Apple posts $3.38b Q1 profit: iPhone sales double, Macs up 33 percent, iPods down eight
By Nilay Patel 
posted January 25th 2010 4:42PM
posted January 25th 2010 4:42PM
Update: We're jumping on the call now, we'll update the good parts in semi-liveblog style after the break, since we're sure the real action will come on Wednesday. Let's go.
5:03PM We're still waiting to start -- and we're testing something. Did it work?
5:06PM Okay, we're on. CFO Peter Oppenheimer and COO Tim Cook are on the line. Peter's is recapping the quarter: "We're shipping our best products ever and customers love them." Talking about the switch away from subscription accounting.
5:08PM Laptop sales were up 18 percent, people like the new MacBook. People also like the new iMac, especially education -- edu sales went up 61 percent.
5:09PM They expected general sales of iPods to go down, but sales of the iPod touch went up 55 percent.
5:11PM Sold 8.75 million iPhones in the quarter, with 17 new carriers added. iPhones now sold in 86 countries. Sales up in Japan, Australia, UK, France, and Germany.
5:12PM Surprise, Apple retail stores are also doing well. Half the 8.9 million Macs sold were to people who'd never owned a Mac before. 283 stores open in 10 countries.
5:14PM In sum: The Apple Stores are not just a party in the USA. They are also a party in other countries.
5:14PM Apple's main priority with its huge cash reserve is primarily "preservation of capital," which means they're mostly trying to hold on to it.
5:17PM Talking about how the FAASB changed the rules and now they don't have to use subscription accounting. That means the numbers reported today are slightly higher than they were in the past -- if we're understanding this correctly, the true comparison with last quarter would be with the non-GAAP number they reported. Accountants everywhere are going crazy, there are riots in the street, etc.
5:18PM Apple estimates that they'll deliver $25 in upgrades to the iPhone over the life of the product and $10 in upgrades to the Apple TV. That's just for accounting purposes, obviously. The true value they deliver can't be measured with human money... or emotions.
5:19PM Peter sounds absolutely giddy about the new accounting rules. As giddy as any straight-laced MBA who is basically reading numbers can sound, anyway.
5:20PM Apple's targeting about $2 per share earnings for next quarter -- they're usually pretty conservative, though.
5:20PM Question time!
5:22PM Any reason to think the Mac growth rate won't continue? Tim: Macs are growing at about two times the market rate, so we don't really want to predict. Also, we don't predict anything. But Italy, France, Switzerland and Spain grew at 40 percent, Australia grew at 70 percent, China even higher. We'll see how we do.
5:24PM AT&T's getting a lot of bad press here, why stick with a single carrier? Tim: AT&T is a great partner, it's important to remember that they have more mobile broadband usage than any other carrier in the world. In the vast majority of places, iPhone customers are getting a great experience. AT&T has acknowledged problems, we've personally reviewed their plans to fix it and we're confident it'll be handled.
5:26PM Can you address gross margin for the current quarter and next quarter? Peter: This is super boring, who wants to talk about our awesome tablet? Okay, that's not what he's saying at all. He's mostly talking about very dry accounting changes, which were very complex. Pete's proud of his guys in the green hats, basically.
5:26PM Margins were up because commodity pricing was down, warranty numbers were down, and Apple used all that cash to secure better pricing.
5:28PM Does your guidance for next quarter include any unannounced products? Tim: Nice try, but stay tuned for Wednesday.
5:30PM They're expecting a decline in Mac sales next quarter, which is usual, and they're possibly a bigger decline in traditional iPod sales. Also expecting a seasonal decline in iPhone sales.
5:31PM Do you see anything that would change how you generate "free cash flow?" Peter: We're really good at making cash, and I don't see that changing.
5:33PM Can you talk about the iPhone in China, did it meet expectations? Tim: We don't disclose units by country, but I'll make an exception for China. Earlier this month we activated over 200,000 units in China. There are 1500 points of sale for the iPhone in China, we're very focused on the quality of point of sale, we're moving slow because we're focused on the building the brand there.
5:34PM Can you comment on your comfort level with iPhone inventory? Tim: iPhone channel inventory grew by 230,000 units over the quarter. We're comfortable with it, we could have sold more iPhones but we decided not to because we manage inventory very tightly.
5:36PM Can you talk about the Nokia lawsuit, and can you confirm that there's no risk to Apple from litigation? Tim: We don't talk about pending litigation. (Implied: Shame on you.)
5:36PM How do we reconcile the notion that gross margins are going down given your product mix? Peter: Here are a lot of words that add up to "no comment."
5:39PM App approval process has gotten lots of criticism -- is the problem the model itself? Have you received any feedback from iPhone owners? Tim: Important to keep this in perspective. We have 100k apps in the store, over 90 percent approved in 14 days. We created the process to protect consumers and kids, and protect the experience of using the phone. Most of the rejections are bugs in the code itself, and this protects the customer and the developers. The noise on this may be much higher than the reality.
5:39PM Tim says he hasn't gotten any feedback from iPhone owners, and Apple hasn't seen it in the research.
5:40PM How do you feel about new product opportunities ahead? Anything coming up that's as big as the iPhone and the Mac, or is that setting expectations too high? Tim: I don't want to take away your joy and surprise on Wednesday, so let's save that. (That's a direct quote, by the way. He said "joy and surprise.")
5:42PM Is it appropriate to roll out iPhone in the same way across the world, specifically a place like China where incomes are lower? Tim: There's a significant middle class opportunity in China. To do a real analysis you really can't look at the averages, but at the distribution. We're learning a lot from our experiences in Brazil, for example.
5:44PM (Just an aside: how hilarious is it that this call is happening right before an event? Peter and Tim sound like they're just toying with these poor analysts.)
5:46PM Can you talk more about the App Store? Is is successful? Peter: I will decline to hit that softball for competitive reasons, but I'd totally smash it if I wanted to, because the App Store is awesome.
5:47PM 70 percent of the Fortune 100 companies and 50 percent of the FT 100 companies are actively piloting the iPhone for enterprise use.
5:49PM Have you seen any change in the iPhone financial model when you move beyond a single carrier in mature markets? Tim: We mostly see that sales increase as we add carriers. We've added carriers in the UK, you'll see a significant change in marketshare there. Same with France, Scandanavia -- marketshare up with more carriers. We've mostly selected countries we thought that would happen in, so I don't want to imply that would happen everywhere or that we think that would happen.
5:51PM How should investors think about the long-term strategy and the acquisitions of Lala and Quattro Wireless? Peter: We acquired Quattro because we wanted a seamless way for developers to make more money on their apps, especially free apps.
5:52PM The iTunes Store and the App Store are runnning at "a bit over break even."
5:53PM Can you explain this crazy new accounting stuff? Peter: Yes, I can.
5:57PM It looks like you're selling a lot of machines in Asia, can you talk about that? Tim: iPhone sales in Japan are up 400 percent, Mac growth is up but we can do better. Mac sales in Asia Pacific are up 55 percent, it's our best area. iPhone sales really drove an incredible amount of revenue growth.
5:57PM (This is super boring, but it's like we started it so now we have to finish. Never say we're quitters, people.)
5:59PM Can you characterize your relationship with Google in the smartphone space? Peter: We work with Google in some places and compete with them in others. Mobile advertising is in its infancy, and with the great people we've acquired from Quattro, we expect to offer developers a great opportunity for mobile advertising.
6:00PM Tim says he'd describe pro sales as an "economically challenged area," and he doesn't think that's going to change.
6:02PM Tim: We really understand teaching and learning at a very deep level, and we think we're the only technology company that gets it. We sell a lot more than just boxes.
6:03PM And that it! Congrats to those of you that have stuck this out -- you're either huge financial nerds or seriously in need of hobbies. Have you considered console gaming?
@Swagger
No, no. Those are all old hat. You need to upgrade!
The HTC HD2 is the new hotness. It has more RAM and is thus a much better phone :)
@Swagger
LMFAO
@Solidstate89
I've seen plenty of PhD's in various fields of physics, chemistry, and other physical sciences that would beg to differ with you, troll.
@Swagger
My Thinkpad would probably start a house fire if left unattended :)
@Solidstate89
This is completely off-topic here, but your touting of the S9 over the iPod Touch is quite a stretch here. Besides the market speaking for itself, that thing has no search function for music, no full web browser, no games, no email, etc.. It seems to be that it's not even close to as useful as an iPod Touch is. Is the AMOLED screen that important for your music player or are you just being a nerd?
Heck, for something that basically only plays music and retails for $259 for its 32 GB version, I really can't see why anyone would bother. If I wanted a pure music player, I have to say that I'd probably save money and go with the 160 GB iPod classic if I were going to stick with Apple's offerings.
@Swagger
No need to be offensive...
@Swagger
Windows 7 release drove more PC users to buy Macs because they couldn't figure out how to upgrade from Windows XP.
@Solidstate89 Must have been born in 1989 based on his comments! Who actually uses a laptop for performance computing on their laps? And slamming Apple for putting a dedicated copper bus with fan cooling inside of an aluminum case that acts as a secondary heat sink only makes you sound like a fool. I agree that macbook's get warm, but an eager PC tuner will find that cooling the huge flat aluminum surface of the macbook's bottom is actually rather straigh forward. Does your $900 computer express the same degree of mechanical engineering, design and hardware level software optimization as a macbook? Apple has a strategic advantage by controlling both the software and hardware; they can get the hardware to do more with the software. Likewise if you were to own a macbook pro and dual boot windows 7, you would find that they run Windows 7 better than most other notebooks in the same price range. $1200 is not expensive for a quality notebook as I noted earlier several times; that is $3 per day for a year.... As for buying a PMP and then comparing with an Ipod Touch with acts as a MID/PMP/PDA- and has access to the Itunes App library; again this just makes you sound like tool.
Oh and again, for the price premium Apple actually gives its customers something; hundreds of retail stores all over the country where they can go for help and support if something should go wrong; and or to actually shop first person Apple's devices.
And yes people will pay more for something that looks nice and performs well. Some people actually care about aesthetics. A macbook has a clean UI and uncluttered mechanical interface that really set the standard for other hardware vendors.
Your comments have been downranked into oblivion and so have some of mine. But if you are going to shit talk Apple products, at least back up what you are saying with some legitimate critiques.
Ie; things like...
Whats is with the sealed batteries on these things?
Where is the memory expansion ports apple?
Where is the camera on the Ipod Touch?
Likewise that $999 macbook works just fine for most people; especially they use it 90% of the time for writing nonsense posts on Engadget.
So there you have it; apple didn't become so profitable by producing overpriced devices; they became profitable by giving consumers what they want; and people voted with their $.
Since Vista was a total dingleberry, and migrating from XP was not an easy translation; I agree that a lot of mainstream casual computer users told MS and PC vendors to screw that noise and jumped on board with a (reasonably priced considering what you get (not just hardware specs) macbook or macbook pro.....
Likewise the success of the iPhone and iPod Touch speak for themselves; again people voted with their dollars!
Put that in your $900 computer....
@Solidstate89
FALSE IQ is rising not going down get your facts straight.
What.....the......hell????????????
No mention of the tablet?
Did one come out in Q4 of '09?
@Showbiz
No but Engadget has been able to sneak it into almost every Apple post... I hope to god it just slows down until the conference...
@Showbiz. this is an earnings report. not the venue for product announcements.
also, fact correction. this is not Q4. it is Q1. Apple's financial calendar runs Oct to Sept not Jan to Dec
@EGOvoruhk
No... But this is Engadget.
Pffft. They still should mention the Tablet. Oh well, just waiting until tomorrow and the "Just one more Day until we are Live" posts.
@Showbiz
Hourly updates methinks. Every hour, on the hour. All timezones included.
@Showbiz Why in the hell would they mention the Tablet before the big press conference reveal? Seriously, do you not know how these things work?
@Showbiz Nope! there it is! Apple edited the post and managed to add in the tabled! Damn you called it!
@Kmobs Damn typos :( I meant to say even though this has nothing to do with the tablet, Engadget managed to slip it in.
Those are some great numbers. Good on ya' Apple.
@DirtyVegas
only 3.38b????
ENGADGET, YOU AREN'T TRYING HARD ENOUGH!!!
@sirphunkee
(...anybody know where I can rent a good-condition Sarcmarc around here...?)
@Mack Stone Are you sure? I thought the haters said that you guys were paying too high a profit margin on Apple hardware.
Large profits with low computer sales volume would seem to reinforce this claim.
@Ducman69: What's the margin you're paying on Microsoft software, hmmm???
@DirtyVegas
3.38 billion dollar, that is like 2.4 billion euro
@HotFuzz
For a Windows PC, software is generally $50 to $100 of the total cost. "Apple Tax" is generally anywhere between $400 and $1000 over comparable Windows hardware.
@Shokz
For the average consumer, Microsoft Office $150. Antivirus subscription $50-100. Trip to Geek Squad, priceless.
That said, I use both Mac and PC. I'm a very thrifty user. AVG ftw, OpenOffice (or...nvm), and free Google applications (Picasa, etc.).
@DirtyVegas hell yeah, and this will go on a yet another exponential growth once the apple tablet and their iPhone 4GS unveils. Seeing iPhone going to Veriz, is such an opportunity for apple to earn that gift-horse. More iPhone 4G and Apple tablet details: http://bit.ly/iphone-4g-apple-tablet-details
@DirtyVegas
Go Apple yay!
Yeah, nice numbers.
Now: WHERE ARE OUR DIVIDENDS?
@DirtyVegas
To quote an HP Slate fanboy " I need to change my pants".
Man,...i'm no Apple fan boy but DAMN that's a good selling phone!
@SPENone
Mac sales up 33% too.
Did you know that the iPhone has 51% marketshare amongst smartphones, and Winmo has like 5%? Don't look at me: Windows Fangirl Paul Thurrott said it in the last podcast. Amazing. And iPhone has like a 70% marketshare in Europe. Not Nokia.
@SPENone
Yep , Lets give them a big hand.
@SPENone
It sure is. People are stupid.
@Wesscoast
Wut?
LOLno. It's sold very well but it's still way behind Nokia.
@Wesscoast Paulie got excited reading a AdMob report.
Go back and listen to the podcast and look at the actual report.
AdMob provides "in app advertisements" and their main platform is the iphone which has the largest market share in app's and app usage. Thats what the report says. Paul read it as saying that the iphone outsold Nokia /s60 when Canalis/Gartner show Nokia selling more units than the next 3 manufacturers COMBINED.
@Munk
Eh... next 2 and that won't be the case this quarter.
At the moment there isn't a consumer touchscreen phone that matches the iPhone so it's selling very well - I doubt the Droid will have anything on it at all, similarly Nokia's high end has been poor so a lot have switched.
I still expect Nokia to do pretty well but the high end is Apple's for now. Of course, that may change, but it's gravy just now.
@SPENone Just think how well it would do if it wasn't on AT&Ts 3G.
@MarkAnderson not debating the merits of the iphone, just looking past the rdf.
@SPENone
yeah, maybe now they can stop making bias commercials and make thier business more professional. As of right now that is the only thing i have against mac, and the only reason i wouldnt buy one.. well, sort of.
@Munk
The problem is that three years down the line we still don't have anything better. Whether this says more about Apple's understanding of the market or their competitors' ineptitude is up for debate.
@Munk
Oh no... Mobile advertising... Whatever little display real estate we have will diminish further with flashing, music/video, pop up advertisements...
I hope some developer comes up with "Mobile Ad-blocker"
@ALL ABOVE
I understand where some of you are coming from (and some of you i dont..lol) But in the end..the thing still sells like mad! And as far as the marketing goes, i kinda like it when companies take shots at each other. Reminds me of the good ol' days of Nintendo and Sega :)
@SPENone
That phone made from stolen technology. Nokia would be entitled to at least 1 billion of the profit.
@MarkAnderson
No. You can't say "the iPhone is behind Nokia." Can you see why? It's like saying "the Honda Accord is behind Ford". You're saying a single product is behind an entire company's lineup of products.
To make a comparison that actually works, you'll need to pick ONE of Nokia's phones and compare THAT to the iPhone. I shouldn't have to tell you what the results of that comparison will be.
@Jack
Comparing all of Apple's phones to all of Nokia's phones is perfectly valid. The two companies have two different market strategies.
@Jack
It's silly to think you can compare it like that. Nokia produces phones almost quarterly. Their strategy is not to sell a single device and never has been. The iphone is in competition with the entirety of the Nokia smartphone line of products. It isn't a single product vs a single product. This isn't a boxing ring. Nokia doesn't do single products apart from special cases (MID & smartbook).
They produce high volume devices specifically targetted at targetted segments of the population. Because of the nature of segmentation/targetting, you will rarely ever sell huge numbers of any single product ini any single target segment; but you CAN sell huge numbers through multiple targetted products.
So for example, the N97 sold 10 mill, the music phone sold 15 million, the E devices sold another 13-15 million, the N devices sold another 15 million etc etc.
It's not product A vs product A the way blogs and news outlets would have you believe. Even if you have shitty products, proper market & product segmentation can yield explosive sales and will tend to win out as a whole vs building a great single product and trying to sell it to the general market.
I'm not saying either company has bad or good products; just stating that you cannot compare based on 1 single product.
Another example: In an estate of 1000 residents:
Person A sells roasted peanuts on the street. He sells 100 bags.
Person B sells roasted peanuts in an area of the street where ppl only like roasted peanuts. He sells 50 bags
Person B also has a stall in another corner that just sells steamed peanuts. he sells 30 bags.
person B also has a stall in another corner selling salted peanuts and sells 60 bags.
Person B also has a stall somewhere selling sweetened peanuts and sells 80 bags.
Both person B and person A are selling peanuts. While person A sells more of one type of peanut, person B strategy is to sell based on what each area craves.
The nett result is that Person B outsold Person A and it'ss only a consolation that Person A outsold his rival in roasted nuts.
@Eupfhoria
Except that Nokia's "design a cellphone in every shape, color and size" strategy isn't working too well and that's why they decided to sue Apple. That's also a fairly pathetic strategy for such a large company with billions of phones to sell. Heck, they've got the N97, the N97 Mini and the N900 to go up against the iPhone. What more do they need?
@Eupfhoria
"Perfectly valid" how, exactly? People love to say "Nokia is kicking Apple's ass" but refuse to admit that Nokia doesn't sell a single phone that outsells the iPhone. This is basically a case of Apple haters choosing the angle that makes Nokia look the best as opposed to facing the fucking FACTS.
Yes they have different business models. That is not the POINT. The only way, and I emphasize the ONLY WAY Nokia is keeping up with Apple in the smartphone market is because of all their phones COMBINED. Which is the same thing as saying all of Ford's cars COMBINED are outselling the Honda Accord.
Anybody with an ounce of common sense will tell you that's a stupid comparison to make, and yet it's the only one left for Nokia fanboys to make.