Apple Digest: Apple Earnings Call Q4 2010 (Review) *CEO Steve Jobs: We are firing on all cylinders* AAPL

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Apple reported Q4 2010 financial results on Tuesday, January 18, 2011

Apple January 18, 2011 Earnings Conference Call

* Apple Reports Legendary Financial Results for Calendar Q4! *

Summary Calendar Q4 2010 Apple reported record-setting, and legendary, total revenues, net income, and earnings per share. These are stellar financial results! Margins increased in Q4, after dipping in Q3. This was the negative aspect of Q3 financial results. Not this time! The actual financial results and related commentary have already been posted on the Apple Financial Performance page.

Income Statement Calendar Q4 2010 Apple reported total revenues of $26.7B, net income of $6.0B, and earnings per share of $6.43. From the prior calendar quarter Q3 2010, total revenues were up +31.5%, net income up +39.4%, and earnings per share up +38.6%. From the prior calendar year Q4 2009, these were up +70.5%, +77.7%, and +75.2%, respectively. All are incredible increases, both QoQ and YoY! For calendar Q4, gross, operating, and net margins were 38.51%, 29.27%, and 22.45%, respectively. For calendar Q3, these were 36.93%, 26.78%, and 21.18%, respectively. Gross margin increased, after decreasing the prior 2 quarters. Cash flow from operations was a staggering $10.47 per share, another record and legendary amount.

Balance Sheet Calendar Q4 2010 Total assets increased +15.37% to a record $86.7B from the prior quarter of $75.2B. The capital to assets ratio (total stockholders' equity divided by total assets) is 63.02%, slightly down from previous quarters but very strong. The current ratio (current assets divided by total assets) is a very liquid 50.64%, lower than previous quarters. More assets were allocated to long-term marketable securities, decreasing current assets. Apple is very liquid with strong capital. Apple has over $27B in cash, cash equivalents, and marketable securities. Add long-term marketable securities of $32.7B and Apple's cash reserves are a mind-boggling $60B!

Outlook for Calendar Q1 2011 Peter Oppenheimer, Apple CFO: “Looking ahead to the second fiscal quarter of 2011, we expect revenue of about $22 billion and we expect diluted earnings per share of about $4.90.” In the conference call, Oppenheimer provided additional outlook: gross margin 38.5%, operating expenses $2.35 billion, other income, expense $50 million, tax rate 25.5%. Q4 is historically Apple's best quarter, because of Holiday sales, with a drop in total revenues, net income, and earnings per share in Q1.

"We are firing on all cylinders" Steve Jobs, Apple Co-Founder and CEO was not present at the conference call but did issue a statement: “We had a phenomenal holiday quarter with record Mac, iPhone and iPad sales. We are firing on all cylinders and we’ve got some exciting things in the pipeline for this year including iPhone 4 on Verizon which customers can’t wait to get their hands on.” Peter Oppenheimer, Senior Vice President and Chief Financial Officer, opened the conference call with a review of the financial performance of Apple for calendar Q4 2010. “We couldn’t be happier with the performance of our business, generating $9.8 billion in cash flow from operations during the December quarter. We are very pleased to report the outstanding results of our December quarter. The performance of our business was extremely strong as we sold more Macs, iPhones, and iPads than in any previous quarter in Apple's history. And as a result, we are thrilled to announce all-time record quarterly revenue and earnings. The robust revenue growth was fueled by record iPhone, iPad, and Mac sales.

Products Report: “We remain very confident in our strategy and our new product pipeline” Peter Oppenheimer reviewed the Apple product line for the December quarter:

Mac Products and Services Record quarterly Mac sales of 4.13 million units, which was 23% YoY growth, more than IDC’s 3% growth estimate for the (PC) market overall in the December quarter. Sales were strong across all geographic regions, including 50% growth Asia-Pacific and Japan. Growth was fueled primarily be the new MacBook Air, which was launched in October, as well as continued strong sales of MacBook Pro. Ended quarter with 3-4 weeks of Mac channel inventory. Mac App Store opened on January 6, 2011. Available in 90 countries and features more than 1,000 apps. 1 million downloads on the first day.

iPod Sold 19.4 million iPods, compared to 21 million in the year ago quarter. Continued strong sales of iPod Touch which were 27% YoY and accounted for more than 50% of all iPods sold. iPod share of the USA market for mp3 players remains at over 70% and has highest market share internationally in most markets. Continue with 4-6 weeks of iPod inventory.

iTune iTunes store had over $1.1 billion quarterly revenues, thanks to strong sales of music, videos, and apps. Beatles music added during quarter. Over 400K TV episodes and 150K movies are purchased daily.
iPhone Sold 15.2 million iPhones in the quarter, compared to 8.7 million in the previous December quarter, a 86% increase YoY. Exceeds IDC’s 70% estimated growth rate of the global smartphone market for the December quarter. iPhone handsets and accessories sales were $10.47 billion during the quarter. Average sales price of iPhone was $625. iPhone on 185 carriers in 90 countries. Very strong growth overall and doubling YoY in Asia-Pacific and Japan. Adoption of iPhone within the enterprise continues to increase. Ended quarter with 3.5 million iPhones inventory. Continue to have sizable sales backlog and “believe we could have sold even more iPhones if we had been able to supply them”. Will begin selling iPhone 4 on Verizon in February.

iPad “We continued to be thrilled with its momentum and customer interest”. Sold 7.3 million iPads with distribution in 46 countries. “We’re seeing great enthusiasm for iPad from consumer, business, and education customers.” Demand and interest in the corporate environment continues to be strong. iPad and accessories revenues were $4.61 billion and average sales price of $600. Supply of iPads at target range of 3-4 weeks.

Cumulative iOS Devices Combining iPhone, iPad, iPod Touch, cumulative iOS device sales were over 160 million for the December quarter. iOS 4.2 launched in November, including AirPrint, enabling wireless printing by iOS devices by WiFi, including to iPad.

App Store “App Store continues to be incredibly successful.” Over 300,000 apps and over 9 billion downloads to date.

iAd "We continue to be very pleased with iAd". Expanded iAd beyond USA to Europe and Japan.

Apple Retail Stores "Record-breaking quarter". Apple stores retail revenue $3.85 billion, a 95% increase YoY. Very strong iPad sales and and record Mac sales. About 50% of store Mac sales were to customers who had never owned a Mac. Average international store volume exceeded "very productive" average USA store volume. On average, the 4 China stores were the highest traffic and highest revenue stores in the world. Opened 6 stores in quarter, for a total of 323 stores worldwide, of which 87 are outside USA. Average of 321 stores open during quarter with average quarterly revenue of $12 million, an increase YoY of 69% in store revenues. Retail segment margin exceeded $1 billion for the first time. Record 75.7 million store visitors in quarter, an increase of 49% YoY.

Gross Margin Oppenheimer concluded with gross margin was 38.5%, which was a 250 basis points higher than guidance (36.0%). About 1/2 of this difference was due to better, lower commodity costs than planned, and the remainder was mostly attributable higher revenue and lower product costs, including freight, warranty, and phone support.

Outlook for Calendar Q1 2011 Oppenheimer reiterated the outlook from the press release and provided additional guidance, which is noted earlier in this post.

Conclusion Oppenheimer finished, "We are extremely pleased with our record-breaking results and customer response to our products. We look forward to expanding the reach of the iPhone with the addition of Verizon. We remain very confident in our strategy and our new product pipeline."

Question and Answer Session

Peter Oppenheimer (Senior Vice President and Chief Financial Officer), Tim Cook (Chief Operating Officer), and Barry Whistler (Treasurer) were present for the Q and A session.

iPhone Supply and Inventory

(COO) Manufacturing stepped up to supply Verizon.

iPad Supply and Inventory

(COO) Expanded to 46 countries and confident enough to add more countries.

* Apple Inc. removed earnings conference call audio before review could be completed *

Apple Reports Calendar Fourth Quarter Results

CUPERTINO, California—January 18, 2011—Apple® today announced financial results for its fiscal 2011 first quarter ended December 25, 2010. The Company posted record revenue of $26.74 billion and record net quarterly profit of $6 billion, or $6.43 per diluted share. These results compare to revenue of $15.68 billion and net quarterly profit of $3.38 billion, or $3.67 per diluted share, in the year-ago quarter. Gross margin was 38.5 percent compared to 40.9 percent in the year-ago quarter. International sales accounted for 62 percent of the quarter’s revenue.

Apple sold 4.13 million Macs during the quarter, a 23 percent unit increase over the year-ago quarter. The Company sold 16.24 million iPhones in the quarter, representing 86 percent unit growth over the year-ago quarter. Apple sold 19.45 million iPods during the quarter, representing a seven percent unit decline from the year-ago quarter. The Company also sold 7.33 million iPads during the quarter.

“We had a phenomenal holiday quarter with record Mac, iPhone and iPad sales,” said Steve Jobs, Apple’s CEO. “We are firing on all cylinders and we’ve got some exciting things in the pipeline for this year including iPhone 4 on Verizon which customers can’t wait to get their hands on.”

“We couldn’t be happier with the performance of our business, generating $9.8 billion in cash flow from operations during the December quarter,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the second fiscal quarter of 2011, we expect revenue of about $22 billion and we expect diluted earnings per share of about $4.90.”

About Apple

Apple's Mission Statement and described in press releases, "Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork, and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple reinvented the mobile phone with its revolutionary iPhone and App Store, and has recently introduced its magical iPad which is defining the future of mobile media and computing devices."

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