Apple Posts $1 Billion in Profit (1Q 2007) and Financial Call Notes

Apple announced their financial results for the 1st fiscal quarter of 2007 ending on December 30, 2006.

Apple posted record revenue of $7.1 billion and record net quarterly profit of $1.0 billion, or $1.14 per diluted share. These results compare to revenue of $5.7 billion and net quarterly profit of $565 million, or $.65 per diluted share, in the year-ago quarter. Gross margin was 31.2 percent, up from 27.2 percent in the year-ago quarter. International sales accounted for 42 percent of the quarters revenue.

Apple shipped 1,606,000 Macintosh computers and 21,066,000 iPods during the quarter, representing 28 percent growth in Macs and 50 percent growth in iPods over the year-ago quarter.

"We are incredibly pleased to report record quarterly revenue of over $7 billion and record earnings of $1 billion," said Steve Jobs, Apples CEO. "Weve just kicked off what is going to be a very strong new product year for Apple by launching Apple TV and the revolutionary iPhone."

"We generated over $1.75 billion in cash during the quarter to end with $11.9 billion," said Peter Oppenheimer, Apples CFO. "Looking ahead to the second fiscal quarter of 2007, we expect revenue of $4.8 to $4.9 billion and earnings per diluted share of $.54 to $.56."

A live streaming conference call of the Q1 2007 Financial Results will take place at 2:00 p.m. PST on Wednesday, January 17, 2007 at http://www.apple.com/quicktime/qtv/earningsq107.
Financial Call Notes
Some highlights from the Financial Results Conference Call are provided. The most interesting tidbits:

- Q: You decided not to support 3G in the first prototype iPhone model? Your thinking? A: At this point we are very much sold on the EDGE network with Cingular because it is much more widely deployed in the U.S. We don't comment on our roadmaps, but obviously, we would be where the technology is over time.- Q: Didn't get much on Leopard at Macworld. Anything to add? A: Continue to plan to ship Leopard in the Spring. We've got a lot of people working on it.
- Q: Is iLife still a January release time schedule? A: We don't comment on unreleased products, but stay tuned

- Welcome to 1st Quarter Conference Call.
- Stellar financial results. 24% Revenue Growth.
- Driven by strong iPod sales and continued robust demand for Macs.
- Net income of $1 Billion, up 78% from last year's quarter.
- Mac Products: 43% of total quarterly revenue. 1.6 million Macs.
- Pleased with Mac growth. 3x IDG Market growth rates.
- MacBook and MacBook Pros demand was particularly strong. 65% of total Macs were portable
- 21.1 million iPods. 50% growth over year ago quarter.
- Happy that iPod retained leadership position in market.
- iPod has 72% marketshare for MP3 Playerss according to NPD.
- Marketshare gains internationally
- 29% growth in "other" music revenue - primarily iTunes
- Sold over 2 billion songs. Added Paramount at Macworld.
- iTunes music sales - have 85% marketshare
- Apple Retail Stores. 170 stores now. 5 opened during quarter.
- Invested in Stores. "Great experience for iPhone beginning in June."
- $11.9 Billion cash balance.
- Outlook for March Quarter: Targetting $4.8-4.9 Billion in Revenue
- Introduced revolutionary iPhone and Apple TV. Excited about products coming from Apple this year.

Q/A

- Q: Factoring in any pause in iPod demand due to iPhone? A: We factored our view of customer demand in our guidance. Too soon to tell, but feel they have great iPod offerings right now to meet customer needs. In terms of seasonality, for iPods, we've learned that what drives iPod sales are innovative product launches and holiday sales. iPod supply in demand were in balance, so expect a higher seasonal decline this year.
- Q: Which commodities were more favorable than expected in the quarter? A: Favorable pricing across the board. Great time to be a buyer. See the favorable pricing to continue on LCDs and Flash.
- Q: You decided not to support 3G in the first prototype iPhone model? Your thinking? A: At this point we are very much sold on the EDGE network with Cingular because it is much more widely deployed in the U.S. We don't comment on our roadmaps, but obviously, we would be where the technology is over time.
- Q: Considering pricing the Mac more aggressively (lower) considering the high margins? A: We grew at 3x the market, so substantially above the market. 8 of the last 9 quarters, the Mac has beat the market. No reason to change.
- Q: iPod gross margin? A: We don't release product specific gross margins, but iPod was key in achieving the high total margins.
- Q: What caused sequential drop in Mac sales? A: Same decline as previous year. Have extremely strong education/institutional business in Q4, which accounts for Q4->Q1 drop.
- Q: Gross margin on iPhone? A: Don't plan to ship iPhone until June. We don't provide product level gross margins. But the guidance we give in April will comprehend the anticipated iPhone shipments.
- Q: iPod sales breakdown? A: All three models did exceptionally well
- Q: Didn't get much on Leopard at Macworld. Anything to add? A: Continue to plan to ship Leopard in the Spring. We've got a lot of people working on it.
- Q: Is the iPhone design fixed? For example, the battery sealed? Any consideration to changing that? A: We'll provide more details on the iPhone right before we start shipping in June.
- Q: Steve Jobs said that they predict 10 million iPhones sales? Fiscal or Calendar Year? A: Calendar year 2008.
- Q: Will the iPhone be in full production in June? 10 million for 2008 seems low. Do you expect to have capacity constraints? A: We'll share more details closer to the launch.
- Q: Apple TV projected units? It's the best selling product on your website right now. A: We just started taking orders. Plan to ship in February. We'll just have a few shipping weeks in this quarter.
- Q: Do you see the Apple TV a niche platform or broad platform? A: We see it as the DVD player of the 21st century. So clearly not a niche.
- Q: Comments regarding Halo effect? A: Intent to buy a Mac is up substantially. Significant momentum on the Mac. We are thrilled with the numbers this quarter for the numbers for the Mac.
- Q: Breakdown of the iPod sales going to new owners or upgraders? A: Don't know
- Q: Any comments on iPhone canabalization of the iPod? A: Still early to say, we believe we have a broad range of iPods to satisfy consumers.
- Q: Do you see the iPod and iPhone converging? A: We'll see. The iPod has a broad range of products. We'll talk more as the iPhone gets closer to shipping.
- Q: Mac Pro performance? A: Pro market met our expectations internally, but expectations were tempered by the fact that some customers were waiting for the Universal Adobe Suite. We would hope to see those customers to buy after the final version is released
- Q: Comment on Boot Camp downloads? A: 1.5 million downloads for Boot Camp. Still intend to ship it with Leopard.
- Q: Comment on the Cisco lawsuit? A: We think the Cisco lawsuit is silly. Several companies use the term iPhone already. First company to use it for a cell phone. Confident we'll prevail.
- Q: Is iLife still a January release time schedule? A: We don't comment on unreleased products, but stay tuned
- Q: Will there be additional software download opportunities on the iPhone? A: We'll talk more about the iPhone closer to the launch
- Q: Update on Retail Store plan for '07? And Employee count? A: Ended the Dec quarter with about 6600 employees in our retail stores. Opened 5 stores in December Quarter. Expect to open 7 in the March quarter. Open 35-40 in Fiscal '07.

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