Apple 2.0

Covering the business that Steve Jobs built

Apple blows past estimates. Sales up 82%. Profits up 125%.

July 19, 2011: 4:57 PM ET

Sold a record 20.34 million iPhones, 9.25 million iPads and 3.95 million Macs

Apple's (AAPL) third fiscal quarter was bigger than the most optimistic estimates. Even without a new iPhone to drive sales, revenues, earnings and profits were bigger than the biggest Christmas quarter.

Apple also announced that OS X Lion is coming tomorrow (Wednesday).

The iPhone and iPad numbers were huge surprises. Sales of the iPod, as expected, continued to fall. Only the Mac failed to meet consensus expectations.

"We're thrilled to deliver our best quarter ever, with revenue up 82% and profits up 125%," said Steve Jobs in a quote prepared for the press release. "Right now, we're very focused and excited about bringing iOS 5 and iCloud to our users this fall."

The stock closed at a record high $376.85, up $3.05 (0.82%). Trading was halted before the earnings release. When it re-opened, shares immediately jumped more than $22 to just under $400.

Numbers and notes from the earnings call with analysts below the fold.

  • Sales: $28.571 billion, up 82% year over year
  • Profits: $7.308 billion, up 124.7% (!)
  • EPS: $7.79, up 121.9% (!)
  • iPhone: 20.338 million units, up 142.2% (!)
  • iPhone sales almost quadrupled in Asia Pacific region
  • Now have 228 iPhone carriers in 105 countries
  • iPad: 9.246 million units, up 182.9% (!)
  • iPads now sold in 64 countries. Left with considerably less inventory than their usual 4-6 weeks.
  • Mac: 3.95 million units, up 13.8%. A record for the June quarter. Four times the PC market as a whole.
  • Mac sales up 57% in Asia-Pacific region
  • iPod: 7.54 million units, down 19.8%. iPod touch more than 50% of iPods sold.
  • Total of 222 million iOS devices sold as of end of June quarter
  • iTunes store generated $3.5 billion, up 36% year over year
  • Apple Stores sold 768,000 Macs, about half to new users
  • Ended quarter with 327 stores. Average revenue per store: $10.8 million, up 20%
  • Gross margin: 41.7%, compared with guidance of 38%
  • Tax rate 23.5%
  • Cash and marketable securities: $76.2 billion, up from $65.8 billion in 90 days
  • Revenue guidance for Q4: $25 billion
  • EPS guidance for Q4: $5.50
  • GM guidance for Q4: 38%

The earnings call started at 5:00 p.m. EST (2:00 PST). Our notes:

CFO Peter Oppenheimer reviews the numbers, adding new details here and there. Some subtle accounting changes I didn't quite understand. Sounds like they are once again deferring revenue for various income over two, three and four years. This should flummox the analysts.

Q&A. Katy Huberty asks about the lower revenue guidance. Oppenheimer attributes it in part to a "future product transition" that he is not going to talk about. That's most likely a new iPhone.

Shannon Cross. Asks COO Tim Cook about iPad 2 sales and possible cannibalization. He sees some customers buying iPads instead of Macs, but many more buying iPads instead of Windows PCs. There's a lot more of those to cannibalize. Selling every iPad we could make. In some markets, supplies have met demand. Sales have been a frenzy. China was key to our results. Greater China up six fold year over year. Rev. $3.8 billion. Total $8.8 billion in the three quarters so far. (He's talking about total sales in Greater China, not just iPhones.)

Ben Reitzes asks about gross margins. Same answer as above. Tim NAN and DRAM and batteries and optical drives in good supplies. Hard drive supplies constrained. Do expect favorable components sequentially, but some of it embedded in last quarter's GM.

Bill Schultz. Patent disputes question. Tim Cook: We have a very simple view: we love competition, but we want people to invent their own stuff. And we're going to make sure we defend our portfolio.

Q about those iPhone sales. Tim Cook: We did add 42 new carriers and 15 new countries. However those occurred throughout the quarter. The real sequential improvement was China, LatAm (Brazil and Mexico) and the Middle East. Great for Apple because these are new markets for Apple.

Gene Munster asks about Android activations outpacing iPhone. Cook: I think the Android activation number is a hard one to get our hands around. You can quickly see that we sold more than 33 million iOS devices in the June quarter. Our numbers are straightforward and transparent. iPhone sales growth more than double the smartphone market. Also talks about enterprise. The App Store. The $2.5 billion paid to developers. Customer satisfaction. The roadmap (for new products). (He's ducking the question.)

Update on Apple TV? Cook: Still call it a hobby. It's not another leg of the stool. We love the product. Customers love. But still a hobby.

Mark Moskowitz: Do you now have to diversify manufacturing base and retail channel. Cook: 115,000 channels for iPhones. There are still countries where we are still building channels. In terms of suppliers, don't want to get into in any detail. It's part of the magic, part of the thing that we have secret sauce. But your general point that we are too dependent, that question comes up and we always think we've made the right decision for Apple.

Q about iPad yield. Declines to answer.

Mike Abramsky: How do you sustain that iPhone growth? New form factors? Cheaper iPhones? Cook repeats his answer about emerging markets. Ducks new form factors and pricing changes. We're not avoiding the pre-pay market, he says. But encouraging switch to post-pay.

Steve Hoffman: Mac growth was slower than usual. Cannibalization? Waiting for new products. Ans: Doing 14% when the market is growing 2.5% is pretty good. Three primary factors for less growth: 1) Some cannibalization of new Macs by iPads. 2) Some customers had delayed purchase until Lion becomes available. Lion coming tomorrow. 3) In the year ago quarter, launched MacBook Pros. This quarter we launched a desktop. We beat the market for the 21st quarter in a row.

Scott Craig: More color on what the iPad production issues are? Cook: Great demand is a good problem to have. In the first weeks of July, supply has further improved and has led some SKUs in some countries to be in supply/demand balance.

Lost the rest in a bad save.

An audio recording to the full earnings call is available here. A transcript of the opening remarks is available from Seeking Alpha here. A transcript of Tim Cook's remarks is available from Macworld here.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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