Q2 2014 Earnings Call Transcript

Transcript Call Date 04/23/2014

Luca Maestri - VP and Corporate Controller: Thank you, Tim and good afternoon, everyone. As Tim said, revenue for the March quarter was $45.6 billion, up $2 billion or 5% from a year ago and above our guidance range. Sales in each of our major product categories were at the high-end of our expectations or better and the vast majority of the revenue upside came from strong sales of iPhone. Gross margin was 39.3% also above our guidance range and operating margin was $13.6 billion, representing 29.8% of revenue.

Net income was $10.2 billion, translating to diluted earnings per share of $11.62.

For details by product, I'd like to start with iPhone. We sold 43.7 million iPhones, which was a March quarter record, that's an increase of 6.3 million iPhones over last year and represents 17% growth.

The addition of China Mobile, coupled with great response to our more affordably priced iPhone 4s led to an all-time quarterly record for iPhone sales in Greater China. We look forward to broadening our relationship with China Mobile, as they expand points-of-sale and continue to build out their 4G network.

In Japan, iPhone sales were up over 50% year-over-year resulting in significant market share gains. As Tim mentioned, we also had strong growth and share gains in many other major developed markets based on IDC's latest estimates for the March quarter.

iPhone also continue to perform exceptionally well in many developing markets. In Greater China, Brazil, Indonesia, Poland, and Turkey, iPhone sales grew by strong double-digits year-over-year; and in India and Vietnam, sales more than doubled.

We exited the quarter with 15.4 million total iPhones in channel inventory, which represents a sequential increase of about 100,000 from the December quarter and left us within our target range of 4 to 6 weeks.

In the enterprise market, progressive IT organizations are leading the charge to replace legacy devices and systems and are using iPhone and iOS to drive innovation of their companies. Deutsche Bank has nearly 20,000 iPhones running on its network and has created 40 internal apps that extend the capabilities of its mobile workforce. Siemens has 30,000 iPhones on its network and has deployed over 50 internal apps for field service teams, sales associates and corporate executives for solutions that are only possible with iOS and iPhone. We're really happy with the continued growth and strength of the Apple ecosystem.

Total revenue from iTunes, software and services was $4.6 billion, an increase of 11% year-over-year and an all-time quarterly record. Our iTunes stores generated record billings of $5.2 billion in the March quarter, up 24% year-over-year driven by very strong growth in App Store sales.

These iTunes billings translated to quarterly iTunes revenue of over $2.6 billion, up 9% from the year ago quarter and also a new all-time record. Software and services revenue was over $1.9 billion, up 14% from a year ago.

Offshore momentum is incredibly strong as cumulative app downloads have topped 70 billion. 87% of iOS devices are now running iOS 7 and our highly engaged users are a great audience for developers. According to App Annie, the App Store generated 85% more global revenue than Google Play in the March quarter despite the differences in unit market share between iOS and Android devices.

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