Apple Discusses Intel-based Mac Sales

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by: Mick Weinstein

From last night's Apple earnings conference call transcript:

Peter Oppenheimer, CFO and Senior VP

The quarter's revenue was $4.37 billion, representing 24% year-over-year growth. The strong revenue was fueled by the best Mac unit sales in any 13-week quarter in Apple's history...

I would like to first talk about our Mac products, which represented 55% of our total quarterly revenue. Mac product revenue increased 11% year over year, fueled by Mac unit shipment growth of 12% year over year, to $1.327 million. Ending channel inventory was within our target range of four to five weeks.

We continue to be very happy with our progress and our developers' progress in the transition to Intel. We have now introduced the iMac, MacBook, MacBook Pro and Mac Mini with Intel processors. We are solidly on track to transition the Power Mac and Xserve by the end of this calendar year.

We have released universal versions of Apple's consumer and professional software applications and our third-party developers have released over 2,900 universal applications. We expect that over 70% of the 500 applications we consider most critical to our customers will be available in universal versions by the end of September.

We have been very pleased with the response to our new Macs, particularly from our consumer and education customers. Intel-based Macs accounted for over 75% of the quarter's Mac shipments.

The MacBook, which we introduced in mid-May, has been extremely well-received and, coupled with our very popular MacBook Pro, has contributed to Apple's increased unit market share of portables in U.S. retail from 6% in January to 12% in June, according to NPD.

We are also very happy with our Mac ad campaign and feel it is contributing to our momentum, particularly with consumers.

We believe that many of our creative professional customers have delayed purchases as they await new Intel-based Mac desktops, universal applications, or both...

Tim Cook, COO

In terms of what we saw across the quarter, once we announced the MacBook and began shipping it, we saw a very robust consumer and higher education demand. In the pro markets, we were slow and we were slow because we believe that customers are delaying purchases, waiting on a PowerMac with an Intel chip in it, and in some cases waiting for applications, such as Adobe's Creative Suite.

The ed. market had a fabulous quarter. It was the best June quarter in 10 years, as Peter said earlier. We grew 11% year over year in the ed. market versus an IDC projection of the ed. market, which was shrinking by 4%. The higher ed. market, which is a subset of total ed. market, grew 31% year over year.

We had a very fabulous consumer and higher education market season. We believe that we are very well-poised going into the back-to-school season, with the MacBook being so well-received...

Peter Oppenheimer

Macs in retail were up 40% year over year. The response in the stores to both the MacBook and MacBook Pro was very, very strong. As I indicated, about half the Macs we sold were to people that had never owned a Mac before....

From the Q&A session:

Richard Gardner - Citigroup

Thank you. Just two quick questions. First of all, Tim, I was hoping you might be able to give us a sense of supply/demand balance on the MacBook exiting the quarter.

Secondly, also for Tim, does the fact that Intel rolls out new chips and drops prices more frequently than your prior processor partners create additional challenges for you on the inventory management front? Will you be rolling your products more frequently and adjusting your prices more frequently as the bill of materials comes down? Or will you do it the same way that you have done historically, which is adjust your prices at the time of new product introduction? Thank you.

Tim Cook

In regards to the MacBook, we shipped a significant number of MacBooks, particularly in the month of June. However, despite that, we did exit the quarter with some backlog. We are working very hard to fulfill that backlog during this quarter. For the full quarter, I do not envision having a supply issue that would negate that.

In terms of Intel, we are very pleased to be working with Intel. They have been a great partner for us. We feel that they have the best processor by far for us to use in the products that we both want to make and are currently shipping. Frankly, I am pleased that there are new products coming out there and that we can change over time.

As you know, we do not discuss unannounced products, so I really would not want to go into our philosophy about when we would roll with them and how we might change pricing...

Jonathan Hoopes - ThinkEquity

Thank you. Looking at the unit shipment levels between the Mac desktops and the notebooks, are we to understand then that the vergence was mainly a function of the pro community not having products there to upgrade into, or was it a function of the education? As we move forward into the September education period, do you expect desktops to regain some strength there?

Tim Cook

The main thing affecting desktops, frankly, are the compelling notebooks that we announced. So as the market is moving more notebook, Apple is leading the way and with the incredible announcement that we had with the MacBook Pro in Q2 and then the MacBook in Q3, there was just a very compelling reason to buy a laptop.

On the desktop side, the comparison there would be, on a pro business, is fairly slower than a year ago, as people await a PowerMac with an Intel chip and/or an application from a third-party developer.

The other thing that was happening was that the e-Mac was really at a close to an end-of-life last quarter, so sales on that were not as robust as they were a year ago.

Jonathan Hoopes - ThinkEquity

Thank you. Do you have an idea as to how long a pro user typically waits before they upgrade? Are they more of a wait-and-see, or do you believe you had a wait list for pro users on an intel refresh?

Tim Cook

I believe that pro users act like other users, and there is a time-standard deviation between different types of segments with them. I would not want to estimate what the average it is, or would be.