Q1 2010 Earnings Call: Apple in China, Japan and Korea

Here are a few excerpts from today’s (Jan 25, 2010) Apple (AAPL) Q1 2010 earnings conference call (full transcript via Seeking Alpha):

Benjamin Reitzes – Barclays Capital

With regard to the iPhone could you talk a little bit more about China and in particular did that meet your expectations in the quarter? How is that looking into this year? Do you think you will add more partners over time in that area as well?

Apple COO - Tim Cook

Timothy Cook – Apple COO

We typically do not disclose units by country but given the visibility of this one I will do so. We started selling in China as you know at the very end of October and beginning of November. Earlier this month we had cumulatively activated over 200,000 units, crossing the 200,000 unit mark. We ramped the point of sales across that period of time to end at about 1,500 by the end of Q1 and we are very, very focused on the quality of the point of sale and customer experience. We would prefer to move slow because we are building the brand for the long-term and we are very much focused on the long-term in that market because we think there is significant potential there.

I wouldn’t want to forecast where sales will go and what we may or may not do from a partner point of view. We are very happy with working with China Unicom. They are an excellent partner for us and I am thrilled we are underway and have got about 2.5 months experience under our belt.

Katie Huberty – Morgan Stanley

I want to revisit the discussion on China and emerging markets from a broader perspective because these regions tend to share characteristics that are very different than the mature markets where you have had lots of success particularly the percent of customers that purchase phone service on a prepaid basis, lower average income levels, etc. As you think about those barriers is it appropriate to rollout iPhone and other products and pricing and distribution in a homogenous or global way or might you down the road have to look at it on a country by country or region by region basis?

Timothy Cook – Apple COO

We have just really got going in China. I really like what I see so far. Although the average income is not nearly as high as perhaps the United States and some other western European markets, there is a significant size middle class and up there. I think to do a real deep analysis you really have to look not just at the averages but at the distribution of income within these countries. We have been selling in Brazil for awhile and are learning about Brazil as well. The Brazilian economy is different than the Chinese economy because the duties are very significant and the taxes are very significant there which tends to compound the price.

But we are very focused on these markets. In fact, if you look at greater China last quarter which is China, Hong Kong and Taiwan, our revenues tripled year-over-year in that geography which is I think phenomenal by any measure. We have a tremendous focus on it. As was alluded to earlier in the call 58% of our revenue last quarter was from outside the United States and it is clear as you look at our numbers our growth rates are much higher outside the US. We realize we must do well in these markets to continue to grow.

Keith Bachman – BMO Capital Markets

For you, on Asia Pac and Japan, CPU sales were particularly strong and moreover if you look at Asia Pac the revenues were about, the year-over-year growth rate was about three times than the CPU units. I just want to try and understand in Japan and Asia Pac it looks like a pretty strong mix up in terms of computers but also just underlying strength. I wanted to hear if you could offer some color around that please.

Timothy Cook – Apple COO

In Japan what is going on there is the iPhone has been a runaway hit. The iPhone was up over 400% year-over-year during the quarter. So that is what is driving the huge revenue growth you see in Japan. The Mac growth is above market but we believe we can do better in the Mac area in Japan. In Asia Pacific, Asia Pacific is doing an incredible job with the Mac growing 54%. It is our highest performing region in terms of growth. In the iPhone the iPhone was up over 500% in Asia Pacific. As you probably remember we talked about China on this call, but we also added Korea during the quarter and we added several other countries throughout the year after Q1 of last year. iPhone really drove an incredible amount of the total revenue growth you see on the [range] of 140%.