Apple Q4 Earnings - Business Insider

tonight.

Revenue is right in line, but EPS is worse than expected.

Apple beat on iPhone sales, but was below expectations for the iPad, Macs, and iPods.

Shares were halted before the earnings hit. Once they were open for trading, they started off down 2.5%. Not that bad, really.

Here is what Apple reported versus expectations here. (Expectations via Gene Munster at Piper Jaffray.):

The first thing that jumps out at us in this release is the weak iPad number. Analysts were really expecting Apple to sell 17.5 million iPads for the quarter. But, because Apple announced 100 million iPads sold at its iPad mini event, analysts rejiggered their numbers and backed into 15 million sold. Apple still missed that number. So, if you compare iPad sales to the original estimate, it's truly awful. We're guessing Apple will blame rumors about the iPad mini for weak iPad sales.

The next thing that jumps out is the iPhone sales. They were much better than expected. We'll be interested in hearing more on the call about why iPhone sales were so good.

We're live blogging the call, which starts at 5 PM eastern.

4:59 PM | Listening to the earnings music, which is classical, and classy.

5:00 PM | Look at that ... Apple's stock has comeback! It's now flat.

5:02 PM | Peter Oppenheimer, Tim Cook, Gary Wipfler on the call.

5:02 PM | There WILL be forward looking statements. Neat.

5:03 PM | Peter Oppenheimer starts

Please to report the results. New September record quarter for iPhone, iPad and Mac sales.

5:03 PM | Driven by growth in iPhone and iPad sales.

5:03 PM | Going over the numbers, which we have listed above.

5:04 PM | Details

Mac: Over 4.9 million, new Sept quarter growth, 1% y/y growth, compared to PC market which is 8% contraction.

Portables an all-time high.

Earlier this year we introduced new iMac. New thinner, lighter of MacBook Pro w/ Retina.

5:05 PM | iPods

5.3 million, iPod touch half of all sold. iPods 70% of MP3 market, top in most countries we track.

Excited to ship new iPods. iPod Touch details now... iPod nano thinnest ever.

5:06 PM | iTunes store

Revenue almost $2.1 billion, sales of music, apps, and video.

Look forward to launching new iTunes. Cleaner interface.

5:08 PM | iPhone

26.9 million, compared to 17.1 million last year. 58% growth.

We launched iPhone 5, demand phenomenal. Customers love new thin design. A6 chip, the ultra fast wireless.

Demand outstrips supply. Trying to get in people's hands.

Revenue from iPhone was $17.1 billion, compared to $11 billion, 56% increase.

5:09 PM | Talking about companies using iPhones

Cannon ... people get sales info.

Amtrak has given to train conductors, allows for better "passenger manifest" revenue comes in real time. REvolutionize paper based.

News orgs using iPhone to transform how they capture news. WSJ, BBC, etc doing HD video.

5:10 PM | iPad

Very pleased with sales of 14 million, a 26% y/y increase. Ahead of our expectations.

Earlier this week we introduced iPad mini, thinnest lightest we've ever built.

Also intro'd 4th generation iPad.

Revenue from iPad and accessories $7.5 billion, compared to $6.9 billion, increase of 9%.

5:11 PM | Talking about companies using iPads...

5:11 PM |

Sold over 44 million iOS devices in the quarter.

5:12 PM | New record for app sales. $6.5 billion in payments to developers.

5:12 PM | 190 million iCloud sign ups.

5:13 PM | Work non-stop till Maps lives up to our incredibly high standards.

5:14 PM | Retail

190 stores, 140 out of US.

Average revenue was $11.2 million compared to $10.7 million a year ago

Hosted 94 million visitors, versus 77.5 million year ago, increase of 22%

19,000 visitors per store, per week.

5:15 PM | Cash

$121.3 billion, up from $117 billion in last quarter. Net of dividends paid in August. Cash flow from operations was $9.1 billion.

5:16 PM | We may also purchase shares ...

5:16 PM | Review outlook now.

5:16 PM | As a reminder y/y will be impacted because this quarter is 13 weeks versus 14 weeks last quarter. Last year was 1/14.

5:17 PM | Expect 36% gross margin. (Very low.)

5:18 PM | Opens call to questions...

5:23 PM | Katy Huberty: December guidance right, would be a y/y decline... how you respond to that? Also gross margin?

OPpenheimer: Change y/y is driven by ... last year included a 14th week. This year is a 13th week, normal quarter. Also stronger US dollar, and change in gross margin. Going through detail on sequential basis.

This is most prolific product period. Newer repriced products are 80% of expected revenue. There are costs associated with demand. new form factors, never so many at once, all have higher costs, therefore lower gross margins. Case with products in the past. This time, its sheer number of new products.

Strongest iPhone line up w/ iPhone 4 free on contract. Also, iPad mini priced aggressively. Its GM is significantly below corporate average. So, we expect 4 percent sequential decline.

We expect benefits.

We lowered price of iPhone 4S, 4.

Transitionary costs wth new propducts.

High volume generated defered revenue. we defer each product we sell. In periods of strong sales, like december quarter, it's big.

September sales tha benefitted GM will not recur.

We will work to get margin up again.

5:24 PM | Tim Cook now...

We're dedicated to making the best products in the world. We're unwilling to cut corners. This this dedication is the reason customers buy our products. Managing for the long run. Will make long term decisions. Confident in decisions.

5:25 PM | Bill Shope: Supply ramp for the iPhone 5? Compared to past launches?

Tim Cook: Demand for iPhone extremely robust. Thrilled with what we see. We are in a significant state of backlog. Output improved significantly. Pleased with the progress. Pleased with volume ramp. Difficult to predict when supply adn demand balance. Confident in our ability to provide quite a few iPhones.

5:27 PM | Toni Sacconagi w/ Bernstein: Anticipate rolling out to all 100 countries this quarter? Supply constraints material impact on COGS?

Tim Cook: We still anticipate rolling out to 100 countries. Our fastest roll out ever. Some large countries in December.

In terms of cost, with each new product, we see learning curves. With these products we see nothing change. This is most prolific period in our history in terms of product innovation. We do see all of these costs associated with each of these, but I don't see those costs accelerating on a per unit basis. Production ramp across many many new products.

5:30 PM | Follow up from Toni: Asking about ipad being bigger than PC market. Can you see it evolving to larger tablets?

Tim Cook: As you know, we don't comment on future products, but let me make some comments...

Continue to be confident tablet market will surpass the PC market, incredible development in tablet space. Already extremely compelling for many many customers to choose an iPad over a PC. Look at size of PC market, compelling optty for Apple there.

We think iPad and iPad mini and iPad all extremely offerings in lieu of PCs. We're going to continue to focus on future of iPad. Comfident what we have in the pipeline. Can't wait to start selling first units on Friday.

5:32 PM | Shannon Cross: Talk about China?

Tim: In terms of what we saw, revenue $5.7 billion for quarter, Mac up 44%, launched portables for first time, iPad up 45%, iPhone up 38%. That $23.8 billion full year revenue, up over $10 billion y/y, up 78%. Continue to expand, continue to see it as an extremely exciting market.

5:33 PM | Cross follow up: Surface? Competition?

Tim: I havent played with a Surface yet. What we're reading about is, is that it's a fairly compromised, confusing product. I think one of the toughest things you do, is make hard trade offs. Decide what a product should be. We're really done that with iPad. User experience incredible. I supposed you could design a car that flys and floats, but wouldn't do those things very well. People want iPads and I think they will contnue to do that.

5:35 PM | New analyst: How do you want to differentiate the Mini? Cannibalization of old product?

Tim: We don't have old products, only new products (ZING). We provide iPod Touch, 4th gen iPad, iPad 2, and customers will decide which ones they want. We learned to not worry about cannibalization. Big oppty is 80-90 million PCS being bought. I think those people would be better off with iPad, or Mac. That's optty for Apple. So instead of cannabilzing, i think it's a much bigger optty.

5:37 PM | Follow up on Apple TV? How many sold? Living room strategy..

Tim: Q4, 1.3 million, up 100% y/y. More than 5 million for fiscal year, almost double previous year. Business continues to do well, but if you look at size of revenue versus other businesses still small. A beloved hobby. Still think more there, continue to pull the string.

5:40 PM | Gene Munster: Talk about iPad? Decel in Sept quarter?

Tim: June to September was 17 mill to 14 mill. As we talked in July, June had channel inventory increase, sell thru comparison looks different than sell in numbers. 14 million exceeded what we expected. We expected decline basedon 2-3 years of results, we see seasonal reduction in Sept quarter v June. K-12 in June quarter, not in Sept quarter. Higher ed move, which is still buying notebooks for the most part. Exaggerated by new product in the march quarter. In addition to all that, clear people delayed new iPad purchases because of new product rumors. Some anticiapted, some i wish wouldn't occur. Sell thru y/y grew 44%. Underlying sell thru extremely strong. We think incredible holiday season.

5:41 PM | Munster follow: Margins, would you pass costs to customers?

Tim: Hypothetical, we think we've made great choices. Customary practice is to just guide for current quarter. Dont want to talk about what we might do post that.

5:42 PM | Moskowitz from JPM: Question on ... iPad and iPhone revenue growth

Peter: If you're looking at y/y don't forget about th 14th week. Adjust for that! Just announced amazing new products. Large sequential increases. Thrilled for guidance of $52 bill in revenue.

5:43 PM | Follow up on iPhone 5 roll out ... why so wide? Will there be supply issues then fill in later?

Tim: What we did was plan first 30-40 countries, then roll those out in September across two countries. Rest with an eye towards supply. Not a precise science. Need several weeks of notice. Can be different than what we think.

5:47 PM | iPad mini price question

Oppenheimer: Not trying to build a cheap tablet. So difference between us and competition is profound. Fit and finish of our iPad mini is breath taking when held in your hands. iPad mini has higher costs, margin sig below our corporate average. We're going to work to get down the cost curve.

Tim: Creat product people will love for months and years after they purchase and continue using in a robust way. iPad mini designed to do. You can see on iPad looking at usage. 90% of tablet traffic is iPad. Apple will not make a product people feel good about in the moment, but rarely use again. Not what we want customers to have. Use an iPad mini and I don't think you'll be using anything else again.

5:47 PM | Enterprise optty?

Tim: We now have almost all Fortune 500 test deploy ipad. Penetration will only grow. Pushed aggressively in global 500, that's above 80%. Much more to go.

5:49 PM |

Tim: In terms of iPad and iPhone, dont see a component shortage. iMac will be constrained. Short time in quarter to manufacture and ship. So significant shortage. Others are based on how big is big. Bullish on demand as you cna see from revenue guidance.

5:52 PM | Brian Marshall: Is market going to low end SKU stack?

Oppenhemier: The iPhone ASP were relatively flat y/y, up slightly sequential. iPad ASP down y/y this was reflective of price reduction on iPad 2 and stronger dollar and change in the mix. Drove ASP change. iPad ASP pretty flat q/q.

5:53 PM | Marshall: US iPhone activations bigger than international?

Cook: iPhone 5 in US in quarter, bulk of world not in, so I would expect it.

5:53 PM | Keith Bachman: iPhone 5 in China in december?

Tim: yes, we project it will.

5:54 PM | Follow: Meet supply at end of quarter?

Tim: Not projecting if will balance for end of quarter. Feel great where we are.

5:55 PM | What do you think of subsidize hardware with search/content? How impact iPad business?

Tim: We've seen low cost challengers before, and iPad continues to beat every other tablet. Customers smart, want a device that can do more. We're confident that focus on the best product will win at the end of the day so we will stay true to that.

5:57 PM | Did you leave Samsung supplys?

Tim: Not a change in our supplier partners. Some changes, but not significant. Not a change that would have driven more costs...

LCD I wouldn't characterize any change driven cost. Samsung, we continue to be a customer, continue to have a commercial relationship.

5:59 PM | Question about iPad mini size...

Tim: Comments you are referencing what Steve mentioned about 7-inch. Let me be clear, we would never make one, we don't think they're good products. One of the reasons is size. Not sure if you saw the keynote. The difference in real estate ... usable area is much greater. iPad mini same pixels as iPad 2. So you have access to all 275,000 apps that have been customed designed to take advantage of canvas. iPad mini not a compromised product like the other products. In a whole different league.

6:01 PM | And that's that!

All done.

Source: http://www.businessinsider.com/apple-q4-earnings-2012-10

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