Apple Inc AAPL
Q3 2010 Earnings Call Transcript

Operator: Shannon Cross, Cross Research.

Shannon Cross - Cross Research: Could you talk a bit about what you're hearing from corporations on their thoughts on the iPhone, the iPad and Mac, just what you're seeing in terms of corporate adoption?

Tim Cook - COO: If you look at the iPhone, we are now up to more than 80% of the Fortune 100 that are deploying or piloting the iPhone, and we also see very good momentum in the Fortune 500. In fact, over 60% of the Fortune 500 are deploying or piloting iPhone. This is also transcending into education institution, and we see around 400 higher education institutions which have approved the iPhone for faculty, staff, and students, and so iPhone is really taking off, and iOS 4 was another help in doing that. In terms of the Macintosh, you can see that Mac had an incredible quarter. We're still selling principally to consumer and education, but we are seeing businesses with increasing interest in the Mac, it's more difficult to measure because many of those sales are still through the channel. But, we're obviously thrilled with growing 33% year-on-year.

Shannon Cross - Cross Research: And then the iPad?

Tim Cook - COO: The iPad, very surprisingly in the first quarter. So in the first 90 days we already have 50% of the Fortune 500 that are deploying or testing the iPad, it’s incredible. That’s the Fortune 100 – excuse me.

Shannon Cross - Cross Research: That’s great. Then I had a follow-up for Peter. When you talked about the gross margin upside this quarter you mentioned about half of that came from those five areas performing better than you’d expected. Can you give us anymore specifics on why exactly those areas were better than you’d anticipated?

Peter Oppenheimer - SVP and CFO: Sure. Shannon, the largest contributors were higher iPhone sales than we had included in our guidance and also higher accessories sales as well.

Operator: Richard Gardner, Citigroup.

Richard Gardner - Citigroup: Tim, I wanted to start just by asking you to give us a supply/demand breakdown for each of the product categories if you would and talk about any notable supply constraints within each product line and how severe they are and when you expect it to be alleviated?

Tim Cook - COO: Rich, starting with the Mac, there were no significant supply/demand issues during the quarter, and there are none currently. On the iPod, it’s the same, none significant last quarter and none currently. The iPad and the iPhone are significantly different. Both of these products, the iPad and specifically the iPhone 4, we had backlog at the end of last quarter that we were not able to fill. And currently, we are still selling both of those products as fast as we can make them. So we still are quoting longer lead times than we like and we’re looking around the clock to try to get supply and demand at balance. In the schema things, it's a good problem to have.

Richard Gardner - Citigroup: And Tim, are you willing provide any additional color on what's causing – what the sources of constraint are and when you expect this to be alleviated or is it just simply a demand problem and not so much a supply problem?

Tim Cook - COO: I don't think – high demand is never a problem. On the iPad, as I've mentioned in last quarter that we went into the iPad thinking that planning a 1 million per month capacity was a very bold move. In fact, if you look at a lot of the industry analysts who are predicting that we would only sell somewhere around that number for the whole calendar year. As you know, we did 1 million in the first month and then the second million in the second month and third million in the third month. So basically, what we're doing is, we're increasing capacity as quickly as we can and there is a number of things that we have to increase in order to do that. But I am fairly confident that we will be able to increase the capacity. It's not a situation where there is something profound that we can't – that we can't eventually increase. The iPhone, we just started ramping at it in June. We had very limited days last quarter. As you know, we launched on the 24th, and quarter ended on the 26th, and we are still ramping and increasing volume. But again, there is not a specific thing that is a overwhelming (gauge). It's just a matter of getting up the round.