Notes From Apple's Second Quarter Earnings Call

Here's some notes taken from Apple's second quarter earnings call.

Apple CEO Tim Cook:
- Very strong results for March quarter
- 45.6 billion in revenue (ahead of expectations)
- Strongest non holiday quarter ever
- Highest earnings growth rate in last six quarters
- Nearly 44 million iPhones sold
- Almost 800 million iTunes accounts, most have credit cards
- Largest ever percentage of Macs on latest OS
- 55% smartphone share in Japan
- Opened stores in Brazil and Turkey. Now have retail stores in 15 countries.
- Burberry CEO Angela Ahrendts joins Apple next week
- Acquired 24 companies in the last 18 months
- Increasing share buyback by $30 billion

Luca Maestri:
- Gross margin 39.3%
- Operating margin $13.6 billion
- 43.7 million iPhones sold, March quarter record (17% growth)
- In Japan, iPhone sales were up almost 50% year-over-year
- 15.4 million iPhones in inventory at end of quarter
- $4.6 billion iTunes software & services
- App downloads have topped 70 billion
- 4.1 million Macs sold
- 16.4 million iPads sold (heavily influenced by channel inventory)
- iPad sell-through down 3%
- Ended quarter with $150.6 billion in cash
- Domestic cash 18.4 billion
- Cash flow from operations was $13.5 billion for the quarter
- Taken action on $66 billion of $100 billion capital return program announced last year


Next quarter expectations:
● revenue between $36 billion and $38 billion
● gross margin between 37 percent and 38 percent
● operating expenses between $4.4 billion and $4.5 billion
● other income/(expense) of $200 million
● tax rate of 26.1 percent

Apple CEO Tim Cook:
- 7 to 1 split of Apple common stock in June
- Will make Apple stock more accessible

Cook on Peter Oppenheimer's retirement:
- Apple is now more than 20 times the size it was when Peter became our CFO
- I'd like to thank him very publicly for his contributions to Apple
- He has never missed guidance in his 10 years as CFO
- Looking forward to working with Luca as Apple's next CFO

Q&A:
- Monetizing iTunes Accounts: I do believe we can monetize more than we are in existing areas and new areas.
- Could Apple charge more for highly innovative products in the future: We price things in such a way that we think is a fair price for the value that we are delivering.
- Key drivers for the June quarter: March quarter was good because of better volume, better costs than anticipated, and some favorable mix of products and services. For June, expecting loss of leverage from decline in revenue. Also expected less favorable mix. To offset that (partially) we will have some cost improvements.
- Within the U.S. did you see as much pressure from changes in U.S. carrier upgrade policies: We saw some pressure in the quarter because of stricter enforcement of upgrade policies.
- iPhone ASPs down a little over $40 - What drove that? - Half of that was we continue to do well in emerging markets with the 4S. The rest was primarily from a lower capacity mix.
- Cook: Some of the programs that carriers are running could serve to increase upgrade cycle. Some could cause users to keep phones longer. Balance is currently hard to conclude.
- Cook on iPad: Fastest growing in Apple's history. Was instantly a hit in all three markets: consumer, enterprise, education. It's almost twice as many iPhones sold in same period of time. We've come a long way very quickly. 95% share in education market. Focus is on penetration. Student achievement is higher with iPad in classroom rather than without it. In the enterprise, we are seeing 98% of the Fortune 500 using iPad. 91% of activations in enterprise is iPad. What we have to do in enterprise is focus on penetration but in terms of having people begin the process we are doing a pretty good job of that. In the retail market, we have 46% share. Office I believe does help. If it would have been done earlier it would have been better for Microsoft frankly. There are also of alternatives out there. I wholehearted welcome Microsoft to the app store to sell Office. Our customers are responding in a good way that it is available. Two thirds of people planning to buy a tablet are planning to buy an iPad. When I back up from all of these I feel great. That doesn't mean that every quarter, every 90 days is going to be a number that everybody is thrilled with, but what it means to me that the trend over time is very very good. The thing that drives us is the next iPad, the things that are in the pipeline. When I back up from all of this I can't but be extremely excited about where we are.
- Focus of Apple compared to Google, Facebook, Amazon: The key thing for us is to stay focused on things that we can do best and that we can perform at a really high level quality that our customers have come to expect. We currently feel comfortable in expanding the number of things we're working on and we're doing that in the background. I'm not ready to pull the string on the curtain. It means much more to us to get it right then to be first.
- We look for companies that have great people and great technology and that fit culturally. We don't have a rule that says we can't spend a lot. We'll spend what we think is a fair price. What's important to us is that strategically it makes sense. We're in a race to make the world's best products. You can bet that you will continue to see acquisitions.
- On Why Apple TV is No Longer a Hobby: When you look at Apple TV sales and when you look at content purchased, you're looking at $1billion+. We can't call something of that magnitude a 'hobby' anymore. We're making the product better and better. I feel good about this business and 'where it can go'