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Apple (AAPL) Timothy Donald Cook on Q2 2016 Results - Earnings Call Transcript

Apr. 26, 2016 8:27 PM ETApple Inc. (AAPL) Stock73 Comments
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Apple, Inc. (NASDAQ:AAPL) Q2 2016 Earnings Call April 26, 2016 5:00 PM ET


Nancy Paxton - Senior Director, Investor Relations and Treasury

Timothy Donald Cook - Chief Executive Officer & Director

Luca Maestri - Chief Financial Officer & Senior Vice President


Simona K. Jankowski - Goldman Sachs & Co.

Eugene Charles Munster - Piper Jaffray & Co (Broker)

Kathryn Lynn Huberty - Morgan Stanley & Co. LLC

A.M. Sacconaghi, Jr. - Sanford C. Bernstein & Co. LLC

Shannon S. Cross - Cross Research LLC

Steven M. Milunovich - UBS Securities LLC

Rod B. Hall - JPMorgan Securities LLC


Good day, everyone, and welcome to the Apple Incorporated second quarter fiscal year 2016 earnings release conference call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Nancy Paxton, Senior Director of Investor Relations. Please go ahead, ma'am.

Nancy Paxton - Senior Director, Investor Relations and Treasury

Thank you. Good afternoon and thanks to everyone for joining us today. Speaking first is Apple CEO Tim Cook, and he'll be followed by CFO Luca Maestri. After that, we'll open the call to questions from analysts.

Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margins, operating expenses, other income and expense, taxes, future business outlook, and plans for capital return and debt issuance. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in Apple's Form 10-K for 2015, the Form 10-Q for the first quarter of fiscal 2016, and the Form 8-K filed with the SEC today along with the associated press release. Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

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Comments (73)

I think an investment in apple needs to consider what's coming next. What price will the shares be if they produce a block buster electric car ?
Ford and Tesla both say that they are working on the assumption that apple are working on this, Apple have hired a thousand engineers and poached some of their staff.
no doubt they've got teslas, and have pulled them to bits and worked out what's good and what can be improved, Apple have no shortage of cash and could be the thing that launches electric cars for the masses. Or at least the rich masses.
DavidOWagner profile picture
AAPL increasing prices, in anticipation of increasing dividends this year to keep Bulls rollin'
crazty4tennis profile picture
AAPL may be cash rich but without new ideas that cash will soon disappear. AAPL needs a new "headman" that will topple the naysayers and Wall Street Analysts and bring the stock back up to where it once was.
You think they are out of new ideas? Sure Apple...go ahead and tell the world everything you are working on. Go ahead and let Sammy steal all your innovation and have the justice system reward them for it. OR...go ahead and release a revolutionary product before it's perfected. After-all, you are suffering greatly and really NEED that new product out there before it's all the way done. You KNOW Steve would have wanted it this way.

All the naysayers would have you believe Apple is done innovating. Even if that were true...it hasn't been long enough to call them out. Why would they rush a product to the market before it's done? It's not like they are clearing BILLIONS in profit every quarter!!!!

So we all know there is one area of interest that Apple is working on....the living room. People fail to realize how complicated this area is (to perfect). Aside from the technology...which I'm sure Apple has tons of new ideas that no one has thought of, there are the licensing, regulations, and content providers that they have to negotiate with. There are laws and rules that must be balanced carefully. If they want to rule the living room, Comcast, Viacom, Netflix, Amazon, Hulu, Dish, Directv, etc..are going to fight them all the way. Apple will figure it out, though. But it's not going to happen over night.

And that's just the living room. Then there's IOT. One day our entire homes will be connected. Apple will be the central control. There will be others, but none with the ecosystem Apple already has in place. It will be beautiful, seamless, efficient and elaborate. IOT will extend beyond the home in ways we have yet to imagine. There is no other company that has the cash, expertise, R & D, and foundation to accomplish this better than Apple.

With Apple as an investment, patience is key. Tim knows this. It's probably one of the chief reasons he reinstated the dividend. It would be that much more difficult to be patient and trust them without it. You want someone new at the helm to "bring the stock back up to where it once was"? Tell me, is 135 the target you are after? It was there just last year. Or are you after what it was 2, 5, 10, or 20 years ago? You are awfully hard to please if you are complaining about one of the best performing companies and stocks out there in the last 20 years.
WishYouWereHere: "All the naysayers would have you believe Apple is done innovating"


Here is another naysayer:

Carl Icahn has told CNBC's Scott Wapner that he has exited his Apple position.
LOL. Is that suppose to prove something? He was a Yaysayer a few months ago. Talk about flip-flopping. Good riddance. And for the record he didn't naysay anything bad about Apple. He just thinks China is gonna screw 'em. Maybe so...it's a risk he's not willing to take. I am. Apple has a way of resolving their problems.
The fact that WS is calling this quarter an epic fail is quite amusing. They are simply comparing it the year ago quarter. The year ago quarter was an epic win that could in no way be surpassed or even matched. Apple is a victim of it's own success. However, they are still making bank. Had they had small incremental growth every quarter to get to this same point everyone would be cheering about how well they've done over the past 2 years. So now what? It's a long play folks. Don't panic and buy more if you can. Collect the dividend and stop looking at the price. Apple does have plans for all their cash, I guarantee it. They are just waiting for the right time. The right time will be the next recession, when all these companies with crazy PEs crash and burn. Apple will come out of that like a bat out of hell. They will monopolize the cable/satellite/streaming business. Not to mention IOT...not much is being said about that. But believe me they are quietly positioning themselves for that boom. Until then, they will continue perfecting their strategy and technology in this area. And why not keep chipping away at their ownership of the company in the meantime. Don't go crazy, but keep buying down the number of shares. Then, when the revenues are "huge" again, their EPS will be crazy high. I love what TC is doing. Not worrying about the short term and quietly preparing for an empire. Patience is key and it is the reason he is still there. 5-10 years from now we'll all be saying how great he is (just like everyone was last year at this time). Cash is king and Apple is doing a wonderful job of accumulating it. Bring on our next recession, in which AAPL will fall with all the rest. That will be the time to 4x margin in everything. And then prepare to be insanely rich in the years to follow as we all will be giving our money to Apple every time we watch or listen to anything.
MacAfrican profile picture
Nobody should be surprised about iphone unit growth slowing down: after the big screen size change, there is just little reason to change phones every two years as they last so well.

A number forecast on iphone unit sales should be done off of the installed base per model.
Assume 6s will go another 30 month average
Assume 6 will go another 18 month average
Assume most of the remaining 4 and 5 will either go SE this year or upgrade to 7

So what? Apple is not losing iphone users, they are just keeping them longer. Apple is adding new iphone users from crossing platform. Apple is going to add many Indians.

The stock has not been priced for 25% eps growth for ages, why value it on 25% growth

I am long apple, my average excl dividend is under $11 : won't sell
Did Mr Cook say that Apple is going to buy ?? Tesla?? His statements about M&A is quite interesting..............
I have been investing in Apple since the Iphone 3 was realeased. I have heard and read all kinds of negative analysis every time Apple introduces a new iphone. What I have learned and experienced is they have the best products in the market. I will keep investing in Apple.
Definitely a disappointing quarter as the underlying softening in the phone business (declining growth since Q1 2013) continuing.

What alarms me most is the amount of refuge the CEO is taking in external factors, explaining why they couldn't do better rather than why they will.

With 26% decline he talks about China and Hong Kong as two separate markets, overlooking the reality that one is literally a three minute walk from the other.

He talks a lot about macro indicators, but he is describing a business that grew 2008/2009 when there were rather more 'macro indicators' to worry about.

I only counted one single mention of "exciting pipeline".

I find this worthy of note.
When you read the title of the articles for two weeks, you can think that Apple is close to bankruptcy. The reality is very different. Apple is a very strong company despite a bad environment : many countries hitted by oil artificial low prices, strong dollar which touch the US exports, recession in big nations. Apple stock price still don't reflect the true price of the company. When you see it's ratios comparatively to a company like Microsoft or Alphabet, which are not in a better shape and have bad products like windows, android, ....
Also some speculate also about Apple watch "failure" but they forget "google glass" flop.
I don't consider Google glass a flop. it was more of an experiment and prototype. I wouldn't bury augmented reality devices just yet.
DavidOWagner profile picture
Apple CC item 2. "Amounts exclude $548 million received from a patent infringement lawsuit.
Zed Asset Management profile picture
$2bn of channel inventory adjustments. Are sales of the 6S that bad? If you are thinking of buying a 6S hold off for the sales!

And the much trumpeted IBM enterprise relationship is involved in 200 client engagements. Only 200?
Zed Asset Management profile picture
Here is a question. If the SE was launched 31 March, how is it not in the numbers because it must have been sold.into the channel in this quarter. Because if it was not in the channel, then the channel was still over stocked as inventory was only down 450k. Explains the discounting I am seeing in the UK on all iPhone whereas you can't get a cent off a S7 Edge.
clinton77 profile picture
The Struggling Millennial profile picture
Some of you guys crack me up with your expectations of the stock market. Do you expect to plunk down $10,000 and in 6 months be a millionaire? This is the nature of the game. The only way historically to guarantee wealth is to slowly accumulate shares over very long periods of time, or buying and holding high quality companies at value prices for decades while reinvesting dividends. If an 8% drop in Apple stock is making you sweat, I suggest you get out of the stock market altogether, toss your money in CD's and deal with the 1% interest rate.

Apple dropping is an opportunity, not a curse.
27 Apr. 2016
The fact that the iPhone was only down 8% in growth (currency adjusted) given last year's mega crazy upgrade due to the new screen sizes... that's amazing. It's true that phone upgrades are lengthening towards 3 years as opposed to 2. But Apple is also expanding internationally and we'll see some growth there.

People are spooked. Everyone is waiting for Apple's precipitous fall. But that's not what's happening here.
The stock market doesn't work like that anymore. It's 2016, not 1996.
The Struggling Millennial profile picture

What exactly is that supposed to mean? Can you clarify?
I think this company has a issue
with a tough comp from last
quarter and still has opportunity
in India to expand.
I bought this stock in 1998 at 20. I was always "delighted" with my products. I have never used any other. Lately, I am less "delighted" with an OS that seems Microsofitan more with ever update. We have violated every trend line today. If we don't find some support tomorrow then this stock becomes Caterpillar. BTW, which trades at 22 PE. Apple traded at 8.5 at 104. Wall Street says this is then new Caterpillar of Tech.
Everyone says use the cash but since most is abroad, if they bring it home they will pay tons of taxes. All the government has to do is have a tax holiday and $1 trillion in foreign profits will come rolling into the US. That will create jobs, pay dividends, get rid of apple's long term debt and allow more buybacks.
Last time we had a tax holiday when W was president, that didn't actually happen.
John Klotsche profile picture
They don't have to "bring it home." They can borrow dollar for dollar at close to zero interest rates. That have been doing that to the tune of $50 billion. Another $175 billion cache.
Jin teee profile picture
"That will create jobs"

Donald MacLeay profile picture
Apple can release some cash to stock holders now or risk becoming Trump's poster child for un-American companies.
What is wrong with aapl becoming a Microsoft. Msft sells at 39 times earnings with no particular growth pattern. The pe difference lies in the fact that aapl is severely manipulated and as such scares many investors away. Hopefully, the cash will buy something that will drive the manipulators away so that the stock price can rise to where it truly belongs.
MacAfrican profile picture

You are probably referring to trailing PE with 39. That is highly impacted by the Balmer acquisition follies written off. Forward Microsoft is around 16 and Apple around 10
To all pesimists, are you happy now?
Not yet. Soon.
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