Apple Still Not Concerned About Rival Tablets, CEO Says

Apple has been “very aggressive” in the tablet space, and “I don’t see changing that,” Cook said. “In terms of competition, we've all seen, I think many different tablets -- hundreds of them -- come to market over the last year, and I have yet to see any of them really gain what I would call any level of traction at all,” he said. “Most customers feel they're not really looking for” a tablet -- “they're just looking for an iPad,” he said.

The company sold more than 17 million iPads in Q3, an 84 percent unit increase over Q3 last year, Chief Financial Officer Peter Oppenheimer said. Apple saw “very strong” year-over-year growth in iPad sales globally and is now selling iPads in 97 countries, he said. Q3 revenue from sales of iPads and iPad accessories totaled $9.2 billion, up 52 percent from Q3 last year, he said.

Apple ended Q3 with about 3.2 million iPads in channel inventory, an increase of about 1.2 million units from the end of Q2, which left it “just within our target range of four to six weeks of iPad channel inventory,” Oppenheimer said. Apple is seeing especially strong iPad sales in the U.S. education market, where sales set “a new quarterly record,” almost “doubling year-over-year to just under 1 million” iPads, he said. The company said the best-selling iPad in Q3 was the new HD model. Oppenheimer said sales of the reduced-price iPad 2 were strong, especially in the kindergarten-12th grade education market. Although Apple achieved “all time record Mac sales to U.S. education institutions” in Q3, he said it “sold more than twice as many iPads as Macs to U.S. education institutions.” The iPad also “continues its rapid adoption within the enterprise” space, he said, estimating the number of iPads used by Fortune 500 companies “more than tripled in the past year."

Q3 iPhone sales grew 28 percent to 26 million units, Apple said. The executives said widespread rumors that the company will soon bow new models hurt sales to some degree in Q3, although to what degree wasn’t clear. “We're reading the same rumors and speculation that you are about a new iPhone, and we think this has caused some pause in customers’ purchasing,” said Oppenheimer. He said the number of iPhones sold in Q3 was “ahead of the amount we factored into” Apple’s forecast “following very strong sales in channel inventory build we achieved in the March quarter."

Apple added “several small regional carriers” in Q3 and it now has iPhone distribution via more than 250 carriers in over 100 countries, Oppenheimer said. It ended Q3 with about 8.3 million iPhones in channel inventory, a decline of about 300,000 units from the end of Q2, but “remained within our target range of four to six weeks” of iPhone channel inventory, he said. Revenue from iPhone hardware and accessory sales grew 22 percent from Q3 last year to $16.2 billion, he said.

IPod was the only Apple hardware category that again had a sales decline. Sales fell 10 percent year-over-year to 6.8 million units, Oppenheimer said. But he said iPod sales were “ahead of our expectation” and the iPod Touch continued to account for more than 50 percent of all iPods sold. The iPod’s share of the U.S. MP3 player market remained at more than 70 percent, he said, citing the latest monthly data published by NPD. The iPod continued to be the No. 1-selling MP3 player in most countries that Apple tracks, based on the latest data published by GfK, he said. Apple ended Q3 “within our target range of four to six weeks” of iPod channel inventory,” he said.

Combining the iPhone, iPad and iPod touch, Apple passed sales of 410 million cumulative iOS devices, after selling more than 45 million devices in Q3, Oppenheimer said. The App Store has more than 650,000 apps, including more than 225,000 specifically for the iPad, he said. Apple passed $5.5 billion in payments to app developers, he said. Since launching in October, meanwhile, more than 150 million people are using iCloud services, he said.

The iTunes Store “generated very strong results” in Q3, with revenue of more than $1.8 billion, due to “continued strong sales of music, apps and other content,” Oppenheimer said. Apple started the iTunes Store in 12 more countries, including Hong Kong, Singapore and Taiwan last month, he said. The online store now offers more than 20 million songs, he said. Apple also continued to see “great interest” in its iTunes U audio and video service for the educational market, he said. Since “rolling it out in January,” there have been more than 14 million downloads of the app, he said.

Mac sales rose 2 percent in Q3, year-over-year, to 4 million, Apple said. That was a new record for the June quarter, Oppenheimer said. In comparison, the global PC market contracted 1 percent in Q3, he said, citing IDC data. Apple last month updated its entire MacBook line with faster processors, graphics, memory, flash storage and USB 3.0 connectivity, and introduced a 15-inch MacBook Pro with Retina Display and quad core processors, he said. The new MacBook Pro was “incredibly well received,” Cook said. Apple ended Q3 with that computer “in backlog, and we still have not caught up with demand yet, but anticipate doing so next month,” he said.

The company sold 1.3 million Apple TV set-top boxes in Q3, a 170 percent increase from Q3 last year, boosting the number sold this fiscal year to 4 million units, Cook said. He said that device is “still at a level that we would call it a hobby” for Apple. “We continue to pull the string to see where it takes us, and we're not one to keep around” products that “we don’t believe in,” he said. “There’s a lot of people here that are believers in Apple TV and we continue to invest in it and see where it will take us.” Four million “is not a small number -- it’s small relative to iPads and iPhones perhaps, but it’s not a small number,” he said. Apple again said nothing about plans for a long-rumored Apple TV.

Q3 revenue at Apple retail stores grew 17 percent year-over-year to $4.1 billion, driven “primarily by all-time record iPad sales and strong growth in iPhone sales,” said Oppenheimer. The stores sold 791,000 Macs, up from 768,000 in Q3 last year, and nearly 50 percent of the Macs sold in its stores last quarter were to customers who never owned one before, he said. Apple opened nine new stores in Q3 and ended the quarter with 372 stores, including 123 stores outside the U.S. he said. Average revenue per store was $11.1 million, up from $10.8 million in Q3 last year, he said. The stores had 83 million visitors in Q3, up from 74 million, translating to an average of 17,000 visitors per store each week, he said.

In addition to rumors of the new iPhone, Apple’s Q3 results were hurt by the weak economies in Europe, Australia, Brazil and Canada, said Oppenheimer. The timing of availability for Intel’s Ivy Bridge processor used in the new Macs and resulting rumors about its new portable Macs hurt Apple sales in April and May, he said. The company “did not get the benefit of launching” the new iPad in China or the new portable Macs there, because it had to pursue “routine regulatory approval” before the company could ship the products to that nation, he said. The U.S. dollar also “strengthened against most currencies around the world, which reduced our revenue growth” compared to Q2 by more than $200 million, he said.

Apple launched Mountain Lion, the latest Mac operating system, Wednesday, and Oppenheimer said it will launch iOS 6 in the fall. It has more “new products in our pipeline that we look forward to discussing with you later,” he said, without elaborating. The company expects to report year-over-year sales increases in Q4 for iPads and an increase in Q4 Mac sales compared to Q3, he said. Apple expects Q4 revenue will grow 20 percent year-over-year, he said. It’s “not expecting the economies” in Europe, Australia, Brazil and Canada to improve “from what we saw in the June quarter,” he said. Apple “saw no obvious evidence of the economy impacting our sales in China” in the June quarter or in the U.S., “but we're reading the same things that you all are about these economies, so we will have to see” what happens in those markets, he said.