Apple Inc. (AAPL)

F3Q12 Earnings Call

July 24, 2012 5:00 pm ET

Executives

Nancy Paxton – Investor Relations

Peter Oppenheimer – Senior Vice President and Chief Financial Officer

Timothy D. Cook – Chief Executive Officer

Analysts

Kathryn Huberty – Morgan Stanley

Bill Shope – Goldman Sachs

Ben Alexander Reitzes – Barclays Capital, Inc.

Shannon Cross – Cross Research

Toni M. Sacconaghi – Sanford C. Bernstein & Co. LLC

Andy Hargreaves – Pacific Crest Securities

Gene A. Munster – Piper Jaffray, Inc.

Mark Moskowitz – JPMorgan

Chris Whitmore – Deutsche Bank Securities

Shaw Wu – Sterne, Agee & Leach Group, Inc.

Brian Marshall – ISI Group

Presentation

Draft version. An edited version will be posted soon.

Operator

Good day, everyone, and welcome to this Apple Incorporated Third Quarter Fiscal Year 2012 Earnings Release Call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Nancy Paxton, Senior Director of Investor Relations. Please go ahead.

Nancy Paxton

Thank you. Good afternoon, and thanks to everyone for joining us. Speaking today is Apple CFO, Peter Oppenheimer; and he’ll be joined by Apple’s CEO, Tim Cook; and Treasurer, Gary Wipfler for the Q&A session with analysts.

Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, stock-based compensation expense, taxes, earnings per share and future products. Actual results or trends could differ materially from our forecast.

For more information, please refer to the risk factors discussed in Apple’s Form 10-K for 2011, the Form 10-Q for the first and second quarters of fiscal 2012 and the Form 8-K filed with the SEC today along with the attached press release. Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

I’d now like to turn the call over to Peter Oppenheimer for introductory remarks.

Peter Oppenheimer

Thank you, Nancy. We’re pleased to report the results of our third fiscal quarter. We established new all-time quarterly records for iPad unit sales and new June quarterly records for iPhone and Mac unit sales, leading to our highest June quarter revenue and earnings ever.

Revenue for the quarter was $35 billion, representing year-over-year growth of 23%. The $6.5 million increase over the prior June quarter’s result was driven primarily by strong growth in iPad and iPhone sales.

Operating margin was $11.6 billion, representing 33% of revenue. Net income was $8.8 billion, increasing 21% over the prior June quarters’ results. The quarters’ net income translated to diluted earnings per share of $9.32.

Turning to the details of the quarter, I’d like to begin with our Mac products and services. We sold 4 million Mac’s establishing a new June quarter record. This represents 2% growth year-over-year, compared to [IBCs] latest published estimate of 1% contraction of the global personal computer market in the June quarter.

Last month, we updated the entire MacBook lines with faster processors, graphics, memory, flash storage and USB 3.0 connectivity. We also introduced the all-new 15 inch MacBook Pro with Retina Display, all flash architecture and quad core processors and customer response has been excellent.

While receiving tremendous momentum for the iPad in education, which I’ll discuss later, we also experienced our best quarter ever for U.S. education institution Mac sales with (inaudible) representing nearly three quarters of total Mac sales. Notably large education transaction closed during the June quarter, include Rutherford County, North Carolina, which has purchased 6,000 MacBook Air’s to support it’s 21 century digital learning environment in Pueblo Colorado School District 70 were all high school students and (inaudible) staff in the 22 school district will convert to MacBook Air. We began in end of the quarter with between three and four weeks of Mac channel inventory, which is below our target range of four to five weeks.

Tomorrow, we will release Mountain Lion, the ninth major release of OS 10. Mountain Lion introduces more than 200 features including all new messages app, notification center, system wide sharing, and Facebook integration. We built iCloud into the foundation of Mountain Lion, making it easier than ever for customers to keep current trend up to date across all their devices.

Moving to our music products, we sold 6.8 million iPods compared to 7.5 million in the year ago quarter. Total iPod sales were ahead of our expectation and iPod touch continue to account for over half of all iPod sold. iPod share of the U.S. market for MP3 players remained and over 70% based on the latest monthly data published by MPD and iPod continue to be the cross selling MP3 player in most countries we track based on the latest data published by GFK.

We ended the quarter within our target range of four to six weeks of iPod channel inventory. The iTunes Store generated very strong results in the quarter with revenue of over 1.8 billion, thanks to continued strong sales of music, apps and other content. We are pleased to launch the iTunes Store in 12 countries including Hong Kong, Singapore, and Taiwan last month. Customers can choose from over 20 million songs to purchase and download from iTunes. We’re continuing to see great interest in iTunes view, since rolling it out in January, they have been over 40 million downloads of the iTunes U app. Over 700 located 12 schools and districts and over 125 colleges and universities have enrolled in the iTunes U program while over 750 new courses have been published.

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