Apple's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Apple (AAPL)

Q2 2012 Earnings Call

April 24, 2012 5:00 pm ET

Executives

Nancy Paxton -

Peter Oppenheimer - Chief Financial Officer and Senior Vice President

Timothy D. Cook - Chief Executive Officer and Director

Analysts

Katy Huberty - Morgan Stanley, Research Division

Richard Gardner - Citigroup Inc, Research Division

A.M. Sacconaghi - Sanford C. Bernstein & Co., LLC., Research Division

Bill C. Shope - Goldman Sachs Group Inc., Research Division

Charles Eugene Munster - Piper Jaffray Companies, Research Division

Benjamin A. Reitzes - Barclays Capital, Research Division

Keith F. Bachman - BMO Capital Markets U.S.

Mark A Moskowitz - JP Morgan Chase & Co, Research Division

Shannon S. Cross - Cross Research LLC

Shaw Wu - Sterne Agee & Leach Inc., Research Division

Scott D. Craig - BofA Merrill Lynch, Research Division

Kulbinder Garcha - Crédit Suisse AG, Research Division

Chris Whitmore - Deutsche Bank AG, Research Division

Presentation

Operator

Good day, everyone, and welcome to this Apple Incorporated Second Quarter Fiscal Year 2012 Earnings Release Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Nancy Paxton, Senior Director of Investor Relations. Please go ahead, ma'am.

Nancy Paxton

Thank you. Good afternoon, and thanks to everyone for joining us. Speaking today is Apple CFO, Peter Oppenheimer; and he'll be joined by Apple CEO, Tim Cook; and Treasurer, Gary Wipfler for the Q&A session with analysts.

Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, stock-based compensation expense, taxes, earnings per share and future products. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in Apple's Form 10-K for 2011, the Form 10-Q for the first quarter of fiscal 2012 and the Form 8-K filed with the SEC today along with the attached press release. Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

I'd now like to turn the call over to Peter Oppenheimer for introductory remarks.

Peter Oppenheimer

Thank you, Nancy. We're very pleased to report the results of our outstanding second fiscal quarter. We established new March quarter records for iPhone, iPad and Mac sales, leading to our highest March quarter revenue and earnings ever.

Revenue for the quarter was $39.2 billion, representing year-over-year growth of 59%. That's a new record for a March quarter and is second only to the all-time record revenue we reported in the most recent December quarter. The year-over-year increase in March quarter revenue was fueled primarily by very strong growth in iPhone and iPad sales.

Operating margin was $15.4 billion, representing 39.3% of revenue. Net income was $11.6 billion, increasing 94% over the prior March quarter's result. The quarter's net income translated to earnings per share of $12.30.

Turning to the details of the quarter, I'd like to begin with our Mac products and services. We established new March quarter records for both desktops and portables, combining for a total of 4 million Macs sold. This represents growth of 7% year-over-year compared to IDC's latest published forecast of 2% growth for the global personal computer market in the March quarter. We began and ended the quarter with between 3 and 4 weeks of Mac channel inventory, which is below our target range of 4 to 5 weeks.

In February, we released the developer preview of Mountain Lion, the ninth major release of Mac OS X. Mountain Lion will bring popular apps and features from iPad to the Mac, including Messages, Notes, Reminders, Game Center, Notification Center, Share Sheets, Twitter integration and AirPlay Mirroring. We expect Mountain Lion to be available from the Mac App Store in late summer this year.

Moving to our music products. We sold 7.7 million iPods compared to 9 million in the year ago quarter. Total iPod sales were ahead of our expectations, and iPod touch continued to account for over half of all iPods sold. iPod's share of the U.S. market for MP3 players remains at over 70% based on the latest monthly data published by MPD, and iPods continue to be the top-selling MP3 player in most countries we track based on the latest data published by GFK.

We ended the quarter within our target range of 4 to 6 weeks of iPod channel inventory.

The iTunes Store generated all-time record results with revenue of almost $1.9 billion in the March quarter, an increase of 35% year-over-year, thanks to continued strong sales of music, video and apps. We now have a catalog of over 28 million songs and 45,000 movies.

I'd now like to turn to iPhone. We were thrilled to sell 35.1 million iPhones compared to 18.6 million in the previous March quarter. That represents 88% year-over-year growth compared to 42% growth for the smartphone market overall in the March quarter based on the latest published estimate from IDC. We experienced very strong iPhone sales growth in all of our segments, led by our Asia Pacific and Japan segments where sales more than doubled year-over-year. We continue to see tremendous momentum in Greater China, where iPhone sales were 5x the level of the year ago quarter, aided by the launch of the iPhone 4S in China in January and the addition of China Telecom as an iPhone carrier in March. IPhone 4S is now available in over 100 countries and is sold through over 230 carriers.

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