Free iPhone

Okay, it’s not that big of a surprise, but Good Technology’s latest data from their enterprise customers confirm that yes, iOS is killing Android in the business world. In the first quarter of the year, the iPhone 4S accounted for 37% of Good’s activations, followed by the iPad 2 with 17.7%, while the new iPad is already claiming 12.1%. The iPhone 4, original iPad, and iPhone 3GS occupy other top spots before Android devices start making the list. By comparison, they scored only 26.1% smartphone penetration and 2.7% tablet presentation. These stats continue the trend initially identified by Good in January.

Of course, Good is often the go-to solution for companies wanting to roll out and manage something other than BlackBerry, which means we don’t have too much context on how well the traditional enterprise leader is faring by comparison, but we’ve seen lots of studies detailing RIM’s downward spiral, and plenty of others corroborating the growing popularity of iOS devices in the enterprise market.

Part of the reason for the Apple’s success relative to Android is the uniformity of the devices. Like BlackBerry, iPhones and iPads come from one end-to-end vendor and so, while they have their own benefits and drawbacks, those benefits and drawbacks are a constant. Once you know how iOS works on ActiveSync or Good, you know how all the iPhones and iPads deployed in your enterprise will work on ActiveSync or Good. It makes everything from rollout to support easier.

With Android, Google has left a lot of the implementation details up to the individual manufacturers and carriers, and so ActiveSync and app compatibility can vary from line to line or even device to device. Having that many more targets drastically increases complexity for both deployment and support.

Apple has also been making it a point to focus on enterprise-friendly features and to tout business adoption figures in their conference calls. Obviously, it’s paying off.

Has your boss issued you an iPhone? How many corporate Android handsets have you seen around the office?

Source: Network World

Okay, it’s not that big of a surprise, but Good Technology’s latest data from their enterprise customers confirm that yes, iOS is killing Android in the business world. In the first quarter of the year, the iPhone 4S accounted for 37% of Good’s activations, followed by the iPad 2 with 17.7%, while the new iPad is already claiming 12.1%. The iPhone 4, original iPad, and iPhone 3GS occupy other top spots before Android devices start making the list. By comparison, they scored only 26.1% smartphone penetration and 2.7% tablet presentation. These stats continue the trend initially identified by Good in January.

Of course, Good is often the go-to solution for companies wanting to roll out and manage something other than BlackBerry, which means we don’t have too much context on how well the traditional enterprise leader is faring by comparison, but we’ve seen lots of studies detailing RIM’s downward spiral, and plenty of others corroborating the growing popularity of iOS devices in the enterprise market.

Part of the reason for the Apple’s success relative to Android is the uniformity of the devices. Like BlackBerry, iPhones and iPads come from one end-to-end vendor and so, while they have their own benefits and drawbacks, those benefits and drawbacks are a constant. Once you know how iOS works on ActiveSync or Good, you know how all the iPhones and iPads deployed in your enterprise will work on ActiveSync or Good. It makes everything from rollout to support easier.

With Android, Google has left a lot of the implementation details up to the individual manufacturers and carriers, and so ActiveSync and app compatibility can vary from line to line or even device to device. Having that many more targets drastically increases complexity for both deployment and support.

Apple has also been making it a point to focus on enterprise-friendly features and to tout business adoption figures in their conference calls. Obviously, it’s paying off.

Has your boss issued you an iPhone? How many corporate Android handsets have you seen around the office?

Source: Network World

Carriers have a love/hate relationship with the iPhone. They hate Apple’s control (because they want that control for themselves) but love the money and customer-retention having the iPhone on their network brings them. Sprint’s willingness to pay damn near all the money in their pockets, and delve into whatever passes for a corporate second mortgage, proves that that point.

AT&T, Verizon, and Sprint sell Android because they want to. They sell iPhone because they have to.

Apple isn’t exactly easy to deal with. Android gives carriers far more control, generally requires far less up front investment (in terms of subsidies), and promises a thus far inexhaustible cornucopia of new devices to thrust at consumers on a seemingly weekly basis. It just doesn’t generate the revenue or reduce customer churn the way the iPhone does.

They tried. They really did. Verizon pushed the Droid and Sprint pushed the Palm Pre and the EVO. They had successes to be sure, especially in sheer volume of units sold. But they never came anywhere near iPhone levels of profit or customer loyalty. And at the end of the day, even for carriers, that’s what matters.

Not that you’d know it by looking at their websites. Go to Verizon.com or AT&T.com or Sprint.com and iPhones have little to no home page presence and remarkably little wireless site presence.

Verizon’s home page features the eye of Sauron the Droid. Their wireless page does have the iPhone in the first of three small blocks at the bottom, but the massive feature boxes are filled almost entirely by Android. There’s even a token BlackBerry thrown into the mix. But no iPhone.

This despite Verizon selling 3.2 million iPhones last quarter, accounting for more than half the smartphones they sold (i.e. the iPhone outsold all Android and other smartphones combined.)

AT&T’s home page is all about Windows Phone and Android, with Nokia grabbing one of the hero slides and HTC and Samsung getting the other two. On their wireless page Nokia repeats in the spotlight, with Android and cheapy phones playing backup. There’s no iPhone in sight.

Yet AT&T sold 4.3 million iPhones last quarter, which was 75% of all the smartphones they sold, and 60% of all the on-contract phones AT&T sold period (including feature phones).

Sprint’s home page has the iPhone in the third of four feature spots, and the fourth of four bottom blocks. They don’t have a separate wireless page, so their home page does double duty.

Still, Sprint managed to sell 1.5 million iPhones last quarter. They don’t break out how many smartphones in general they sold, however, so there’s no way to calculate the iPhone’s percentage of total sales.

And that’s just in the U.S. Internationally, Apple sold over 20 million iPhones. Rogers in Canada reported 35% more iPhone activations, year-over-year, compared to just 20% more smartphone activations overall. (And their home page features Android and Windows Phone, and iPad, and their wireless page shows an iPhone only in a block advertising their Find my iPhone-like Phone Finder service.)

So with little attention, ad spend, and product placement, Apple’s iPhone still accounts for most of the carriers smartphone — if not all phone — sales, and reduces their customer churn. And that probably drives them up-the-wall crazy.

Apple, who doesn’t let them festoon the iPhone with their revolting logos, clog it up with their dodgy crapware, allow them to delay or refuse software updates, or arbitrarily alter casing designs, and charges them among the highest up-front prices of any manufacturer in the industry, is increasingly responsible for their financial and customer success.

And it doesn’t even have LTE (yet) or a ginormous screen (likely ever).

If carriers had their druthers, manufacturers — including Apple — would be little more than dumb assemblers (much as, if customers had their druthers, carriers would be little more than dumb pipes). Yet as much as Verizon, AT&T, and Sprint would far, far prefer to sell the always amenable Android, customers, increasingly, want iPhone. So carriers increasingly have to deal with Apple. Even if they continue to try to find viable alternatives.

That’s why carriers will never go all-in on iPhone promotion. They don’t want to become entirely dependent on Apple (or any one platform). It’s in their best interest to have several, highly competitive platforms on the market that they can hedge with, and against.

Still, it’s interesting to imagine a market where carrier manipulation didn’t influences the market. Free to compete strictly on customers and merits, would smartphones be more like tablets, and would the iPhone have the same relative positions as iPad does to Android tablets, BlackBerry PlayBook, and the like? The same position the iPod had in the carrier-free MP3 space?

During a visit to Boulder, Colorado and Colorado University, U.S. President Barack Obama was caught on video test driving a Sphero — an iPhone controlled rolling robot. Obama first watches the Sphero roll around, remarking “how cool is that, you can make the ball do all kinds of stuff”, before taking the iPhone and taking control of the robot himself. Surrounded by Secret Service — and co-eds — the President of the United States gave it a whirl, seemed to enjoy himself, and complimented the inventor, a Boulder native.

We’ve had the opportunity to try out Sphero a couple of times at CES, and if you like iPhones and robots, it’s definitely something to check out. Video below.

Thanks Obi!

What do you get when you combine a prototype hover vehicle similar to the Parrot AR Drone which can be flown with an iPad and sub-machinegun? Trigger-happy YouTuber FPS Russia recently posted a video showing us just exactly what –”Sharlene”. Sharlene can fly through tight spaces, and even blow itself up on command. The quad-rotor prototype includes a 100 round magazine, can fly 30 MPH, reach altitudes of over 1000 feet, and self-destruct with a 15-foot blast radius. Or that’s the premise, anyway. It’s more than likely that this is all fancy CG work, since the video was sponsored by the fine folks at Call of Duty, who have a game being announced on May 1 likely called Tacitus.

Even if it’s fake, the U.S. Military is knee-deep into significant iOS usage. Not too long ago, the Army launched a web app store for iOS and Android, and even two years ago snipers were using iPhone apps to calculate trajectories. Even if the military has their own proprietary flying gun drones available, I imagine it would be a lot cheaper to have troops on the ground kitted out with iPhones than expensive custom-built consoles. FPS Russia says that because it’s a prototype, we wouldn’t see this thing for another decade; even if it’s all smoke and mirrors, do you think we’ll see gadgets like this on the battlefield within the next ten years?

As for Call of Duty renting out a hugely-popular YouTube channel so that they can sneakily promote a new game, that’s just smart marketing. They really couldn’t have picked a better web personality to team up with. Any Call of Duty fans eager to give this drone a try in the upcoming game? It sure would be interesting if the game used an iPad too… Source: Cult of Mac

Sprint announced their first quarter results today, seeing an operating loss of $255 million, and a net loss of $863 million, but enjoyed 1.5 million iPhone sales, 44% of which were new customers. Last quarter, Sprint sold 1.8 million iPhones with a similar proportion of new additions. Seeing as Sprint added a net of 1 million new subscribers total in Q1 2012, 44% is a pretty significant portion. By comparison, AT&T enjoyed 4.3 million iPhone sales, while Verizon sold 3.2 million. That brings U.S. iPhone sales for the first quarter of 2012 to roughly 9 million. Here are Sprint’s financial highlights. Best ever Sprint platform postpaid ARPU increase of $4.03, or 6.9 percent, year-over-year drives Sprint platform wireless service revenue growth of 16 percent year-over-year Operating loss of $255 million; Adjusted OIBDA* of $1.2 billion, which includes $104 million in Network Vision related operating expense 263,000 postpaid net additions on the Sprint platform in the quarter – eighth consecutive quarter of postpaid subscriber growth on the Sprint platform Total company net additions of more than 1 million for the sixth consecutive quarter Strong iPhone sales of more than 1.5 million – 44 percent to new customers Network Vision deployment continues on track Continue to expect six major cities to launch 4G LTE by mid-year Continue to expect 12,000 sites on air by end of 2012 To date work has begun on 25 percent of planned 2012 sites; 5 percent are on air Nearly 1,300 iDEN sites taken off air to date; expect 9,600 total by the end of the third quarter Sprint says that despite the customers the iPhone is bringing in, hardware subsidies are hitting them hard. Sales expenses increased year-over-year primarily due to iPhone point-of- sale discounts (subsidy) for devices directly sold by the manufacturer to indirect dealers in which Sprint does not take device title, as well as higher postpaid gross additions. The impact from the iPhone was partially offset by improvements in sales channel mix with a larger portion of activations coming from direct retail channels. Even though this quarter’s loss was steeper than the $439 million Sprint lost in the first quarter of last year, it’s not as bad as many analysts expected. Sprint launching their 4G network will be interesting, and set the stage for their support of an LTE-enabled iPhone 5 in the fall, assuming of course that they’ll be able to afford it.

Any Sprint iPhone customers in the house? Is the unlimited data keeping you happy, or are you thinking of switching?

Source: Sprint

Sprint today was the last of the three major iPhone carriers in the United States to release earnings for the first calendar quarter of 2012, announcing that it sold 1.5 million iPhones during the quarter. The number is down slightly from the 1.8 million units sold in the previous quarter, the debut quarter for the iPhone on Sprint.

Sprint remains the smallest of the three major U.S. iPhone carriers in terms of units sold, as Verizon activated 3.2 million iPhones during the quarter while AT&T continued to lead the pack with 4.3 million units. Sprint did, however, experience the smallest percentage decline from the previous quarter among the three carriers. The carrier also noted that 44% of its quarterly iPhone sales went to customers new to Sprint, up from 40% in the previous quarter.

Apple’S Q2 2012 results weren’t quite as strong as last quarter’s (the holiday period), but year-over-year it was another set of records for Apple.

Apple Q2 2012 Highlights Revenue was $39.2 billion, profit was $11.6 billion and EPS was $12.30. Wall Street analysts had been expecting EPS of $10.06, so this is a substantial beat. Apple shipped 35.1 million iPhones, only slightly below the 37 million shipped last quarter (the holiday quarter). Impressive! This represents 88% year over year growth in unit shipments. However, over 2 million of the phones shipped were to help build up channel inventory. iPad shipments were 11.8 million units. This is down from 15.4 million last quarter, but is still 151% unit growth compared to last year’s March quarter. Mac sales grew 7% year over year, while industry analyst data shows that the entire PC market only grew 2%. So while Apple’s Mac business isn’t the sexy growth engine of the company, this product division is still kicking some Redmond butt. As expected, the iPod business is shrinking. Apple sold 7.7 million units compared to 9 million last year. They still control over 70% of the US MP3 player market, but obviously the strength of the iPhone is displacing the need for stand alone MP3 players.

Overall, these strong numbers have set the stock back up to $600, after cratering to about $560 over the last 11 trading days. Is it enough to help the company reach a new high? Perhaps not this week. But I think Apple will get there.

Wall Street’s only criticism is Q3 financial guidance. But that’s typical with Apple. The company notoriously plays down its earnings potential for the next quarter. Then, almost like clockwork, they beat their own forecast.

Apple currently says it will earn only about $8.68 in EPS next quarter. Wall Street had been modeling $9.93. It’s likely that analysts will pull in forecasts for Q3, but I don’t see this as a cause for alarm. Apple is in fine shape. It’s just that they had huge demand for the iPhone 4S last quarter and channel inventory (carrier shelves) were bare. Apple needed to stock them up. So they did. They shipped about 2.6 million extra iPhones to accommodate this inventory build.

Gross margin was also incredibly strong for Apple this quarter. In fact, they reported margin of 47.4%, a whopping 540 basis points above expectations. They say half of this strength was due to commodity pricing. When you’re as big as Apple I guess you’re bound to get better pricing on components. The rest of the margin beat comes down to unexplained one time items, and revenue mix. I find it amazing that Apple’s revenue mix helped margins considering that the more expensive “new iPad” is now selling. It has a more expensive screen, batter, radio, processor and a bunch of other upgrades so it surely has a higher BOM (bill of materials) cost. And they STILL delivered such stellar margins? Wow.

Tim Cook recently unveiled Apple’s big dividend plan. Will this put much of a dent in cash? It sure doesn’t look that way. Apple’s cash balance is now over $110 billion, up from $97.6 billion last quarter. They’ve certainly left themselves room to raise the $2.65 quarterly dividend.

During the Q&A session, Cook took a question on the highly visible topic of iPhone subsidies. He answered by saying that the subsidy is low in proportion to the net revenues carriers generate over the 24 month contract period. But he also said something else that I found surprising. Cook said,

“Our engineering teams work extremely hard to be efficient with data and differently than some others. And we believe as a result of this iPhone has far better date efficiently compared to other smartphone that are using sort of an app rich ecosystem. Finally, and this is most important, iPhone is the best smartphone on the planet to entice a customer who is currently using a traditional mobile phone to upgrade to a smartphone. This is by far the largest opportunity for Apple, for our carrier partners and its a great fantastic experience for customers. So its a win win win there”

So, Cook is saying that the iPhone is far more data efficient versus Android (not BlackBerry, notice the careful wording). But more important, customers who upgrade to their first smartphone still want the best phone … hence Cook’s huge confidence in Apple’s upside.

On China: “There’s a lot of headroom here in our view”

In response to a question asking for more details on China, Cook said revenue was over $7.9 billion in the quarter. That’s up more than 3x over last year. If China was only 10% of Apple’s business, this wouldn’t be so darn impressive. But $7.9 billion is one fifth (20%) of total revenue. That fifth is up over 3x? Holy cow. Cook described the results as “mind boggling”. Pent up demand for iPhone 4S was a big part of the growth. But iPad 2 growth is strong and the new iPad isn’t even shipping in mainland China yet. Mac sales in China were also up 60% versus 6% for the overall market. So the halo effect is alive and well in China.

iPad Growth Opportunity Still Huge

Apple emphasized a few times that the supply of new iPads is constrained right now. They are selling them as fast as they can make them. They haven’t launched it in mainland China yet. The opportunity for iPad growth still seems insanely huge. The education (K-12) market is buying 2 times as many iPads as Macs. The lower pricing on iPad 2 has created a spur of demand in several countries. Cook points out that many industry analyts are forecasting the tablet market to be as big as the PC market by 2015.

Conclusion: The stock is a keeper

I’m hanging on for the ride on this one. I’ve been a very happy shareholder ever since the first iPhone came out. I like how Apple sticks to its view of the world and just executes with precision. There are a lot of mobile phone users who don’t have smartphones. Apple will capture its fair share of them. There are a lot of laptop / desktop users who don’t own tablets yet. Apple will capture a good chunk of those. And there are still tons of people who aren’t using Macs. Apple continues to gain traction there.

The stock may be trading at $600 again, but they have over $116 per share in cash. They’re piling on cash at an incredible rate. I don’t feel like we need to rehash the price to earnings multiple here, but it isn’t high. Given Apple’s growth, it seems to me this is a must own tech stock. But that’s just my opinion.

Apple today announced financial results for the first calendar quarter of 2012 and second fiscal quarter of 2012. For the quarter, Apple posted revenue of $39.2 billion and net quarterly profit of $11.6 billion, or $12.30 per diluted share, compared to revenue of $24.67 billion and net quarterly profit of $5.99 billion, or $6.40 per diluted share, in the year-ago quarter. Gross margin was 47.4 percent, compared to 41.4 percent in the year-ago quarter, and international sales accounted for 64 percent of the quarter’s revenue. Apple’s quarterly profit and revenue were both company records for the March quarter.

Quarterly iPhone unit sales reached 35.1 million, up 88 percent from the year-ago quarter, and the company sold 11.8 million iPads during the quarter, up 151 percent year-over-year. Apple sold 4 million Macintosh computers during the quarter, a unit increase of 7 percent over the year-ago quarter. The company sold 7.7 million iPods, representing 15 percent unit decline year-over-year.


“We’re thrilled with sales of over 35 million iPhones and almost 12 million iPads in the March quarter,” said Tim Cook, Apple’s CEO. “The new iPad is off to a great start, and across the year you’re going to see a lot more of the kind of innovation that only Apple can deliver.”Apple’s guidance for the third quarter of fiscal 2012 includes expected revenue of $34 billion and earnings per diluted share of $8.68.

Apple will provide live streaming of its Q2 2012 financial results conference call at 2:00 PM Pacific, and MacRumors will update this story with coverage of the conference call highlights.

Conference Call Highlights

- Very pleased to report results of our outstanding fiscal quarters. New March quarter records for iPhone, iPad, Mac, profit and revenue.


- YoY increase fueled by growth in iPhone and iPad sales. Income up 94% YoY.


- New March quarter records for Desktops and Portables. Growth of 7% YoY compared to IDC’s 2% growth for the PC market. 3-4 weeks of Mac channel inventory. Below target range of 4-5 weeks.


- Released developer preview of Mountain Lion during the quarter. Expect Mountain Lion to be available in “late summer”


- 7.7 million iPods vs 9 million a year ago. iPod Touch continues to account for more than half of iPods sold. 70% market share, iPod is top selling player in most countries tracked. 4-6 weeks of iPod channel inventory.


- Record results from iTunes store, $1.9 billion in revenue, up 35% YoY. Strong sales of music, video and apps. 28 million songs and 45,000 movies.


- 35 million iPhones vs 18.6 million YoY. Very strong iPhone sales growth in all segments, led by Asia Pacific and Japan where sales doubled YoY. Tremendous momentum in greater China. 5x iPhone sales YoY in China thanks to iPhone 4S and China Telecom.


- iPhone 4S in 100 countries and 230 carriers. 8.6 million iPhones in channel inventory, up 2.6 million units to 4-6 weeks of channel inventory.


- iPhone momentum in enterprise has evolved beyond email, calendar and contacts.


- iPad sales up 151% YoY. New iPad available in 40 countries.


- 2 Million iPads in channel inventory, below target range of 4-6 weeks.


- Sold 2 iPads for every Mac to US K-12 customers while also generating a record quarter for Mac sales. San Diego School District bought 10k iPads and plans to buy 15k more.


- Hopeful that iPad will be a popular choice going into school buying season.


- US Air Force is deploying thousands of iPads as pilot flight bags.


- Thousands of iPads are being deployed as mobile sales tools as well.


- 365 million cumulative iOS device sales, more than 50 million in March quarter.


- App Store has 600,000 apps, 200,000 for iPad.


- 25 billionth app sold less than 4 years after the launch of the app store.


- More than 125 million customers signed up for iCloud.


- Record sales for retail. $4.4 billion in sales for retail stores, up 38% YoY. Strong growth 826,000 Macs vs 797,000 in year ago quarter. About half were to customers who never owned a Mac before.


- 2 new stores, including first Netherlands store in Amsterdam.


- Exited Quarter with 363 stores with 1/3 outside the US.


- Average revenue per store was $12.2 million vs $9.9 million YoY, up 23%


- Segment margin reached a new record of $1.1 billion, 26.1% of retail revenue.


- 85 million visitors vs 71 million last year. Up 19%. 18,000 visitors per store per week.


- Half margin difference was driven by lower than expected commodity and costs, a quarter from a stronger product mix, and the remainder from one-time items that we don’t expect to reoccur next quarter.


- Cash from short and long term securities totaled $110 billion, up $12.6 billion from prior quarter. 74 billion in cash was offshore.


- Dividend of $2.65/share when third quarter results are reported in July.


- Revenue in third quarter to be $34 billion vs $26 billion last year. GM to be 41.5%. OpEx to be $3.3 billion. Tax rate of 25.25%. EPS of $8.68.

Q&A Session

Q: As related to June quarter, it implies a sequential downtick that is worse than similar guidance over last 3 years. Can you talk about headwinds on topline in June vs March?

A: Manufacturing ramps for iPhone and iPad yielded the fastest rollouts for these product families that we’ve ever had. We were able to fulfill demand in the March quarter instead of the June quarter because of that. I highlight 5 factors that influenced our thinking on this: iPhone channel inventory changes, in target inventory range of 4-6 weeks. Into the June quarter last year, we built an additional 700k of channel inventory and rolled out to new carriers. Will impact sequential comparisons.

Fantastic iPhone 4S execution led to a huge January, including launches in China and all countries where iPhone is currently shipping. Exited the quarter in supply/demand balance. New iPad execution was also fabulous. Had an incredible start with significant supply of iPad. Fastest rollout ever. Were able to satisfy much more demand for the new iPad in the March quarter than we had last year. This moves a shift from iPad volume from June to March this year, which will affect comparisons.

Decreased entry price of the iPad to $399, and the US dollar has strengthened recently and we expect this to have an impact on sequential comparison to last year when the dollar weakened.

Feel very good about our business and our new product pipeline.

Q: You already saw a 7% sequential decline in March which suggests the uptake of the lower priced iPad 2 was phenomenal. Is that the right way to read it? What does that demand tell you about the potential to move to lower price points on the iPad over time and see increased demand?

A: Still learning about demand and the lower price points. New iPad is on fire and we’re selling them as fast as we can make them. Education buying season looks terrific for us.

Q: Outgrew the market in Macs, but what about the slowdown in YoY growth in the category? Were inventories down or is it product transitions or iPad cannibalization?


A: As you said, we did outgrow the market, 7% vs 2%. This is the 24th straight quarter that we’ve outgrown the market. Extremely pleased with that. Compared to last year, it’s largely effected by the fact that we changed the bulk of our portable line in February 2011. It’s a tough compare. Portables last year were up 53% year-on-year, so that compare is very difficult.

Looking at it sequentially, you have to factor in that we had 14 weeks in the December quarter. There was some cannibalization from iPad and the market is slow, but the much larger factor is the upgrades.

Q: Talk more broadly about what you’re learning about lower price points for iPhone and iPad? Was the decrease in iPad ASP exclusively mix related or a further broadening of the channel to indirect partners? What are you learning about customer preferences on pricing?

A: On iPad 2, with the change in price, we’re actually thrilled with the results we’ve seen though it’s only been a few weeks. It’s too early to come to a clear conclusion. From what we’re seeing, this unlocked some education demand that is probably more price sensitive. Also, in several other countries there was a marked change in demand at that price point. On the early going, we feel great about it. I’d also point out that the new iPad was semi-constrained for the full 3 weeks we shipped it last quarter and is actually still constrained. The mix of the iPad to the iPad 2, we’re not sure about it yet. The absolute sales of the iPad 2 is very exciting.

On iPhones, we’re happy with the pricing on the 3GS and the iPhone 4. Both contributed to our ability to achieve 35 million in sales, our second highest quarter of all time.

Q: Can you talk about how you think about the markets for tablets and PC devices going forward? You’ve been fairly clear about saying that tablets will eclipse PC’s in volume at some point, and they are somewhat discrete markets. There seems to be a lot of work on PC platforms to combine PC and tablet experiences going forward. Can you comment on why you don’t believe the MacBook Air and tablet markets won’t converge? Isn’t it realistic to believe that we’ll have a device under 2 lbs that will be a notebook and a tablet? Can you comment on why you don’t think that product will come?

A: Anything can be forced to converge. The products are about tradeoffs. You begin to make tradeoffs to the point where what you have left at the end of the day doesn’t please anyone. You can converge a toaster and a refrigerator but those won’t be pleasing to the user. Our view is that the tablet market is huge and we’ve said that since day one. We didn’t wait until we had results. We were using them here and it was clear to us that there was so much you could do and the reasons people used them would be so broad, the iPad is so useful in consumer, and enterprise and education — the applications are so easy to make very meaningful for someone and there is such an abundance of those, as the ecosystem gets better and better — we’ll continue to double down on making great products. The limit here is nowhere in sight. It’s been 2 years since we shipped the iPad and we’ve sold more than 60 million iPads. Took 24 years to sell that many Macs, 5 years to sell that many iPods, 3 years to sell that many iPhones.

iPad is a great product, appeal is universal, I could not be happier with being in the market and the level at which we’re innovating in the product and the ecosystem.

I also believe that there is a very good market for the MacBook Air and we continue to innovate in that product. I do think that it appeals to someone that has a little bit different requirements. You wouldn’t want to put these things together because you wind up compromising and not pleasing either user. Some people prefer to own both, but to make the compromises on convergence… we’re not going to that party. Others might, particularly from a defensive point of view but we’re going to play in both.

Q: Quite a bit of concern over carrier subsidies. Carriers will try to stretch out replacement cycle and attempt to reduce subsidies significantly. How do you feel about this risk and how do you feel about pressures on subsidies?

A: Our focus is on making the best smartphone in the world. A phone that delivers an off the charts user experience, that customers want to use every day. At the end of the day, the vast majority of carriers want to provide what their customer want to buy. That’s what motivates them.

The most important thing is for Apple to keep making products that customers want. We are deeply committed to doing this. We are innovating at a rate that’s unbelievable. From the carrier, the subsidy isn’t large relative to the sum of monthly payments across a 24 month contract. Any delta between the iPhone and another phone is even smaller. iPhone has a distinct advantage to the carrier over other phones. The churn from iPhone customers is lowest of any phone they sell. That has a significant financial benefit to the carrier.

Our engineering teams work extremely hard to be efficient with data, differently from some others. iPhone has far better data efficiency, vs other smartphones which are using an app-rich ecosystem. Most important, iPhone is the best smartphone on the planet to entice a customer who is currently using a traditional phone to upgrade to a smartphone. This is by far the largest opportunity for Apple and our carrier partners and a great experience for customers. It’s a win-win-win. All of these factors are missed in this discussion of subsidy.

Q: Can you give us some color on how consumers are using iCloud? Are you seeing a big uptake in iTunes Match and storage upgrades?

A: Customers are using all the features of iCloud, response and feedback have been terrific. Pickup on storage is occurring. It’s growing because we just launched iCloud in October. 125m users using the service, and they’re building up documents and music and other things. Storage growth will come more over time. Our real desire wasn’t about selling more storage. Match is a great product, but it’s a paid for service. We just wanted to increase customer delight across the platform on iOS and the Mac. That’s why we’ve built iCloud. We couldn’t be happier that just a few months into this there are more than 125 million users.

Q: Can you dig a little more into China? Increased distribution points, lower prices of 3GS, more people in China having money?

A: It was an incredible quarter in China. Revenue was a record at $7.9 billion in greater China, up over 3x YoY. Brings the first half of the year to $12.4 billion vs a full year in 2011 of $13.3b. It’s mind boggling. Pent up demand from iPhone 4S. Launched 4S in mainland China in January, so no purchases in Q1. Very strong demand for iPad 2, have not launched new iPad in mainland China though we are shipping it in Hong Kong. The halo that both of these products have produced for the Mac is incredible. Mac is over 60% YoY compared to market growth of 6%. Mac is at 1800 points of sale in greater China, but lots of opportunity there. 11,000 points of sale for iPhone, a much smaller number than in the US and China will be a bigger opportunity. iPad only 2500 points of sale.

Lots of expansion, but a lot of headroom here in our view.

Q: Was iPhone mix in China different than the rest of the world?

A: Don’t have that in front of me but I don’t think so. iPhone 4S just launched, so you’d expect it to mix fairly heavy towards new product.

Q: Seems to be a logjam to getting new TV shows, movies and rentals. How important is it to getting new content on iTunes?

A: Thrilled with rate of getting content on iTunes. Have to do it country-by-country so it’s hard. Largest catalog of songs and movies anywhere. Thrilled with progress we’re making and customers love it.

Q: The other big issue outside subsidies was regarding shortages. There’s talk about potential Qualcomm shortages into next couple quarters and potential constraints at year-end. There are some pretty neat products out there that you might want in new products down the road. Can you talk directionally about whether you expect long-term to get more than your fair share of product and what you need? Do you see any component tightness down the line?

A: We’re aware of lithography transition issue to 28nm. We don’t use 28nm parts but we don’t comment about future products. Outside of this, we work very closely with our supplier partners and do everything that we can do to get supply. Sometimes we’re successful and sometimes we’re not. You can bet that we’re focused on everything that we can do to work on it.

Q: Regarding Wal-Mart, they are moving their store-within-a-store from 1 store to 25. How is it going and when can you be at all 10,000 stores?

A: There’s no plan to be at all 10,000. We’re trying some things, aside from the Mac, and seeing how it goes. They’ve been a very good partner on iPod, and are an increasingly more substantial partner in the iPad space as well. An evolving partner on iPhone. We’re working with them and enjoy working with them and hope to continue expanding.

Q: Could you add some more specifics for iPhones in Asia-Pacific? Is supply/demand in balance there? With iPhones getting increased inventory, will that go down in June quarter?

A: Our desire on iPhone inventory was to increase inventory across the quarter. We ended with only 6 million units in the channel in December because we were backlogged. Our target is to between 4-6 weeks, and the addition of iPhone inventory got us into that range. We feel that we exited the quarter in supply/demand balance. Our ops team was so good, the vast majority of supply/demand in each country was reached by the end of January. We had the mother of all Januaries, with really getting out of the iPhone 4S backlog and launching in China. It was an incredible start to the quarter from us.

China is not supply/demand imbalanced on iPhone. We’re still supply constrained on the new iPad. We are selling them as fast as we can make them. On a macro basis in China, China has an enormous number of people moving into higher income groups — middle-class if you will. This is creating a demand for good, not just Apple’s, but other company’s goods as well. There is a tremendous opportunity for companies that understand China and we’re trying to understand it as best we can.

Q: There have been some changes in Spain to subsidies. Have you seen any changes in demand in Spain in response to carrier changes?

A: Spain has been weak for us and probably for many companies. Revenue grew in Spain last quarter, but materially less than Europe or worldwide. That wasn’t cause-and-effect related to the issue you mentioned. Spain is in a terrible economic situation, but I look at that as an unusual case. To be clear about what was done, there is some noise in the pipe on this. The carriers still have subsidies for existing customers and I don’t want to talk specifics, but they pulled subsidies on new customers. It wasn’t a pull of all subsidies, but just a pull of subsidies on new customers. Not all carriers did it, as well. I wouldn’t use that as a proxy for the world, I guess is my point.

Q: Provide a little more context for us on the segments dovetailing with drop in guidance?

A: iPhone expects to have a year-over-year increase and sequential decrease for reasons we discussed. Built channel inventory, existing March in supply/demand balance, and a huge January. For iPad, we would have a significant YoY and sequential increase in sales.

For gross margin guidance, we’re pleased to be providing guidance of 41.5% for the quarter, expect 2/3 of the decline to be driven by higher mix of iPads and Macs, full quarter of selling the iPad lineup, and loss of leverage on lower revenue. Remainder of difference between one-time items that occurred in March instead of June.

Q: In terms of flexibility in cash and providing more color, how should we think about opportunities regarding patent disputes? Any thoughts about settling vs ongoing litigation?

A: I’ve always hated litigation. We just want people to invent their own stuff. If we could get an arrangement where we can be assured that’s the case, and that a fair settlement on stuff that’s occurred, I would highly prefer to settle vs battle.

The key thing is that it’s very important that Apple not become the developer for the world. We need people to invent their own stuff.

Q: Talk about feedback from customers on iCloud? Average numbers of devices, how many people attaching more than one device?

A: We have the data that you’re asking for but we don’t want to help our competitors. The feedback that we’re getting is off the charts, they’re loving it and the fact that we can be here with a conference call 6 months later and have 125m people using iCloud every day speaks for itself.

Q: R&D up over $800 million now, where is that growth coming from? It’s definitely been ramping up.

A: We view this as a good thing. We are investing in engineering to bring out the best products in the world. We are making investments in hardware and software engineering teams. We’re shipping the best products we’ve ever shipped. We’ve got some fabulous new products in the pipeline. We’re thrilled with the ROI we’re going to see on these investments.

Q: Disclosed China with 4S shipping along with 21 other countries early in January, what about China Telecom specifically? When did that launch?

A: We launched with China Telecom in early March. Were at supply/demand balance with them prior to the end of the quarter. Happy to be working with them.

Q: On OpEx, down pretty significantly versus sales. How do you feel about it longer term? Can you take us through components on pricing going forward?

A: We are investing in R&D to introduce the most innovative products in the market. We are also spending on marketing and advertising, opening and expanding our own retail stores and indirect channels. Also investing in infrastructure and stock based compensation for our employees. We’re thinking about the long term and confident in our returns.

For the quarter we just finished, components were better than planned. This helped us exceed our guidance. Displays and NAND Flash growth drove most of the favorable cost benefit. In June, NAND and mobile DRAM supply continue to exceed demand. We expect pricing to continue to be favorable. Displays will stabilize as supply/demand become in balance. Hard drive is coming into supply/demand balance. Most components are expected to fall in-line or faster than previous trends.

Q: How much conservatism is in your gross margin guidance?

A: The 2/3rds of the sequential decline is seen to be driven by a higher mix of iPads and Macs, a full quarter of selling the current iPad lineup, and a loss of leverage in dropping revenue.

Q: On the enterprise side, you mentioned about how the iPad is being taken into new markets and verticals. What resources is Apple dedicating to having a direct relationship with the enterprise?

A: Our focus was initially on working with Fortune 500 and the Global 500 to get the iPad certified for their particular enterprise. I’m pleased to report that 95% of the Fortune 500 is testing or deploying iPad and 75% of the Global 500 doing the same thing. We are moving our focus away from this and focusing on penetration within these accounts. They span across many verticals through government, through education and many different functions within the enterprise. It’s the most broad-based product I have ever seen in terms of adoption rate into the enterprise. We are applying more resources and salespeople to interact with these customers. We are also working with carrier partners and resale partners to sell to these customers.

Q: Comments around gross margin and guidance, I expect iPhone sales down 10 million sequentially. Just being conservative on that?

A: We are incredibly confident in our business, strategy and what we’re doing. Giving guidance, its what we have reasonable confidence in achieving. We do expect a drop in iPhone sales giving that we’ve built 2.6 million units of channel inventory in the March quarter, and we entered the March quarter with significant backlog. We’ve fulfilled that and launched 20 new countries. We have immense confidence in what we’re doing and we’re pleased with how our business is performing.

Q: iPad is supply constrained across many geo’s, is there a specific component issue? When do you expect to meet demand?

A: Hard to answer that. We will be able to supply a significant number of iPads during the quarter. Feel confident about that. Tough to know precisely that it will balance until you get there. We’re very confident with improving supply and that the total number will be very significant.

In a new ruling today, the U.S. International Trade Commission said Apple’s violating one of Motorola’s patents in its iPhones and iPads.