Apple Q2 Financial Results Conference Call

[MacRumors]

http://www.macrumors.com/images/macrumorsthreadlogo.gif

Apple is webcasting their Q2 2005 Financial Results conference call now

Conference Call Highlights

- Peter Oppenheimer: Highest March quarter revenue and net quarter income in Apple's history. Strong sales of Macs and iPods.
- Strong revenue growth, higher than expected gross margins (29%)
- Mac 62% of total revenue. Up 27%.
- 1,070,000 Macintoshes shipped
- 608,000 Desktops (up 55%)
- iMac G5, eMac, MacMini's 467,000
- PowerMacs141,000
- Portables 462,000
- 251,000 iBooks
- 211,000 PowerBooks
- Music Business - 38% of total Apple revenue.
- Shipped 5.3 million iPods during the Quarter
- New iPod Shuffle and new iPod Mini's
- Feb Data. #1 in the Flash MP3 margin. 43% market share in Flash.
- Now over 350 million songs sold on iTunes
- Retail growth
- Education Channel.
- Growth in Cash
- Next quarter will stop reporting CPU sales by product family, but instead in broad categories. Desktops and Portables to bring into line with detail in their music reporting as well as their competitors

Q&A Session

Q on supply/demand on iPods at this point across geographical regions. A: feel they reached a supply/demand balance by end of quarter
- Q: Pent up demand for Macs into this Q2 waiting for Tiger? A: Difficult to predict.
- Q: New Mac users in Retail? A: Low to mid-40% range. sales quite strong.
- Q: iPod gross Margins A: Overall line margin was a little above 20% in the Quarter
- Q: How many Mac Mini's sold? A: We're not going to do that for competitive reasons. Very pleased with customer response and sales.
- Q: Last conference call, mentioned that putting a G5 in a PowerBook would be a significant technical challenge. A: Still think it's the "mother of all" thermal challenges.
- Q: Question about future products on the magnitude of the iPod in the future? A: Can't answer that question.
- Q: MacMini and Best Buy and targets. Also we're expecting a refresh coming for PowerMacs. Thoughts about PowerMac and sales? A: Did ship some units to Best Buy at the beginning of April. On the PowerMac, the PowerMac is largely driven by our Pro business. Continue to see a desktop migration to mobile, however, the PowerMac continues to be a very important part of our lineup for many of our customers. Obviously we'll continue to announce great things w/ respect to the PowerMac.
- HP iPod sales made up less than 3% of iPod sales.
- Q: iTunes profits? A: A little above break even
- Hard Drive based marketshare 90%
- Flash based 43% (0% to 43% in the month of availability)
- 70% overall market share for Feb. Up from December Quarter

[sjpetry]

Over a million Macs.

[javabear90]

whoohoo my stocks goin up tonight!!!

[Daveway]

Everyone come together. http://forums.macrumors.com/showthread.php?t=120071

[loneAzdgari]

43% Market Share in the Flash Market? They're at number 1 in less than 3 months, with two players without screens! Amazing!

[auxplage]

I listened to the report, and Apple said they are going to stop reporting Mac sales by family and instead by either "desktop" or "portable".

[dizastor]

any news on how many minis shipped?

[Peyote]

Originally Posted by auxplage

I listened to the report, and Apple said they are going to stop reporting Mac sales by family and instead by either "desktop" or "portable".

Lame...

Prolly brought on by embarrassing PM sales.

[Sophipod]

How many shuffles were sold?

[SiliconAddict]

Originally Posted by Peyote

Lame...

Prolly brought on by embarrassing PM sales.

Probably brought on by the fact that they can cover ANY embarrassing results with a blanket statement. PowerMac sales can be covered as can PowerBook sales. This can be attributed to Apple being almost incapable of updating multiple products at the same time leaving some of them to rot on the vine. By doing this they can get away from the market bitching about bad e-Mac, PowerMac, iBook, PowerBook sales. So they update PowerMacs and iMacs take a hit for being out there X time without an update and it makes it look like the status quo or better is being maintained. Even though a product in its line is getting thrashed. Its marketing spin is all it is. Similar to Jobs’s RDF but at a lower level.

[Chip NoVaMac]

Originally Posted by Peyote

Lame...

Prolly brought on by embarrassing PM sales.

Could be that, or it could signal new competitive strategy to keep people guessing (read competitors) guessing. Apple is on a roll, and needs to maintain that momentum.

It is my take that at this time only us Apple "geeks" care about how many of each are sold. the investors at this point are only interested in total units sold and at what margins.

[quagmire]

Wonder how the shuffle affected the overall market share of the iPod. It was 65% before shuffle right?

[hexcalibur]

Originally Posted by javabear90

whoohoo my stocks goin up tonight!!!

Or not. Mac sales up, margins up, profit up, ipod sales frickin' insanely up, and...stock drops over 2 bucks a share.

This is why I keep my money in a shoebox under the bed.

[BornAgainMac]

Will Apple come out with a "fake" Powermac update or do something really good this year for the update. It's been 2 years now. The update last year wasn't so special.

[topicolo]

Originally Posted by hexcalibur

Or not. Mac sales up, margins up, profit up, ipod sales frickin' insanely up, and...stock drops over 2 bucks a share.

This is why I keep my money in a shoebox under the bed.

The expectations were already factored into the share price leading up to the conference call. Apple didn't exceed expectations by some crazy amount, so lots of people sold off to lock in their gains.

[narco]

Now all we need to top it off is another journalist to predict Apple's demise if they don't share OS X with PC manufacturers, or open the iTunes store to be compatible with other players. I'll keep my eye out on macbytes.com.

Fishes,
narco.

[Lacero]

Jan 2005, Apple introduces a low-cost computer, after users repeatedly ask and ask, Q2 profits rises to a record-high.

Jan 2006, Apple introduces a 2-button mouse for all their computers, after users repeatedly ask and ask, Q2 profits skyrocket 1,000%.

Jan 2007, Apple finally wises up, and releases OSX for PCs, thereby gaining the lead from Microsoft, Q2 profits reach $10 billion.

[rockthecasbah]

Originally Posted by Lacero

Jan 2007, Apple finally wises up, and releases OSX for PCs, thereby gaining the lead from Microsoft, Q2 profits reach $10 billion.

Wises up? That to me is a terrible move. Don't get me wrong, broadening Apple's reach is great and all, but the majority of their revenue is from moving the software WITH the computer. Remove the machines, and you aren't looking at such a big profit...

[Chip NoVaMac]

Originally Posted by Lacero

Jan 2005, Apple introduces a low-cost computer, after users repeatedly ask and ask, Q2 profits rises to a record-high.

Jan 2006, Apple introduces a 2-button mouse for all their computers, after users repeatedly ask and ask, Q2 profits skyrocket 1,000%.

Jan 2007, Apple finally wises up, and releases OSX for PCs, thereby gaining the lead from Microsoft, Q2 profits reach $10 billion.

LOL... very nice.

Though the 2007 prediction i think is more far off than that. The joy of OSX is that Apple has been able to control the platform that it ran on. The only way for OSX for the PC to succeed successfully would be to have a closed system, with severe limitations on the hardware that could be added internally.

[xsnightclub]

Was there any mention of the iTunes/Pepsi promo, Wonder how it is doing this time round.

All in All an outstanding report, very impressive that Apple beat Wall St estimates by about $.10 /share.

Still waiting for "the mother of all thermal challenges" to be addressed for my next Powerbook.

[egsaxy]

Originally Posted by Lacero

Jan 2007, Apple finally wises up, and releases OSX for PCs, thereby gaining the lead from Microsoft, Q2 profits reach $10 billion.

Only if Apple is stupid or charges an arm and a leg. And require high system requirements. If Apple targeted Pro (and I say that factiously) Windows users with 3.x gig machines, and decent graphics etc. and then charged the same license fee microsoft does (or slightly lower) people would switch to try it out but would then buy a mac (its like iPod) that people will try it first and then get a mac (if the OS on x86 is any good) or to give intel a run for their money only support AMD chips. I don't think thats the wisest decision to make. This is the trend I see, people continue to get fed up with microsoft, they switch to linux (no hardware change) and then look heavily into the Mac platform when its time to get new hardware.

[Freg3000]

This is surprising...in June Apple will only announce CPU sales in two categories, desktops and portables. No more iMac/eMac/Mac mini, PowerMac, Powerbook, iBook breakdown. Hmmmm...

[Porchland]

Originally Posted by Freg3000

This is surprising...in June Apple will only announce CPU sales in two categories, desktops and portables. No more iMac/eMac/Mac mini, PowerMac, Powerbook, iBook breakdown. Hmmmm...

I think that's all about margin gotcha. Apple doesn't doesn't want to show its hand on products like Mac mini that are driving market share but aren't necessarily cash cows. I agree with the analyst's report earlier this week that we're fixin' to hear a whole lot about Tiger and applications.

I read somewhere that a 1 percent move in Apple's PC market share works out to about $2B in gross sales of PC and ancillary products. If Apple grows to 10-15% of the PC market in the next few years, we may see a radical rethinking of the platform by all sorts of software manufacturers, including Apple.

And the bigger Apple gets, the higher its stock price will climb and the greater its leverage is going to be for picking off software companies. Apple's model has been to buy smaller software companies, but we may see the days very soon when Apple could decide to buy a gaming company, Macromedia ($3B), Adobe ($16B), Intuit ($8B) or other companies that it wouldn't have had the market cap to swallow before.

It is a really exciting time to be following Apple.

[DTphonehome]

Originally Posted by Porchland

I think that's all about margin gotcha. Apple doesn't doesn't want to show its hand on products like Mac mini that are driving market share but aren't necessarily cash cows. I agree with the analyst's report earlier this week that we're fixin' to hear a whole lot about Tiger and applications.

I read somewhere that a 1 percent move in Apple's PC market share works out to about $2B in gross sales of PC and ancillary products. If Apple grows to 10-15% of the PC market in the next few years, we may see a radical rethinking of the platform by all sorts of software manufacturers, including Apple.

And the bigger Apple gets, the higher its stock price will climb and the greater its leverage is going to be for picking off software companies. Apple's model has been to buy smaller software companies, but we may see the days very soon when Apple could decide to buy a gaming company, Macromedia ($3B), Adobe ($16B), Intuit ($8B) or other companies that it wouldn't have had the market cap to swallow before.

It is a really exciting time to be following Apple.

Well said. I totally agree. I doubt, however, that Apple's market share will get to 10-15% anytime soon. Think about how big the market is, and who are major buyers. Corporations and governments (who buys PCs by the thousands) have a tremendous investment in Windows, and that will take more than a few years to change. Also, while Apple continues to do well in the US, Western Europe, and Japan, I don't think (correct me if I'm wrong), that they have too much traction in the rest of the world. That will change with time, but I think a 2-3% upward movement in market share is more reasonable for the near future. And, like you said, that increase will be tremendous. Apple will become a major player again.

--DT

[bobringer]

Originally Posted by Freg3000

This is surprising...in June Apple will only announce CPU sales in two categories, desktops and portables. No more iMac/eMac/Mac mini, PowerMac, Powerbook, iBook breakdown. Hmmmm...

Man, I'd love to see the Mac mini numbers for this quarter but I also think it's pretty clear that more than at any other point, Apple needs to keep these numbers really tight for competetive reasons.

This is an absolute blowout quarter. We went from what was probably their best quarter ever in Q1 (hisorically their best quarter) to Q2 (hist. their worst) and while we didn't see $0.70 again, we saw a quarter that I can't imagine anyone expected. The Mac unit numbers were great and imply the Mac mini numbers were through the roof. And 5 million iPod sales? Almost a million more than the Christmas quarter? The suffle is huge and drawing people to the Apple stores in droves... enhancing the halo effect.

The strange thing this quarter is the margins. Where did they come from? Could component costs have come down that much? We have to assume software sales this quarter weren't that strong with people waiting on Tiger, so there must have been big gains in hardware margins. With $150 price drops in the iPod photos, the introduction of the Mini and Shuffle, margins should have been hit hard. Where did we get that extra 2% from?

$7 Billion in cash and the stength of the current product line is going to allow a TON of money to get poured in to R&D and STRATEGIC acquisiitons in the short/mid term. They've done a great job so far in both of these areas, I can only imagine where we will be in $3 years.

Time to get on those LEAPS.