By Tiernan Ray
Following a report this afternoon of better-than-expected fiscal Q3 results this afternoon, Apple (AAPL) CEO Tim Cook and CFO Peter Oppenheimer held a conference call with analysts to discuss details.
Apple beat expectations for a year-over-year sales decline, increasing revenue year over by 1%, to $35.3 billion, but Oppenheimer kicked things off by saying actual sell-through was up 6% if one considers that channel inventory declined by a billion dollars, making sell-through last quarter $36.3 billion, and if one also considers that channel inventory rose by $700 million a year earlier, so that sell-through in that period had been $34.3 billion, not $35 billion.
During the Q&A, one analyst asked Oppenheimer if the revenue forecast for the quarter, $34 billion to $37 billion, below consensus, included any new product introductions. He declined to clarify.
Scrutinizing the iPhone Beat
Regarding the iPhone, the company saw sales rise 20%, and again Oppenheimer called attention to sell-through, saying an inventory decline of 600,000 units meant units sold through was 31.8 million as opposed to the 31.2 million headline number. Alluding to rumors of a high mix of the lower-priced models, he noted the iPhone 5 remained the most popular model, without specifying units.
And following reports last week carriers in Russia stopped selling the iPhone, Oppenheimer noted sales in Russia were among the stronger markets globally for the device. Later in the call, when an analyst asked about Russia, Cook disputed the media reports:
The press I've seen on Russia probably needs some color. The articles I've seen suggested that we are not selling iPhone through carrier owned stores. If that's the one that you are referencing. If you look at the Russian market, over 80% of smart phones are sold in retail, there, outside of carrier owned stores. We sell through a number of national chains there. In fact, our activations in Russia for iPhone set a record last quarter, it was our highest quarter in Russia, ever. So, we are really happy with how we are doing there. We do continue to sell through some carrier owned stores, as well. But, obviously, the contribution is much less than the retail organizations and so forth. So, I think that's probably not well understood, there.
Oppenheimer offered a raft of data points defending iPhone's rep: Number one phone in Japan, with sales up 66%; Number one or two in most markets tracked by research firm IDC; 39% U.S. market share; the ?phone of choice? for businesses, with Cisco Systems (AAPL), American Airlines (AA), General Electric (GE) and other large companies having deployed more than 25,000 iPhones each to employees.
Average prices of iPhone units fell 5% from a year earlier, and 10% from the prior quarter, in large part because the company ?offered more affordable pricing? that drove sales of the older, lower-priced iPhone 4 and 4S.
When Cook was asked about slowing in the high end of the smartphone market, he first responded by saying Apple's ?catalysts? are new products and services, both in existing and new categories, and that the company also has the chance to expand through new carrier partnerships and in taking share in enterprise.
But, he added, ?I don't subscribe to the common view that the higher end, if you will, of the smartphone market has hit its peak. I don't believe that.?
When another analyst pressed Cook on the high mix of iPhone 4 and 4S units, he refused to forecast product mix or the direction of iPhone prices. Apple, he said, was selling more of the 4 than it did last year of the previous entry-level model, the 3GS:
We understand the market a lot better and have things on the pulse of distribution in different countries and, so forth, this year. I'm sure that we will get better and better at that, over time, and how that would change mix, I don't know.
Sales of the iPhone, while strong in many emerging economies, were down in China, in particular Hong Kong, some of which was the economy, he said:
Mainland China was actually up, year-over-year. It was up 5%. But that is a lower growth rate than we have been seeing. I attribute it to many things, including the economy there, which clearly doesn't help us nor others. Hong Kong is an international shopping haven, as you know, not only for tourists, but also some resellers. And we saw more dramatic downturn there. It's not totally clear exactly why that occurred. But, it was down on a sell-through basis by about 20%.
When asked how the company might turn around flagging China sales, Cook urged the analysts to remember that ?in the arc of time, China is a huge opportunity for Apple,? having generated $27 billon in the last 12 months, up from just a few hundred million a few years ago. He noted iPad was ?very strong? in mainland China, with sales up 37%, and that iOS developers total half a million in China.
An analyst asked Cook about reports the company is going to make trade-in offers for the iPhone. Cook said that was just a rumor and that the company wasn't doing anything of the kind at the moment. He said he was ?not opposed? to a trade-in offer, which many resellers already offer for the iPhone, noting that it's good for the environment, and that iPhone maintains a high ?residual value.?
Defending iPad
Regarding iPad, Oppenheimer said the year-over-year drop in iPad numbers from 17 million to 14.6 million units was in part the tough comparison with last year's debut of the third-generation model, with no such revamp this past spring, and also the reduction in channel inventory last quarter of 700,000 units versus a year-earlier build of 1.2 million units. He also cited data points touting the tablet's market share, such as an 84% share of Web browsing activity in the U.S. and Canada. Big companies such as Roche Holding (RHHBY) and Eli Lilly (LLY) have each deployed over 20,000 iPads to staff.
Oppenheimer also cited data from Mobile Device Management software maker Good Technologies that the iPhone 5 was the most popular device activation and the iPad was 88% of corporate tablet activations it handled.
Cook defended the drop of 3% in iPad units, when adjusting for inventory, saying it was within the company's forecast range, and that the usage statistics such as Web browsing called into question other tablets.
?So, if there are lots of other tablets selling, I don't know what they are being used for. Because, that's a pretty ? the basic function is web browsing.?
Mac Has a 'Great June'
Regarding a 7% drop in Mac computer sales, Oppenheimer noted it was not as bad as the 11% drop in total PC market unit shipments in the quarter, and was better than the company expected. He said the company was having ?a great June? since upgrading some of its laptops on June 10th.
Content Sales Surge
Apple's content and app revenue rose 29% to $2.4 billion, he said, with total software and services revenue through Apple's iTunes Store of $4 billion. Lifetime payouts to application developers now total over $11 billion, said Oppenheimer, with half that coming in the last 12 months.
Retail Revenue Rate Declines
Sales at the company's retail stores were flat with the prior-year period, even though Apple opened six new stores, ending the quarter with 405 stores, including 156 internationally. Consequently, the company's average revenue per store dropped to $10.1 million from $11.1 million a year earlier.
Balance Sheet and All That Debt
$106 billion of the company's gross cash balance of $147 billion was overseas.
Oppenheimer detailed the use of $17 billion in debt, including $14 billion in share repurchases:
In late April we executed a very successful debt offering issuing $17 million of debt across three, five, 10 and 30-year maturities. We paid $2.8 billion in dividends in the quarter and we utilized a total of $16 billion in cash and share repurchase activity who a combination of new, accelerated share repurchase program and open market. Ten billion dollars of the $17 billion was utilized under a new accelerated share repurchase program initiated with two financial institutions in April. An initial delivery of 23.5 million shares was made under this program, with the final number of shares delivered and average price per share to be determined at the conclusion of the program. They spanned the volume-weighted average purchase price of Apple stock over the program period, which will conclude in Fiscal '14. In addition to the new ASR we executed $4 billion of open market share repurchases resulting in the retirement of 9 million additional shares.
The end result was a decline in share count of 22.9 million shares, he said.
A Lot of Discussion on Margins
When an analyst asked Oppenheimer why gross margin was expected in the same range this quarter as last, 36% to 37%, even though he seemed to be hinting at new products with higher startup costs, Oppenheimer responded, ?We are on track to have a very busy fall; I'd like to leave it there and go into more detail in October.?
When an analyst pointed out that the gross margin was down from Q2 by 1.5 points, when adjusting for a reversal of a warranty accrual, Oppenheimer said it was a result of a different mix of product sold. The analyst, Toni Sacconaghi of Bernstein Research, argued the mix wasn't that different, to which Oppenheimer replied that there had been ?some puts and takes? in product mix in the quarter, without going into detail.
Asked about pricing of components, Cook noted DRAM chip prices were rising despite a PC market, NAND flash memory was ?stable? in pricing, and would probably rise in typical seasonal fashion, while prices of other components, including LCD screens, were coming down generally.
Questioning Inventory
Noting a rise in balance sheet inventory, Oppenheimer said the company ?had more storage? and so they retained more finished goods than in past and higher component inventory. Cook said iPhone and iPad inventory came down more quickly than normal because ?we typically don't like to have any more inventory than we need to. So, if we can find a way to reduce, we do so.?
What's the Philosophy?
When UBS's Steve Milunovich asked a ?philosophical question? about why the company doesn't seem to think about financial metrics as much as other companies, Cook replied that the company had to start out by asking what ?great? products people would want. ?You don't going to into it saying, We need to get X% growth, what do we need from a product standpoint??
?We go from the opposite: What are some great products we can do? If we do that, the metric will take care of itself.?
When Piper Jaffray analyst Gene Munster asked if the company could tune products more specifically for emerging markets, Oppenheimer batted away the question, remarking that ?There's always more weapons. We have more than one tool in the toolbox.?
When Munster asked if new product categories existed that would be big enough to ?move the needle? for Apple, Cook replied, ?We will see, Gene.?
?You know, we are working on some stuff that we are really proud of. We will see how it does and announce things when we are ready.?
In concluding, an analyst asked Cook about the announcement last month that its iOS operating system that runs iPhone will come to several makes and models of automobiles next year. Cook remarked, ?I see it as very important; It's a part of the ecosystem.?
?It's something that people want and I think that Apple can do this in a unique way and better than anyone else.?
Source: http://feedproxy.google.com/~r/barrons/techtraderdaily/feed/~3/upqlT1-LzHY/
Phil Spector Phil Ramone louisville Kevin Ware Injury Video Richard Griffiths FGCU Reid Flair
কোন মন্তব্য নেই:
একটি মন্তব্য পোস্ট করুন