Saturday, October 27, 2012

Apple 4QF2012 Conference Call (Thursday 5PM)

Peter Oppenheimer, CFO
            Apple released its fourth quarter fiscal 2012 earnings today AMC. About a half hour before trading, a Bloomberg headline indicated that AAPL would be launching its own Internet radio business in 2013. Pandora’s shares gapped down 20%, at which point trading was halted.
            AAPL released earnings of $8.67 (increase of 24% y/y) compared to expectations of $8.75 and with revenue of $36 billion versus expected revenue at $35.80 billion (Reuters). International revenue contributed to 60% of total revenue for the quarter. Revenue increased 27% y/y while operating margin represented 30.4% of revenue.  The company showed strength in its computer segment, with a 1% y/y growth compared to an industry expected 8% contraction for the quarter. Portable computers not make up 80% of the computer sales mix at AAPL. Strong demand contributed to a lower than expected Mac channel inventory at the end of the quarter (3-4 weeks compared to target 4-5 weeks).
            iPods market share of MP3 players was 70% in September according to independent research by MPD. A new version of iTunes will be launched soon to integrate iCloud while bringing a cleaner interface to the mobile and computer market.  iPhone sales increased 58% y/y compared to industry expectations of 45%. The iPhone 5 has been launched in 31 countries and is targeted to reach 100 before the end of the year. iPhone 5 demand continues to outstrip supply. AAPL recognizes revenue for iPhone products when it delivers the product to the customer, so this backlog will not be recognized until next quarter. Revenue for iPhone accessories increased 51% y/y, driven by new headphones, iPhone 5 cases and an effective marketing campaign. 
            Oppenheimer gave strong comments on corporate sales and iPhone integration into businesses. For example, BBC, WSJ and other media juggernauts have given iPhones to reporters on the ground to take HD video and pictures, which have been used in newspapers, websites and Twitter blogs. Also, companies like Amtrak have utilized the iPhone to save on paper costs. He remains very bullish on iPhone and iPad corporate sales in the face of increased competition going forward. iPad sales increased 26% y/y (less than anticipated). AAPL’s software developers have been working around the clock to fix the Maps App problems.
            New store openings across the globe have been extremely successful, notably a second store opening in Hong Kong. On average, AAPL stores receive 19,000 visitors per week per store.

            Revenue expected to be $52 billion in the December quarter. Gross margin is expected to be 36%, tax rate of 26% and $11.75 EPS expectations. Expecting a 73% y/y growth in iPhones and 80% growth in iPads. Future revenue will continue to benefit form a strong pipeline and movement down the cost curve as production becomes more efficient.

Question/Commentary Notes
            Y/y expected decline in EPS in December attributed to 14th week last year’s quarter, stronger USD, and lower gross margin. All new products currently have higher costs (lower gross margins)—they are high on the cost curve. This has been the case with products in the past. iPad mini margin will be below corporate product average, due to the nature of the product. AAPL has never introduced so many products at the same time, which is why you will see higher costs in the ST. Lower iPhone 4/4s price will contribute to y/y decline as well.
            In significant state of iPhone 5 backlog right now. Output improved significantly since earlier in the month. This is the largest volume ramp in AAPL history for any product.
            Confident that tablet market will surpass PC market. Enormous opportunity for AAPL in this area, extremely excited for Friday when the mini’s go on sale.
            China: Q4 revenue up 27%, mac up 44%, iPad up 45% (Greater China). FY revenue up 78% in China, which is now 58% of AAPL.
            “I haven’t played with the Surface yet, but we are reading that it’s a fairly compromised and confusing product.” –Tim Cook
-Joe Esposito 

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