MacRumors

Apple today announced financial results for the third quarter of fiscal 2009. Apple posted revenue of $8.34 billion and net quarterly profit of $1.23 billion, or $1.35 per diluted share, compared to revenue of $7.46 billion and net quarterly profit of $1.07 billion, or $1.19 per diluted share, in the year-ago quarter. Gross margin was 36.3 percent, compared to 34.8 percent in the year-ago quarter, and international sales accounted for 44 percent of the quarter's revenue. The numbers represent the best non-holiday quarterly revenue and earnings in Apple history.

Using non-GAAP data, which eliminates subscription-based accounting for the iPhone and Apple TV, Apple would have had $9.74 billion revenue and $1.94 billion of net income. The subscription-based accounting used for Apple's official results parcels out income from iPhone and Apple TV sales over a 24-month period from the date of sale, whereas the non-GAAP results count the entire revenue from these sales in the quarter they were made.

Apple shipped 2.6 million Macintosh computers during the quarter, a unit increase of 4 percent over the year-ago quarter. The company also sold 10.2 million Pods during the quarter, representing 7 percent unit decline over the year-ago quarter. Quarterly iPhone unit sales reached 5.2 million, up 626 percent from the year-ago quarter.

"We're making our most innovative products ever and our customers are responding," said Steve Jobs, Apple's CEO. "We're thrilled to have sold over 5.2 million iPhones during the quarter and users have downloaded more than 1.5 billion applications from our App Store in its first year."

Apple's guidance for the fourth quarter of fiscal 2009 includes expected revenue of $8.7 billion to $8.9 billion and earnings per diluted share of $1.18 to $1.23.

Apple will provide live streaming of its Q3 2009 financial results conference call at 2:00 PM Pacific, and MacRumors will update this story with coverage of the conference call highlights.Conference Call Updates

- Customer response to the portable line has been favorable after the refresh
- Sold 10.2 million iPods. Reasons for decline: reduced channel inventory, and sell through decline
- 3 categories: traditional MP3, iPod Touch, iPhone
- For Traditional MP3: year-over-year decline which they predicted
- Expect Traditional MP3 sales to decline further over time
- Believe we have a great business that will grow over time
- 50% of recent traditional iPod purchases are buying their first iPod
- iPod Touch did extremely well in the quarter. Enhanced by App Store.
- over 70% of U.S. marketshare with iPod
- Over 5.2 million iPhones in the June quarter. Response to the new iPhone 3GS has been tremendous.
- Unable to make iPhone 3GSs to meet demand
- iPhone OS 3.0 release well received. App Store is key strategic differentiator.
- iTunes Store - strong sales of music, video and apps.
- Over 8 billion songs downloaded from iTunes Store
- Retail Stores: 492,000 Macs sold this quarter. 1/2 Macs sold to customers who never owned a Mac before. 258 stores total.
- First store in France during holiday quarter.
- Margins better than predicted. Component cost did increase but not to the level expected, spent less in warranty and manufacturing, efficiently ramped products this quarter.
- Cash: $31.1 billion at end of quarter. Investment priority is preservation of capital. Comfortable with investment portfolio
- $500m pre-payment to Toshiba for NAND Flash made.

Q&A

- Any plans on extending carrier relationships to other products beyond iPhone? Nothing to announce.
- Consumer market performed relatively better than the K12 performance this last quarter
- Pro business also affected more by the economy than the consumer business.
- Units grew faster than our revenue in part due to price cuts on portables.
- Some idea of how the $99 iPhone is doing? As we made the changes for the 3GS and price drop. We saw a significant acceleration of sales overall, but can't give out breakdown. The 3GS is currently constrained, so demand has been robust.
- Progress in large enterprise? iPhone doing well with small business and large businesses that allow purchase iPhones in individual use. Multiple corporations who have sold in excess of 25,000. Feel good about how we are doing. Most recent study has ranked iPhone highest in overall satisfaction for business customers.
- Factors looking into future from Apple: For many key components, costs are rising. We will continue to focus on state of the art products at prices our competitors can't match. And ever improving value to our customers.
- Given response on the price cuts, can you give us thoughts about the elasticity of the Mac market? Mac sales did accelerate after the announcement at WWDC, and we feel great about how they are selling. As we expected there are some number of people who are buying up. We're not thinking fundamentally different than it was before. Goal is to build the best computers in the world. If we can do that at lower prices, then we will but we won't put it on a product that doesn't live up to Apple's name.
- Any thoughts about Snow Leopard and $29 price point? Snow Leopard includes a lot of core improvements. Priced it very aggressively so that all of our users can upgrade to it. We're hoping they'll do that. As we announced at WWDC, we continue to expect to ship it later this quarter.
- Competitors with Media Stores, Can you talk about how to out-innovate competitors? I don't want to talk too much about what we are planning in the future, but we just shipped the next major version of iPhone OS and the App Store reaches over 45 million customers. App Store has been an unprecedented success with over 1.5 billion apps downloaded. The 65,000 apps compares favorably to the other stores. We have substantial advantages over the competitors. Feel extremely good about our competitive position.
- Do you still feel the lower price PC business model is still not attractive? Our goal is not to build the most computers, but to build the best. We don't see a way to build a great product for this $399, $499 - this kind of price point unit and as I've said before and I think this is playing out in several areas. Some customers get disappointed or disenchanted with these products.
- Is there a market for a larger portable device? Never want to discount anything in the future, but the point I'm making right now is that most people who buy a portable want a full featured notebook and we know from our research that our customers are very happy with us. Many of the netbooks being delivered are very slow and old software technology. Not a robust computing experience. Small displays and small keyboards. That kind of thing many people will not be happy with. We're only going to play in things where we can deliver something that we're very proud of.
- Question regarding "race to the bottom" of App Store pricing. Is this a concern? Any Steps? We're always looking for ways to categories apps differently and we have some ideas. We do it by type of apps and top selling apps, and we realize there is opportunity for further improvement and we are working on that. As for price, it's up to the developers to choose where to set the price. I would think as the installed base grows, it makes sense to have lower prices but that's totally up to the developer.

VentureBeat pieces together reports coming out of China regarding the recent apparent suicide of a Foxconn employee after he lost track of an iPhone prototype in his possession. The suicide of 25 year-old Sun Danyong, who was responsible for shipping prototypes to Apple, reportedly occurred in the wake of a potentially illegal search of the his home and possible physical intimidation against him by members of Foxconn's security department investigating the prototype's disappearance.

On Thursday, July 9th, Sun got 16 prototype phones from the assembly line at a local Foxconn factory. At some point in the next few days, he discovered that one of the phones was missing. He suspected that it had been left at the factory, but couldn't find it. On Monday, July 13, he reported the missing phone to his boss. Then, that Wednesday, three Foxconn employees searched his apartment -- illegally, according to Chinese law. Accusations are flying that Sun was detained and physically abused during the investigation, although this has not been substantiated (possible evidence: there's this somewhat garbled and potentially faked instant message exchange from Sun shortly before his death).

What is known: On Thursday -- a little after 3 a.m. according to surveillance videos in the apartment building -- he jumped out of a window in his apartment building to his death.

In a statement (Google translation), Foxconn management expressed its condolences to the employee's family over the tragic incident and announced that it has placed the security personnel involved in the visit to the employee's residence on unpaid leave pending investigation and is taking steps to offer resources to assist its employees with mental health issues.

Update: CNET reports that Apple has released a statement regarding the incident:

"We are saddened by the tragic loss of this young employee and we are awaiting results of the investigations into his death," Apple spokeswoman Kristin Huguet told CNET on Tuesday. "We require our suppliers to treat all workers with dignity and respect."

Apple declined any further comment on the events or the missing prototype.

TechFlash reports that Microsoft has recruited former Apple real estate chief George Blankenship as a consultant for its new retail initiative. Blankenship, who previously worked at Gap, is said to be an expert at securing prime retail locations.

A Microsoft representative confirmed that he's now working on real estate with Microsoft -- but as a consultant, not as a full-time employee. The company declined to go into any detail on his role, but his experience stands to be a big benefit as Microsoft pushes into the retail market.

ifoAppleStore explains the significance of the choice of retail locations in Apple's growth of their retail stores. Conventional wisdom at the time located retail computer stores on inexpensive stand-alone retail locations. Apple's plan focused on high-profile retail locations in the heart of high-traffic shopping centers:

In a 2006 speech to an investment group, Johnson recalled the early planning: "If you want to enrich their lives, you can't be in a parking lot, off a highway. You gotta be where they live their life. You gotta be right where they work, where they play, where they live, where they shop. The only way to enrich their life is to be part of their life. They've got to walk 10 feet to your store, not drive the car 10 miles. That's what enriching lives would take."

This plan, of course, has been a success despite early predictions by both analysts and press that Apple's move into retail was a bad idea at the time. Microsoft's move into storefronts is said to be more of a "showcase" of their products than pure retail outlets.

Wired.com claims that the next generation iPod touch will contain both a video camera as well as a built-in microphone:

A well-connected source tells us those rumors are on the money, and that Apple's factories in China are already manufacturing iPod Touch models with integrated cameras and microphones. An Apple spokesman declined to comment when reached by phone.

In retrospect, the inclusion of a built-in microphone is obvious if the reports of the inclusion of a video camera are to be believed. It has been rumored that the next generation iPod touch will incorporate a video camera when it is updated later this year.

The inclusion of a built-in microphone would make it much easier to take advantage of voice-over-IP applications for the iPod touch. This would allow the iPod touch to essentially become a Wi-Fi mobile phone, allowing you to make voice phone calls over the Internet when in range of a hotspot. While the currently shipping iPod touch does support microphones, in order to take advantage of it, an external accessory is required. Apple typically refreshes the iPod touch in September each year.

Universal Studios Home Entertainment today announced (via iLounge) that it will begin offering iPhone-enabled features on some of its future Blu-ray video releases. Universal's initial launch for the concept will take place with the release of a special Blu-ray edition of Fast & Furious on July 28th. Utilizing an Internet-connected Blu-ray player and a free companion iPhone application to be released to the App Store, viewers will be able to use their iPhone or iPod touch to view and interact with a "Virtual Car Garage" highlighting the cars used in the film.

Powered by BD-Live, the 2-Disc Special Edition Blu-ray release of Fast & Furious will utilize this interactive technology tied to its "Virtual Car Garage" bonus feature. With iPhone or iPod touch in-hand, Blu-ray viewers can use their devices' touch screens to control 360-degree views of the movie's supercharged street-racers and instantly punch up exclusive technical specs for the film's high-tech cars.

Universal also plans to extend the iPhone application concept in future releases, introducing additional iPhone-formatted content, "virtual remote" applications, and social networking features.

Later this year on select Universal releases, consumers will also be able to access bonus content found on their Blu-ray disc and download it into their iPhone or iPod touch to watch features on-the-go; use the devices as a virtual remote to control their Blu-ray disc features; and/or access additional detailed information about the film, its cast and more while watching the movie. Releases will also integrate with social network applications or sites such as Facebook and Twitter to allow users to update their friends about movie-related activities.

Microsoft today announced that it will be releasing Microsoft Office 2008 for Mac Service Pack 2 later today, a free update bringing speed enhancements and other new features to the application suite. The update is scheduled to launch at 10:00 AM Pacific Time and will be available on Microsoft's Mac download page and through the Microsoft AutoUpdate application.

Microsoft Corp.'s Macintosh Business Unit (MacBU) released Microsoft Office 2008 for Mac Service Pack 2 (SP2) today -- a midcycle free update that is designed to improve the Office 2008 experience where it matters most to customers: speed, stability and compatibility. SP2 delivers highly requested features throughout the suite as well as a new tool, Document Connection for Mac, that helps improve access and browsing to documents on SharePoint Products and Technologies and Microsoft Office Live Workspace.

The new update reportedly brings significant speed increases to Word (app launching and scrolling) and Excel (calculation performance). Updates to PowerPoint will also allow users to set default themes for new presentations, as well as offer a new Custom Path Animation tool to allow users to create their own motion-path animations.

Office 2008 for Mac SP2 will also bring new tools for document sharing and collaboration via Document Connection for Mac, which will allow users to save and open Word, Excel, and PowerPoint documents to Microsoft Office Live Workspace directly from Microsoft Office applications. Microsoft Office Live Workspace is also now compatible with Safari 4 in addition to the existing support for Firefox 2.0. Finally, Document Connection improves access to collaboration tools for Mac users via integration with Microsoft's SharePoint solution for server-based content management.

Update: Microsoft Office 2008 for Mac Service Pack 2 (12.2.0) is now available for download. The update weighs in at 297 MB.

Microsoft also released Open XML File Format Converter for Mac 1.1 (45 MB), an updated version of Microsoft's utility that allows Office 2004 and v.X to open files in the default Open XML format used by Office 2008.

The Wall Street Journal reports (subscription required) on research from Deutsche Bank analyst Brian Modoff showing that Apple and Research in Motion together accounted for approximately 35% of the cellphone industry's total operating profit in 2008 while only representing 3% of total unit sales. Apple's share of industry profits clocked in at approximately 20% while holding only just over 1% of the unit market share.

The two companies' outsize share of profits underlines the shift in the wireless industry toward feature-rich devices accenting easy-to-use software and away from an emphasis on hardware. Smart phones account for only about 13% of total cellphone sales globally, but the segment is growing, despite a drop in the broader cellphone market. Apple and RIM had about 32% of the smart-phone market between them in the first quarter, estimates IDC.

Moreover, Modoff estimates that Apple and Research in Motion will reach a combined 5% of unit sales for 2009, raking in roughly 58% of the total industry profit between them.

The report notes that wireless carrier subsidies provide the driving force behind such large profits for leading smartphones such as Apple's iPhone and Research in Motion's BlackBerry lines. Apple reportedly receives about $400 in carrier subsidy for each iPhone, while BlackBerry sees about $200 and the typical basic cellphone about $100. Among manufacturers dominating the basic cellphone market, only market leader Nokia is able to leverage its economies of scale to pull in a greater share of industry profits (55%) than its corresponding unit market share (46%). But even Nokia has seen its unit market share and profits slip as customers increasingly adopt more sophisticated smartphone models from smaller competitors.

Speaking to attendees of the MobileBeat 2009 conference in San Francisco yesterday, Google Engineering vice president Vic Gundotra predicted that the Web would prevail as the dominant mobile application development platform despite the huge success of Apple's App Store (via Financial Times). According to Gundotra the harsh economics of maintaining multiple platform-specific copies of applications is pushing development to the Web.

"We believe the web has won and over the next several years, the browser, for economic reasons almost, will become the platform that matters and certainly thats where Google is investing."

At least partially supporting Gundotra's viewpoint were fellow panelists from Palm and Nokia.

Readers will remember that Apple initially only officially allowed developers to create web-based applications for the iPhone and iPod touch, but extended access to native applications a year later with iPhone OS 2.0 and the launch of the App Store.

For technical support of his claims, Mr. Gundotra points to HTML5, which is allowing for CSS animations as well as the use of geolocation and accelerometers. Of course, such technologies currently do not address the needs of more complex games that require access to mobile-based 3D services such as OpenGL ES.

Interestingly, both Google (Chrome OS) and Palm (WebOS), and previously even Nokia, have taken advantage of Apple-backed WebKit as the basis of their latest Web-centric operating systems.

TUAW reports that with the introduction of age-based ratings for App Store applications in iPhone OS 3.0, Apple has taken the step of preventing developers of applications carrying mature (ages 17+) ratings from issuing promo codes for the affected applications. Developers are typically allowed to distribute up to 50 promo codes for any given application release, allowing developers the flexibility to offer media free access to the applications for reviews or offer giveaways for promotional purposes.

Typically, when a developer uploads a new version of an application to the App Store, they have the ability to create up to 50 promo codes, which they can then provide to media outlets for reviewing the application, give away to users in a contest, etc. Aside from some reasonable restrictions on their usage (you can't sell them, they expire after 28 days and are one-time use only), promo codes provide quite a bit of flexibility to developers of paid apps who wish to freely distribute their app to select individuals without having to worry about the hassles of exchanging device information and doing special ad-hoc builds.

Apple's restriction on promo codes for applications rated 17+ apparently stems from the fact that parental warnings are not currently displayed when redeeming promo codes. The practice is forcing developers of such applications to consider more cumbersome methods of offering free copies of their releases, from distributing ad-hoc builds through the developer channel to offering iTunes gift cards covering the cost of the applications.

As TUAW notes, the category of applications rated 17+ extends far beyond the adult-themed applications that have gained attention, even including otherwise-harmless applications that include an embedded Web browser function or provide access to third-party data.

And if you're thinking this just applies to the massive number of adult-oriented apps that have recently poured into the App Store, you're wrong. Apple specifies that any application that may contain high levels of offensive language, violence, sexual content, or references to drugs or alcohol receive a rating of 17+. But, according to Apple, apps that feature an embedded web browser or provide access to 3rd party content also automatically require the 17+ rating, regardless of the application's content or intended audience.

Apple today issued a media alert announcing details for the July 21st release of its financial results for the third fiscal quarter and second calendar quarter of 2009. The results will cover sales from March 28th, 2009 through June 26th, 2009, and will be released at the close of trading (4:00 PM Eastern / 1:00 PM Pacific) on Tuesday. Apple's conference call discussing the results will follow at 2:00 PM Pacific and will be available via a live audio webcast. MacRumors will provide running coverage of the conference call highlights.

Apple's primary product releases for the period occurred late in the quarter, with a revamping of its MacBook Pro line and an update to the MacBook Air taking place at the company's annual Worldwide Developers Conference in early June and the new iPhone 3GS launching just a week before the end of the quarter. Apple also offered a minor bump to the white MacBook just prior to WWDC, where it became the sole member of that line with the 13" aluminum MacBook's rebranding as a MacBook Pro.

For the quarter, analysts are predicting net earnings of $1.16 per share on revenue of $8.16 billion, above Apple's guidance of $0.95-$1.00 profit on $7.7-$7.9 billion of revenue. Apple's year-ago results for the third fiscal quarter of 2008 included net earnings of $1.19 per share on revenue of $7.46 billion. Research firms Gartner and IDC earlier this week offered conflicting pictures on Apple's Mac shipments for the quarter as part of their industrywide analyses.

Palm today announced that it has released the Mojo Software Development Kit to all interested developers, opening the door for a broader offering of applications for the Palm App Catalog.

The initial response to Palm webOS apps -- from both developers and customers -- has been enthusiastic. Even in its initial beta stage, over 1.8 million apps have been downloaded from the beta App Catalog since Palm Pre was released less than six weeks ago. Thousands of developers have participated in the Mojo SDK early access program since it began in early April. New applications are in the pipeline for the Palm App Catalog, and the App Catalog submission process will be opened to all developers beginning this fall.

Expanding on the early access program begun in April, Palm is now providing all interested developers with the tools necessary to create their own applications for Palm's webOS, which is currently offered only on the Palm Pre but will be expanded to additional smartphones in the future.

The Palm Pre has been seen as a the major competitor to the iPhone, though with a previously restricted SDK, the number of apps found in the Palm Pre's version of the app store has been very limited.

According to comments made by Kevin Turner, Microsoft's Chief Operating Officer, Apple's legal department reportedly contacted Microsoft to stop running the Laptop Hunters ads. According to Turner:

And you know why I know they're working? Because two weeks ago we got a call from the Apple legal department saying, hey -- this is a true story -- saying, "Hey, you need to stop running those ads, we lowered our prices." They took like $100 off or something. It was the greatest single phone call in the history that I've ever taken in business. (Applause.)

I did cartwheels down the hallway. At first I said, "Is this a joke? Who are you?" Not understanding what an opportunity. And so we're just going to keep running them and running them and running them.

Microsoft's Laptop Hunter ads have been the source of a lot of discussion here on MacRumors. The ads present customers who are looking for a laptop within a specific budget, and specifically target Apple's higher price points as compared to the PCs featured in the ads.

Research firms Gartner and IDC have both released preliminary reports details U.S. and worldwide PC shipments for the second quarter of 2009, and the two firms offer conflicting pictures of Apple's performance during the quarter.

According to Gartner's report, Apple maintained its fourth place ranking for U.S. shipments with an 8.7% market share on unit growth of 2.5% over the year-ago quarter. Apple's market share was up significantly from the previous quarter's 7.4% share and up slightly from 8.4% in the year-ago quarter. The year-over-year increase reverses a trend that saw a slight market share decline between the first quarters of 2008 and 2009.

Overall, Gartner saw a 1.2% decrease in U.S. PC shipments over the year-ago quarter, handily beating the firm's expectation of a 12% decrease. A significant drop by market share leader Dell was offset by continuing tremendous growth from Acer, which has focused its efforts on the netbook and budget notebook segments.

IDC's report paints a very different picture for Apple, showing the company dropping past Toshiba into fifth place in U.S. market share at 7.6% on unit sales decline of 12.4%. Overall, IDC saw a 3.0% decline in the U.S. market versus the first quarter of 2008.

While Gartner and IDC do typically differ somewhat in their quarterly shipment estimates, the two firms diverge rather significantly in their analyses of Apple's performance for the second quarter of 2009. The reasons for the difference are not yet known at this time, although we can expect to gain a much clearer picture of Apple's performance next week at the company's earnings release and conference call.