Richard Waters Closed Live blog: Apple’s third quarter earnings call

CEO Tim Cook sought to dispel Wall Street’s worries about falling profit margins, as Apple reported a jump in sales of older iPhone models to the emerging world. He also tried to shrug off a surprise 43 per cent sequential drop in revenues from China as a one-quarter blip that would have no bearing on huge growth still to come there.

Our live blog of Apple’s third fiscal quarter earnings call as it unfolded is after the jump.

The last time Apple’s stock price got a lift from earnings was five quarters ago, so the 5 per cent after-market pop that’s followed these latest figures feels long overdue. It looks more of a relief rally than anything else, though: the stock has been off in recent days ahead of these numbers as Wall Street got worried about Apple’s profit margins.

Here’s the FT’s Tim Bradshaw on the latest Apple figures: Strong iPhone sales as the 4 continues to sell well, but iPad volumes look light.

The conference call’s getting underway. Besides Tim Cook, Peter Oppenheimer, the CFO, will be on the call, along with Apple’s treasurer.

Oppenheimer runs through the numbers. Revenues and margins were both at the high end of Apple’s guidance range for the quarter, he points out. There was a time when Apple blew through its quarterly forecasts, though those were the days when it gave far more conservative forecasts than the supposedly “realistic” projections it hands down these days.

iPhone: Apple was left with 4-6 weeks of channel inventory at the end of the quarter, says Oppenheimer. The 5 got a very strong start in Japan, with sales up more than 50 per cent. A survey of customer sentiment shows Apple buyers are still extremely loyal to iPhone when upgrading, he says.

iPad: the comparisons with last year, when a new model came out in the quarter, were challenging. Inventory factors also accounted for some of the decline in sales from a year before, says Oppenheimer. iPad units were down to 14.6m from 17m the year before, though the decline would have been only 3 per cent after adjusting for inventory changes, he adds.

Macs: sales volume fell 7 per cent year-on-year to 3.75m, which was below what some analysts had expected. But the Apple CFO hasn’t missed the chance to compare that performance to the much bigger fall in the PC market over the same period.

Retail stores: revenue was pretty much flat compared with a year ago. But average revenue per store fell (when did that last happen?) – down to $10.1m per store, a full $1m lower than a year before

Cash and investments: Ended the quarter at $146.6bn, up $1.9bn on the quarter. Apple spent $16bn on share repurchases.

And now the all-important outlook: Apple is forecasting an unusually wide range for revenues in the present quarter of $34-37bn. That’s below what Wall Street had been expecting but investors are used to the company low-balling on the numbers so that shouldn’t hurt sentiment too much.

The gross margin forecast, at 36-37 per cent, is unchanged from the last quarter, and suggests the margin might slip a bit from the 36.9 per cent of the last quarter.

And now to questions: first, what can you say about new products coming later this year?

Oppenheimer predicts a busy October but otherwise ducks the question. So it’s official, nothing new coming in time to lift sales in the current quarter.

A question about whether Apple will be able to retain a premium margin in smartphones: Tim Cook says he doesn’t think the premium part of the market has peaked and says that there are still some good prospects for growth.

Incidentally, selling prices in the latest quarter look like they’ve come down further than some analysts were expecting. The average selling price of iPhones fell to $581, from $607 a year before, while iPad ASPs fell even faster, from $515 to $436. Older, cheaper models are selling strongly, along with the iPad mini.

A question about selling prices and why they came down so much. Oppenheimer says iPhone 4 sales accelerated as the company offered cheaper handsets in emerging markets. Cook says Apple India was up 400 per cent, Philippines up 140 per cent – and that in many markets iPhone sales accelerated from the previous quarter, which was welcome.

On why China sales were weak: after adjusting for the inventory changes, things weren’t so bad, says Cook. In mainland China, sales were actually up, by about 5 per cent. But Hong Kong fell 20 per cent, which pushed overall China sell-through down by 4 per cent.

Cook says the underlying health of Apple’s China business is still sound, that demand for the iPad is very strong, that store opening plans remain on track, etc. He admits the iPhone and iPad aren’t where Apple wants them to be but there’s still a “huge opportunity”. His conclusion: “I don’t get discouraged over a 90-day kind of cycle.”

Russia: Cook says more than 80 per cent of iPhone sales in Russia come through retail stores, not carriers, but that’s just a characteristic of the market, not a sign of deteriorating relations with carriers. Sales have been very good there, he says.

Components: DRAM prices have increased and likely to rise further despite the weak PC market. Other component prices are either in supply/demand balance or coming down, so overall costs expected to fall, says Cook.

Cook repeats his familiar mantra: We believe if we produce great products, the financial results will follow. He is dodging questions seeking to draw him out about the likely timing or pace of product launches later this year. There’s nothing on this call so far that gives any clue about what’s ahead – only that it won’t come until October at the earliest.

Cook ends with a comment about how car makers are an important part of the ecosystem for Apple, and the call is over.

Anyone who came to the Apple call hoping for confirmation that a new low-priced, plastic iPhone would be coming later this year – or, indeed, for confirmation of anything at all on the new product front – would have been sorely disappointed. But the Apple executives all but promised they’d have something new to show in October. Meantime, the older iPhone 4 is selling like hot cakes in the emerging world as Apple opens up it distribution channels in countries like India, Turkey and the Philippines. And while that is bringing average selling prices down, they aren’t falling that much: there was a 4 per cent decline in iPhone prices, for instance, from a year before. Tim Cook claimed this points to a large and growing premium segment in the smartphone market for a long time to come, but there wasn’t much here to ease Wall Street’s fears of further profit margin erosion ahead.