem with fantastic product. Elasticity in that market, will move accordingly.
  • Q: China. What happened? Do you see growth rate accelerating?
  • TC: Had a pretty good Q in China. Want to do better. Grow by 6%. iPhone units were 25% despite constraints on iPhone 5s. Able to launch in first round this time in China, big change. Close relationship with carriers, government in China. iPad as well. Full year, Greater China over 27 billion, up 14%. Reasonable sized business there. Year ago iPad launched late. That pressure down some. Otherwise stronger. Investing in stores. One more in greater china last few weeks. Point of sales up on iPhone. More cities. Working on coverage, launching earlier, building on retail.
  • Q: Confusion on revenue deferral. How much is pressuring gross margin down? When do we recoup, how many quarters?
  • PO: Had been deferring for iOS and Mac. Increased. iPhone and iPad 15-$25, up $5. Mac gone from $20 to $40. Sequential basis, coupled with unit increases, 900 million more in Dec Q over September Q. You can calculate on that. Goes straight through to margin, dollar for dollar. Will record for iOS across 2 year period of time, Macs 4 year period of time.
  • PO: Really happy to be guiding gross margin flats given new products have lower prices, higher cost structures. Working hard to get down cost curves.
  • Q: More on gross margins.
  • PO: More on gross margins.
  • Q: 4 launch, then margins ramp. Any structural things change in profitability?
  • PO: Don’t know about structural comments. Benefits in leverage, cuts both ways.
  • Q: How do you think of iPad growth? Any differences in iPad vs. iPhone upgrades?
  • TC: Tablet market is huge, large opportunity. Not solely focused on unit share. Focused on usage, customer sat, loyalty. Believe announcement last week was largest ever. Confident they are going to grow year over year. Get off to great start this weekend with iPad Air, later in month iPad mini. Wanted to reduce price of iPad mini, did that. Now coming in at $299. Incredible value to get access to ecosystem. iPad Air is incredible product. Best iPad ever done. Going to do really well. It’s going to be an iPad Christmas.
  • Q: Why OS X, iWork free?
  • TC: best selling productivity on mobile, wanted customers to have access to best features. Bold move. Some other folks charge $199 for each of these, OS and productivity apps. Want to make it part of the experience. All the way back to Snow Leopard. Just another reason everyone should buy Mac. Great decision, great for customers.
  • Q: Education? Chrome books, Google apps? Taking share? Price points low?
  • TC: Good question. Best education quarter ever. Over $1 billion. First time ever. iPad up 22%, Mac up 8%. PC market down 10%, likely more in education. Vast majority of people are buying PC/Mac or iPad. Share of tablets in education is 94%.
  • Q: Touch ID, Retina mini supply?
  • TC: iPhone 5s ended very significant backlog. Still have backlog. However, supply is building each week. Very confident of ability to keep ramping. Rolled out 30 more as of last friday. Another 16 this week. Right on in terms of achieving 100 by end of calendar year. Retina iPad mini will start shipping later in November. Unclear whether they’ll have enough for the quarter or not. Will see how demand goes. Think they’ll do fairly well. Component costs, both DRAM and NAND were up, DRAM will continue to be up, NAND will be flat. Other commodities will fall sequentially.
  • Q: Uplift this quarter?
  • PO: No precise amount, benefitting from leverage from higher revenue, expect to have positive commodities, selling iPhone never a bad thing.
  • Q: Message? Bigger coverage, upgrade cycle?
  • TC: Range for iPhone is 4-6 weeks. Were at low end of range. Most important thing he looks at. Changing? Consider China was in wave one. More point of sales. Added DoCoMo in Japan. Large carrier. Of 14m, 1.8 million were iPhones in transit, not available in channel. Count those in channel, because in sales line. How Cook looks at it.
  • Q: Year ago very ambitious, constraints. Better shape to navigate supply constraints? Or similar situation?
  • TC: iPhone 5s doing really well on supply, demand very robust. In backlog, confident. iPad mini, very difficult to forecast. See about iPad Air. Thinks we’ll have a really good weekend. Maybe not everyone can find one who wants one. Difference between last year is iMac didn’t ship until end of December. Went 2 months minimal iMac sales. Only down vs. market quarter in last 30 quarters. Don’t envision that happening this year. MBP gotten off to great start. Mac growing YoY, iPad growing YoY, can tell from strong guidance.
  • Q: iPhone ASP? Supply availability issue?
  • PO: Sequentially flat. YoY down 7%. Primarily due to significant increase in sale of entry SKU to attract more first time buyers. Yen, AUS, emerging market impacted them. Will report next Q in January. Headwinds likely continue given exchange rates.
  • Q: Channel inventory. Was that skewed towards low end given 5s was short?
  • TC: 5s huge backlog. Any 5s was in transit. Pretty substantial number.
  • Q: Subsidies? Impact? Sustainable?
  • TC: Carriers like to sell as many units, get as many people on their service as they can. In most regions want them on contracts. Don’t see that changing. Some carriers have come up with different programs. Might appeal to annual upgraders. Those in general reduce subsidy somewhat, but customers might view fair exchange for faster upgrades. Great relationships, very happy with rollout.


Source: http://feedproxy.google.com/~r/TheIphoneBlog/~3/FJSWuyBx_Tg/story01.htm
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