Apple Obliterates Q3 Earnings Estimates On Best Mac Sales Ever And Huge iPad Numbers

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In news that should surprise no one by now — Apple once again had a stellar quarter and blew past Wall Street estimates for Q3 2010. Just as with Q1 and Q2 of this year, Apple has been doing so well thanks largely to the iPhone. But unlike those quarters, Apple now has an important new product adding money to their bottom line: the iPad (the iPad had been released just prior to the closing of Q2). And this quarter actually marked Apple’s best ever in terms both revenue and Mac shipments.

Apple posted a revenue of $15.7 billion for the quarter (again, a new record — beating even holiday quarters). And net quarterly profit was at $3.25 billion — $3.51 per diluted share. All of those easily beat both Apple’s own (always low) estimates, as well as Wall Street’s.

Apple sold 3.47 million Macs during Q3 — again, a new quarterly record. The company sold 8.4 million iPhones, which was down slightly from the 8.75 million they sold last quarter. But remember, that’s before the iPhone 4 (which went on sale just prior to the end of the quarter) and many customers likely held off on purchasing the iPhone 3GS to wait for the new iPhone. The company also sold 9.41 million iPods in Q3. This number continues to decline on a year-over-year basis as it’s being eaten by Apple’s other products, like the iPhone.

But the big number is the iPad sales. Apple moved 3.27 million units in Q3 2010, the first quarter they’ve reported sales. Yes, the iPad almost outsold the Mac — and that’s on record sales for the Mac.

All that being said, Apple’s gross margin did fall slight to 39.1 percent, versus 40.9 percent a year ago. Part of this is likely due to the iPad, which Apple is selling for relatively cheap (by its standards).

Of note, Apple CEO Steve Jobs chimed in with: “we have amazing new products still to come this year,” in the release. He also reiterated that the iPhone 4 was the most successful product launch in Apple’s history.

Looking ahead to the fourth fiscal quarter of 2010, we expect revenue of about $18 billion and we expect diluted earnings per share of about $3.44,” Apple CFO Peter Oppenheimer noted in the release.

See also:

Wow, iPads Almost Outsold Macs Last Quarter. And It Was The Most Macs Ever Sold

Tim Cook: Only Thing Limiting iPhone 4 Sales Is That We Can’t Make Them Fast Enough

Apple’s Billion Dollar Data Center Will Be Done This Year. iTunes In The Cloud, Anyone?

Below find live earnings call notes:

Peter Oppenheimer, Apple CFO

  • New all time record for quarterly Mac sales.
  • Highest quarterly revenue ever. $15.7 billion — 61% over the previous June.
  • Net income up 78% over a year ago.
  • 33% year over year growth for Macs. We’ve outgrown the global market.
  • Double-digit Mac growth in all geographies.
  • 9.4 million iPods versus 10.2 million a year ago
  • iPod touch grew 48% year over year
  • iPod share is over 70% — best selling MP3 player in nearly every country we track
  • iTunes store rev exceeded $1 billion.
  • 225,000 apps — now over 11,000 apps for iPad
  • Over 5,000,000,000 apps downloaded.
  • 1.7 million iPhone 4s in the 5 initial countries.
  • Strong growth in Asia, Europe, and Japan for iPhone
  • Over 100 million iOS devices out there now
  • 3.27 million iPads in 10 countries
  • Apple Store revenue also a record. Revenue up 73% versus a year ago
  • Half Macs sold in store are to new Mac customers
  • We have 293 stores now
  • Average 287 stores open — Average rev per store was $9 million
  • 60.5 million visitors in our stores during the quarter.
  • 24 new stores this quarter
  • 39.1 percent gross margin — down, but we knew this. Mainly due to iPad sales
  • $45.8 billion in cash now.
  • We will be giving free customers to all iPhone 4 customers, so we’re deferring revenue for this.
  • This will be about $175 million — deferral
  • We expect revenues to be about $18 billion next quarter. 35% margins — lower due to iPhone 4 and iPad sales — and the cases.

Q&A Time With CFO Peter Oppenheimer and COO Tim Cook

Q: What is corporate adoption for iPhone, iPad, Mac?

TC: 60% of Fortune 500 are deploying or piloting iPhone. Education doing great too. The Mac had the best quarter — a lot of it is education as well. In the first 90 days of the iPad we have 50% of the Fortune 100 deploying or testing the iPad – “it’s incredible.”

Q: Supply demand breakdown for the product categories?

TC: Mac and iPod had no significant supply/demand issues. iPad and iPhone are significantly different. The iPhone 4 significantly is backlogged. We’re still selling them as fast as we can make them. Same with the iPad. “It’s a good problem to have.” High demand is never a problem (laughs). We went into iPad thinking that 1 million a month would be a bold move, analysts thought that too. We blew through that. Increasing capacity as fast as we can.

Q: How are iPhone 4 margins? Why are those on the negative side for next quarter?

PO: We had some adjustments in our supply chain — that helped us last quarter. But next quarter, the iPhone 4 has higher cost structure. The magin there is attractive, but it’s higher than iPhone 3GS.

Q: What about the iPhone 3GS ramp down, how did that affect sales for the quarter?

TC: Lower sales after June 7 waiting for iPhone 4 launch. It definitely affected the quarter.

Q: Why problems with meeting demand for product launches?

TC: “We do not purposefully create a shortage for buzz. I’m not sure where that comes from.” “Demand for iPhone 4 is absolutely stunning.” I don’t know when we’ll be able to

Q: With the antenna – any changes in demand?

TC: “Let me be very clear on this: We are selling every unit we can make, currently.”

Q: So no slow down in order rates online (post antennagate)? Increase in returns?

TC: “My phone is ringing off the hook from people who want more supply.”

Q: Increase in returns?

TC: The returns we’ve seen on the iPhone is less than the iPhone 3GS, as Steve said on Friday. “For this specific issue, it’s extremely small”

Q: Talk more about iPad demand.

TC: It took 20+ months to sell the first million iPods. It’s one month for iPad. It’s not taking a typical early-adopter curve. Our guts tell us that this market is very big. And the iPad is defining the market.

Q: How’s the 3G iPad doing?

PO: We don’t disclose the split. But all of the models have been very popular.

Q: Updates on iAds?

PO: Yeah we just launched in the early part of July. We plan to learn a lot this calendar year and build a foundation for the future.

Q: How’s the NC datacenter coming?

PO: It’s on-schedule. We expect it completed by the end of the calendar year.

Q: What impact did iPad have on gross margins?

PO: Things were as we thought. We did a little bit better than we thought (in margin) thanks to more iPhone and accessory sales.

Q: Is there cannibalization of iPod by the iPad?

PO: Our iPod ASPs were down about $7 sequentially, but that’s mostly due to back-to-school promotions and a stronger U.S. dollar.

Q: Will iPad margins increase over time?

PO: We are purposefully agressive with the iPad (pricing) — this will continue.

Q: Impact of the bumpers?

PO: We will need to defer revenue for iPhone 4s we sell where we haven’t delivered the bumpers or haven’t heard from them. It should be about $175 million in the September quarter. We will expense the cost of the bumpers when we ship them to customers. We will take care of every customer.

Q: What about Android shipment increases?

TC: Haven’t seen the reports since June. But iPhone sales were up 61% in the quarter despite the iPhone 4 coming. We’re growing substantially faster than the market.

Q: iPad demand?

TC: Anecdotally, I think it’s beyond the early adopters already, as I’ve said. I don’t know what the competition will do. I know they’re working on things. Maybe people will subsidize them, but I’m not sure people really want another contract in their lives.

Q: App Store rules still arbitrary?

PO: I think that we are always looking to make our developers happy. We just crossed $1 billion in payments to developers. And now iAds are another revenue stream.

TC: The vast majority of apps are approved within 7 days of their submission. And most of the ones that don’t make it are because of bugs. But we want to make sure that pornography and graphic scenes don’t make it. I know that 100% don’t agree.

Q: Mac sales trending towards portables?

TC: When we announce new portables, you’ll see a movement there. That’s more of what we saw this time. But still, there’s an overall move toward mobility. Portables will continue to grow.

Q: Talk about FaceTime as an open standard. Any color there?

TC: I want to focus on financial questions today. So let’s save that one for another day.

Q: Why isn’t North America on the hot iPhone numbers list?

TC: I think that the market will increasingly become a smartphone market. Steve said that long ago — it’s becoming true. We have a lot of opportunity all around the world. But our growth as a company is happening faster internationally — that’s for all products. But it’s huge for the Americas too.

Q: What about broadening in China and India for the iPhone?

TC: I think both Mac, iPhone, and later iPad there is still extraordinary opportunity left. In Asia-Pacific the Mac grew 73% year over year. In China it’s over 100%.

Q: Might there be a reverse iPad halo effect?

TC: That’s a very good question. I think that’s what we focus on internally. The iPod created a Halo for the Mac. Could that happen with iPhone and iPad? We’ll see, I don’t want to predict it. But the Mac share is up 17 straight quarters. But it’s still low. There’s still room to grow. There’s a lot of PCs to cannibalize. It’s still a huge market.

Q: Domestically, do you need to expand your beyond one carrier?

TC: I will say that we’re very happy to be a partner with AT&T. They’ve been a first-class partner. They’ve pioneered things. That’s all I have to say about that.

That’s a wrap.

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