Here’s the entire text of the Q&A from Apple’s (ticker: AAPL) Q3 2005 conference call. The prepared remarks are here. We recognize that this transcript may contain inaccuracies - if you find any, please post a comment below and we'll incorporate your corrections. And please note: this conference call transcript is a Seeking Alpha product, so feel free to link to it but reproduction is not permitted without the explicit permission of Seeking Alpha.
Apple's Q3 2005 Conference Call, Wednesday October 13th 2005 - Q&A
[Rebecca Runkle of Morgan and Stanley]
[Q – Rebecca]: Good morning. Can you hear me okay?
[Q – Rebecca]: Good afternoon I guess, just a couple of quick questions. First in terms of nano product constraints, obviously there is a small delay in shipment on some. Can you just talk as to how you expect that to track over the over the coming week and if you can close that sooner or later and have a quick follow up.
[A]: Rebecca, we were able to ship over $1 million nanos in the 17 days that remained in the quarter from the launch period. But it is still far short of demand, frankly speaking the demand for the product is staggering. We ended the quarter with a mammoth backlog and at this point I can’t project, when supply would meet demand.
[Q – Rebecca]: But clearly you would expect that, that would be a major driver to Fourth Quarter iPod sales and I would suspect that you anticipated this would be a huge product and why you couldn’t ship everything you wanted, in the last few days of the quarter when you did plan for a pre-material ramp so you could optimize for the holiday seasons.
[A]: We factored in the available supply into the guidance that Peter gave, that generated $4.7 billion revenue guidance, we believe it is a revolutionary product with the customer comments on it are fabulous and it’s key part of it all.
[Q]: And then, on the component side of the equation, I think from our prospective component side had a little bit differently than a lot of folks including yourselves anticipated beginning of the quarter, can you just talk through some of the dynamics in this past quarter related to your expectations and how you are thinking about expanding by mid December.
[A]: Sure. DROM and LCD panel pricing are more favorable than we had anticipated and that resulted in a positive impact on our gross margin for the quarter beyond what we had planned. Looking forward we expect that the favorable pricing environment to continue on DROM’s. The LCD prices have temporarily stabilized. We see that hard drives are declining much in a circle trend because of the component shortage is primarily a neglected area. Other things we believe we will track along the dotted line.
[Q]: And then lastly, just in terms of helping us think through from a big picture standpoint, clearly a lot of macro issues which put the consumer at risk going into the December quarter, we have not seen much evidence of that impacting demand, for the industry as a whole and for you in particular to now, how are you thinking through that and have you seen any slow down recently as a result of some of the cost cuts in the consumer environment?
[A]: Rebecca it is Peter, as regard to the September quarter, we just had the best quarter in Apple’s history and so we couldn’t have been happier with how we did. As you look forward to the holiday quarter, we think about the rising price of oil and gasoline, we think that most companies that are selling consumer products are paying attention to this, up-to-date the US consumer has proved to be resilient in the past but we are monitoring this on a go-forward basis and we will see how it goes on.
[Q]: And how did you attempt to quantify that in the guidance you provided today?
[A]: We have certainly included that in our thinking but we’ve given a very strong guidance to the quarter as I said in my prepared remarks with revenue with $4.7 billion which is thus far $1.2 billion year-over-year.
[Q]: Thank you so much Peter.
[Operator]: Thank you Rebecca. Can we have the next question please?
[Shannon Cross of Cross Research]
[Q - Shannon ]: Hi, good afternoon. Just curious, I mean you’ve characterized the nano-demand as, staggering, I think. Can you just give us an idea of how the demand is coming in relative to what you saw for the iPod mini when you first launched the iPod mini?
[A]: I don’t want to get into comparing it, we’ve launched nano on a worldwide basis and initially we shipped mini on a US basis. However, I would tell you that in every major geo, the demand is staggering for nanos.
[Q]: Okay. And can you talk a little bit about demand in the desktop segment, I think it was _____ down 9% year-over-year. What are the pressures there, obviously I would assume, the trend is downwards but we are just curious about Mac mini, if you can give any kind of idea of whether you are seeing pros mixing down or if it just sort of the general back to school shakes outward with more focus on the lower end?
[A]: Shannon, regarding the desktop ASP year-over-year, it was down a bit and I would attribute that really to two things. The first is the year ago quarter, we were not shipping the Mac mini, we are this quarter and our iMac pricing is lower today than it was a year ago. With all that being said we are just very happy with our total Mac performance, desktops were up 56%, overall shipments up 48%.
[Q]: And I guess the last year, obligatory cash question I think it’s close to $10 a share in cash, any thoughts on use of cash, obviously your stocks taking ahead after these number relative to expectations, wondering where you stand on use of cash at this point?
[A]: I don’t have change in our philosophy that I can share with you today. We are maintaining our cash for flexibility to invest in the business and share buyback are considered with the Board from time to time.
[Shannon]: Okay thanks and we look forward to hearing what you have to say tomorrow.
[Operator]: Thanks Shannon, can we have the next question please.
[Richard Gardner with Citigroup]
[A]: Okay thank you. A couple of questions. First of all Tim, you made mention of factoring available component supply and to your estimates for Q4 particularly for the nano, would it be fair to say that component supply is going to be limiter for nano shipment through the fourth counter quarter.
[Q]: Again Richard, I am not going to project when supply will meet demand, we do have constraints in this area today to the day of shipment and so, I can’t project when that would remedy itself.
[Q]: Okay, and as a follow up last quarter period you were willing to give us tiger revenue I think it was a 100 million could we get that number again this quarter.
[A]: Yeah. Tiger revenue in the September quarter was in the mid $35 million range and $30 million range and Tiger continues to be the best selling release in Apple’s history.
[Q]: Okay. And then finally I have a feeling, I know how you are going to answer this question given that you put up 48% unit growth but are there any segments in the business where you have a better idea of the impact of the Intel transition on your Mac sales at this point and Tim, last quarter you promised us after you had another quarter under your belt you would be willing to give us another qualitative assessment of what you are seeing on that front.
[A]: Yeah Rich, we saw no obvious impact to sales during the quarter but we are obviously continuing to monitor that. With 48% year-over-year sales we are just ecstatic about how the Mac is doing,
[Q]: Okay and actually just one last question for Peter. Peter how would you characterize the airfreight charges in the quarter were they pretty much inline with what you typically incur or were they greater or lesser than normal?
[A]: They were inline with what we expected to incur.
[Q]: Okay, Thank you
[Operator]: Thanks Richard. Can we have the next question please, and we would like to ask everyone to limit themselves to one question please.
[Ben _____ UBF]
[Q]: Great. We institute that one right when I am asking. I wanted to ask a little bit more about iPod demand, could you just talk a little bit more about the impact of the nano on numbers I mean a million but you know, you were doing very well at the mini. Did you actually see a hit verses expectations in the last month of the quarter because of the nano and then also could you talk about the accrual for warranty and service on the nano. Is that higher than other iPod products in terms of margin impact, or any issues with regard to some of the things that people are taking about, with the scratch and whether may be you need to increase the accruals there on that product heading into year end, thanks.
[A]: Okay Ben, the iPod sales met our expectation and we sold more iPods in the September quarter than the June quarter despite winding down the shipment of the most popular iPods, the iPod mini in preparation for the new best selling iPod, the iPod nano. Our sales accelerated in September after the intro of the iPod nano and sold over 1 million approximately in the first two and a half weeks, which fell far, far short of the high demand. Over a year ago we set out to create revolutionary update to our core iPod line up, and the last quarter was the final quarter for the older product. We think we did rather well with the prior line up and believe that we will do even better with the new line up that we have for the holiday season including the iPod nano, and some very innovative new products that we have yet to introduce.
[Q]: So you think the product was pushed into the fourth quarter, it sounds like quite a bit for the December quarter
[A]: We ended the quarter with a lot of backlog of iPod nano, again, I can’t say or project when supply will meet demand.
[Q]: Okay, then the accrual issue than, please.
[A]: The issue you talked about on the scratch, we have had very very few calls from customers regarding this, we do not believe that it’s a widespread issue. The iPod nano was made from the same high quality high quality polycarbonate plastic, as a fourth generation iPod line. And if customers have a concern about this we suggest that they use one of the mini iPod nano cases that are now available in the market.
[Q]: So the accrual on this product is pretty similar to other iPods?
[A]: This certain topic is something very, very minor. I do not want to get into exactly what accrual is on different products.
[Operator]: Thanks and can we have the next question please.
[Keith _____ with Bank of America Securities]
[Q – Keith]: Hi, I thanks I assume that the moratorium on the question has been lifted. If we get back the iPod numbers, I mean frankly they look pretty weak. Normally in consumer space you see kind of a bump from June to September and most of the data we have seen suggest anywhere from 10% to 15% sequential growth from June to September. And so I am just trying to really go back into why was this number where it was in the first of couple months. In the first couple of months of the quarter there must have been pretty light demand, if you did a million units in the last 17 days nano that implies 5.4 million units of the quarter, and I am just trying to understand how the base level business is running and if you did a million units and you normally see a pick up from June and September, may be I will leave it there and see if you can help me.
[A]: Again, let me reiterate iPod sales met our expectations we sold more in the September quarter than we did in the June quarter, despite winding down the iPod mini shipments in preparations for the iPod nano launch.
[Q]: Let me try this way. What do you think the sequential growth in the market will be from June to September and then September to December?
[A]: The latest data that we have from _____, we could say that we continue to have around 75% share of the business in the United States.
[Q]: Okay, how would you anticipate the market growing from September to December in terms of total MP3 market?
[A]: I haven’t been specific third party market data for the next quarter both Gardner and IDC are projecting over 100 million units market for next year.
[Operator]: Thanks Keith, can we have the next question please
[Joel Wagonfeld of First Albany]
[Q - Joe]: Thanks very much, I was wondering if you could comment on the gross margin impact on the nano and how that factors into your gross margin guidance for next quarter and then if you have any comments or potential updates for your long term operating model targets and if not, do you know any changes in terms of what you are expecting from the business trends that will get you back to kind of that target operating model?
[A]: Regarding your first question on nano margins for competitive reasons I don’t want to speak about gross margins on any one of our iPods or even specifically about iPod gross margin or sales by geography. And in terms of,…
[Q]: It is pretty widely speculated that you purchased a lot of the memory in advance of production for the nano, are you forecasting that that supply will be used up and _____ will have to then essentially based an increase in cost for that component specifically?
[A]: Joe, I don’t want to comment on the specific components and specific prices, we consider that confidential, however, once again I would say that at this point we are not projecting when the supply iPod nano will meet demand, the response to that has been incredible.
[Q]: Thanks and then on the target margin?
[A]: I’ve provided our detailed guidance for the December quarter with revenue growth of 35% and double digit operating margin and I am going to continue our long standing practice of providing a detail guidance for the current quarter only.
[Q]: Okay. Thanks
[Operator]: Thanks Joe, could we have the next question please.
[Kevin Hunt of Thomas Weisel Partners]
[Q]: Okay thanks. Just wanted to clarify again on the iPod. You were talking about the mini winding down, were there any shipments of that during the quarter and how much channel fill do you have for the nano, I think a million units you said is what was sold but were there also additional channel fills above that or not?
[A]: Alright, Kevin just to be clear, the 1 million was total shipment iPod nano, our total sales for the last quarter so that includes all unit to channels and uses everything. And what was your other question.
[Q]: Just, you were talking about the iPod mini winding down, but I was wondering were there actual shipments into the channel or was it pretty much the channel clearing out throughout the quarter.
[A]: We did ship some iPod mini’s during the quarter, yes, however in a channel as large as we have we obviously begin to wind down the shipment before the iPod nano launch, so that we would have fewer iPod mini’s in the channel at that point.
[Q]: Okay, so is it safe if I kind of conclude then that, you obviously are winding down the mini, perhaps you didn’t get as much nano as you would have hoped and maybe not enough to compensate for the winding down of the mini, is that a fair statement, just to kind of put all this to rest?
[A]: No. I don’t want to answer that question, specifically because we are not releasing exact sales of the different parts GAAP sales, it’s a different product group as you know. I would just reiterate that we left that quarter with an enormous backlog on our iPod nano.
[Q]: Okay. Can I ask just one another quick one, in December quarter you had more notebooks than desktops this quarter? What do you expecting in terms going into the December quarter. It’s typically more of a desktop focus quarter, is that true or is it just now or notebooks are going to be always more than desktops, any idea on that?
[A]: We are not going to provide product level forecast, we report to you in January what we sell, but we are very pleased with both our desktops and our portables, and on the portable side, we set a new company record for Apple beating the record that we set in the prior quarter by a 139,000 units.
[Q]: Okay. Thanks.
[Operator]: Thanks Kevin. Can we have the next question please.
[Andy with _____.
[Q – Andy]: Two quick questions, if I could. One is, if you could just give us a sense of why are the channel inventories for the Macs so low? That’s surprising going in to a season like this and the numbers weren’t so larger than expected. Second, it is awkward question but any update on Steve’s health, that you can provide us at this point.
[A]: I will take the second, Tim can do the first. Steve has been back as the CEO, full time in Apple for over a year and is running the company.
[A – Tim]: The channel inventory at the end of the quarter on the Mac was below the target of 4 to 5 weeks as Peter talked about in his opening comment, we were in the 3 to 4 range and the reason for this Andy is that the Mac sales have exceeded our expectations.
[Q – Andy]: ((inaudible)
[A]: What I’ve received is that Mac sales have exceeded our expectations. And we are working very hard to get the inventory back up to the levels that we want it to be.
[Q- Andy]: Are there any losses just in the Mac mini, and I would like you to talk about price to do, there has been lot of talk about how can it disappoint product ((inaudible) , can you tell us how what your thoughts are, about the Mac mini in general?
[A]: All of our products are doing well. We are happy with how all of them are doing, and with a 48% year-over-year growth in the Macintosh area, the Mac is growing between 3 and 4 times the IDC forecast for the quarter.
[Operator]: Thanks very much. Can we have the next question please.
[David Bailey with Goldman Sachs]
[Q – David Bailey]: Thank you. Just a follow up on Richard’s question. What have you assumed as an impact from the Intel transition in the December quarter either from revenue or margins. And if you could let all of us understand why you expect gross margins to be down in the December quarter, thank you.
[A ]: Our guided gross margin is down a little bit in the December quarter largely as a result of an increase in mix of our music products. I am sorry, your first question?
[Q- David Bailey]: Are you assuming that last quarter you said that you are a little bit conservative on the gross margin in the September quarter, because you didn’t know if there would be an impact from stalling before the Intel transition, I was wondering if you were giving that same caution to your December quarter guidance.
[A]: Well, as Tim said, we have seen no obvious impact from that announcement in our September quarter sales. We are continuing to monitor it and we’ve provided you our guidance, that we have reasonable confidence now that we can achieve it.
[David Bailey]: Thank you.
[Operator]: Thanks David. Can we have the next question, please.
[Robert Semple of Credit Suisse First Boston]
[Q - Robert]: Thanks. You talked about the desktop business a little about, I would have expected shipments to give it a little bit more seasonality in September quarter, do you have any reason why they were down so much?
[A]: Yeah. Again we couldn’t be happier with our overall Mac sales both desktop and portable. As you look sequentially the primary scene largely relates to our normal seasonal decline in ((inaudible) and the September quarter is more the higher red quarter where you see a bit more on the portable side and as Tim commented our channel inventories fell below our target of 4 to 5 weeks and that played into it as well.
[Q]: Okay and does your outlook for the December quarter incorporate the new products you are going to launch tomorrow?
[A]: Well, we certainly know what we are going to talk about tomorrow and I have contemplated that within our guidance.
[Q]: Thank you.
[Operator]: Thank you, could we have the next question please.
[Charles Wolf with ((inaudible) Company]
[Q]: Yes, can you hear me?
[A]: Yes Charlie.
[Q]: I was really pleasantly surprised by the growth in Apple store sales, particularly the shipments of the Mac in the Apple store sales. Could you comment on any factors that might have contributed to the strong jump in sales between June to September?
[A]: Well we had Charlie just a fantastic overall back-to-school, in a company level and the stores certainly participated in that. We certainly believe that the iPod helping us not only with our back-to-school business but across the company and traffic was very strong in the quarter. We had 14.8 million people that came through the stores and actually had over 50 million visitors in the entire fiscal year. So we couldn’t be happier with the performance of our retail stores not only in the quarter but for the year as well.
[Q]: Second question is, is there any chance that the 5th Avenue store is going to open this year?
[A]: Right, I can acknowledge that we are working on a store for the 5th Avenue and we are working to get it open and would like to see it opened before the end of our fiscal year.
[Q]: Thank you Peter.
[Operator]: Thank you Charlie, could we have the next question please
[Richard Chu SG ((inaudible)]
[Q]: Yeah. Hi, thank you, Tim, back to fourth quarter, I am sorry the calendar fourth quarter, you related to the nano, the forthcoming products that we have done, in itself ((inaudible) third generation iPod. Could you comment on whether one should contemplate any execution associated with that and then unrelated to that, can you tell us whether Apple’s forth coming results mid 2006, as looking through the Intel launch and any feedback of how the report from IDC on the Intel shipment. Thank you
[A]: Richard, we continue to expect to have Intel based Mac’s in the market by June of next year.
[Q]: Does that rule out a much earlier timing?
[A]: We continue to expect it in the market by June of next year. And we have no products announcement to make today. I would tell you that we have a very true power PC’s in the pipeline and we are very focused on our current line up. Relative to execution risk, there is execution risk on every sale on all times, and I have got nothing specific to fall out.
[Q]: Okay, nobody asked earlier about your caviar last quarter results about Intel as a reason for conservatism, so is it true to say that looking at your guidance for this quarter has no particular caviar?
[A]: Well Richard, I am not getting into every thing that we have factored into our guidance we’ve given you our guidance and we have reasonable confidence that we can achieve it. As regards our Intel announcements as Tim said, we see no obvious impact to our business in the September quarter but we are continuing to monitor it.
[Q]: Great, Thank you so much
[Operator]: Thanks Richard, can we have next question please.
[Steven Fortuna with Prudential Equity Group]
[Q]: I just have one question left with you Peter and Tim, and that is the store mix next year, what is the geographic breakdown of that roughly?
[A]: As I said we expect to open 35 to 40 stores next year and the majority of those will be in the United States.
[Q]: Great, thanks
[Operator]: Thanks Steve, Could have the next question please.
[ Harry Blount of Lehman Brothers]
[Q]: Hi just a quick question, you said in your comments that Mac mini was about 200,000 units in the quarter?
[A]: No I didn’t say what Mac mini was I mentioned I think, the unique comment was that we shipped 634,000 portables which is a new record for Apple, up a 139,000 from the June quarter
[Q]: Okay. The question I have is if you look at your market share on a year-over-year basis taking out the Mac mini, how is the Mac product line broadly defined on a market share basis doing, if you take out that design obviously in the ASP segment. But the core business itself on a year-over-year basis and then adjust also to the indication vertical. So now how is where Mac business is doing actually indication vertical on a year-over-year basis.
[A]: I think we are doing well in our business in those areas in the portables. As I indicated we are up 41% year-over-year I believe with that is faster than the market is growing, so would have taken share there and I believe based on the results that we have had for not only our portables but desktops as well, we took share in the consumer market as well. And we certainly believe that we took shares in education with our 34% year-over-year unit growth.
[Q]: And also in $1000 plus segment as well?
[A]: I am not seeing that the data cut that way, recently so I don’t want to comment.
[Q]: Okay. Thank you.
[Operator]: Thanks Harry. Could we have the next question please?
[Bill Fernley with STN Midwest Securities]
[Q]: Yes thanks. Question for revenue on the channel mix, could you give the break out on the direct sales, into the stores online US education and the music store and then also any major product shift in direct versus indirect in the quarter on the Mac side or on the iPod side?
[A]: I will address your first question Bill, and maybe Tim can comment on the second. You laid out what we include in the components of our direct sales and they were 51% for the September quarter.
[A - Tim]: Bill, we continue to invest in both the direct and indirect channels both are very key for us, the iPod distribution is now over 30,000 ((inaudible) and as Peter said before we continue to open new retail stores and also invest in our education sales ((inaudible) and both of these are very key for us.
[Q]: Given the fact that you had only 14 days to ship one million units though is it fair to assume that more units perhaps went through the direct channel here out of gates with the nano, or was there the mix you expected with the direct versus the indirect on the iPods.
[A]: We don’t disclose the direct versus indirect product level.
[Q]: Okay. Then one last follow up on the student union program, how does that go versus your expectations? Thanks.
[A]: It was off the chart, it was the key contributor to the back-to-school season as Peter said that our higher end results as an example, we are up 38% year-over-year.
[Operator]: Thanks Bill, can we have the next question please.
[Richard Farmer with Merrill Lynch]
[A]: Thank you. Operating expenses grew at question half the rate of revenue growth again. Do you expect that kind of a relationship can continue for the foreseeable future and then quickly on the iPod business, one of your directors, I believe it was Rubenstein, made a comment publicly not too long ago that Apple would sell 340 million iPods, wonder if you might be willing to provide color on the time frame over which you expect those sales to take place.
[Q]: I’ll take the second question first, I am not familiar with that comment and we do not make, I will be very clear about this, product level forecast. We will report to you, our actual results but we would never make a forecast of that nature. Now in terms of our operating expenses, we’ve made significant investments in engineering, marketing and direct selling that have resulted in revenue more than doubling, in two years we are continuing to manage our investment business for long term growth in both revenue and in earnings and based on the guidance that I’ve provided for Q1, I expect our specs as a percent of revenue to be lower than last year.
[Q]: Okay. Quickly on the CPU business, which as you said was very strong at 48%. I wonder if you might be willing to share any thoughts on the halo effect and how big you think it is, particularly, you have been trying to separate where you can, the share deals that you are getting in computers that you contribute to iPod experience in consumer versus the share gains that are coming just from having strong computer offerings that are getting the (inaudible) Mac base to upgrade their machine.
[A]: Bill, We think that the 48% year-over-year growth which is 3 to 4 times the IDC’s projected growth for the quarter, that the halo effect is a key part of that. Also, the growth in higher education 38% year-over-year, is yet another indicator.
[Q]: Do you have any sense of how much of the share gains you can attribute to the halo effect versus other factors?
[A]: No. I don’t. I think there are a number of great things going on, we even got the best product line up in the Mac area in the history of the company. We have the great iPod line up, which is really a halo effect, how much you people want, I don’t know.
[Q]: Okay. Thank you.
[OPERATOR]: Thanks Richard. Can we have the next question, please.
[Bill Shope of JP Morgan]
[Q -Bill ]: Okay great thanks. So you stated you wound down the iPod mini, going obviously throughout the quarter ahead of the nano launch. Was there any material reductions going for any of the other iPod product line, outside the nano clearly, either the wide iPods or the shuffle for whatever reason. The second question would be in terms of your Mac inventory levels being below plan, is that just a built plan issue there, or did you have some component constraint?
[A]: The key for the Mac is that sales was higher than we expected and therefore we ended with less channel inventory than we would have liked to be, we are working very very hard to remedy that situation. On the iPod we don’t release the unit sales of the individual iPod family.
[Q – Bill]: Okay. Thank you.
[Operator]: Thanks Bill. Can we have the next question, please.
[Shaw Wu of American Technology Research]
[Q- Shaw Wu]: Okay thanks. Just wondering, question for Tim, you talked about constraints in terms of nano shipments. Just wondering to understand what the constraint was. In the past with the mini, it was the one inch microdrive, flash ((inaudible) this has the plenty of it, especially with anticipation of Apple’s use for it, so just wanted to understand what constraining nano shipments? Thanks.
[A]: I don’t want to get into specific components, the key here probably is on the demand side, the demand is staggering for the product and we are focused very much on getting as many out there as quickly as we can, but at this point, we can’t project when supply will meet demand.
[Q]: Can you talk about what’s constraining it, is it a component, is it the process?
[A]: We would never allow manufacturing capacity to get in the way of shipping a lot of these products so it is a component constraint and I don’t want to go further, with this one.
[Q]: Okay. Thank you
[Operator]: Thank you Shaw. Can we have the next question please?
[Steve Lidberg with Pacific Crest Securities]
[Q]: Good afternoon guys. Tim, I was hoping you could reconcile the commentary with regards to channel inventory on the iPod, beside of things being in line with expectations versus the backlog that you have on the nano. What does that imply and I guess as you look further in the details particularly on the ASPs of the iPods they bumped up. What is happening with the shuffle? Thanks.
[A]: I let Peter comment on the ASP’s, let me take your channel inventories question. The iPod sales accelerated significantly after the launch of the nano in September and even though we were able to ship over one million nano units in the 2.5 weeks that we had, we fell far short of the demand and ended with a enormous backlog. As a result of that the weeks of inventories that we had in the channel, fell to the low end of our targeted 4 to 6 inventory value.
[A]: To say on your ASP question, the ASPs were reasonably consistent on the June quarter to the September quarter.
[Operator]: Okay. Thanks Steve, could we have the next question please.
[Chris Whitmore with Deutsche Bank]
[A]: Thank you. This is in follow up on that last question. Can you comment on the inventory levels of many channels, is there an issue with those clearings and how is some of the retail partners responded to the product transitions and existing level of many inventory in the channel? Thanks.
[A]: I don’t see an issue with the remaining units of iPods remaining in the channel and retailers are calling me every day to try to get more iPod nanos. I think they felt very lucky about getting as many nanos as they can get.
[Operator]: Thank you Chris. Could we have the next question please?
[Rob Shiros with ((inaudible) Global Partners]
[Q]: Hi. Thanks very much. Could you give us any kind of more detail of the other musical line in terms of iTunes, music store revenues or iPods preferably break outs within that number and what you can to revenue break out, or whether it is just song sold where we are last milestone in terms of accumulated songs, that sort of thing. And then also if you are again modestly profitable in terms of iTunes, music stores during the quarter and if you think that nano has changed it all because strategy is still the same to run around break even or modestly profitable and any kind of updates you can give us in terms of longer strategies given how big that business is getting from a revenue standpoint? Thank You.
[A]: Bob I will start with your last question and work forward. The music store did operate above break-even in the September quarter and our philosophy and strategy is unchanged, we believe selling music helps us to sell iPods and we are very focused on that. Our other music line includes sales from our music stores and iPods related service and accessories and it was above 170% year-over-year.
[Q]: But with the music only sales, do you see a number on that or not.
[A]: We don’t break that out but we recently announced customers are downloading and purchasing over a 1.8 million songs per day and as I have said in my prepared remarks our market share continues to be up over 80% in United States as measured by ((inaudible).
[Q]: Okay thank you and if I could actually get one more question, just quickly going back at the nano constraint. Is there any of its function of the ((inaudible) match between 4 and 2 gate nanos does that have to do with supply constraints, is that the issue or is that kind of a secondary issue?
[A]: Rob, the issue is beautiful issue the demand is staggering for the product and we are working very fast to get as many units out there as we can.
[Q]: Okay. Thank You very much.
[Operator]: Thanks Rob and that concludes our Q&A session. Our recording of today’s call will be available for replay by a telephone for seven days beginning at 5:00 p.m. Pacific Time today and a numbers that replay is 719-457-0820. The confirmation code is 8596444. A replay of the audio webcast also will be available beginning at approximately 5:00 p.m. Pacific Time today at www.apple.com/investor And members of the press with additional factors can contact Steve Dawdling’s at 408-974-1896, financial analyst can contact John Hoover or me with additional questions, John’s at 408-974-4570 and I am at 408-974-5420. Thanks again everyone for joining us.
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- Japan’s “iPod tax” Unlikely, Govt. Officials Say (AAPL, SNE)
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- Apple Discusses iPods and iTunes (AAPL 3Q05 Conf Call Quotes)
- Apple Chip Supplier SigmaTel Warns on Lower Sales and Profits (SGTL, AAPL)
- Betting on Apple’s Product Cycle (AAPL)
- “iPod Tax” in Japan? (AAPL, SNE)
- Will Disney’s Kids MP3 Player Threaten Apple? (DIS, AAPL, SNDK, LEXR)
- More articles from the Consumer Electronics Stock Blog about Apple.
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