FORTUNE — Apple beat Wall Street’s estimates pretty much across the board — in sales, profits and units shipped. Earnings were down for the third quarter in a row, but that was as expected.
Apple closed at $529.88, up $3.92 (0.74%) for the day, but fell sharply in after hours trading. Traders may have been reacting to guidance for the December quarter that was slightly more conservative than expected: Revenue between $55 billion and $58 billion, gross margins between 36.5% and 37.5%.
By the end of the earnings call, the stock had recovered and was down less than $1. That gross margin figure looked better to analysts once they realized it included $900 million in deferrals.
“We generated $9.9 billion in cash flow from operations and returned an additional $7.8 billion in cash to shareholders through dividends and share repurchases during the September quarter, bringing cumulative payments under our capital return program to $36 billion,” said Peter Oppenheimer, Apple’s CFO.
The numbers:
Sales: $37.472 billion, up 4.2% year over year.
Net profit: $7.5 billion, down 8.8%
EPS: $8.26, down 4.7%
iPhone: 33.797 million units, up 25.6%
iPod: 4.498 million units, down 34.5%
iPad: 14.079 million units, up 0.3%
Mac: 4.575 million units, down 7.1%
iTunes/Software/Services: $4.3 billion, up 22%
Gross margin: 37%
Revenue guidance: $55-58 billion
Gross margin guidance: 36.5%-37.5%
Cash and marketable securities: $146.8 billion
Tune in here to listen in, with us, to Apple’s conference call with analysts. Commentary below the fold.
4:57 p.m. The atonal piano music they’re playing while we wait is pretty somber. You’d think the results were worse than they are.
5:02: Tim Cook piles on the adjectives as he gives the fiscal year numbers. Strong. Incredible. Relentless. Extraordinary. Colorful. Powerful. Stunning. Dramatically thinner. Deep collaboration. Great. Breakthrough.
Trademark this line: “All of these are products that only Apple could have delivered.”
15 acquisitions this year! Not sure we’ve heard of half of those.
Touches on capital return program, talks about actively seeking input from outsiders (that’s a nod to Carl Icahn, which may be all he gets from Cook).
Global penetration of smartphone only 50%, he says. Recites numbers (IDG’s? Gartner’s) about projected growth of the smartphone and tablet markets.
5:08 Peter Oppenheimer reads from the results. These are in the press release.
iPhone channel inventory is lower than usual, as to be expected with iPhone 5S in shortage.
Claims both iPhone and iPad sales exceeded expectations. Channel inventory is at par.
A lot of quoting from 3rd party surveys on satisfaction, enterprise activations, usage. Examples of the field: Doctor Pepper, ball bearings, etc.
Perhaps not politic to mention the LA school system’s purchase of all those iPads that have been so problematic.
Mac sales also “exceeded expectations” although the fell year over year. Apple’s market share did grow, however, because the other PC makers did worse.
A lot of repetition of stuff we heard last week. This is the 3rd time we’ve heard about Mavericks.
Cash and marketable securities grew only $100 million to $146.8. The cash it spins off it’s pouring into stock buybacks and dividends.
He lost me on the deferred revenue stuff.
5:24 Call is opened to questions.
Katy Huberty is surprised by the gross margin guidance is so low. What are the headwinds?
Oppenheimer: He emphasizes that its nearly flat sequentially. A few factors: higher deferred revenue in software; richer mix of iPads. fx headwinds from Yen, new macs have higher costs.
Asks Cook why all these features in iPhone 5S — what are they for?
Cook: Front end of a long roadmap. Both the 64 bit chip and Touch ID. Takes opportunity to mention 9 million sold.
Bill Shope: How is the 5C selling in emerging markets?
Cook: 4S is entry, 5C is mid-tier, 5S high end. Our goal is to have each category grow compared with previous phones in those spaces. That’s how we measure success. We do need growth, and we’re happy that we see that.
Rumors that 5C would be entry level were wrong. Entry level is 4S. Sold a lot of 4 in emerging market. Hoping that will continue with 4S.
5:31 Toni Sacconaghi: Wants to know where the new product categories he promised in the 2nd half of 2013 and first half of 2014 he promised in April are.
Cook: Denies that he said that. Promised products, not categories.
Regarding new categories, emphasizes Apple’s skills and his confidence that Apple can do things in new categories.
He’s dancing around that, as you would expect.
Toni asks about iPhone pricing and price elasticity: Price points are higher across the board. Why you didn’t keep the iPhone 4?
Cook: The iPhone 4S replaced the 4. That’s that. We understand that there is elasticity in that market and we will move accordingly.
Ben Reitzes: Congrats on growing in China. Opens door for Cook to mention China Mobile.
Cook: Doesn’t sound like he’s going to take the bait (to mix a metaphor). Talks about launching earlier, building a new store.
Reitzes: Wants clarity on revenue deferrals and gross margins. I’m tuning this out.
Oppenheimer: If it weren’t for $900 million deferrals, the GM guidance would have been higher.
5:42 Gene Munster: So 38.5% GM midpoint if it weren’t for deferral? Yes.
Ask about costs of making iPhones.
Oppenheimer: We’ll work hard to drive down the cost curves, as always.
Munster: Are iPads getting upgraded every 3 years rather than 2 years?
Cook: Not focused on unit share. Loyalty, customer sat, etc. All he’ll promise is that sales will grow every year.
“I think it’s going to be an iPad Christmas.”
Shannon Cross: Why OS X and iWorks free.
Cook: Wanted iWorks to be part of what it is to own a Mac. “Bold move of making it free.”
Cross: React to Google Docs entry into education.
Cook: We had our best education quarter ever. Mac up 8% in schools. We do see some Chromebooks, but vast majority are buy PC/Mac or an iPad. Our share of tablets in education is 94% — unheard of.
Steve Milunovich: Asking about supply issues and component costs.
Cook hasn’t given anything away. RAM and DRAM up last quarter.
Mark Moskowitz: Asks about 14 million iPhone inventory. Seems high to him.
Cook: We were at the low end of our range before. Remember that China and DoCoMo meant we needed to fill more stores. Of the 14 million, 1.8 million were in transit, so not in channel.
Moskowitz: Do you have a better handle on meeting demand than you did last year?
Cook: Too early to say about the iPads. Suggests there may be shortages on Nov. 1. Mentions the iMac problem last year when they shipped too late. He doesn’t envision that happening this year. Feels great that Mac and iPad grew quarter over quarter this year.
Missed the name: Asking about average sales prices, which were down 7%, I believe. And carrier subsidies. Are they sustainable?
Cook: Carriers like to sell as many units as they can. Doesn’t see that changing. Some carriers are going annually. Those probably reduce the subsidies overall.
And that’s a wrap.
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