Apple Earnings Call Nuggets: International iPhone Trends and Competitive Market Dynamics
International iPhone Trends
Kathryn Huberty – Morgan Stanley: It’s clear that iPhone 5 did incredibly well in the U.S. based on the carryover report to-date, but international sell-through data points have been more mixed, how would you characterize trends outside the U.S. for iPhone and are you confident that you have all the right price points and screen sizes to fully capture the non-U.S. demand for iPhone specifically?
Tim Cook – CEO: Katy, it’s Tim. As Peter said, sequentially we increased over 70% from the September quarter, which was 3.5 times market. So we could not be happier with that. In terms of the geographic distribution, we’d saw our highest growth in China and it was into the triple-digits, which was higher than the market there and so I would characterize it as we’re extremely pleased.
Kathryn Huberty – Morgan Stanley: Then maybe a question for Peter, with a such large cash generation again this quarter and confidence in the product pipeline, you made those comments and a stock price that is off at highs, why not step up and buy back even more stock than you had originally planned at this point?
Peter Oppenheimer – SVP and CFO: Sure. This is something that we continuously assess. The opportunities to both invest in the business and return cash. We’re pleased to have started our share repurchase program this quarter and combined with our dividend, we returned about $4.5 billion of cash this quarter and we started the buyback program and expect to return about $45 billion over three years to our shareholders. We do consider increasing these programs and we’ll do what we think is in the best interest of our shareholders.
Competitive Market Dynamics
Bill Shope – Goldman Sachs: Kathy had eluded to this many of your smartphone competitors are now focusing on differentiating themselves with larger screen sizes than that of the iPhone 5 in your predecessor products, I mean how do you think about the competitive dynamics for the market right now, in that respect do you think that’s a valid point of differentiation? Do you think there is a long-term case for a larger screen size or at least the larger variety of screen sizes for iPhones and for the smartphone category in general?
Tim Cook – CEO: Bill, its Tim. The iPhone 5 offers as you know a new 4-inch Retina display which is the most advanced display in the industry, and no one comes close to matching the level of quality as the Retina display. It also provides a larger screen size for iPhone customers without sacrificing the one-headed ease-of-use that our customers love. So, we put a lot of thinking into screen size and believe we picked the right one.
Bill Shope – Goldman Sachs: I guess, and then shifting on to the question on iPhone demand, obviously you saw healthy growth in the key categories this quarter. Then in the context of your guidance, can you give us some color about how you’re viewing in-demand trends for the iPhone coming out of the December quarter and how that compares to what you consider to be normal seasonality at this point in the product cycle? And also, did you see any meaningful deterioration in iPhone demand at the end of the December quarter or thus far in the March quarter that would lend credence to some near-term conservatism?
Tim Cook – CEO: Bill, let me take the second half of that and then I’ll hand it back to Peter for the first half. If you look at the iPhone sales across the quarter, we were very constrained for much of the quarter on iPhone 5. As we began to produce more and ship more, sales went up with the production. iPhone 4 was actually in constraint for the entire quarter, and sales remained strong, and so that’s how sales progressed across the quarter. I’ll let Peter talk about the guidance.
Peter Oppenheimer – SVP and CFO: So, Bill, for iPhone, as we told you last year, we built about 2.6 million units of channel inventory in the March quarter which allowed us at that time to get into our four-to-six-week inventory target. So, the underlying sell-through was about 32.5 million, and we would expect sell-through growth year-over-year as it has for – in the quarter, as it has for many quarters in a row.
Tim Cook – CEO: Bill, let me make one additional point on this. I know there’s been lots of rumors about order cuts and so forth, and so let me just take a moment to make a comment on this. I don’t want to comment on any particular rumor because I would – in my life doing that, but I would suggest it’s good to question the accuracy of any kind of rumor about build plans, and also stress that even if a particular data point were factual, it would be impossible to accurately interpret the data point as to what it meant for our overall business, because the supply chain is very complex and we obviously have multiple sources for things, yields might vary, supplier performance can vary, the beginning inventory positions can vary, I mean, there’s just an ordinate long list of things that would make any single data point not a great proxy for what’s going on.
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