Liveblog of Apple's Q3 2015 Earnings Call of October 27, 2015
Liveblog Of Apple's Q3 2015
October 27, 2015
Live notes from the earnings call:
5:03: Tim Cook is talking, running over the numbers. Largest absolute
revenue growth ever for fiscal year. We returned $53 billion through
dividends and share repurchases. We completed 15 acquisitions. We are
ending year on a high note with a record breaking Sept quarter.
Momentum remains strong for iPhone.
5:06: Strong interest around the world. Getting great feeback on new
features. We exited quarter with demand outstripping supply.
The Mac outperformed the PC market.
Sales of Apple Watch sales were up sequentially and ahead of our
expectations. I have heard from customers who say the Apple Watch is
saving their lives.
5:08: revenue in China nearly doubled. I just returned from China.
We started taking orders for the new Apple TV and it was a huge first
day. We built a new foundation around our TV vision with TVOS.
5:09: Next month we will ship iPad Pro, which will enable new
generation of apps.
5:10: Talking about Apple Music: 15 million accounts, 6.5 million paying
customers. Bringing Apple Music to China. Apple Pay seeing double digit
growth month over month. Apple Pay now supports merchat rewards,
popular retailers will come online. American Express will bring Apple
Pay to customers in certain global markets this year and next.
5:11: 40 million people using Apple News, says Tim Cook.
5:14: CFO Luca Maestri takes over. China revenue grew 99%. Emerging
market strong overall. Company gross margin up sequentially, better
than expected mostly due to low costs.
5:15: Talking iPhone ... up 120% in Mainland China.
5:16: Next, talk about Mac. Extended running trend of PC market share
gains. Mac growth driven by response to new Macbook. Sales of MB Pro
5:17: iPad sell through 10.3 million as we reduced inventory. iPad
customer metrics remain positive. 97% customer satisifaction. 70% of
people planning to buy a tablet plan to buy an iPad, per ChangeWave
In markets where we compete, we do well. We have 73% of tablets over
$200 in US.
5:19: Talking about deal with IBM. Saying IBM saves money with Macs
on support costs which would be good for everyone.
5:20: New record for services, due to apps, which was up 25%. Growth in
China, App Store revenue up 127%. Momentum in China has been
5:21: Revenue from other products up 61% thanks to Apple Watch.
Retail: We opened 7, 463 stores worldwide. We expect 40-50 stores in
5:22: Cash is up $2.8 billion. We did $5.8 billion of term debt. Returned
$17 billion to investors, $3 billion in dividends, $14 billion in share
purchases. We have done over $143 billion of our $200 billion program.
5:24: Outlook time.
5:25: Q&A TIME
Katy Huberty, MS: Low single digit revenue growth, how do you get
comfortable Apple isn't ex-growth?
Tim: Consider the constant currency, if you do that our guidnace is
8-11%. We have a 700 basis point FX headwind. It's quite good
underneath that. Zooming out, here's what I see: We believe iPhone will
grow in Q1, base that on what we are seeing from a switcher POV, highest
rate on record at 30% last Q. Look at upgraded that were in the install
base prior to 6 and 6 Plus and that is in the lower 30%. Our performance
in emerging markets, our market share is low, and the LTE penetration
is quite low. Also, look at China, as I've said before, we see an enormoys
change in China over the next several years. Latest from McKinsey, look
back 50 million in middle class in next 5 years it will be 10X that and we
are well positioned there. Not the only market we are working on,
impressed with Vietnam, Indonesia, and India.
Apple TV off to a great start, Apple Watch just starting, App Store hit a
new record, happy with early days of Apple Music, with people moving
from free trial. Enterprise business is not to be underestimated. We have
a $25 billion business built. Our penetration is low, but we have
significant actions to deepen that. Everyone I look, I see opportunity.
5:30: Huberty follow up. More you can do in services?
Tim: App Store up 25% last Q. Some of these upgrade programs in the
market, we think in aggregate they may reduce upgrade cycles, and the
iPhone sold to someone else hits a price point we're not hitting today,
which could fuel the services revenue which we did well on last quarter.
5:31: Gene Munster: How do you think about iPhone upgrade cycle
Tim: Our view is that we do think the broader upgrade programs, not
just ours in retail that is relatively small to total iPhone sales, but the
carriers are offering these plans. We think it would have a positive
impact. We do like that it creates a market for an iPhone at a different
price point. It also seems like from a roll out POV, you will see these
plans offered in some derivation in over a dozen countries, not as
pervasive as the US.
Luca: From financial perspective, it is a purchase, not a lease, we
recognize revenue up front.
5:35: Toni Sacconaghi from Bernstein. Q1 will benefit from 3 extra weeks
in China, and more of those initial launch days, only 2 in September Q.
So, I guess investor concern December is a structurally advantaged
quarter, but if we look out, wouldn't that point to notably lower seasonal
growth in the March quarter?
Tim: We don't guide beyond December, but I do think about Macro
things, Android switcher, iPhone momentum in emerging markets, LTE
penetration, upgrade programs, these are not one time things, these are
long time things. When you start with low 30s in terms of iPhone 6/6+
that leaves head room beyond December. Our forecasting doesn't work
how you articulated it. To be clear, I am not agreeing with your point.
Toni: Gains from currency hedging, several billion. Currency hedges
rolling off and being replaced with hedges that have less of an impact?
How will that impact P&L, how will that impact qualitatively or
Luca: We have portfolio of hedge contracts, proviodes margins, that
diminishes over time. That protection will come off. There are some
currencies we can not hedge. I think, and my conclusion the guidance for
Q1 is incredible given the FX headwinds. How do we deal with them? We
continue to hedge.
5:40: Shannon Cross: Enterprise business, how do you attack that
Tim: From a product POV, we change iOS with more enterprise features,
and continue with that cadence. From go-to-market, we are working with
IBM. Working with 75 ability partners.
5:42: More color on China?
Tim: If you look at China, we grew 87%. We've been able to grow without
hte market growing (in smartphones). iPhone 6 #1 selling in mainland
China, iPhone 6+ was #3. Economic question, which I know there's been
a lot of attention on. If I were to shut off my web and my TV and just look
at how many people are coming in our stores and look at our sales trend,
I wouldn't know there was any economic issue at all in China. I don't
know how unique we are in that. I think there's a misunderstanding in
the western world about China. I don't think Apple's results are
dependent on minor changes. Area that it's currently operating in, hard
to tell a difference at the consumer level, so we're very bullish in it. We're
investing in China for the decades ahead. As we look at it, our own views
is that China will be Apple's top market in the world and that's not just
for sales, the developer community is growing faster than any other in
the world. I was very impressed with the developers I met last week.
5:46: Steve Milunovich: In terms of selling to customers, why 33% for
install base upgraded? Clarity on switch number?
Tim: Switchers: Customers who purchased an iPhone and replaced a
smartphone, 30% switched from Android. That number is the largest
we've ever recorded. Huge number.
In terms of 2016 v 2015 new customers. It's hard to predict. Happy with
how we're doing. I know there is a fixation on the upgrade rate. When I
look, I feel good it's a low number because that means there's 69% of
people out there that havent bothered to upgrade, that's a large number.
Do I think it has any link to consistincy. iPhone upgrade plans, only
future will tell, but seems like it will accelerate upgrades. I don't know if
we will have more new or not, but that is always our objective. Nobody
asking about iPad on the call.
5:51: New Goldman Sachs analyst: What percent of iPhone go to install
Tim: I don't know answer to question.
The reason I can't answer, we don't look in aggregate. We look by iPhone
model by country, what percent going to a first iPhone buyer. China as
an example, over 50% that bought a 6 and a 6 Plus buying first iPhone.
As you move down the line, that goes up. So a 5S is higher in most
countries. That gives you a feel for an important market and where the
5:53: Amit from RBC: Gross margins. What is FX dynamic?
Luca: puts and takes on this ... positive margin from seasonal. Seen
commodity market that has been favorable. We expect it to remain
5:56: Rod Hall, from JP Morgan. Mix on iPhone 6 v 6S? Any difference
between that and 5/5S.
The iPhone 6S is the most popular iPhone we sell. Has there been a
change? iPhone 6 + 6+ and compare to last year's 5S, we are doing better
at that price point than we were doing previously.
Follow up: can you imagine doing activation from elsewhere?
Tim: We solved that in 2007, but had to change it to scale in a major
way. Always in our mind from customer service we want things as easy as
possible. There many different plans that people come in for.
AND WE ARE ALL DONE