Apple Q2 2012 earnings: $39.2 billion in revenue, net profit of $11.6 billion

Tim Cook: Apple focusing more on iPad for enterprise

Tim Cook hates litigation, not quite ready to call a patent truce

365 million iOS devices 'in play,' iPad taking off in education and government markets

How do you follow up a stunning Q1 where you set record quarterly earnings and issue a sizable dividend to investors? Well, if you're Apple, you just keep on keepin' on, shattering even the wildest expectations with "a record March quarter." Leading up to today's earnings, the outfit's stock was down around two percent, mostly on reports that iPhone activations were something other than mind-blowing. That said, shares have already started to creep back into positive territory in after-hours trading. Wall Street was hoping for around $36.88 billion in revenue (despite lower guidance from Apple itself), with upwards of 30 million iPhones sold and 12 million iPads sold -- galling numbers, no matter how you slice it.

The actuals? Well, we're seeing $12.30 earnings per share, compared to an estimated $10.04 earnings per share. It all adds up to $39.2 billion in revenue and $11.6 billion in pure, unadulterated profit with 35.1 million iPhone units sold alongside 11.8 million iPads. (Of note, the new iPad was only on sale for around a fortnight in this quarter, making that figure even more impressive.) The former represents an 88 percent unit growth over the year-ago quarter, while the latter shows a 151 percent unit increase over the year-ago quarter. Though Mac sales weren't equally astonishing, the four million units sold in the past three months indicates a seven percent uptick compared to Q2 2011. The iPod department, which has been sinking in recent years as iPads and iPhones become the primary music players of consumers, still saw 7.7 million units sold, representing a 15 percent decline from the same quarter last year.

Just to put things in perspective, Apple nearly doubled its profits in Q2 2012 compared to Q2 2011, and practically quadrupled it compared to Q2 2010. As for CEO Tim Cook's reaction? Aside from grinning from ear-to-ear looking at his growing stash of loot, he stated: "We're thrilled with sales of over 35 million iPhones and almost 12 million iPads in the March quarter. The new iPad is off to a great start, and across the year you're going to see a lot more of the kind of innovation that only Apple can deliver." Keep on telling us that, Tim, and we'll keep waiting. The conference call kicks off at 5PM ET, and we'll be liveblogging it just after the break!

4:58PM We're being told it'll get underway right at 5PM ET. That's 2PM at Apple's headquarters, a few hours earlier in Hawaii, and in a world that honestly doesn't matter down in Moorea.

4:56PM And we're on the call! Listening to some sultry, classical tunes.

5:00PM It's 5PM ET. Hearing some random voices who weren't supposed to be off of mute just yet.

5:01PM Ah! "Please stand by, we're about to begin."

5:01PM Apple CEO Tim Cook and CFO Peter Oppenheimer are being introduced, per usual.

5:02PM Here comes Peter with "introductory remarks." He's undoubtedly proud of the results, with record Mac, iPad and iPhone sales, leading Apple to its best-ever March quarter.

5:03PM Peter: "The year-over-year increase was fueled primarily by iPad and iPhone sales."

5:03PM Peter: "Turning to the details of the quarter, let's turn to Mac. We established new March records for both desktops and portables."

5:04PM Peter: "In Feb., we released the developer preview of Mountain Lion. It'll bring iOS favorites to the Mac. We expect Mountain Lion to be available in the Mac App Store in "late summer" of this year."

5:04PM Peter: "iPod touch continues to account for over half of total iPod sales, and our market share in the space continues to sit above 70 percent."

5:06PM Peter: "The iTunes Store generated $1.9b in revenue, a record. Let's turn to iPhone. We saw an 88 year-over-year growth in iPhone sales. We experience very strong iPhone sales growth in all segments, lead by AsiaPac, where it doubled year-over-year." China was also a majorly strong market for iPhone this quarter. The iPhone 4S is sold on over 230 carriers right now.

5:07PM Peter: "iPhone momentum in the enterprise is evolving. Managers see the opportunity to leverage these devices. The majority of Fortune 500 companies who have approved the iPhone for use are actively developing in-house apps for use in their companies."

5:08PM Peter: "The new iPad is now available in over 40 nations, with sales more than doubling in each of our segments. The education market's interest in iPad continues to grow. We sold nearly two iPads for every Mac in this past quarter in terms of education."

5:09PM Peter: "iPad continues to open doors to new customers that Apple used to have no relationship with. iPad's momentum continues to build in government, too. iPads are being used as electric flight guides."

5:09PM Peter:"365 million iOS devices are now in play, with over 50 million sold this quarter. The App Store has over 600,000 apps, with over 200,000 apps specifically for iPad. iCloud has over 125 million customers signed up since its launch in October."

5:10PM Peter: "We opened two new stores in the quarter: Amsterdam and Houston. We have over 300 stores now."

5:11PM Peter: "Segment margin reached over $1.1 billion in our stores, and we welcomed 85 million visitors to our stores (and increase of 19 percent)."

5:12PM Peter's also talking up the dividend plan announced earlier this year, which he says will detailed highly come Q3.

5:13PM Peter's talking expectations for Q3 2012; he's targeting an EPS of around $8.50.

5:13PM Now, Peter's turning the call over to questions from analysts.

5:14PM Q from Katie at Morgan Stanley: "As it relates to June quarter revenue guidance, it provides a downtick. Can you talk about the headwinds you're seeing?"

5:17PM Peter: "Sure. The manufacturing ramps for the iPhone 4S and iPad were extremely successful for us. As a result, we were able to fulfill demand earlier. Unlike last year, we're expecting a decline this year. Here are some factors: first is the iPhone channel inventory changes (which are increasing). Last year, we continued to add new countries into the June quarter. That'll impact the sequential comparisons. Next, we've had fabulous iPhone execution. We exited the quarter with a supply and demand balance. Next: our iPad execution was also fabulous. We were able to satisfy much of the demand in the March quarter this year, compared to how much we could satisfy in the March quarter last year. Next: we decreased the entry price on the entry iPad to $399. Lastly: the US dollar has improved recently, and we expect it to make an impact on sequential comparisons."

5:17PM Basically, Apple's saying next quarter may be a little weak because it's just being so much more awesome this year compared to last.

5:18PM In other words, it's fulfilling demand more this year in the March quarter, whereas last year some of the March demand was actually fulfilled in Q3 2011.

5:18PM Peter: "The new iPad is on fire. We're selling 'em as fast as we can make 'em. The education buying season looks terrific for us."

5:20PM Tim Cook is now answering a question from Richard from CitiGroup: Tim's saying that last year, it changed most of its portable line. Last year, portables were up 53 percent year-over-year, so that comparable (to now) is "very difficult." He's explaining guidance again.

5:20PM Tim Cook: "Yes, I think there was some cannibalization from iPad (on portables / Macs), but the vast majority of the difference is just the changes compared to a year ago."

5:21PM Next question: "Could you talk more broadly on what you may be learning on lower price points on iPhone and iPad? Was the decrease in iPad price exclusively mix related? Tim, could you talk about elasticity and what customers are doing with pricing?"

5:22PM Tim Cook: "We're thrilled with results, but these prices haven't been there for long. We've seen this unlock some education demand. Also, in several other countries, there was a marked change in demand at [the iPad 2's new $399] price point."

5:22PM Tim's talking about mix between sales in iPad 2 and iPad: "We're not certain of that just yet. Overall sales of the two are very exciting."

5:23PM Tim Cook: "On the iPhone, we're thrilled with the pricing moves we made on the iPhone 3GS and iPhone 4, with these sales representing the second-best of all time."

5:24PM Here's a follow-up question on the general market of tablets and PCs going forward -- basically, he's asking for his current take on the reality of the post-PC world. Mentioning the impending launch of Windows 8. He's asking why tablets and MacBook Air lines don't converge -- can't we have a sub-2 pound product that can be open as a notebook and closed as a tablet? Can you comment on why you think these markets are separate?

5:25PM Tim Cook: "Anything can be forced to converge, but it's all about trade-offs. Some of these trade-offs leave you something that doesn't please anyone. Our view is that the tablet market is huge -- we've said that since day one -- we were using them here and it was already clear to us that there was so much you could do, and the reasons for use is so broad. iPads have taken off in consumer markets, in education and in enterprise -- it's everywhere you look now. The applications are so easy to make meaningful for someone, and as the ecosystem gets better and better, and as we continue to double down on making great products, I think the limit here is nowhere in sight."

5:26PM Tim Cook: "We've sold 67 million total iPads. In context, it took us 24 years to sell that many Macs, over 5 years for that many iPads and over 3 years for that many iPhones."

5:29PM Here's a question about subsidies and price pressures, related to iPhone.

5:31PM Tim Cook: "Our focus is just on making great phone. At the end of the day, the vast majority of carriers want to provide what their customers want to buy. That's what they're motivated for. We are deeply committed to providing phones that people want. The subsidy, from a carrier perspective, is not large compared to the length of a contract. Our engineering teams work extremely hard to be efficient with data; differently than some others. As a result of this, iPhone has far better data efficiency than other smartphones. Finally, we think that -- most importantly -- iPhone is the best smartphone on the planet to convince a person using a traditional cellphone to upgrade. This is by far the largest opportunity for Apple and our carrier partners, and it's a fantastic experience for the customer; it's a win-win-win there. Some of these factors are missed in these conversations about subsidies."

5:32PM Here's a follow-up about how users are using iCloud, iTunes Match, paid storage additions, etc.

5:33PM Peter: "Customers are using all of the features of iCloud. Feedback has been terrific. Pickup on storage is occurring, but, it's still growing. We have over 125 million users come on since October 2011. I think storage growth will come more over time. Our real desire isn't about selling more storage; we think Match is a great product, but it's a paid service. We just really wanted to improve the consumer experience surrounding iOS."

5:33PM That says a lot -- no real financial motivations, just aiming to please the customer and hoping profit follows.

5:35PM Tim Cook's answering a question about the impact of China: "We have very strong demand for iPad 2 in mainland China, as we haven't shipped the new iPad there (thought we have in Hong Kong) just yet. The halo effect is also incredible there."

5:36PM Tim Cook: "In the next two years, China will become an even bigger opportunity. We have expanded a lot, but there's a lot of headroom here in our view." When talking about the iPhone mix in China, Tim says his "recollection is that it wasn't materially different, but it's important to keep in mind that a new iPhone recently launched."

5:37PM Peter's answering a question from somehow who is clearly displeased with how fast new content is hitting iTunes: "We're thrilled with iTunes. We have over 28 million songs, leading to nearly $1.9 billion in revenue (up 35 percent year-over-year). Customers love it."

5:38PM Here's a question from Barclays: "The other big issue outside of subsidies is regarding shortages. There's talk of Qualcomm shortages into the next couple of quarters and potential constraints for year-end. I know you don't comment on future products, but this is a big concern. Can you talk directionally, if you expect to get your fair share, and do you see any major bottlenecks on components down the line?"

5:39PM Tim Cook: "That's a tough question to answer, Ben. We currently do not use 28nm parts, which I'm familiar with [regarding the delays]. I can't talk about future products, as you said. Outside of this, we work very closely with our supplier partners and do everything we can do to get supply; sometimes we're successful on that and sometimes we are not." Basically, no answer.

5:39PM Here's a follow-up question about Walmart, citing its store-inside-a-store plan.

5:40PM Tim Cook: "There's no plan to build stores within a store in all 10,000 Walmart stores. They've been a good partner to us on iPod, and are increasingly a more substantial partner in iPad and an evolving partner on iPhone. We're working with them; we hope to continue expanding."

5:40PM Here's a question from the Bank of Montreal: "Could you talk about supply and demand for iPhones in Asia-Pacific? More broadly, with iPhones getting increased inventory, will that lead to downward trends in June?"

5:42PM Tim Cook: "Our desire is to increase channel inventory across the quarter. We ended with only six million units coming out of December because we were extremely backlogged on the 4S. The addition of the 2.6 million units allowed us to get within our target range, exiting the quarter in supply / demand balance. We had the mother of all Januarys getting out of the backlog and entering China."

5:43PM Tim Cook: "There's no supply and demand imbalance in China with iPhone. With iPad, we're supply constrained worldwide, on the new iPad. Demand has been incredibly robust. We're selling them as fast as we can make them. In China, on a macro basis, China has an enormous number of people moving into higher income groups -- middle class, if you will -- and this is creating a demand for goods, not just Apple's but other companies as well, so there's tremendous opportunity for companies that understand China. We're doing everything we can to understand China and serve it the best way we can."

5:45PM Tim Cook: "Spain has been weak for us. It's not related to subsidy issues [that were asked about], but Spain as a whole is in a terrible economic situation. What the carriers did was, they still have subsidies for existing customers -- I don't want to talk about their old customer to new customer ratio is -- they pulled subsidies on new customers. So, it wasn't a pull of all subsidies, only a pull on new customers. And all carriers in that market did not do that; a couple of them did. I wouldn't use that as a proxy for the world is my point."

5:46PM We're getting more questions on guidance...

5:47PM Peter: "With iPad, we expect a significant year-over-year and sequential increase in sales. I just want to put something out on the call, talking a bit on gross margin guidance for the June quarter: we're providing gross margin of 41.5 percent for the quarter."

5:48PM Here's a question to Tim on cash usage, regarding patent disputes. Asking if Apple should just settle and then keep innovating.

5:48PM Tim Cook: "I've always hated litigation. I continue to hate it. I just want people to invent their own stuff. If we could get some kind of arrangement like that, I'd highly prefer to settle rather than battle. The key thing is that Apple not become the developer for the world. We need people to invent their own stuff." Welp, that answers that!

5:49PM Here's a question on more specific feedback on iCloud -- average amount of devices on iCloud per user, etc.

5:49PM Peter: "We of course have the data you're asking for, but we don't want to help our competitors. Feedback is off the charts, they're loving it. I think having 125m users using it around the world today is off the charts."

5:50PM Here's a follow-up question on R&D spend.

5:50PM Peter: "We're investing in engineering to come out with the most innovative products in the world. We're shipping the best products Apple has ever shipped. We've got some fabulous new products in the pipeline. I'm very confident that we'll see return on these R&D investments."

5:51PM Here's a question from Shaw Wu: "Just a quick clarification -- what about China Telecom specifically, when did that launch?"

5:51PM Tim Cook: "We launched in early March, and we were in supply / demand balance with them by the end of the month. We're very happy to be working with them."

5:52PM Here's a question to Peter on the operating expenses side: "How do you think about opex leverage longer term?"

5:53PM Peter: "We are spending on marketing and advertising, opening our own stores and opening indirect stores to enhance sales. We're very confident in our investments, and we're thinking about the long-term. We're confident about the returns on these investments."

5:54PM Tim Cook: "NAND and DRAM supply continues to outstrip demand, so we expect pricing to remain favorable. The HDD market has moved to a supply / demand balance, but we still expect hard drive pricing to remain higher than the pre-flood prices from the disaster in Thailand."

5:55PM Here's a question about becoming a "more significant" enterprise player.

5:57PM Tim Cook: "94 percent of the Fortune 500 is testing or deploying iPad, with 74 percent of the Global 500 doing the same. These are amazing numbers for a product that's only 24 months old. We're shifting our focus here to penetration in enterprise. The incredible thing here is that these products span through many verticals -- enterprise, governments, education -- it's absolutely the most broad-based products I've seen in my entire career in terms of enterprise adoption. We have more sales people interacting directly with these partners. We also work with our carrier partners to deliver these to our partners."

5:57PM Here's a question looking at guidance, and he's asking if Apple is just being conservative or if they've seen a reason to doubt demand.

5:58PM Peter: "We're incredibly confident in our business. When we give guidance, we have reason to believe we can achieve it. We do expect a sequential decline in iPhone sales given that we built up a 2.6 million unit bolster in the supply channel, whereas we entered March with a significant backlog. But now we're in supply / demand balance. We have immense confidence in what we're doing and are very pleased with how our business is performing."

5:59PM Here's a question on "when" they'll meet all demand for iPad.

5:59PM Tim Cook: "That's hard to answer. But I'm confident that we can supply a significant amount of iPads in the quarter. It's hard to know if it'll precisely balance until you get there, but the total number will be very significant."

6:00PM And that's a wrap! A jam-packed hour of questions, for sure. Thanks for tuning in!