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conference date: July 19, 2006
for quarter ending: July 1, 2006 (Q3 2006)
Overview: iPod sales weakened from prior quarter, but computer sales were up substantially and overall revenues and earnings were strong. Notebook sales much better than desktops. Expects lower gross margins for 4th quarter and lower EPS.
Additional analysis: Is the iPod market becoming saturated? The numbers suggest that.
Basic data:
Revenues of $4.37 billion were flat sequentially and 24% over year-earlier. GAAP earnings were $472 million or .54 per share, up 15% sequentially and 46% over year-earlier.
Apple shipped 1,327,000 computers (up 18% sequentially and 12 % over year-earlier) and 8,111,000 iPods (down 5% from prior quarter but up 32 percent over the year-ago quarter).
Cash and short-term investments ended at $9.1 billion.
Guidance:
4th quarter of fiscal 2006: expect revenue of $4.5 to $4.6 billion. GAAP earnings per diluted share of about $.46 to $.48, including an estimated $.03 per share expense impact from non- cash stock-based compensation. 28.4% gross margins. 32% tax rate.
Conference Highlights:
Mac revenues represented 25% of revenues and were up. Moved from 6% to 12% market share in notebook computers. Music products 65% of total revenue. Now 75% of market for MP3 players.
Apple retail stores revenue $715 million. 14 new stores, ending with 155 stores, $4.9 million revenue per store.
Education business set best revenue in 10 years.
30.3% gross margin (GAAP), higher than guidance. Tax rate was 29%, better than expected, resulting in .03 eps.
Q&A:
View balance of year product pipeline? Very confident in pipeline products; no details.
Gross margin: Why guidance decrease? Favorable commodity environment to continue. Decline driven by lower pricing for back-to-school which is also a lower margin product mix period. Also lowered international pricing.
Consumer v. education environment? MacBook had robust demand in both markets, particularly in June; demand was slow in professional market, as are waiting for both new hardware and applications. U.S. consumer economy holding up well so far.
Other music seemed below expectations? 6% decline sequentially tracked to the iPod itself.
Retail volatility sequentially? Intel Macs strong.
Revenue outlook? Guidance for Sept. quarter is in line with past seasonality.
1 gig nano was a driver; this is the first full quarter for it.
No ship date announced for Leopard.
Revenue per retail walk-in down for 6th consecutive quarter? Traffic in stores is phenomenal. Average store revenue was down because iPod sales were relatively flat.
Gross margins for iPod hardware? Does not release, but iPod up sequentially due to parts pricing; Mac participated to. Maintaining aggressive pricing and features, so target 27 - 28% overall.
Will Intel price drops allow price adjustments more frequently? No real answer.
iPod unit ASPs (actual sales prices)? Can't answer.
Best Buy is having a pilot program with Apple.
Impact historically of new OS launches? Tiger release June q. 2005 revenues $100 million, which was tops. Quarter earlier slowdown? Hard to see.
Desktops: main thing affecting is compelling notebooks. However, believes pros are waiting PowerMacs with Intel chips.
Bootcamp effects? Significant numbers of downloads and good feedback.
Music model France effect? Believes legislation is piracy. Let the market decide.
Japan down sequentially 2 quarters in a row? PC market is down 15%, so Apple decline reflects that.
Europe revenue up 22% year-over-year, just under company as whole. Takes longer to deploy new products in Europe.
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