[ Apple COO Tim Cook spoke to analysts after Apple ’s record financial results Tuesday . This is an edited transcript of his remark . ]
iPad cannibalization?
In terms of cannibalization , we do trust that some customers chose to buy an iPad instead of a new Mac in the quarter . But we also believe that even more customers chose to buy an iPad over Windows PC . As I ’ve said before , there ’s a lot more of the Windows microcomputer business to cannibalise than the Mac . Also we believe that the Mac has many other attributes that would make it extend to do well in the market . We ’re very felicitous that we grew 14 percent versus the market ’s outgrowth of 2.6 , which is about five times . So that ’s what we see with iPad .
We were still selling every unit we can make during the poop , and that was the place as we end the quarter . As we ’ve stepped into July , over the initial weeks , to give you a more current update , we have been able to increase the supplying further , and some SKUs in some countries are at a supply / demand residual . But we ’re still working very firmly on the balance of the world . The sales of iPad 2 have absolutely been a craze for people to get one , and we feel very near about the forward motion that we ’ve made about ramping up and the reception that we ’ve get in the marketplace .
Overseas markets
China was very key to our results . As a admonisher , for greater China — mainland China , Hong Kong , and Taiwan — year - over - yr it was up over 6 times . And the revenue was more or less $ 3.8 billion during the quarter . And that makes the year - to - particular date numbers through the three fourth we ’ve had thus far around $ 8.8 billion . So this has been a substantial opportunity for Apple , and I firmly think that we ’re just scratching the surface right now . I think there is an incredible opportunity for Apple there .
[ For the iPhone , ] we did bestow 42 young carriers and 15 new countries during the poop . So we continued our expansion efforts … However , those occurred throughout the quarter . The tangible serial improvement , frankly , was due to emerging and highly-developed markets . China was a prominent part of it , Latin America ( driven by Brazil and Mexico ) was a adult part of it , and the Middle East was a big part of it . Which I think is great for Apple , because these are market that Apple historically has not been as strong in . And we ’re really lead off to see the fruits of our labor in these food market .
Prepaid or unlocked phones — say more in English , phones sold without a contract bridge — are very key in China and a number of the emerging markets , where the credit entry organization are not as well show as they are in the U.S. , Japan , western Europe , Australia , et cetera . you’re able to look at our mass , the iPhone bulk for the first three quarter of fiscal year was up 5 times year - over - year . And iPhone is the primal contributor to greater China having a cumulative taxation of around $ 8.8 billion for the first three stern . And so I ’m not saying at all that we have figure out precisely how to act absolutely in the environment — we have n’t . I cogitate we have more to do and more to learn , but I feel very , very good about our progress .
If any of us would have been tell a class ago that we would do $ 3.8 billion in dandy China in a quarter , I do n’t reckon very many of us would have believed it , and I do n’t mean any of you would ’ve believed it . And so we feel very , very good about it and we ’re contain those encyclopaedism and use those to other marketplace as well .
Patents and intellectual property
We have a very unsubdivided scene here . And that view is , we love competition , we think it ’s great for us and for everyone , but we want people to make up their own material . And we ’re go to make certain that we defend our portfolio befittingly .
Android and iPhone growth
I think the Android activation figure is a difficult one to get our hired hand around . Because unlike our numbers , which you could kind of go to our information sail , and lend the iPhones and iPads , and make a reasonable bringing close together of the iPod touch — which we said is over one-half of our iPod sales — you could apace see that in June after part we sell over 33 million iOS devices . And across time … we ’re now over 222 million cumulative iOS devices . So we reckon this is incredible . So our number are very straight , they ’re gauzy , and they ’re report quarterly .
In terms of iPhone , iPhone is up 142 % class over year . This is more than two time the pace of growth of the smartphone record . We think that ’s incredible . Also , we sell every iPad 2 in the quarter that we could make . So there ’s for sure not a shortage of requirement . We ’re also gaining traction in enterprise . Now our attention is converting to more of a insight nidus .
Our App Store is the largest by far , and if you look at iPad - specific apps , we ’re over 100,000 . I think you ’d be heavily squeeze to witness more than a few hundred on the other platforms . It also does n’t come out that the other tablets are getting any traction to speak of . And we ’ve give over $ 2.5 billion to developers , and so there ’s a great business proposition for developers . And you may tell that client jazz it , because we have well over 15 billion apps that have been downloaded .
And so we ’re very , very confident of the product . We ’re positive with the App Store . We ’re surefooted with our proposition with developers . The client gratification in every survey I have visualize ranks the iPhone bit one . And so we ’re very confident in the customer receipt . We ’re also very confident in our road map . And so we find very , very good . You may have see the data that just descend out from ChangeWave that reaffirmed once again that iPhone is the exculpated leader in customer gratification , and also was the act - one preference of those people design to grease one’s palms smartphones in the next 90 daylight . And so it seems like there ’s a lot of groovy affair , and we feel absolutely fantastic about it .
Apple TV
Apple video continues to do well . But I do n’t want to mislead — we still call it a hobby here , and we do that because we do n’t want anyone to close that it ’s another leg of the stool , because it ’s not in the same size food market as the iPhone is in , or as the iPad is in , or that the Mac is in , or the iPod is in . And so we jazz the Cartesian product , it ’s cleared that customers get laid the Cartesian product . We really got it right when we went to the new Apple TV just last fall . But the right way now it ’s still a spare-time activity condition that we ’re continuing to indue in it , because we think that there ’s something there .
Retail and the supply chain
[ Question : Is Apple at the degree now where you have to branch out your contract manufacturing base as well as your non - Apple retail channel ? ]
In term of the non - Apple retail channel , if you take the iPhone as an object lesson — which as you do it get up a large part of our business — we have about 115,000 points of cut-rate sale . And so I feel that we ’re fantastically diversified . We ’re sell through carriers , through retail , we ’re sell through our own stores , through our on-line store , we ’re sell through companies that have lineal sale effect that trade into enterprise . I conceive the television channel is extremely well branch out . There are still country where we ’re still building the duct , so I do n’t want to give you the view that I think the journey is completed . But in the fledged markets , I feel the duct are in good anatomy , and in the market where we ’re place more and more free energy , there ’s still channel development to do there , but I think it ’s well read and under restraint . So that ’s not something that I concern about at all , really .
In term of suppliers , I do n’t need to get into this in any contingent , because I think that this is one of the things for us that is part of the illusion , and a part of the thing that we feel that we have some secluded sauce in , and I opt not to share it . But your general gunpoint about , are we too centralised in one place , are we too dependent on a place , you could reckon that the people here that are involved with supply chain — we have some outstanding ones — always ask that dubiousness and always at the goal of the twenty-four hours make the correct determination for Apple .
Expanding the iPhone market
I recollect what you would find if you go out and talked to [ carriers ] around the globe , virtually all of them are wishful of have more and more customers have a smartphone and beginning to use information on their networks , because this is a way for them to expand their [ average gross per user ] . And I firmly believe there is no better gimmick than the iPhone for someone to move from any telephone up to a smartphone . The rest of use is just alone and the ecosystem is unparalleled . And so I reckon there ’s a good coalition in that area .
I mentioned a few moments ago that the key driver in our consecutive improvement in iPhone unit were emerging and prepare market . So you’re able to see putting more and more vim in these markets that have been a bit more difficult to do well in , versus some of the markets in the established countries and primarily subsidized state . I think we have a very expert focusing here and I think we can vie with anyone .
Those grocery store that I mentioned we were doing well in , there are some percent of postpaid in some of those market . But if you looked at the grocery store in the total , most of those markets are preponderantly pre - bear . In some case we ’ve convinced someone to start a post - pay programme because in the foresighted full term I think that ’s good for the customer , the carrier , and us . But in general we ’re also playing in the pre - pay market , we ’re not forfend that market , we do n’t want to avoid that market . We have it away that we need to play there in guild to have the kind of book that we ’d like to have .
Share gain is crucial . Anywhere we ’re going the diametric way , we ’re not happy , and you could wager that we ’re make for hard to exchange that . In terms of toy at different Mary Leontyne Price points , we do offer … the 3GS is an example today , which in the U.S. is $ 49 with a contract . And if we step that out into prepaid market , it really bet upon the VAT and duty and channel … so it diverge greatly grocery store to mart . But it ’s clearly in a distinctly unlike Mary Leontyne Price than the iPhone 4 is .
Our philosophy is the same as it ’s always been . We will only make product that we ’re proud of , that are the expert in the universe . And if we can do that and the price is lower , then we ’re great with that . An example of that that happened some time ago is , the iPod Shuffle was create , it started at a different cost point but it ’s now at $ 49 . That ’s because that ’s a ware we ’re very proud of , it ’s very advanced , a lot of people bed that product . And so that ’s always the question for us , and the litmus test . We will only make products that we ’re very proud of , that we want to own , that are the best in the world , regardless of the terms analysis .
Also , as I ’m reminded fourth dimension and time again when I await at the China datum , it ’s up to us to convert hoi polloi to possibly expend a petty more for a maturely better experience and product . And we ’ve seen that people will do that , if the product is groovy and if it ’s messaged appropriately . We have a great deal of experience in both of those field .
Slower Mac growth?
First of all , I ’m majestic of the numbers that we ’ve achieved . To grow at 14 per centum when the market is grow at 2.6 percent , doing five times the pace of ontogeny , is certainly something to be proud of . However , in terms of ‘ Why is n’t the number is n’t high than 14 ? ’ Obviously we always pore on that , no matter if the number was 42 , we ’d focus on that . I suppose there are three things that are the primary factors . And I do n’t want to try out quantify these for you , but I do require to list them , so you make out how we seem at it :
The first is , as I ’ve said before , I think there was some cannibalizations of new Macs by iPads . We shipped a record 9.2 million iPads during the quarter , which is over two time the number of Macs shipped . And it ’s readable that some customer chose to buy iPad or else of young Mac , but the affair that really excites us is that more customers choose to corrupt an iPad than a Windows PC .
The second one is , I opine some client have delayed leverage until Lion becomes useable . We are launching Lion tomorrow . And we ’re looking ahead to getting Lion out , it ’s a fantastic product ; the guy have worked very , very hard on it . It ’s really a radical change .
The third matter that I would n’t bank discount is , in the twelvemonth - ago tail , we launched new MacBook Pros . In this particular quartern we launched Modern iMacs . Both products were well received , however the MacBook Pro makes up the majority of the units that we betray in the Mac area . And so obviously , if you switch the MacBook Pro and it ’s well received , it ’s going to make the comprehensive examination more hard to compare to .
So those are the three thing that I think are chiefly why the number is n’t more than it is , but I do n’t need to lose sight that it ’s already five prison term the industry , and this is twenty-first sequent quarter that we ’ve beat the market .
The iPad
I do n’t need to give you specific take numbers , but the supplying of iPad improved dramatically in the quarter . That allowed us to do the over 9.2 million , that ’s up from the 4.7 from the anterior quarter , so we added almost 100 percent . We further ameliorate the supply in the initial week of July , so that ’s allowed us to get into supply / need remainder on some SKUs in some country . And so I sense very , very good about our progress in that area .
This is a proficient sort of trouble , per se . The demand is wondrous , so there ’s not something that I would point to on the provision side and say that this has create a huge issue . It ’s a beneficial problem . And as I said before , and I do n’t generally do that , but in this case I am , to talk about July and the first calendar week of July … we ’re a little over 3 weeks into quarter . Supply has further improved since we ended our June quarter . And that further improvement has direct some SKUs in some countries to become in supply / demand balance . Now I ’m not going to project what will happen to the other countries , but manifestly we ’re working very hard to get as many units to customers as we can .
We have a dual prong strategy with enterprise for iPad and iPhone . We work with immune carrier sales forces , and they have very large ones because they deal their services into enterprise , and many of these enterprises need one of our devices connected to it . And so we train and supply quite a bit of help to the letter carrier forces . Plus we do some sales direct ourselves , or act as an overlayer sales force to a channel that sells to enterprise . I would characterize this as , we ’re still build it out , and we do a bit well each quarter . We ’re very , very well-chosen … about the level of interest and taking people to the pilot and initial deployment stages . And now our tending is act to penetration within those accounts , versus sort of get on the standards tilt .
I think if you really looked at it fairly , to be this far into the enterprisingness with a product that ’s only been shipping for 15 calendar month in the case of iPad , is perfectly unbelievable , because the enterprise is typically much more button-down and takes a long time to measure product . And in this case , people are moving at a speed I have n’t seen . Also , in a mathematical group that ’s not thought of as enterprisingness , K-12 , also takes a very long clip for a novel intersection family . But last one-quarter we sold more iPads in K-12 than we did Macs . And to do that after just five quarters is dead shocking . We would have never prognosticate this . And so we feel very , very good about the different areas that iPad is being sell into . It ’s clear that it has a general appealingness in many different markets , from consumer to business to government , and on and on .
I do n’t want to make a gossip about iPad , except that we think iPad will grow significantly yr over year . We ’ll leave alone the rest of it to you to conclude . And then we ’ll be very happy to report in October how we did .
