Sunday, November 14, 2010

CEO Steve Jobs Talks About Apple Inc. (Review) "Relentless Improvement" AAPL

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CEO Steve Jobs and Apple have a stellar product lineup: iPhone, iPad, iPod, Mac desktops and portables


Steve Jobs Talks About Apple

Apple reported record revenues and net income for calendar Q3 2010. CFO Peter Oppenheimer called it a "monumental year for Apple". We call it near-legendary. A review of the Apple earnings conference call has been posted on the Apple Earnings Conference Call page. The actual financial results, charts, and commentary have been posted on the Apple Financial Performance page.

Apple CEO Steve Jobs showed up unexpectedly at the calendar Q3 (fiscal Q4) earnings conference call because Apple quarterly revenues topped $20 billion for the first time. CFO Peter Oppenheimer reviewed quarterly financial results, product lines, and fiscal year financial results. Mr. Jobs then made some remarks about Research in Motion, Google Android, and iPad competitors, which are reviewed in a previous post here. Afterwards, CEO Steve Jobs, CFO Paul Oppenheimer, and COO Tim Cook responded to analysts during the earnings call question and answer session. Steve Jobs talked about Apple, the philosophy, what Apple is.


Calendar Q3 Earnings Call: Q&A Session Highlights

"Higher mix of iPhone 4 sales, sold more iPads, aggressive pricing, bumper program - brought down gross margin." (Oppenheimer)
"(Gross) margin was 50% better than projected." (Oppenheimer)
Future of iPad: "I’m convinced we’ve got a tiger by the tail here. This is a new model of computing." (Jobs)
iPhone sales: “Demand in all countries is absolutely staggering. Can’t predict when supply will meet demand.” (Cook)
iPad competition, iPad hard to match. “We’re not done. We’ve priced iPad pretty aggressively. We’re out to win this one.” (Jobs)
iPad: "We’re systems architects that know how to build systems in a very efficient way. This is a product we’ve been training for, for the last decade.” (Jobs)
"Our goal is to make the best devices in the world, not to be the biggest." (Jobs)
iPhone versus Android: "Android is our biggest competitor." (Jobs)
"Our goal is to make break-through, great products, to make the best product in every industry we compete in." (Jobs)
iPod and Apple in  general: “It was this relentless improvement that was able to beat our competition and yield the market share that it did.” (Jobs)
“We’re all about making great products, at aggressive prices.” (Jobs)
“We strongly believe one or more strategic opportunities may come along, that we’re in a unique position to take advantage of because of our strong cash position." (Jobs)
"The Mac is also increasingly getting pulled into an enterprise." (Cook)
"We’re maintaining our focus on the consumer, we’re not developing two different lines - enterprise and consumer.” (Cook)
iPhone carriers: "Overall, the pressure is on supply, virtually everyone wants more supply." (Cook)


Calendar Q3 Earnings Call: Q&A Session

CEO Steve Jobs, CFO Paul Oppenheimer, and COO Tim Cook responded to analysts during the earnings call question and answer session.

Gross Margin
(CFO) Margins came down about half of what we thought they would in the quarter. Did better because commodity and other costs were better than we thought and we sold more iPhones than planned.
(CFO) See small sequential decline for calendar Q4, outlook is 36%. Decline is being driven by a higher than expected mix of new iPods, just recently announced, and more iPad sales. As Steve said, we have been very aggressive with our pricing (iPads) and “delivering great value to customers”. “Higher mix of those (iPods and iPads), on a sequential basis, that I see impacting the gross margin slightly.”
(CFO) Bumper program, for iPhone 4 antennas, reflected in both September quarter actual gross margin and in December quarter guidance gross margin.
(CFO) Higher mix of iPhone 4 sales, sold more iPads, aggressive pricing, bumper program - brought down gross margin. Margin was 50% better than projected.
(CFO) We don’t provide product-specific gross margins.

iPad Supply Constraints
(COO) Reached balanced position in September. Inventory now enables to expand distribution prior to the holidays as we planned. Expanding internationally and adding more countries as the quarter (calendar Q4) goes along.

iPad Opportunity, Future
(CEO) Clearly going to affect notebook computers - not a question of “if”, but a question of “when”. Already tremendous interest from education and business. “We haven’t pushed it (iPad) real hard in business and it’s being grabbed out of our hands. The more I’m convinced we’ve got a tiger by the tail here. This is a new model of computing. We’ve already got tens of millions people trained on (the iPad) with the iPhone. Lends itself to lots of different aspects of life - personal, educational, business. I see it as very general purpose and I see it as really big. I don’t think you can argue it’s not going to happen, anymore.” Already shipping more iPads than Macs, after just a few quarters.

iPhone Sales, Demand
(COO) “Demand in all countries is absolutely staggering. Can’t predict when supply will meet demand.” Demand was higher than Apple’s higher expectations.

iPad Competition
(CEO) iPad hard to match. “We’re not done. We’ve priced iPad pretty aggressively. We’re out to win this one.”
(CEO) Apple advantage on iPad price point versus tablet competitors, PC manufacturers. “I think it’s because we engineer so much of it ourselves. The A4 chip inside it is an Apple creation, everything from the battery chemistry to the enclosures. We’ve learned a lot from the miniaturization we’ve done on the iPods and iPhones. We’re a very high volume consumer electronics manufacturer. We’ve learned a lot, we’ve developed a lot of our own components, where others have to buy them on the market with middlemen. I think we’re systems architects that know how to build systems in a very efficient way. This is a product (iPad) we’ve been training for, for the last decade.”

Smartphone Market
(CEO) Largest market of phones around the world is non-smartphones. “So over the next few years, those non-smartphones are going to convert to smartphones. Pie will continue to grow and room for a number of companies to be successful. Eventually, as those non-smartphones convert to smartphones, ti will turn into a zero-sum game, or at least a lot closer to that. Right now it’s a battle for developers, battle for the mindshare of developers, a battle for the mindshare of customers. Right now, iPhone and Android are winning that battle.”

Apple TV
(CEO) “We have gone to a streaming model on Apple TV, it’s complete streaming.” Soon to be live streamed to your iPhone or iPad with AirPlay. “In a short amount of time, we’ve already sold a quarter million of them (250,000). We’re thrilled with that. I think it’s a great product, and I think it’s $99 price point is very enticing. I think when we get the AirPlay in place, before the end of this year, it’s going to give another big reason for people to buy it. We’re really happy how it’s turned out.”

iPhone versus Android
(CEO) “Our goal is to make the best devices in the world, not to be the biggest. Nokia is the biggest. We don’t aspire to be like them. We want to be like us. We want to make the best ones. Android is our biggest competitor. They out-shipped us in the June quarter as we were transitioning to iPhone 4. They out-shipped us for the first time, according to Gartner. So we’re waiting to find out what happened in this quarter (September Q3). I imagine we’ll be competing with them for quite some time.”

Product Aspirations
(CEO) “Nokia makes $50 handsets and we don’t know how to make a smartphone for $50. Our goal is to make break-through, great products, to make this best product in every industry we compete in. And to drive the costs down and making the products better at the same time. That’s what we did with iPod.” Upgrading product numerous times per year but keeping the price the same or lower. “It was this relentless improvement that was able to beat our competition and yield the market share that it did.” Have low market share in phone market, single digits, and high market share in tablets. “As a software-driven company, we think about the software strategies first. Discussed why Apple won’t build 7-inch tablet PC. “We’re all about making great products, at aggressive prices.”

Cash Management
$50 billion cash, generating $20 billion cash a year, not buying back shares or paying dividends, returning to shareholders
(CEO) “We strongly believe one or more strategic opportunities may come along, that we’re in a unique position to take advantage of because of our strong cash position. We’ve demonstrated a strong track record of being very disciplined with the use of our cash, we don’t let it burn a hole in our pocket, we don’t let it motivate us to do stupid acquisitions. We’d like to continue to keep our powder dry because we do feel there are one or more strategic opportunities in the future.”

Enterprise Marketing versus Apple’s Traditional Consumer Market
(COO) Repeats CFO’s iPad enterprise statistics from opening remarks. Early interest and data points for iPad in enterprise look great. Have built and are building additional capacity in sales area to call on businesses (and education). Also enabling and training carrier partners to do the same. Repeats CFO’s iPhone enterprise statistics from opening remarks, says they are actually a little higher now. Building enterprise features into iOS and building enterprise sales capability. “It’s clear both the iPhone and iPad have an enormous opportunity. The Mac is also increasingly getting pulled into an enterprise. Consumer is pulling products into enterprise. We’re maintaining our focus on the consumer, we’re not developing two different lines - enterprise and consumer.”

iPhone Carriers
(COO) Overall, the pressure is on supply, virtually everyone wants more supply. 166 carriers in 89 countries by year end. “Significant expansion across the last year.” Went from single carrier to multiple carriers in some countries.With iPhone 4, currently in 84 of those 89 countries. iPhone average sales price has stayed above $600 even with multiple carriers, from exclusive market to non-exclusive market.




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