5:08: Macs represented 56% of Apple's products this quarter. Portables accounted for 59% of Macs sold.
5:09: iPod shuffles very popular, thanks to new colors. Music revenue grew 26% year over year thanks to iTunes. iTunes accounts for 85% of US market.
5:10 855 Million profits thanks to Apple retail. 34% year over year growth. Average revenue per store is $5 million. NYC gets another Apple store in the meat packing district (soon). 50% of store visits are new to the Mac.
5:11 Apple has 12.6 billion on hand in cash.
5:12 iPhone: Apple plans on developing new applications and software features for the iPhone. Many of these features will be free upgrades. They will use subscription accounting so they don't need to charge for these new features.
5:13 Want to 'surprise and delight' iPhone customers.
5:14 Plan to do the same for Apple TV (i.e. new features and applications for free to Apple TV owners.)
5:15 Outlook for June quarter: targeting 5.1 billion revenue.
5:16 They are very pleased with their results. Very proud to have shipped the 100 millionth iPod. Excited about iPhone launch. And here come the questions!
5:17 Question, asking about the statement the Board released about the options scandal (which we'll point to in moment). Also, Apple TV numbers. Answer: The Board put out the statement to express confidence in what they have done in regards to the stock options.
5:18 Apple TV has gotten incredible reviews. Off to a very good start, and plan to invest in the area. No shipment figures as of yet.
5:19 Question: Explain the subscription model of the Apple TV. Answer: they are doing it so they can provide new applications and software for both the iPhone and Apple TV.
5:20 Question: Staffing levels re: Leopard delay. Answer: No issues with hiring great people. The delay is because the iPhone uses the Mac OS, and so they needed to shift gears.
5:21 Question: Subsidies or percentage of the contracts from AT&T iPhone contracts? Answer: they won't comment more than they already have, i.e. Apple will report AT&T contracts as revenue.
5:22 105 Million in capital for the March quarter
5:23 Question: Component costs rise, is it safe to say that gross margins should be consistent if prices of Macs/iPods remain the same. Answer: Gross margins are targeted at 27-28% in the long term. The higher gross margin is thanks to nice component prices.
5:25: Question: Will the iPhone be wildly available in June? Answer: It is hard to tell how high the demand is for a product. They need to start shipping before they can predict demand.
5:26 Question: Subscription model: will the revenue simply be reported as the cost of the unit spread over 24 months? Answer: You must include accessories, contracts, and the different models of the iPhone will be available so it is a tough call.
5:28 Question: 12 billion in cash isn't a good way to handle that kind of money. Any plans to use it for other things? Answer: Apple will continue to retain cash to remain flexible in the business.
5:29 Question: Does the subscription model for Apple TV mean that there will be subscription models for things that play on Apple TV? Answer: They are doing it simply to be able to provide free updates.
5:30 Question: How will people decide between iPods/iPhones and how will the delay of Leopard impact Mac sales? Answer: iPod sales showed no signs of impact based on the iPhone launch. The upgrade to Leopard is simple to do, but not sure if customers will delay or not.
5:31 Questions: Does the delay between announcement and launch of the iPhone give you benefits to produce large quantities of the iPhone. Answer: Does want to predict the number of iPhones that will be produced.
5:31 Question: Preorders for iPhone? Answer: No, not yet.
5:32 Question: Will the Retail staff get trained ahead of time for selling the iPhone? Answer: A number of things about the iPhone are different. The iPhone announce allows for the Retail store employees to plan for the launch.
5:33 Question: How is the support for the iPhone going to be handled? Answer: With the same rigor as Mac support.
5:33 Question: Anymore distribution partners for the Mac? Answer: 200 Best Buys by the fall, with unique merchandising with Best Buy. Evaluating the Circuit City test this quarter. There are 8000 Mac point of sales worldwide.
5:34 Question: Seeing any impact from CS3 shipping? Answer: Too early to tell, but thanks to the 8 core Macs and new Final Cut offerings, Apple is poised to get more customers
5:35 Question: Revenue is target to go down, why? Answer: A result of last year's iPod sales declining last half of the year. It is a season issue, not an iPod issue. The education buying season also impacts revenue.
5:37 Question: Are iPod hardware margins higher than Mac hardware margins? Answer: Apple doesn't release specific gross margins (40% for the whole company). Both Mac and iPod hardware margins were strong.
5:39 Question: R&D flat for the last 6 quarters. Will we see an uptick to this thanks to the planning of iPhone/Apple TV features? Answer: Apple is confident in what they plan to do with Apple TV/iPhone but also OS X and Mac hardware. In the last quarter software development has been capitalized. R&D is 3% of revenue for this quarter. The dollars to R&D go up as revenue goes up.
5:40 Question: Why didn't you pass along the low component costs to customers this quarter? Answer: Apple products are competitively prices. Macs growth is 3 times that of the industry standard. The 9 quarter out of the last 10 that the Mac has grown more than the market.
5:42 Question: Are there any factors in the iPod hardware business that influence the gross margin projections, other than components? Answer: Apple doesn't discuss future products, so no.
5:44 Question: How are HDD vs. Flash based iPods selling? Answer: Apple doesn't talk about that kind of thing.
5:44 Question: Will the economics of iTunes change thanks to the higher charge for higher quality music (EMI)? Answer: The iTunes store is really there to sell iPods and accessories. So the strategy is to break even on the store itself.
5:45 Question: Direct sales vs. indirect sales? Answer: Direct sales account for 50% of Apple sales.
5:45 Question: How is the iPod doing outside the US? Same thing for the Mac. Answer: Macs are growing very well in US, Europe, and Asia Pacific. Asia is Apple's fastest growing market. Mac sales are growing better than the market everywhere (other than in Japan). iPods are seeing similar growth outside of the US.
5:48 Question: Will the Mac Pro have a positive impact on Mac ASPs? Answer: Apple doesn't comment on that sort of thing. But they are excited about the possibilities.
5:48 Question: What is the normal seasonality decline? Is the Leopard delay a reason for your cautious outlook? Answer: The June quarter is rife with education sales, which generate less income. The June quarter is also weak for the iPod. People just aren't buying them as much in the summer.
5:50 Question: iTunes Store: how many music/video downloads have there been to date? Answer: Nothing new to report.
5:51 Question: iPhone timing outside of the US? Answer: Europe 4th calendar quarter of this year, and Asia in 2008. The iPhone will be sold through Cingular stores, website and Apple's website/store.
5:52 Question: Has the component prices impacted on your designs? Answer: Apple doesn't comment on future products.
5:53 Question: How much music is being sold digitally? Will that impact your deal with the music companies? Answer: The trend is going up, but Apple won't discuss their deals with the record labels.
5:54 Question: Japan is lagging in sales, what up with that? And your expenses are going up, why is that? Answer: Japan is a tough market for Apple. The PC market is contracting, as well as Apple's. The iPod has 50% share of the mp3 market in Japan, but the market as a whole isn't growing. Apple is running Mac/PC ads on TV and trying other things. It is the only major world market Apple isn't doing well. Apple is increasing spending on engineering, the store.
5:56 Question: Mac channel inventory levels are down, how does that impact sales? And why are the inventory down? Answer: The inventory levels aren't down.
5:57 Last Question: Will the iPhone have higher margins? Answer: Apple doesn't comment on individual products. They believe they will 'delight' customers.
And that's all she wrote! As always, very exciting.