Q1 2014 Earnings Call Transcript

Transcript Call Date 01/27/2014

In the U.S. market, Apple remains the leading smartphone manufacturer, with iPhone accounting for 41% of smartphone subscribers in the three-month period ending in November according to comScore.

We're very pleased to have reached the multi-year agreement with China Mobile, the largest network in the world, with over 750 million customers, and to be selling iPhones through their expansive network of stores beginning on January 17. China is an incredibly important market to Apple, and iOS devices already account for 57% of all mobile web browsing in China.

iPhone customers are loving their phones and continue to produce the highest loyalty rates in the industry. A December survey of U.S. customers by ChangeWave indicated a 96% customer satisfaction rate for iPhone. And based on the latest data provided by Kantar, iPhone customers have a 90% loyalty rate significantly higher than the competition.

We exited the quarter with about 15.3 million total iPhones in channel inventory, which represented a sequential increase of less than 1 million units from the September quarter and less thus within our target range of four to six weeks of iPhone channel inventory.

The release of new iPhones with iOS 7introduced powerful new security and management features for business and enterprise customers and iOS 7 has received FIPS 140-2 certification from the U.S. federal government. These features coupled with ease of developing custom enterprise apps, continue to make iPhone the device of choice for large organizations. Many companies including Accenture, Cisco and American Airlines have tens of thousands of employees using iPhones for work. In fact some including Deloitte and GE have over 50,000 iPhones each on their networks around the world. Based on the latest published by IDC, combining business, government and education institutions, iPhone has a 59% share of the U.S. commercial smartphone market.

Turning to iPad, despite supply constraint we sold over 26 million iPads during the quarter compared to 22.9 million in the year ago quarter. That's an increase of over 3 million iPads or 14% in representing new all-time quarterly sales record. iPad sales were very robust in Mainland China where sales more than doubled year-over-year. We also experienced strong iPad sales growth in the Middle East, Latin America, Russia and parts of Western Europe. Customers are loving the new iPad Air and iPad mini with Retina Display introduced in October and response to the more affordable iPad mini has been very strong.

In fact, a November ChangeWave survey of customers planning to buy a tablet within 90 days found that 72% planned to purchase an iPad, and among customers who already owned an iPad, the survey measured a 97% satisfaction rate. We exited the quarter with 6.2 million units of iPad channel inventory with sequential increase of about 2.1 million units, which placed us within our target range of four to six weeks of iPad channel inventory.

Based on the latest data published by IDC, iPad has a 78% share of the U.S. commercial tablet market and iPad continues to spark innovation for businesses around the world, leveraging custom developed and App Store apps, progressive IT organizations have embraced mobility, armed employees with iPad and fundamentally changed the way people do their jobs. British Airways has deployed thousands of iPads to their employees across the business, including senior cabin staff, engineers, check-in staff, pilots and ground crew. At Kindred Healthcare, iPads are now being used by the sales team, executive and thousands of therapists nationwide, resulting in millions of dollars in estimated savings and productivity gains for Kindred and their customers.

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