Tim Cook is up first...
● Strongest financial quarter ever with 75.9 billion in revenue, in line with expectations
●74.8 Million iPhones — an all time high (Average of 34,000 iPhones an hour)
● Results are impressive given the challenging, global macro environment
● 2/3 of revenue is generated outside of the united states
● -Currency impact had an impact on growth; $100 dollars in 2014 translated in $85 in this quarter due to stronger dollar. This difference is about the size of annual revenue for a Fortune 500 company.
● We have been seeing some economic “softness” in China earlier this month, particularly in Hong Kong
● We remain very confident long term in China and else where
● Greatest number of Android to iPhone switches in last quarter
● We remain committed to making the best products in the world
● New quarterly record was set for Apple Watch Sales -- thanks to a strong December month
● Over 3,600 Apple TV apps, best quarter ever for Apple TV sales
● Consumers have already spent billions with Apple Pay. Apple say some of the strongest growth in Apple Pay in recent quarter.
● Apple Music has over 10 million paying subscribers in less than four months after going live with the service.
● Recent consumer surveys show 99% customer satisfaction rate for iPhone 6s and iPhone 6s Plus. iPhone loyalty rate is 2x as strong compared to Android.
● High customer satisfaction rate will result in more people replacing their current devices. Over 1 billion active Apple devices (used in the last 90 days).
Luca Maestri is now up..
● Growth was driven by iPhone sales, Apple Watch, Services (App Store, Apple Music) and Apple TV
● Maestri now breaking down the earnings released earlier today.
● 79% of interested smartphone buyers are interested in iPhone.
● iPad has 85% share of $200+ tablet market in US
● Services generated $6.1 billion (including $548 million from a patent infringement dispute)
● Revenue from App Store increased 27%; average amount spent per customer reached an all time high in December
● Ended the quarter in neatly $216 billion in cash
● Plan to be very active in US and world capital debt markets.
● Expected revenue for next quarter is $50 - $53 billion. This is a wider range due to volatility in economy and financial markets.
● March quarter will be most difficult, year over year, compared to the rest of the quarters
● Question: March quarter implies a double-decline at midpoint. What FX headwind is included in that? How much of that has to do with international markets?
● Answer by Luca: Revenue will be down between 5% - 10% for March quarter year over year, in constant currency. Macro environment is weakening, to combat the currency shifts, we have increased prices in some regions; however, this does impact demand, which is captured in our guidance
● Question: Can you talk about the iPhone upgrade program and will this have an impact on the December quarter once we anniversary? I know you can't talk about future products, but do you have any thoughts on virtual reality?
● Answer by Tim: iPhone will be the most important thing for us and it will continue to be the product of experience. We were blown away by the level of Android switchers. I am optimistic about the upgrade program, but how impactful they will be is difficult to say. On Virtual reality, I don't think it is a niche and I think it is really cool with some interesting applications.
● Question: How will customers react from an ASP perspective? Could you speak to CapEx numbers?
● Answer by Luca: We have a very strong mid-tier in the portfolio for the iPhone. We ended up being on the low end of our 5-7 week channel inventory level and we feel that we are in good shape. We're nearing completion of the new Campus in Cupertino.
● Question: Guidance implies a 15-20% unit decline for iPhone units next quarter. Can you address that question? Is that due to smartphone market or because Apple is reaching saturation in the market?
● Answer by Tim: We do think iPhone units will decline in the next quarter. We don't think they will decline to levels you are talking about. Q2 is the toughest to compare because last quarter we did have some catch up. We don't spend a lot of time on predicting. Our view has always been that if we make a great product and experience, people will move over. The metrics I see would strongly suggest that Apple has not reached saturation. Over 50% of iPhone sold to people in China were first-time buyers. We can still reach a lot of people in the world who buy smartphones.
● Question: Gross margins are 39%-39.5%, which includes hedging. Could you add some color to that and whether the patent dispute was included in gross margins.
● Answer by Luca: Yes patent dispute was included in the margins. The largest impact on margins for the quarter is the loss of leverage since it is a part of our seasonal pattern. This gets offset by favorable commodity environment.
● Question: Can you talk about leverage within the model? I know you said you want to invest, but given some of the pressures you've seen, how do you think about spending some of the R&D?
● Answer by Tim: In R&D, we continue to invest without pause. We have some great things in the pipeline and we strongly believe investing in downturn. We seek to throttle some expenditures and SG&A, with the exception of investing in new stores (i.e. China). We maintain our investment throttles in China and other markets that we believe are great for Apple long term. Even in bleak markets, we are not retrenching -- we don't believe in that. This is exactly the period you want to invest and do so confidently.
● Question: Could you talk a little bit about the next investment in China? India?
● Answer by Tim: In terms of China, the LTE penetration was in the mid 20s. Enormous upgrade cycle for those still running on 3G handsets. Middle class in China was less than 50 million in 2010, by 2020 it will be 500 million. This provides us a great opportunity to win over some of these customers. These demographics are great and we will continue to invest in retail stores. Angela and her team have an aggressive roll out plan and will have 40 retail stores in China by summer time of this year. We remain very bullish on China -- don't subscribe to the doom and gloom predictions. India is very exciting, the growth is very good and the third largest smartphone market in the world. These demographics are great for a consumer brand. India revenue for Q1 is up 38%.
● Question: On iPhones, you talk about macroeconomic impacting units. Could you talk about the precent of iPhone base on newer devices?
● Answer by Tim: 60% have not upgraded to the iPhone 6/6s or 6/6s Plus. It is clear the economic piece that is impacting the business is still "large."
● Question: What is the overall message of releasing more details on "Services?" Is this foreshadowing of moving more into cloud services?
● Answer by Tim: We started to break out services last year in first year 2015. Investors and analysts wanted more visibility, so we've now elected to show the full size, scope, and growth from a transparency point of view. The assets we have in this area are huge. I wouldn't want to comment on any future plans, but we wouldn't be breaking this up if it wasn't a huge part of our future.
● Question: Can you all about what you're seeing in-store regarding the iPhone Upgrade program? i.e. Apple vs Carrier upgrade programs?
● Answer by Tim: We want to provide a simply way for customers to upgrade. This program lets people get the latest iPhone when they want. I have no idea how this will impact percentage of sales (carrier vs Apple), but thats not our objective.
● Question: Will Apple's strategy always be premium product, or will they move to mid-tier products due to the macro environment changes? Was the patent litigation payment included in the guidance from last quarter?
● Answer by Tim: Our strategy is to always make the best product, For the smartphone market we can offer different price points for customers.We offer many different tiers (iPhone 6s, iPhone 6, iPhone 5s) and we don't plan on deviating form that approach.
● Answer by Luca: Yes it was included in the gross margin and in our guidance range.
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