Apple Digest: Apple Q1 2011 Earnings Conference Call (Review) *CEO Steve Jobs: We will continue to innovate on all fronts* AAPL

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Apple reported Q1 2011 financial results on April 20, 2011

Apple Q1 2011 Earnings Conference Call

Quick Summary Apple reported incredible Q1 financial results and earnings of a near-record $6.40 per share. Q1 is historically a drop from the peak Q4 holiday sales, yet Apple posted a very strong Q1 with some near-records, all-time highs, and multi-year highs. Financial performance continues onwards and upwards. Financial position is legendary, total assets are now $94.9 billion with $65+ billion in cash and investments. The actual financial results and related commentary have been posted on the Apple Financial Performance page.

"We will continue to innovate on all fronts" Steve Jobs, Apple Co-Founder and CEO was not present at the conference call but did issue a statement: “With quarterly revenue growth of 83 percent and profit growth of 95 percent, we’re firing on all cylinders,” said Steve Jobs, Apple’s CEO. “We will continue to innovate on all fronts throughout the remainder of the year.”

Apple Management Present at the Q1 2011 earnings conference call were Peter Oppenheimer, Senior Vice President and Chief Financial Officer, Tim Cook, Chief Operating Officer, and Barry Whistler, Treasurer. Apple Co-Founder and CEO Steve Jobs was not present and is on medical leave of absence.

CFO Peter Oppenheimer "Largest year over year quarterly revenue growth we've ever generated" Peter Oppenheimer, Senior Vice President and Chief Financial Officer presented a product report and reviewed the Q1 2011 financial results, which are also reviewed on the Apple Financial Performance page. "Revenue for the quarter was $24.7 billion, which was $11.2 billion over the prior March quarter's result and represents the largest year over year quarterly revenue growth we've ever generated."

Products Report: “We sold every iPad 2 that we could make during the quarter” Peter Oppenheimer reviewed the Apple product line:

Mac Products and Services Mac sales of 3.76 million units, which was 28% YoY growth, more than IDC’s 3% contraction estimate for the (PC) market overall. 20th consecutive quarter Apple has outperformed the overall PC market. Sales were strong across all geographic regions, including 76% YoY growth Asia-Pacific. Growth was fueled primarily be the new MacBook Air, which was launched in October, as well as very strong sales of MacBook Pro. Ended quarter with 3-4 weeks of Mac channel inventory. Mac OSX Lion scheduled to ship to customers this summer.

iPod Sold 9 million iPods, compared to 10.9 million in the year ago quarter. Lower YoY sales but ahead of expectations. iPod share of the USA market for mp3 players remains at over 70% and continues to be top selling mp3 player in most countries we track. Continue with 4-6 weeks of iPod inventory.

iTunes iTunes store had best quarter ever with almost $1.4 billion quarterly revenues, thanks to strong sales of music, videos, iOS apps, and books. Customers have downloaded over 100 million books from the iBooks store.

iPhone Sold 18.6 million iPhones in the quarter, compared to 8.8 million in the previous March quarter, a 113% increase YoY. Exceeds IDC’s 74% estimated growth rate of the global smartphone market for the March quarter. iPhone handsets and accessories sales were $12.3 billion during the quarter, which is 126% increase YoY. iPhone on 186 carriers in 90 countries. Adoption of iPhone within the enterprise continues to increase. Ended quarter with 4-6 weeks of iPhones inventory. Began selling iPhone 4 on Verizon.

iPad “We continued to be thrilled with its momentum”. Sold 4.7 million iPads with distribution in 59 countries. “Customer enthusiasm has been tremendous for iPad 2 and we're working hard to get it into the hands of customers as quickly as possible.” Demand and interest in the corporate environment continues to be strong. iPad and accessories revenues were $2.8 billion. Ending channel inventory below 850,000, which is below target range of 3-4 weeks.

Cumulative iOS Devices Combining iPhone, iPad, iPod Touch, cumulative iOS device sales were just under 189 million for the March quarter. iOS 4.3 launched in March.

App Store “App Store continues to be incredibly successful.” Over 350,000 apps and well over 10 billion downloads to date. Subscription service announced in February.

Apple Retail Stores 10th anniversary on May 19 and in next few days will welcome one billionth customer. "Store traffic continues amazingly strong". Apple stores retail revenue $3.19 billion, a 90% 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 before. Average international store volume exceeded "very productive" average USA store volume. Average of 321 stores open during quarter with average quarterly revenue of $9.9 million, an increase YoY of 67% in store revenues. Retail segment margin $807 million for the first time. Record 71.1 million store visitors in quarter, an increase of 51% YoY. Personal setup program for customers launched.

Gross Margin Oppenheimer concluded with gross margin was 41.4%, which was a 290 basis points higher than guidance (38.5%). About 1/2 of this difference was due to better product mix than planned, particularly iPhone sales. The remainder was mostly attributable higher revenue and lower product costs, including freight, warranty, and phone support.

Outlook for Calendar Q2 2011 Oppenheimer reiterated the outlook for the June quarter: total revenues $23 billion, earnings per share $5.03, and gross profit margin 38%.

Conclusion Oppenheimer finished, "We're thrilled with the results and accomplishments of our record March quarter. We're extremely pleased with customers' response to iPad 2 and are working hard to get it into the hands of customers as fast as we can. We remain very confident in our strategy and are very excited about 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.

Japan Earthquake

(COO) We had some revenue impact in Q2 but it was not material to Apple's consolidated results
(COO) We believe revenues will be approximately $200 million less in calendar Q2 2011
(COO) We did not have any supply or cost impact in our fiscal Q2 as a result of the tragedy
(COO) We currently do not anticipate any material supply or cost impact in our fiscal Q3

iPad 2 Supply and Inventory

(COO) Demand for iPad 2 has been staggering
(COO) I'm very confident that we can produce a very large number of iPads for the quarter
(COO) I'm not going to predict when supply and demand will come into balance
(COO) We launched the iPad 2 and sold every one of them that we could make
(COO) The iPad has the mother of all backlogs
iPhone Sales
(COO) Demand in USA (addition of Verizon) and China "off the charts"
(CFO) Able to increase iPhone inventory
(COO) We're in supply-demand balance virtually everywhere
Mac Sales
(COO) Growth has been enormous in Asia
(COO) It's amazing when you see the 28% YoY increase in Mac sales vs worldwide market in PCs contracting by 3%
(COO) Mac is in supply-demand balance
Android Competition
(COO) iPhone sales up 113% YoY, which is materially faster than the market rate of growth.
(COO) iPhone's integrated approach is materially better than Android's fragmented approach
(COO) Strong enterprise adoption of both iPhone and iPad
Co-Founder and CEO Steve Jobs
(COO) He is still on medical leave
(COO) We see him on a regular basis
(COO) He continues to be involved in major strategic decisions
(COO) He wants to be back full-time as soon as he can

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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