Apple shared its quarterly earnings results yesterday, and while iPhone and Services are soaring, not all of its products were faring so well. 

Sharing the second quarter results of its fiscal year 2023 that ended on April 1st, Apple revealed a quarterly revenue of $94.8 billion, down 3% year over year.

Despite being down year over year, CEO Tim Cook revealed all-time records helped maintain the quarter. He said, "We are pleased to report an all-time record in services and a March quarter record for iPhone despite the challenging macroeconomic environment and to have our installed base of active devices reach an all-time high,"

 “We continue to invest for the long term and lead with our values, including making major progress toward building carbon neutral products and supply chains by 2030.”

So it looks like services like Apple TV Plus and Apple Music continue to be a golden egg for Apple as more and more customers turn to subscription models. And there are many reasons to, you can check out our guide to the best Apple TV Plus shows for yourself. 

In a follow-up interview with CNBC, he also confirmed that, unlike other tech giants like Meta and Alphabet, Apple isn't considering any cuts. Cook said, "I view that as a last resort and, so, mass layoffs are not something that we're talking about at this moment,"

Apple earnings Q2 2023: It's not all good news

While Services and iPhone revenue were soaring, it looks like it wasn't all roses, with the company being hit hard in Mac and iPad revenues. With the pandemic slump and the cost of living crisis hitting the globe, PC sales have been drastically impacted, with Apple getting the worst. 

Cook thinks there are a couple of reasons for the loss in revenue, "One is the macro situation in general. And the other is where we're still comparing to the very difficult compare of the M1 MacBook Pro 14 and 16-inch from the year-ago quarter." 

With potential new Macs on the horizon, like the 15-inch MacBook Air, there could be further interest in the Mac very soon. However, the company also revealed iPad revenue was down 13%. With a much-needed iPadOS 17 update likely to be announced at WWDC on June 5, it looks like Apple will need to do something exciting to make customers want to upgrade their iPads.

While the earnings call could be seen as a huge success or a minor failure, depending on who you ask, it's an excellent time to be an Apple fan as many exciting updates and hardware reveals, like Apple VR, could be just around the corner.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q1 2022 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out these excellent charts from Six Colors.

Cook's opening remarks

Tim Cook

Thank you, Tajius, and good afternoon. Today we are proud to announce Apple's biggest quarter ever. Through the busy holiday season, we set an all time revenue record of nearly $124,000,000,000, up 11% from last year and better than we had expected at the beginning of the quarter, And we are pleased to see that our active install base of devices is now at a new record with more than 1.8 billion devices. We set all time records for both developed and emerging markets and saw revenue growth across all of our product categories except for iPad, which we said would be supply constrained. As expected, in the aggregate, we experienced supply constraints that were higher than the September quarter. Before I discuss our results in greater detail, I want to first acknowledge the toll that COVID continues to have on communities around the world. In many places, case counts are higher and health systems more strained than at any point throughout the pandemic. On behalf of all of us at Apple, I want to extend our deep gratitude to the scientists, doctors, nurses and so many others on the front lines of combating COVID-19. This is our 8th quarter reporting results in the shadow of the pandemic, and while I can't say it gets any easier, I can say I'm incredibly proud of the way our teams have come together and continue to innovate on behalf of our customers.

A few weeks ago, we marked the 15th anniversary of the day Steve revealed iPhone to the world. We knew that we had the beginnings of something fundamentally transformative. Though none of us could have predicted the incredible and meaningful impact it would have on all of our lives. The creative spirit that made the first iPhone possible has thrived at Apple every day since. We never stop creating, we never stop innovating. You can see that spirit reflected throughout our products from the incredible performance and capability of our M1 chips, to our powerful yet easy to use operating systems, to our unrivaled iPhone camera systems, to the beauty and magic of AirPods. That's why each of our major products leads the industry in customer satisfaction for their respective category. People expect Apple to solve hard problems with easy to use products. An iPhone has never been more popular. During the December quarter, we set an all time revenue record for iPhone thanks to the strength of our incredible iPhone 13 line up. This is the best iPhone line up we've ever had and the reaction from the press and our users have been off the charts. This past quarter, we also set another all time revenue record for Mac with customers eager to get their hands on an M1 powered MacBook Air, iMac, or MacBook Pro.

We've been thrilled with the response from Pro users to the M1Pro and M1 Max chips and to see how Apple silicon is blowing them away with its power, performance and efficiency. Despite the constraints I mentioned earlier, our iPad lineup continues to be indispensable to tens of millions of people, from teachers and students to artists and creators. Customers are eager to get their hands on our 9th generation iPad which features a beautiful display and double the storage capacity as well as the new iPad mini with its ultra portable design. Wearable home and accessories meanwhile set an all time revenue record. Customers are loving the Apple Watch Series 7 with its cutting edge, health and fitness tracking features. Nearly every day I get notes from customers who share how a heart alert led to a life saving appointment with a cardiologist. And more recently I've been hearing from people who tell me that their Apple Watch saved their lives by calling 911 when they couldn't. As I've said, we're still in the early innings with our health, but every day I am encouraged by our positive impact. We are also making great advancements in audio and are seeing strong demand from customers as a result.

The HomePod mini continues to earn praise for combining the intelligence of Siri with an immersive, room filling audio experience. And our customers have responded with a lot of excitement to the magic of Spatial Audio on AirPods, which packs the acoustics of a concert hall. As always, the deep integration of hardware, software and services is a hallmark of everything Apple makes. It's a principle you can see at work in the introduction of SharePlay, a feature that offers a whole new way to create shared experiences by letting users watch and listen to their favorite content together on FaceTime. And we continue to invest in innovation across our services business, which set another all time revenue record last quarter and performed even better than we had anticipated. The App Store continues to be an economic miracle for developers around the world and a safe and trusted place for consumers to discover their favorite apps.

Since its launch, we have paid developers selling digital goods and services more than $260,000,000,000, with 2021 setting a new record for their earnings. I'm also happy to report that in its first two years, Apple TV+ shows and movies have earned 200 award wins and more than 890 nominations. Among the powerful lineup are feature films like The Tragedy of Macbeth, Coda, and Swan Song, along with many gripping new series coming up, including Severance and The After Party. Each one is a tremendous credit to all the storytellers in front of the cameras and behind them who touched audiences all over the world.

Fitness+, meanwhile, continues to inspire customers to reach their health and fitness goals. We recently introduced Time to Run, an extension of our popular series Time to Walk, as well as new collections of workouts and meditations to help users make more intentional training choices. Despite the pandemic, our retail businesses saw its highest revenue in Apple's history, and we also earned our highest ever customer satisfaction scores. That is a testament to the incredible adaptability our teams have shown as we've reimagined retail experience. I also want to take a moment to thank our retail employees and Apple Care teams for the deep care you've given to our customers as they look to get the most out of our products, learn new skills, or track down the perfect gift. We have always led with our values and with compassion and care, and never has that been more needed than during the pandemic.

Last quarter, we celebrated 10 years of our Employee Giving program, which we started to help our employees identify and support the causes they care most deeply about. We pledge to match their contributions to organizations doing important work at every level, from their local food pantry to global humanitarian nonprofits. In the last decade, this program has contributed nearly $725,000,000 to charitable organizations. We also celebrated 15 years of Apple's partnership with the Global Fund on Project Red, supporting their life saving work to expand healthcare services in SubSaharan Africa for people living with HIV AIDS. With the support of our customers, we've now raised nearly $270,000,000 to fund prevention, testing and counseling services for people impacted by HIV AIDS.

And in keeping with our abiding belief in and commitment to education, we also launched a new partnership with the Boys and Girls Club of America. This initiative will help young people across the US learn to code on iPad using our Everyone Can Code curriculum and we are continuing to drive innovations to help combat climate change. We are already carbon neutral across our own operations and we are working intensely to meet our 2030 goal of carbon neutrality across our supply chain and the life cycle of our products. To celebrate Black History Month, we will be releasing a special edition Apple Watch Black Unity Braided Solo Loop and a matching Unity Lights watch face. And through our Racial Equity and Justice Initiative, we are continuing to support organizations blazing trails to a more equitable world in our economies, our classrooms and our criminal justice system.

We recognize as ever that it takes all of us to confront our most profound challenges and at Apple, we are determined to do our part. That includes our own work in inclusion and diversity, which we are advancing every day. Let me close by saying that despite the uncertainty of the world, there is one thing of which I am certain: Apple will continue to innovate every day and in every way to deliver on the promise of technology at its best. I will now turn it over to Luca to go over our quarterly results in more detail.

This story is developing...

Luca Maestri's detail on the quarter

Luca Maestri

Thank you, Tim and good afternoon, everyone. We are very pleased to report record financial results for the December quarter. We set an all time revenue record of 123.9 billion and 11% increase from a year ago. We reached new all time records in the Americas, Europe, greater China, and the rest of Asia Pacific, and it was also an all time record quarter for both products and services. The product side revenue was 104.4 billion, up 9% over a year ago. Despite significant supply constraints, we grew in each of our product categories except iPad, where supply constraints were particularly pronounced, and set all time records for iPhone, Mac and wearable and home accessories. The strong level of sales performance, the unmatched loyalty of our customers, and the strength of our ecosystem have driven our current installed base of active devices to a new all time record of 1.8 billion devices.

The growth in the installed base was broad based as we set all time records in each major product category and in each of that segment. Our services set an all time revenue record of 19.5 billion, up 24% over a year ago, with December quarter records in average geographic segment. Company gross margin was 43.8%, up 160 basis points from last quarter due to volume leverage and favorable mix, partially offset by higher cost structures. Product gross margin was 38.4%, up 410 basis points sequentially, driven by leverage and makes services. Gross margin was 72.4% of 190 basis points sequentially, mainly due to a different mix.

Net income of 34.6 billion and diluted earnings per share of $2.10 both grew more than 20% year over year and were all time records. Operating cash flow of 47 billion was also an all time record. Let me get into more detail for each of our revenue categories. iPhone revenue grew 9% year over year to an all time record of 71.6 billion despite supply constraints. Thanks to a remarkable customer response to our new iPhone 13 family, we set all time records in both developed and emerging markets, reached an all time high in the iPhone active installed base and the latest survey of US consumers from 451 research indicates iPhone customer satisfaction of 98%.

For Mac, revenue of 10.9 billion was an all time record, with growth of 25% year over year, driven by strong demand for our newly redesigned MacBook Pro powered by M1. Despite supply constraints, we are one year into our transition to Apple silicon, and already the vast majority of our Mac sales are from M1 powered devices, which helped drive a record number of upgraders during the December quarter. Our momentum in this category is very impressive, as the last six quarters have been the best six quarters ever for Mac.

iPad generated 7.2 billion in revenue, down 14% year over year due to very significant supply constraints, but customer demand was very strong across all models. Despite the supply shortages, our installed base of iPads reached a new all time high during the quarter, thanks to a high number of customers that are new to iPad. In fact, around half of the customers purchasing an iPad during the quarter were new to the product. Wearable and home accessories set a new all time record of 14.7 billion up 13% year over year and we set all time revenue records in each geographic segment. We also continue to improve and expand our product offerings in this category to create unique experiences showcasing our deep integration of hardware, software and services. In addition to an outstanding level of sales performance globally Apple Watch continues to extend its reach with over two thirds of customers purchasing an Apple watch during the quarter, being new to the product.

Turning to services as I mentioned we reach an all time revenue record of 19.5 billion up 24% with all time records for cloud services, for music, video, advertising and payment services and a December quarter record for the App Store. These impressive results reflect the positive momentum we're seeing on many fronts.

First, as I mentioned before our installed base has continued to grow and has reached an all time high across each geographic segment and major product category. Next we continue to see increased customer engagement with our services. The number of paid accounts on our digital content stores grew double digits and reached a new all time high during December quarter in every geographic segment.

Also paid subscriptions continue to show very strong growth. We now have more than 785,000,000 paid subscriptions across the services on our platform, which is 165,000,000 during the last twelve months alone. And finally we're adding new services that we think our customers will love and we continue to improve the breadth and quality of our current service offerings. Just in this last quarter we have added incredible new content on Apple TV+ on Fitness+ and Apple Arcade and a brand new way to listen to music with Apple Music Voice. We also announced in November the beta program for Apple Business Essentials.

Apple Business Essentials, a new service offering that brings together device management, 24/7 support and iCloud storage to help small businesses manage the End-to-End lifecycle of their employees' Apple devices. We are very excited the many thousands of small business customers are already actively participating in the beta program. This announcement is just one of many ways we're expanding our support for enterprise and business customers with the latest MacBook Pros that we've introduced last October. The new M1 powered Mac lineup has quickly become the preferred choice of Macs among enterprise customers. Shopify, for example, is upgrading its entire global workforce to M1 powered MacBook Pro and MacBook Air. By standardizing on M1 Macs, Shopify continues its commitment to providing the best tools to help its employees work productively and securely from anywhere. And the Lloyd Consulting is expanding the deployment of the Mac Employee Choice program, including offering the new M1 MacBook Pro to empower their professionals to choose devices that work best for them in delivering consulting services.

Let me now turn to our cash position. Due to our strong operating performance and holiday quarter seasonality, we ended the quarter with 203,000,000,000 in cash plus marketable securities. We decreased commercial pay for 1 billion, leading us with total debt of $123,000,000,000. As a result, net cash was 80 billion at the end of the quarter. Our business continues to generate very strong cash flow and we were able to return nearly 27 billion to shareholders during the December quarter. This included 3.7 billion in dividends and equivalents and 14.4 billion through open market repurchases of 93 million Apple shares. Our business continues to generate very strong cash flow and we're also able to return nearly 27 billion to shareholders during the December quarter. This included 3.7 billion in dividends and equivalents and 14.4 billion through open market repurchases of 93 million Apple shares. We also began 6 billion accelerated share repurchase program in November, resulting in the initial delivery and retirement of 30 million shares. As we move ahead into the March quarter, I'd like to review our outlook, which includes the types of forward looking information that Tejas referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we're not providing revenue guidance, but we are sharing some directional insights based on the assumption that the Covid-related impacts to our business do not worsen from what we are projecting today for the current quarter.

We expect to achieve solid year over year revenue growth and set a March quarter revenue record despite significant supply constraints, which we estimate to be less than what we experienced during the December quarter. We expect our revenue growth rate to decelerate from the December quarter, primarily due to two factors.

First, during the March quarter a year ago we grew revenue by 54%. Remember that last year we launched our new iPhones during the December quarter, while this year we launched them during the September quarter. Due to the later launch a year ago. Some of the associated channel inventory sale occurred during the March quarter last year. As a result of the different launch timing, we will face a more challenging year over year compare.

Second, we expect foreign exchange to be a three point headwind when compared to the December quarter growth rate. We currently expect effects to have a negative impact on growth of two points in the March quarter. While you represented a one point benefit during the December quarter. Specifically related to services, we expect to grow strong double digits at decelerate from the December quarter performance. This is due to a more challenging compare because a higher level of lockdowns around the world last year led to increased usage of digital content and services.

We expect gross margin to be between 42 and a half percent and 43 and a half percent. We expect optics to be between 12.5 billion and $12.7 billion. We expect O and e to be around negative 150,000,000 excluding any potential impact from the Mark to market of minority investments and our tax rate to be around 16%.

Finally, today our board of directors has declared a cash dividend of $0.22 per share of common stock payable on February 10, 2022 to shareholders of record as of February 7, 2022. And with that, let's open the call to questions.

Analyst questions

Wamsay Mohan, Bank of America

Yes, thank you. Your margins have clearly been very impressive. So I have one question each on product and one on services gross margins on product gross margins that's clearly benefiting from a very strong mix. So, Tim, I'm curious, how sustainable do you think these mixed trends are from the data that you see? And can you share any thoughts across how the Pro and Pro Max mix compared to prior cycles. And on the services side, if I could just ask that too, when you look at the gross margins there, that's been really impressive. Can you give us some sense of where within services you're seeing particularly favorable mixed trends? And how should investors think about the trajectory of these margins given some of the size of the investment you're making to drive very successful areas like content for TV+ as an example. Thank you.

Tim Cook

Wamsay. It's Tim. In terms of the mix, we don't comment directly on mix, but what I would tell you is that we saw strong demand across the iPhone 13 family. And in fact, we had several of the top selling models in various markets, including the top five in the US and Australia, the top four in urban China, two of the top three in the UK, three of the top four in France and Germany, and four of the top six in Japan. And certainly based on some external data that I've seen, it does seem to say that we are gaining share as well. So we feel quite good about the momentum of iPhone. And I should add that we were constrained during the quarter.

Wamsay Mohan, Bank of America

On the services side, you were asking about gross margin there. As you know, our services business in aggregate is a creative to overall company margin. And as you know, our services portfolio is very broad and it contains businesses with very different margin profiles. The difference in margin profile is due in part to the nature of those businesses and in part to the way that we account for them. In some cases, we account on a net basis as opposed to a gross basis. And so as a result, the services gross margin percentage over time will be influenced by the relative growth of the different businesses within the portfolio. We do not guide at the product and services level, but I think you've seen the guidance that we provided for the March quarter at the total company level, 42 and a half to 43 and a half percent, obviously very strong compared to our recent history. So we're very pleased with that.

Kyle McNealy, Jeffries

Hi. Thanks very much. Congrats on the solid iPhone result. That's very good. I assume that you may have prioritized iPhone to the extent there may be similar components that are used for iPhone and iPad. Can you just level set me on that if that's not the case? And if it is, should we see a recovery in iPad as you move past your prime iPhone selling season and you may have better access to components or better supplies? We moved through the next few months of the year.

Tim Cook

Yeah, Kyle, it's Tim. From a supply constraint point of view, as you recall, we said in Q1 the December quarter that we would have constraints more than six and we clearly did have constraints more than six. For March, we're saying that we will do better or have less constraints than we had in the December quarter. If you look at the commonality between differences there is some, but generally the challenge is on legacy nodes and these legacy nodes are by supplier and so it's much more focused on the supplier than anything else versus us behind the curtain, finding a place to take it. There's not none of that, but there is some of that but largely we have to take it where the shortages are.

Kyle McNealy, Jeffries

Okay, great. Can you give us any other color on kind of the trajectory of iPad and what's impacting this quarter and where it might go in the March and the June quarter?

Tim Cook

Yeah, the issue with iPad and it was a very significant constraint in the December quarter was very much on these legacy nodes that I had talked about. Virtually all the problem was in that area and so overall, we're not guiding by product constraints by product level, but overall we do see an improvement in the March quarter in terms of the constraints going down versus what they were in the December quarter.

Kyle McNealy, Jeffries

Great. Thanks very much. Congrats again on the results all around.

Shannon Cross, Cross Research

Thank you very much. Tim, could you talk a bit about the Mac business? Looking back it's up about from the calendar 2019 revenue, you did almost 11 billion this quarter and you're still working through the M1 transition. So, you know, he's talk about where you see the opportunity to gain share, what are really sort of the target markets that you think you can go after in order to grow this beyond. I think it was about 37 billion in the last twelve months. Thank you. And then I have a follow up.

Tim Cook

Yeah. Shannon, thank you for the question. Macs set an all time revenue record at 10.9 billion for the quarter. That was up 25%. And as you point out, the last six quarters for the Mac have been the top six revenue quarters of all time. And what's further very good about this is we set all time revenue records in America, in Europe and the rest of Asia Pacific, and we set a December quarter record in greater China. And so it's not narrowed to a particular geographic area that we're doing well in. It's almost across the board. The response is very much because of M1. And we got even more response with the MacBook Pro that we launched during the Q1 time frame. Both the upgraders, which we had a record number of upgrades for the December quarter, but also in markets like China, 6 out of 10 are to people new to the Mac and powered by both upgraders and switchers. Customer satisfaction is off the charts. And so what I see this as is a product that will be very successful in a number of different markets, from education to business to the creative industry and in all geographic markets. We're not limiting ourselves.

Shannon Cross, Cross Research

Great. Thank you. And then, Luca, can you talk a bit more on services, just obviously outperformed your guidance or your expectations as well as certainly where we were at, what were the things that really outperformed and maybe what trends are you seeing that is driving the extra revenue? Thank you.

Luca Maestri

Yes, Shannon, it was really great on our front. We set December quarter records in every geographic segment. And then, as I mentioned earlier, an all time record for cloud, for music, for video, for advertising, for payment services, December quarter record in the App Store. So we've done, as you said, better than we were expecting at the beginning of the quarter. This over performance has been spread around the world and spread around our services categories. And the reality is this combination of factors, the fact that install base is growing, the fact that we continue to have more and more engagement of our customers on all the services. Paid subscriptions is a phenomenal story. Right. We now have 785,000,000 paid subs, we've increased 165 million in the last twelve months alone. Right. And so all these things combined are really powering the business. Very pleased with the performance.

Shannon Cross, Cross Research

Ok. Thank you.

Katy Huberty, Morgan Stanely

So first question, just as it relates to some of the disruption you've seen on the component side, manufacturing and logistics over the past couple of years, are you starting to rethink your broader supply chain strategy or the manufacturing footprint on the back of the significant disruption? Are you happy with the overall geographic exposure that you see in the supply chain today?

Tim Cook

Katie, if you sort of step back and look at how we've done, our largest issue by far has been the chip shortage that is industry wide and on these legacy notes, as I had mentioned earlier and I think our supply chain actually does very good considering the shortages because it's a fast moving supply chain. The cycle times are very short. There's very little distance between a chip being fabricated and packaged and a product being going out of factory. No, I don't see that it makes a fundamental change in the supply chain.

Katy Huberty, Morgan Stanely

Okay. Thank you. And how are you thinking about the Metaverse opportunity and Apple's role in that market?

Tim Cook

Well, that's a big question, but we're a company in the businesses innovation so we're always exploring new and emerging technologies and I've spoken at length about how it's very interesting to us right now. We have over 14,000 AR Kit apps in the App Store which provide incredible AR experiences for millions of people today. So we see a lot of potential in this space and are investing accordingly.

Katy Huberty, Morgan Stanely

Thank you. Congrats on the quarter.

Tim Cook

Thanks so much.

Amit Daryanani, Evercore

Thanks for my question. I have two as well. I guess most of the supply chain side, I think things continue to be fairly volatile. I'd love to get your perspective if you feel if things or supply chain issues are starting to alleviate or they still remain challenging. And then maybe I missed this, but could you perhaps tell us how much revenue was left on the table in December because the supply chain issues and how does that number shake up in March?

Tim Cook

Yeah. What we've said in terms of December and March was that it was very difficult to estimate with great precision constraints. But we said that they would be more than the Q4 or more than the September quarter. And we're saying that March will be less than the December quarter. And so that's the kind of verbiage that we place around it in terms of is it still challenging? Yes, it is challenging. And for us, we pride ourselves on getting products to customers who really want them and try to do that in a fast basis. And so it's frustrating that we can't always do that at the speed that we would like. However, March is better than December, and so there's some encouraging sign there. We're not predicting overall, obviously, because of the number of variables that go into such a prediction.

Amit Daryanani, Evercore

Fair enough. I think one of the topics investors can struggle a fair bit with Apple is really just trying to understand visibility around your product roadmap. And I think some of your tech peers tend to be more vocal about the initiative. Some of them go change their name when they find the initiative that's attractive. I feel you folks are spending, I think, 23 billion on R&D in 21. So you're only spending a fair amount. And maybe without telling us the roadmap, could you talk about how do you think about where to focus your R&D resources on and to some extent, is the way to think about this R&D spend, how much of it is really done on things that are more evolutionary on products that are out in the marketplace versus things that we haven't seen yet on potential new offerings?

Tim Cook

We have a little different model. We try to announce things when they're ready or close to ready and try to maintain an element of surprise in there that explains hopefully what we do with our roadmap. And I think that's proven successful for us. And other people can do it differently, of course, but it's proven good for us over time to do that. So we're going to continue to do that. In terms of deciding where we invest in, we look at areas that are sort of at the intersection of hardware, software and services, and because we think that that's where the magic really happens and it brings out the best in Apple and so there are areas that have more than piqued our interest and we are investing in those and you can tell through time that we've ramped our R&D spend even more than we were before and so there's quite a bit of investment going into things that are not on the market at this point as there always are. Thanks for the question.

Amit Daryanani, Evercore

Thank you.

David Voit, UBS

Thanks for taking my call. And my question. I just wanted to dive in and get your perspective on China And sort of the macro climate there and how that sort of pertains to your business as we think about it going forward. And the reason why I'm asking is we've heard some concerns that current policies might have caused a pause in this market and smartphone inventory. Maybe more specifically, the local vendors could be a little bit elevated Going into Chinese New Year. We just love to get your thoughts on what you're seeing in this market around this sort of potential development and then maybe touch on selling versus sell through in that market and then I have a follow up.

Tim Cook

Well, I can only comment on for us our sales grew 21% there in the last quarter and we're very proud of that. I'll stay away and let other people be the economist and make the macro determinations. But what we're seeing there was super impressive with all time revenue records and a record number of upgraders and strong double digit growth in switchers on iPhone, which is very important to us. And as I mentioned before, we had the top four selling phones in urban China and so there's a lot of good there and I would remind you that iPhone was constrained in the quarter and so I'm not sure where the statements are coming around about inventory. And I can't comment on whether other people have more or not. I don't know the answer to that.

David Voit, UBS

And then maybe, just maybe just on the supply chain. Obviously, you've been managing it incredibly well the last 12 to 18 months. And gross margins have actually performed relatively well, mixed driven both between products and services. Can you help us think about sort of the quantifiable impact or maybe the cost that you're carrying due to the supply chain? That may be sort of I don't want to use the word transitory, but we'd expect over the longer term that might be sort of sort of a bait a little bit and you'll get a little bit of a benefit as we get past some of these supply chain issues over the next twelve months or so.

Tim Cook

We're seeing inflation and it's factored into our gross margin and optics that Luca reviewed with you earlier. Logistics, as I've mentioned on a previous call, is very elevated in terms of the cost of moving things around. I would hope that at least a portion of that is transitory. But the world has changed, and so we'll see.

David Voit, UBS

Thank you.

Tim Cook

Yeah.

Samik Chatterjee, JP Morgan

Great. Thanks for taking my question. I had a couple the first question that I had was really on Apple TV+. And I know some of the other players in this market have talked about slowing subscriber growth as we exit the pandemic. So curious if you can share what trends you're seeing in Apple TV and Apple TV+ and how similar or dissimilar they are and how your content is maybe helping you on that aspect and have a follow up.

Tim Cook

We don't give out subscriber numbers for Apple TV+. What we do is give out a subscriber number for our subscription number for the total number of subscriptions that we had. And I think Luca mentioned earlier, we ended the quarter at 785,000,000, and so we were incredibly pleased with that. That's a huge growth on a year over year basis of 165. And it counts, as you recall, both Apple branded and third party. In terms of how we're doing with TV+, we've been honored with 200 wins and 890 nominations. We're doing exactly like we had wanted to with giving storytellers a place to tell original stories and feel really good about where we are competitively and strategic position of the product.

Samik Chatterjee, JP Morgan

And if I can just follow up and similarly on Apple Pay, can you just help us think about when you think about the next few years, where are the biggest opportunities either be in terms of like, geographies or either segments, customer segments that you may not be tapping into currently and have an opportunity in? Thank you.

Tim Cook

Well, putting aside any kind of thing that sits on our roadmap for a second in that area which we obviously wouldn't talk about in the call, I would say that I think Apple Card has a great runway ahead of us. It was rated to the number one mid size credit card in customer set by JD Power and has fast become people's main credit card for many people and the growth of Apple Pay has just been stunning. It's been absolutely stunning and there's still obviously a lot more there to go because there's still a lot of cash in the environment and so I think that both of these and whatever else we might do have a great future ahead.

Samik Chatterjee, JP Morgan

Congrats on the awards.

Tim Cook

Thanks so much.

Chris Kayso, Raymond James

Yes. Thank you. Good evening. First question is just a little bit of help in interpreting the guidance and if you could speak to the March quarter perhaps in terms of seasonality and seasonal performance and Lucas, as you mentioned last year because of the late launch of the phone that some of that came into the March quarter and that was better than seasonal performance in March. Should we interpret because the supply constraints are easing somewhat as you go into the March quarter that we should see something similar that March quarter we should get some better than seasonal performance? Is that the correct way to interpret your guidance?

Luca Maestri

We talked about it on a year over year basis because that's probably how most people look at it. And so just to recap what we said. First of all we expect a record for the March quarter. We expect solid growth on a year over year basis but as steam was saying we still expect significant supply constraints but less than what we've seen in December. So I think on that basis you can do the math around sequential but given where we are in the environment. Given the difficult compare both on iPhone and as I mentioned on during my prepared remarks on services, we're very happy with the way we're guiding the way the business is going right now.

Chris Kayso, Raymond James

Thank you. As a follow up, a follow up question is on perhaps the sustainability and repeatability of the growth in iPhone after two very good years, well received product and the 5G upgrade cycle. And I think there was a point in time when perhaps there's a view from some that iPhone was ex growth and that's been proven wrong off of these very strong results. Maybe you could speak to your level of confidence that iPhone continues to grow in the future and kind of what are the avenues for that growth?

Tim Cook

Hey, Chris, it's Tim. What I would say is that the iPhone has become an integral part of so many people's lives now more than ever, and the active install base of iPhone continues to grow and is now at an all time high. And during December, as we had mentioned, we had a record number of upgraders and grew switchers strong double digit, which I think speaks to the strength of the product. And that's all in addition to an enormous customer satisfaction rating of 98% and are doing well throughout the geographies. And I'd mentioned some of the GEOS that we track and how many units that we have on the top selling model charts. Even though this is the second product announcement that has 5G in it, we're still really in the early innings of 5G. If you look at the install base and look at how many people are on 5G versus not, and we don't release those exact numbers, but you can do some math and estimate those, we maintain a very optimistic view on iPhone long term.

Chris Kayso, Raymond James

Got it. Thank you very much.

Tim Cook

Yes, thank you.

Ben Bowen, Cleveland Research

Thank you for taking the question. Tim, I'm interested in how you think about the relationship between the total iOS installed base and then the subsequent performance you see within the services or the paid subscriptions. And the second part to that is how do you look at the existing services business in terms of the growth you get from customers who are already subscribers versus completely net new or green field subscribers?

Tim Cook

I think I'll let Luca comment on the second part of that. But if you back up and start to look at how we're doing, even though we have 785,000,000 subs relative to the total number of products offered and the customers it's offered in, there's still a lot of room to grow there. The way that I look at it is that there's a lot more green field in front of us.

Luca Maestri

And Ben on the services engagement and how we think about customers, right. Obviously, it's important for us that customers are engaged on our services platforms and the ones that we have we know that the more engaged they are, they're more likely to stay with Apple for the long term. So we just obviously track all those metrics and they're very important for us. That's why we continue to improve the quality of our offerings and the quantity over time. As you've seen, we've launched a lot of new services we obviously care a lot about new customers as well and that's why we keep track of the installed base and a lot of other metrics on that front. It's very similar to what we do with products. I mean also for products we care a lot about upgraders, we care a lot about switchers. Obviously it's the combination of the two that when you put it together provides the level of growth that you've actually seen in our services business. I mean the last twelve months we've done over $72 billion of revenue on services. It's the size of a Fortune 50 company. It couldn't happen without contribution from both existing and new customers.

Ben Bowen, Cleveland Research

Thank you. Thanks.

Harsh Kumar, Piper Sand

Yeah. Hey guys first of all congratulations on stellar quarter in December and all the records that the Apple community has set. Tim I had a question on the content on Apple TV when we look at the Apple content that you guys put on TV, the original content, it's typically very socially responsible and healthy. For example, at Ted Lasso has this, in effect, created a constraint or a hesitancy of some sort for Apple to go and purchase atudios when they come up or have those decisions being primarily financial or otherwise.

Tim Cook

We don't make purely financial decisions about the content. We try to find great content that has a reason for being and we love shows like Ted Lasso and several of the other shows as well that have a reason for existing and may have a good message and may make people feel better at the end of it. But I don't feel that we've narrowed our universe of things we're selecting from. There's plenty to pick from out there, and I think that we're doing a pretty good job of it as we speak.

Harsh Kumar, Piper Sand

Fair enough. And then my follow up was the Apple version of health care in the future. So you guys have sort of cautiously approached healthcare with Apple Watch and iPhone. It's mostly a preventative sort of approach. It provides you updates. But do you see a situation down the line where Apple perhaps plays a more active role, either through the watch or some other device or perhaps a doctor or hospital mandates that the Watch we want effectively for critical and vital monitoring. And I was curious if you could just give us some color on how you guys think about healthcare, and Apple Watch in that conference.

Tim Cook

Well, with the Apple Watch, there's literally not days that go by without me getting notes about someone that's received a health alert. Maybe it's to do with their cardiovascular health or more recently, a lot of people have told me that they fell and was knocked unconscious and couldn't respond, and the Watch responded for them to emergency contacts and emergency personnel. There's a lot that we're doing today. My sense has always been that there's more here. I don't want to get into a roadmap discussion in the call, but we continue to kind of pull the string and see where it takes us. But we're really satisfied with how we're doing in this area because we are fundamentally changing people's lives and in some cases, saving people's lives. So it's an area of great interest.

Harsh Kumar, Piper Sand

Very helpful, Tim. Thank you.

Tim Cook

Thanks for the question.

Apple has just announced its financial results for Q1 2022, covering the period between October 1 and December 25, 2021. The company posted quarterly revenue of $123.9 billion. Profit for the quarter came in at $34.6 billion

Q1 2022 saw growth across most of Apple's product lines, with the notable exception of iPads, which were down slightly year-over-year. iPhone, Mac, services, and wearables were all up.

For a more detailed breakdown of Apple's Q1 results, head here.

Press release:

Apple Reports First Quarter Results

Revenue up 11 percent to new all-time record

iPhone, Mac, Wearables, and Services revenue reach new all-time highs

CUPERTINO, CALIFORNIA JANUARY 27, 2022 Apple today announced financial results for its fiscal 2022 first quarter ended December 25, 2021. The Company posted an all-time revenue record of $123.9 billion, up 11 percent year over year, and quarterly earnings per diluted share of $2.10.

"This quarter's record results were made possible by our most innovative lineup of products and services ever," said Tim Cook, Apple's CEO. "We are gratified to see the response from customers around the world at a time when staying connected has never been more important. We are doing all we can to help build a better world — making progress toward our goal of becoming carbon neutral across our supply chain and products by 2030, and pushing forward with our work in education and racial equity and justice."

"The very strong customer response to our recent launch of new products and services drove double-digit growth in revenue and earnings, and helped set an all-time high for our installed base of active devices," said Luca Maestri, Apple's CFO. "These record operating results allowed us to return nearly $27 billion to our shareholders during the quarter, as we maintain our target of reaching a net cash neutral position over time."

Apple's board of directors has declared a cash dividend of $0.22 per share of the Company's common stock. The dividend is payable on February 10, 2022 to shareholders of record as of the close of business on February 7, 2022. Apple will provide live streaming of its Q1 2022 financial results conference call beginning at 2:00 p.m. PT on January 27, 2022 at apple.com/investor/earnings-call. This webcast will also be available for replay for approximately two weeks thereafter.

Apple has just announced its financial results for Q4 2021, covering the period between July 1 and September 25, 2021. The company posted quarterly revenue of $83.4 billion.

The quarter saw growth across all of Apple's product lines, including services. iPhone sales hit $38.9 billion, with Mac revenue coming in at $9.2 billion, and services hitting a record $18.3 billion.

For a more detailed breakdown of Apple's Q4 results, head here.

Press release:

Apple Reports Fourth Quarter Results

New September quarter record with revenue up 29 percent

Services and Mac revenue reach new all-time highs

October 28, 2021 04:30 PM Eastern Daylight Time

CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2021 fourth quarter ended September 25, 2021. The Company posted a September quarter revenue record of $83.4 billion, up 29 percent year over year, and quarterly earnings per diluted share of $1.24.

"This year we launched our most powerful products ever, from M1-powered Macs to an iPhone 13 lineup that is setting a new standard for performance and empowering our customers to create and connect in new ways," said Tim Cook, Apple's CEO. "We are infusing our values into everything we make — moving closer to our 2030 goal of being carbon neutral up and down our supply chain and across the lifecycle of our products, and ever advancing our mission to build a more equitable future."

"Our record September quarter results capped off a remarkable fiscal year of strong double-digit growth, during which we set new revenue records in all of our geographic segments and product categories in spite of continued uncertainty in the macro environment," said Luca Maestri, Apple's CFO. "The combination of our record sales performance, unmatched customer loyalty, and strength of our ecosystem drove our active installed base of devices to a new all-time high. During the September quarter, we returned over $24 billion to our shareholders, as we continue to make progress toward our goal of reaching a net cash neutral position over time."

Apple's board of directors has declared a cash dividend of $0.22 per share of the Company's common stock. The dividend is payable on November 11, 2021 to shareholders of record as of the close of business on November 8, 2021.

Apple will provide live streaming of its Q4 2021 financial results conference call beginning at 2:00 p.m. PT on October 28, 2021 at apple.com/investor/earnings-call. This webcast will also be available for replay for approximately two weeks thereafter.

Apple periodically provides information for investors on its corporate website, apple.com, and its investor relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance, and details related to its annual meeting of shareholders.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q3 2021 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out these excellent charts from Six Colors.

Cook's opening remarks

Tim Cook

Thanks. Good afternoon, everyone. Today, Apple is reporting a very strong quarter with double digit revenue growth across our product and services categories and in every geographic segment. We set a new June quarter revenue record of eighty one point four billion dollars, up 36% from last year, and the vast majority of markets we tracked grew double digits, with especially strong growth in emerging markets, including India, Latin America and Vietnam. Total retail sales also set a June quarter record, and almost all of our retail stores have now opened their doors.

This quarter saw a growing sense of optimism from consumers in the United States and around the world, driving renewed hope for a better future and for all that innovation can make possible. But as the last 18 months have demonstrated many times before, progress made is not progress guaranteed. An uneven recovery to the pandemic and a Delta variant surging in many countries around the world have shown us once again that the road to recovery will be a winding one. In the midst of that enduring adversity, we are especially humbled that our technology has continued to play a key role in keeping our customers connected.

Just last month, it was great to be back with our teams and customers for the opening of our newest retail store in Los Angeles, Apple Tower Theater. It was a hopeful reminder of the energy and sense of community, shared spaces bring and how appreciative we all are now of the simple privilege of talking to one another, face to face. As we look forward to more in-person interactions in the future, we're doubling down on innovation and doing all we can to help chart a course to a healthier and more equitable world.

I'll have more to say about our work in those areas a bit later on. But first, let's turn to our product and services categories. For iPhone, this quarter saw very strong double digit growth in each geographic segment, and we continue to be heartened by customers response to the iPhone 12 lineup. We're only in the early innings of 5G, but its already incredible performance and speed have made a significant impact on how people can get the most out of our technology.

Customers love iPhone 12 for its super fast 5G speeds, A14 Bionic chip and Dolby Vision camera never seen before in a phone. Users continue to rely on iPad and Mac to work, learn, create, and connect. iPad had its highest June quarter in nearly a decade, while Mac set an all time June quarter record. We've seen a great response to the new iMac and iPad Pro, both powered by the M1 chip's exceptional speed and power efficient performance.

The iMac's remarkable, thin design and vibrant colors have made it a favorite for users everywhere. And the iPad continues to be an incredibly versatile tool in our user's toolbox, inspiring creativity and connection, and keeping us entertained and productive in equal measure. It was another very strong quarter for wearables, home and accessories, which set a new June quarter record while helping people find more ways to stay entertained, healthy, and connected at home and on the go. Apple Watch remains the go-to choice for users to stay on top of their health and reach their fitness goals.

And our newest accessory AirTag, began shipping to an enthusiastic response from customers, making the Find My network more useful than ever while protecting user privacy. Turning to services, which set a new all time revenue record as we continue to roll out innovative new features and programing. We're proud to be the recipients of 35 Emmy nominations this year, which speaks to the quality of our programing and an enthusiastic reception from customers and critics alike. Apple TV plus users are loving series like Mythic Quest and anticipating groundbreaking films like Coda, which premieres next month.

And of course, Ted Lasso kicked off season two just last week and continues to win over viewers with its heartwarming message about the power of community, compassion and hope. We also introduced Apple Podcast Subscriptions, a global marketplace for users to discover exclusive content and support their favorite creators. And we launched Spatial Audio for Apple Music, a cinematic listening experience that promises to change how music fans listen, and musicians create even more immersive, layered, and beautiful songs. Last month, we shared many exciting new features at WWDC, but more powerful than any of them was the incredible showing of developers from all walks of life and around the world.

The new tools we announced will help developers harness cutting edge technologies, like augmented reality, reach new users and customize their experience on the App Store, or learn to update or invent an app with Swift, Apple's powerful and intuitive programm,ing language. Today's investments in education and coding translate to tomorrow's small businesses and groundbreaking new apps. The next app, the next act of an app economy already creating jobs and opportunity around the world. In June, a new study by the Analysis Group found that it was another record year for App Store developers, whose combined billings and sales increased by 24 percent to 643 billion dollars in 2020.

The app economy continues to be an incredible engine of prosperity and opportunity, fueled by the ceaseless striving of developers to make apps that enrich people's lives. Much like the developer community, we are diehard optimists about technology's potential to help people live happier, healthier, and more fulfilled lives. Goals that shine through with powerful new updates coming to iOS, iPadOS, macOS and watchOS this fall. That begins with innovative new features that help users stay connected with one another, like SharePlay and Spatial Audio for FaceTime, or disconnect when they need a break, like Focus, which limits distracting notifications when you're winding down for bed or concentrating at work.

And new productivity features make iPad an even more useful tool for multitasking, helping users navigate across apps, split their screen, or use Quick Note to capture a thought the moment inspiration strikes. In the Health space, our new Health Sharing feature will make it easier than ever to securely share your Health data with loved ones. That includes new capabilities like Walking Steadiness, which uses sensors to assess user stability, doing everyday tasks, and recommends exercises to improve stability and avoid a fall.

In the belief that privacy is a fundamental human right, we share new features in iOS 15 that continue to drive our progress forward, from mail privacy protection, which stops invisible pixels in an email from tracking your mail activity to App Privacy Report, which helps users check on the apps they've granted permission to use their personal data. We also introduced some incredible next generation technologies coming to the Accessibility space. From Assistive Touch, which helps people with limb differences navigate Apple Watch, to new VoiceOver capabilities to help blind and low vision users, Accessibility remains a bedrock principle for us in the simple belief that the best technology for the world should be the best technology for everyone.

But the responsibility to be a force for good in the lives of others extends beyond the technology we make. So that teachers and students shaping our future this quarter as part of our Racial Equality and Justice Initiative, we awarded innovation grants to engineering schools at four historically black colleges and universities to expand their coursework, scholarships, and internship opportunities and hardware engineering and silicon chip design. We see education as a great equalizing force, and we're more dedicated than ever to supporting the educators, advocates, and students lining the path and leading the way.

That includes the 350 Swift student challenge winners we recognized at this year's WWDC. If you ever need a dose of hope or inspiration, I can't say enough about our students scholarship winners whose apt brings so much good into the world, from teaching other young people to code to helping volunteers deliver groceries to people at high risk of COVID-19. Young people's innovations remind us that our collective future is bound up in the next generation's passion for solving global challenges and of the responsibility we have to join them in building a better world.

Turning to our own backyard, we're continuing to press forward in our efforts to help bring more affordable housing to the Bay Area and across California. This month, we shared that we've contributed more than one billion dollars to help first time homeowners and construct thousands of new affordable housing units across the state. And we're continuing to stay focused on supporting the global response to the pandemic and delivering the best products and services for people.

Our greatest source of inspiration isn't technology itself, but how people use it in their own lives, in ways great and small, to write a novel or to read one, to care for an ailing patient or see a doctor virtually, to track their heart rate on a jog, or to train for the Olympics. Every day I'm grateful for the dedication of our teams to the simple mission of creating technology that improves people's lives, and I want to thank everyone at Apple for the purpose and passion they bring to that mission.

With that, I'll hand it over to Luca for a deeper dove on our performance this quarter.

Luca Maestri's detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. We are very pleased to report record June quarter financial results which reflect the importance of our products and services in our customers lives and our strong underlying operating performance. Our revenue reached the June quarter record of $81.4 billion, an increase of nearly 22 billion, or 36 percent from a year ago. We grew double digits in each of our product categories with an all time record for services, and June quarter records for iPhone, Mac, and wearables and home accessories.

We also said new June quarter records in every geographic segment with very strong double digit growth in each one of them. Products revenue was a June quarter record of $63.9 billion, up 37 percent over a year ago. This level of sales performance, combined with the unmatched loyalty of our customers, drove our installed base of active devices to a new all time record. Our services set an all time revenue record of $17.5 billion, up 33 percent over a year ago with June quarter records in each geographic segment. Company gross margin was 43.3 percent, up 80 basis points from last quarter, driven by cost savings and a higher mix of services partially offset by seasonal loss of leverage.

Product gross margin was 36 percent, down 10 basis points sequentially, a seasonal loss of leverage was almost entirely offset by cost savings. Services gross margin was 69.8 percent, down 30 basis points sequentially, mainly due to a different mix. Net income of $21.7 billion, diluted earnings per share of one dollar and thirty cents, an operating cash flow of $21.1 billion, where all June quarter records by a wide margin.

Let me get into more detail for each of our revenue categories. iPhone revenue set a June quarter record of 39.6 billion, growing 50 percent year over year and exceeding our own expectations as the iPhone 12 family continue to be in very high demand. Performance was consistently strong across the world and we grew very strong double digits in each geographic segment setting June quarter records in most markets we track. Our active installed base of iPhones reached a new all time high, thanks to the exceptional loyalty of our customer base and the strength of our ecosystem. In the U.S., the latest survey of consumers from 451 Research, indicates iPhone customer satisfaction of 97 percent for the iPhone 12 family.

Turning to services, as I mentioned, we reached an all-time revenue record of 17.5 billion with all time records for cloud services, music, video, advertising, and payments services, and June quarter records for the App Store and Apple Care. Our new service offerings, Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+, as well as the Apple One bundle, continue to scale across user's content and features, and are contributing to overall services growth.

The key drivers for our services business all continue to move in the right direction. First, our installed base of devices reached an all time high across each geographic segment. Second, the number of both transacting and paid accounts on our digital content stores reached a new all time high during the June quarter in each geographic segment, and paid accounts increased double digits. Third, paid subscriptions continue to show strong growth. We now have more than 700 million paid subscriptions across the services on our platform, which is up more than 150 million from last year and nearly four times the number of paid subscriptions we had only four years ago.

And finally, we're adding new services that we think our customers will love, while also continuing to improve the breadth and quality of our current services offerings. For example, during WWDC in June, we previewed our new iCloud+, an Apple wallet features, which we believe will create a more secure and differentiated customer experience. Wearables, home, and accessories grew 36 percent year over year to 8.8 billion, setting nw June quarter revenue records in every geographic segment. We continue to improve and expand our product offerings in this category.

This quarter we began shipping our new Apple TV 4K with a redesigned Siri remote, and our brand new AirTags. And the customer response to both products has been very strong. In addition to its outstanding sales performance globally, Apple Watch continues to extend its reach with nearly 75 percent of the customers purchasing Apple Watch during the quarter being new to the product.

For Mac, despite supply constraints, we said a June quarter record of 8.2 billion, up 16 percent over last year, with June quarter revenue records in most markets we track around the world. It is remarkable that the last four quarters for Mac have been its best four quarters ever. This exceptional level of sales success has been driven by the very enthusiastic customer response to our new Macs, powered by the M1 chip, which we most recently brought to our newly redesigned iMac.

iPad performance was also strong, with revenue of 7.4 billion, up 12 percent in spite of significant supply constraints. During the quarter, we also started shipping our new iPad Pro powered by the M1 chip and customer response has been outstanding. Both iPad and Mac have taken computing to the next level, and when you combine their performance over the last 12 months, they're now the size of a Fortune 50 business. Thanks to the best product line ups we've ever had, very high levels of customer satisfaction and a loyal growing install base.

In fact, around half of the customers purchasing Mac and iPad during the quarter were new to that product. And in most recent surveys of US consumers from 451 Research, customer satisfaction was 92 percent for Mac and 95 percent for iPad. In enterprise, our customers are excited about the superior performance, battery life, and security that that the new M1 Macs bring. MassMutual, for example, is offering M1 MacBook Pro to all of its employees and equipping all conference rooms with M1 Mac minis in preparation for return to work.

And with its incredible performance and affordable entry price, the MacBook Air with M1 is gaining rapid adoption among many leading enterprise organizations. Italy Gas, Italy's largest natural gas company, which will soon be using its extensive network to distribute renewable gases, is replacing every employee's Windows laptop with the new MacBook Air, powered by Apple's M1 chip, to bring the latest technology to its workforce. And onto our cash position. We ended the quarter with 194 billion in cash plus marketable securities.

We retire three billion of term debt and increase commercial paper by three billion, leaving us with total debt of 122 billion. As a result, net cash was 72 billion at the end of the quarter. As our business continues to perform at a very high level, we are also able to return 29 billion to shareholders during the June quarter. This included $3.8 billion in dividends and equivalents and $17.5 billion through open market repurchases of 136 million Apple shares.

We also began a five billion dollars accelerated share repurchase program in May, resulting in the initial delivery and retirement of 32 million shares. As we move ahead into the September quarter, I'd like to review our outlook, which includes the types of forward looking information, the changes referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we are not providing revenue guidance, but we are sharing some directional insights, assuming that the COVID related impacts to our business do not worsen from what we are projecting today for the current quarter.

We expect very strong double digit year over year revenue growth during the September quarter. We expect revenue growth to be lower than our June quarter, year over year growth of 36 percent for three reasons. First, we expect the foreign exchange impact on our year over year growth rate to be three points less favorable than it was during the June quarter. Second, we expect our services growth rate to return to a more typical level. The growth rate during the June quarter benefited from a favorable compare.

Certain services were significantly impacted by the COVID lockdowns a year ago. And third was we expect supply constraints during the September quarter to be greater than what we experienced during the June quarter. The constraints will primarily impact iPhone and iPad. We expect gross margin to be between forty one point five 41.5 and five 42.5 percent, we expect OpEx to be between 11.3 and 11.5 billion dollars. We expect ONIE to be around zero, excluding any potential impact from the mark to market of minority investments and our tax rate to be around 16 percent.

Finally today, our board of directors has declared a cash dividend of 22 cents per share of common stock payable on August 12, 2021, to shareholders of record as of August 9, 2021. With that, let's open the call to questions.

Analyst questions

Chris Casimir, Raymond James

Yes, thank you. Good morning. Just thinking to the commentary on guidance a little bit, you know, just starting with the fact that last year, obviously, there was a later launch of iPhone than what we typically see in other years, because you talk us through that and perhaps some of the other products, what may be different as compared to last year?

Luca Maestri

Well, you know, as I explained, there are first of all, you know, we are expecting to grow very strong double digits. You know, that's I think, the starting point here. We expect, you know, this very strong level of growth that we've experienced during the course of the year to continue into the September quarter. We said that, you know, the growth rate is going to be below 36 percent.

And I've listed three factors. The first factor is that the dollar continues to be favorable on a year over year basis in the sense that it's weakened against most currencies on a year over year basis. But that benefit is going to be about three points less in the September quarter than what we've experienced during the June quarter because the dollar strengthened against most currencies in recent weeks. Second, I mentioned that the services growth rate that we've experienced in the June quarter, 33 percent, that's significantly higher than what we've had in recent history.

And that was due to the fact that there were a couple of services categories, namely our advertising business and Apple Care, that were significantly impacted a year ago because of the COVID lockdowns. And and therefore they had a relatively easy compare in the June quarter. And so we don't expect that to continue into the the September quarter. And so we expect to see significant growth in services, but not to the level that we've seen in June. And then I mentioned that the supply constraints that we've seen in the June quarter will be higher during the September quarter, backing in.

You know, when we when we talked here three months ago, we said that we were expecting supply constraints for the June quarter between three and four billion dollars to affect primarily iPad and Mac. We were able to mitigate some of those constraints during the June quarter. And so we came in at the number that was slightly below the low end of that range that we had quoted at the beginning of the quarter. But we expect that number to be higher for the September quarter.

And so when you put that all that together, again, very strong double digit growth for September, with this caveat that just mentioned.

Chris Casimir, Raymond James

And thank you, if I could follow up with regard to the supply constraints and do you expect those supply constraints to persist through the December quarter as well? What effect will that have on the holiday selling season and then in conjunction with that, what additional costs are you absorbing because of the supply constraints? Is that having an effect on gross margins or just product costs in general as you perhaps pay a little more to get more supply?

Tim Cook

Chris, it's Tim. And in terms of the cost, we're paying more for freight than I would like to pay. But component costs continue in the aggregate to decline. In terms of supply constraints and how long they will last, I don't want to predict that today, we're going to take it sort of one quarter at a time and as you would guess, we'll do everything we can to to mitigate whatever set of circumstances we're dealt.

Luca Maestri

And, Chris, on the on the cost side, as I mentioned during my comments, our results for gross margins for the June quarter, 43.3 percent, we really saw some really nice cost savings during the quarter. And I think you've seen that we provide guidance of forty one and a half to forty two and a half for September, which is obviously a level that we are very pleased with.

Chris Casimir, Raymond James

Right. Thank you.

Jim Suva, Citigroup Investment Research Thank you very much. And congratulations to you and your global team for great operations during a challenging time. Tim and Luca, I just have one question, and either of you or both of you could figure out who's best to answer it. But we look at a world of pretty unprecedented, whether it be COVID, the Delta variant, China flood supply chain components. Just wondering for your like R&D innovation, is it being materially impacted by that such where a normal cadence is unfair or is it kind of happening during a slow time of year where you're able to empower people to work remotely and still have the typical innovations and product launches that you've had historically in the past?

Tim Cook

Jim, the company has been incredibly resilient. The employees are are really doing the duty and I could not be more pleased with the cadence that we're coming out with new things. As you can see from the software announcements that we made at WWDC and the corresponding launches of the software that we plan on in the fall, and then all of the products that we've been able to to bring out over the last 12 to 18 months, it's amazing. And and so I'm very pleased with it.

Shannon Cross, Cross Research

Oh, thank you very much. Tim, I'm curious, what have you learned from this iPhone cycle regarding customer preferences and pricing and maybe, you know, subscriptions and that? And if there's a difference, if you could talk about on a geographic basis. Thanks.

Tim Cook

We've you know, if you look at our results in Q3, Shannon, we had strong double digit growth for switchers and for upgraders. And in fact, it was our largest upgrade quarter for a Q3 ever. And and so we feel really, really great about both categories. And as Luca kind of said during the preamble, our opening comments, our results are really strong for iPhone around the world. And so it's been a very, very strong cycle. And yet we're the penetration on 5G is obviously still very, very low. And so we feel really good about the future of the iPhone.

Shannon Cross, Cross Research

OK, and maybe if you can talk a bit about China, up 50 percent, you know, where are you seeing the growth? What are you hearing from customers? Fifty percent is not sustainable, but how sustainable is the strength. Thank you.

Tim Cook

It was an incredibly strong quarter. It set a June quarter revenue record for greater China for us. And so we're we're very proud of that and, you know, doing the best job we can to serve customers there. We had a particularly strong response to the 12 Pro and the 12 Pro Max. Those those results were particularly strong. But if you look at the balance of our products, we also set June quarter records for wearables, home, and accessories for Mac and for services.

So it was sort of an across the board strength. And we're seeing plenty of new customers come to the market. For example, Mac and iPad, about two thirds of the customers who bought in the last quarter were new to that product. For the Apple Watch, that number was 85 percent. And so, you know, we could not be happier with the results.

Shannon Cross, Cross Research

Was 85 percent China or overall?

Tim Cook

85 percent was China. So, I was talking about specifically the numbers were specifically for China and China.

Luca Maestri

It's for the world, Apple Watch is 75 percent.

Shannon Cross, Cross Research

Right, great, thank you so much.

Amit Daryanani, Evercore

Thanks I have two as well, I guess, first, Luca, I was hoping you could maybe talk a little bit more about the gross margins and maybe the expectations you laid out for September. I think sequentially, even slightly down 100 basis points or so. So maybe just cut in one of the puts and takes. That would be helpful, because I think historically September tends to be a flattish, maybe even up a little bit gross margin number people.

Luca Maestri

Yeah, I think I think it's important to go back to the Q3 results. Right. It's 43.3 percent. And one of the things that I mentioned is that in addition to getting really good cost savings on a sequential basis, we also had a very high mix of services as part of the total and particularly with, you know, advertising doing really, really well because of the rebound that we saw from from the COVID lockdowns a year ago.

And so as we move forward sequentially, we do expect a different mix. And so that drives, you know, the guidance that we provided, which, again, as you know, is significantly higher than just a year ago. For example, a year ago, you know, we were at two 38.2 percent. So almost 400 basis points of expansion on a year over year basis. Right. And so I think it's important to take that into account. Just a different mix.

Amit Daryanani, Evercore

Got it. No, absolutely, I don't think anyone expected gross margins to be north of 40 this quickly for you folks, so that is impressive. If I could follow up on services and I know you called out the 33 percent growth this quarter as a bit of an aberration that to a year. But as you look at the services growth rate over the last four quarters, let's just say up, what do you think is enabling this growth? Is it you able to have a higher ARPU, more monetization of the installed base or the installed base going on? I'm curious which one is bigger and then over time? How do you think those two components stack up for you?

Luca Maestri

It's a combination of multiple factors, right? Obviously, the fact that our installed base continues to grow and it sets new all time highs all the time, obviously gives us a larger opportunity all the time. And second, we have more and more people that are engaged in our ecosystem, both transacting for free, which is a very large number. And people that, you know, are willing to pay for some of the services and that, you know, that percentage of people that, you know, are paying for our services continues to grow nicely.

I mentioned they grew double digits again this quarter. So that obviously helps on the revenue side. And, of course, we continue to increase both the the quality and the quantity of the services. You know, as you know, during the last few years, we've launched a lot of new services from Apple TV+, Fitness+, Apple Arcade, News+, and so and of course, the Apple Card. And so these are businesses that we are scaling right now. And so all that additional revenue helps. And I think it flows through our growth rates, as you said, during the last four quarters. You know, we are well into that, you know, mid twenties. Right. So I think it's obviously very nice for us to see.

Amit Daryanani, Evercore

Perfect, thank you.

Katy Huberty, Morgan Stanley

Thank you. Good afternoon. OK, so first question, there's there's a debate in the market around how much Apple benefited from the pandemic, given increased spend in areas like Mac and App Store. But, of course, you've mentioned over the past several quarters that there are other areas that were limited by the pandemic and store closures and less foot traffic. When you net out all the puts and takes was your business helped or was it hindered by the pandemic?

Luca Maestri

Well, of course, you know, Katy, we don't have, you know, the crystal ball that tells us exactly what these different, you know, variables, how they impacted our business. We do know that on the I would say on the positive side of the ledger, obviously, especially during the periods of extreme lockdowns, digital services did very well because entertainment options were limited. And so obviously our digital services did really, really well.

Obviously, with more people working from home, more people starting from home we know that iPad and Mac demand was very, very strong. On the other side, we had certain services, like advertising because of the reduced economic activity, Apple Care, because our stores were closed that were affected negatively. And certain products, like the iPhone or the Watch, that are maybe more complex types of sales because of the complexity of the of the transaction. They were also affected because so many points of sale were closed all around the world, not only our stores, but also our partner stores, right. So we had that dynamic during, you know, throughout COVID. And now some of these businesses are rebounding.

I mentioned advertising and Apple Care, you know, iPad and Mac, it's difficult for us to gauge because we've been constrained for quite a long period of time. And the reality is that maybe the new normal after we exit COVID, may be different from the past, for example, maybe there's going to be hybrid models around work, for example.

And so it's difficult to tell you on a net basis what that is. Clearly, and this is very fluid because it tends to change over time. I can tell you that we're all looking forward to a COVID0-free world. I think that would be very good for us and for the entire, you know, for our customers as well.

Katy Huberty, Morgan Stanley

And and just to follow up on iPhone, specifically, if you look historically after a really strong product cycle, which you've experienced this year with iPhone 12, iPhone revenues come under pressure. Is it fair to assume a similar trend will play out over the next year, or if not, what do you think is different this time?

Tim Cook

Hey it's Tim, we're not predicting that the next cycle that I would point out a few things. One is we have a very large and growing install base, as you know, with the iPhones passed a billion active devices earlier this year. Two, we have loyal and satisfied customers. The customers that we're seeing on the new iPhones is just amazing, it's just jaw dropping. And the geographic response is pervasive across the world. In the US, we have the top three selling models. In the U.K., we have four out of the top five. In Australia, we have the top two. In Japan, we have the top three. In urban China, we have the top two. And so the response from customers all around has been great. Obviously, the product itself is amazing. The 12 lineup was a huge leap that introduced 5G and had A14 Bionic and a number of other fantastic features that customers love.

The next thing I think to consider is that we're in the very early innings of 5G. If you look at 5G penetration around the world, there's only a couple of countries that are in the double digits yet. And so that's an amazing thing nine months or so into this. And the last thing is we're going to continue to deliver great products. We're going to continue to do what we do best, is integrate hardware, software and services together into an amazing experience. And so those are the things that that I would consider if if I were coming up with a forecast.

Katy Huberty, Morgan Stanley

That's great color. Thank you.

Harsh Kumar, Piper Sandler

Yeah, hey, guys, first of all, congratulations, fantastic execution, which resulted in consistency for your results. This is actually perfect timing for this question. You talked about your installed base of a billion odd units. I was curious if you can help us understand how all of that installed base is. And the reason that I'm asking this question is we're clearly seeing people upgrade to 5G phones and that's the case and that continues that could be a larger force than most other forces for your revenues to continue to grow. As people migrate to the 5G family, can you can shed light on how the upgrades are happening and then also how that basis.

Tim Cook

Yeah, what I would tell you is it's first of all, it's difficult to answer your question precisely, but what I would tell you is on both switchers and upgraders, we did extremely well in Q3. Both where we're up strong double digits and and the geographic representation of iPhone year over year comps looks extremely well. And so we're really pleased with it. I would remind you that the billion number that I quoted also was iPhone, where we quoted a number earlier in the year and in the January call, I believe, of 1.65 billion devices is the total active devices just for just for clarification.

And so the net is very strong switchers, very strong upgraders, best upgrade quarter for June for the June quarter that we've seen. And we feel really great about the momentum. But at the same time, we recognize that the 5G penetration is quite low around the world. And, you know, there are very, very low. We're at the front we're at the front end of this.

Harsh Kumar, Piper Sandler

Fair enough for my follow up, Apple's probably one of the largest semiconductor companies in the world. How do you how does Apple determine what's strategic and something that Apple wants to make itself versus non-strategic? And also was curious. You know, there's a lot of well, it's public news now that ARM is getting acquired by Nvidia. And I was curious how Apple views that. Is that something that's beneficial to Apple or not meaningful or negative?

Tim Cook

Well, I think that acquisition has lots of questions that people are asking, and I'll certainly leave that up to everyone else. And in terms of us and how we decide to to make silicon, we ask ourselves if we can do something better, if we can deliver a better product, if we can buy something in the market. And it's great. And it's as good as what we could do. We're going to buy it. We'll only will only enter where we believe we have ability to do something better and therefore make a better product for the for the user.

And so the M1 is a great example of that. We have the the ability within our silicon team to deliver a product that we feel is appreciably better than we could buy. And so we've taken our great hardware and software expertise and combined those and have brought the M1 out. And the response to the M1 has been unbelievable. You know, it's powering Mac sales that are constrained. It's powering now iPad, which also has constraints on it. And so that's how we look at whether we should enter into a market or not.

Chris Zinkar, Cowen and Company

Hi, thanks for taking my question and congrats on the strong results. First one for Luca. You mentioned social growth should normalize in the September quarter. And I understand the last three quarters of services business was strong during the work from home, et cetera. So what is the normalized growth rate for the services business as folks return back to the office in this post-COVID world? I'm going to follow.

Luca Maestri

Well, I think, you know, you can go back several quarters and try to do a bit of an average, and that's what, you know, we would, you know. Talking about, of course, there's always a bit of variability around results, right, but certainly we haven't done 33 percent in years. And so that was a bit of an anomaly. And again, I explain it's around a couple of the businesses that had a relatively easy compare during the June quarter. So they know our services growth has been for many, many quarters and, you know, strong double digits. And, you know, we feel confident around that level.

Chris Zinkar, Cowen and Company

And then just a follow up to Tim or Luca, I think you mentioned in your prepared comments that in September quarter there's going to be greater impact on supply constraints on the iPhone and iPad. So I'm kind of curious you know, this is the first time I heard you talk about component shortages impacting the iPhone. Can you be more specific? Is a display drivers or what exactly is the choke point on the supply?

Tim Cook

The majority of constraints we're seeing are of the variety that I think others are seeing ,that I would classify as industry shortage. We do have some shortages in addition to that, where the demand has been so great and so beyond our own expectation that it's difficult to get the entire set of parts within the lead times that we try to get those. And so it's it's a little bit of that as well. As I said before, and I think probably maybe with the basis of your question. Through the latest nodes which we use and in several of our products have not been as much of an issue, the legacy nodes or where the supply constraints have been. On this on silicon,

Chris Zinkar, Cowen and Company

Thanks, Tim.

David Voit, UBS

All right, thank you guys for the question. So maybe just a point of clarification, so based on the data and the comments about upgraders and switchers being strong as well as emerging markets were relatively strong in the quarter, what is that specific set of data points strength mean for the iPhone portfolio? And I guess my question around that is, you know, we think about switchers and price points. I think last year you launched the SE 2 to to really address maybe some of the lower price point markets like the emerging markets. So does that mean thinking about the portfolio going forward? There's less of a need for a lower priced product going forward and that, you know, the current portfolio and the new cycle going forward would be more high end in nature, as we currently have today. And then I have a follow up.

Tim Cook

David, we did we had an incredible quarter for the emerging markets. In Q3, we set June quarter records in Mexico and Brazil and Chile and Turkey and UAE and Poland and Czech Republic, India, obviously, and China, as I talked about before, Thailand, Malaysia, Vietnam, Cambodia, Indonesia. I could go on and name a few more. It's a very long list. And so those are those results are for the entire line of products that we have. And keep in mind, we still do have SE the long run. We launched it a year ago, but it's still in the line today. And is sort of our entry price point. And so I'm I'm pleased with how all of them are doing. And I think we need sort of that range of price points to accommodate the types of people that we want to accommodate, and so we want something for the entry buyer who really wants to get into an iPhone and then something for the pro buyer who wants the very best iPhone that they can they can buy. And I think that's true in the emerging markets is as good as it's true in the United States or other developed markets.

David Voit, UBS

No, no, that's helpful. I appreciate that Tim. So does that mean sort of the emerging market buyer that wants to get into the iPhone, you know, is looking for a device that has 5G capability as well? You know, obviously we're early innings and a lot of markets for how do we think about that? You know, the intermediate to longer term in terms of consumer preference for 5G in those markets if available from an infrastructure perspective

Tim Cook

In most of the markets I've read, it is really, really, really early on 5G. Really early and so I, but I think the top end buyer is buying for the future as well, because they may hold their phone for two years or longer in some cases. And so 5G becomes an important part of their buying decision.

David Voit, UBS

Great, thank you very much.

Tim Cook

Yeah.

Ben Bolan, Cleveland Research Company

Good evening, everyone, thanks for taking the question. I wanted to start. Luca or Tim, could you walk us through a little bit about how you think Apple One bundles are influencing the trajectory of services and the economics and then a second part on services. I'm curious how you how you think ADFA is developing. Influencing the trajectory of the advertising business within services.

Tim Cook

In terms of Apple One is, you know, we're offering Apple One because it makes enjoying our subscription services easier than ever before, including Apple Music and Apple TV+, Apple Arcade, and iCloud and more. And so we really put the customer at the center of that and have recently began to remind people pleased with what we're seeing on Apple one right now and think it's a great ramp for the future of services.

And more importantly, it's a great customer benefit because many of our customers like to try out more than one of these services. And it allows them to do that with one easy bundle and subscription service. In terms of IDFA or the advertising in general, I take it your question is about ATT. With ATT we've been getting quite a bit of customer reaction, positive reaction to being able to make the decision on a transparent basis about whether to be tracked or not. And it seems to be going very well from a user point of view.

Wamsi Mohan, Bank of America

Yes, thank you. I have to as well to begin with Luca, you noted significant product revenue deleverage, but yet your product gross margins were roughly flat. You know that cost savings. Can you maybe talk about whether these are tactical in nature or more structural like vertical integration that will continue to drive benefits to product gross margins and on services side? You noted several times about the strength in ad world, which is obviously very high margin contributor, but the sequential trajectory on services margins was was flat. So what were some of the offsets there? And I have a follow up for Tim.

Luca Maestri

Yeah, on the product side, it talked about cost savings. Tim mentioned that, you know, maybe on the freight side we are seeing some level of cost pressure that is a bit, you know, out of the norm at this point in the cycle. For everything else, for all the major commodities and components. We continue to see a very typical cycle where we are getting good cost savings on a sequential basis. And so far, it's been very good, as you can tell, from the absolute level of gross margins, because on the product side, we are up more than 600 basis points on a year over year basis.

So it feels something that, you know, we've been able to accomplish and we're able to maintain, at least in the near term. Nothing that was abnormal during the quarter or a one off in nature was pretty structural. On the on the services side, again, up a lot on a year over year basis. So, you know, the base line has gone up a lot. The sequential decline, as you said, it was very, very small. And as I mentioned several times in the past, we have a very large services portfolio with very different margin profiles in our services. And so even a slight change in mix can drive some sequential differences. And this was the case this quarter, just just a different mix. I mentioned, for example, that Apple Care has rebounded. And so to those, you know, the relative success of our services in the in the marketplace can drive some some slight changes in gross margins. Again, step back for a second. 69.8 percent gross margin. We're very, very, very happy with where we are, with the services margin trajectory.

Wamsi Mohan, Bank of America

OK, thanks, Luca and Tim, there is increasing regulatory focus in China, in particular on some of the Chinese companies. It's not a direct impact of Apple, but how should investors handicap the indirect impact, given some of these companies are pretty large contributors to Apple's App Store revenues? And and also, is there are you seeing any impact at all from these? And is the limiting of the usage of some of these apps influencing how people are either interacting with your devices or is there any other ancillary impact that you're seeing? Thank you.

Tim Cook

For the quarter, as you can see, we grew 58 percent, so it was a strong quarter and embedded in that was a quarterly record for services, which includes the App Store. And so we're seeing strength in China. The economy has really bounced back there fairly quickly from from COVID. In terms of the regulatory focus, what we are focusing on from our angle is to serve users there and try to make sure that they're very satisfied with the products and services that we're showing. And we work with a lot of different companies to try to ensure that? And so that's our focus.

Apple has just announced its financial results for Q3 2021, covering the period between April 1 and June 26, 2021. The company posted quarterly revenue of $84.1 billion.

The quarter saw growth across all of Apple's product lines, including services. iPhone sales hit $39.6 billion, up substantially from the previous year, with Mac, iPad, wearables, and services all beating their year-ago results, too.

For a more detailed breakdown of Apple's Q3 results, head here.

Press release:

Apple Reports Third Quarter Results

Revenue up 36 percent to new June quarter record

Services revenue reaches new all-time high

CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2021 third quarter ended June 26, 2021. The Company posted a June quarter record revenue of $81.4 billion, up 36 percent year over year, and quarterly earnings per diluted share of $1.30.

"This quarter, our teams built on a period of unmatched innovation by sharing powerful new products with our users, at a time when using technology to connect people everywhere has never been more important," said Tim Cook, Apple's CEO. "We're continuing to press forward in our work to infuse everything we make with the values that define us — by inspiring a new generation of developers to learn to code, moving closer to our 2030 environment goal, and engaging in the urgent work of building a more equitable future."

"Our record June quarter operating performance included new revenue records in each of our geographic segments, double-digit growth in each of our product categories, and a new all-time high for our installed base of active devices," said Luca Maestri, Apple's CFO. "We generated $21 billion of operating cash flow, returned nearly $29 billion to our shareholders during the quarter, and continued to make significant investments across our business to support our long-term growth plans."

Apple's board of directors has declared a cash dividend of $0.22 per share of the Company's common stock. The dividend is payable on August 12, 2021 to shareholders of record as of the close of business on August 9, 2021.

Apple will provide live streaming of its Q3 2021 financial results conference call beginning at 2:00 p.m. PT on July 27, 2021 at apple.com/investor/earnings-call. This webcast will also be available for replay for approximately two weeks thereafter.

Apple periodically provides information for investors on its corporate website, apple.com, and its investor relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance, and details related to its annual meeting of shareholders.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q2 2021 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out these excellent charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon, everyone, and thanks for joining the call today. Apple is proud to report another strong quarter. One where we set new March quarter records for both revenue and earnings, besting our year-ago revenue performance by 54 percent, reflecting both the enduring ways our products have helped our users meet this moment in their own lives. As well as the optimism consumers seem to feel about better days ahead, we set new March quarter records in every geographic segment, and success was broadly distributed across our product categories.

Mac and services delivered all-time record results, and we set new March quarter records for iPhone and wearables, home, and accessories. To provide some color on our results, let's turn to our product categories. We saw very strong performance for iPhone, which grew 66% year over year, driven by the strong popularity of the iPhone 12 family. With unmatched capability, the best camera system ever in an iPhone, and advanced durability from ceramic shield, this family of devices is popular with both upgraders and new customers alike. And just last week, we unveiled an all new purple finish for iPhone 12 and 12 mini.

As has been the case throughout the pandemic, iPad and Mac continue to be critically important tools for our customers. Over the past year, tens of millions of iPads and Macs have been deployed to help students learn creators create and to enhance remote work in all of its forms. This has helped iPad grow very strong double digits to its highest March quarter revenue in nearly a decade.

On Mac, fueled by the M1, we set an all-time revenue record, continuing the momentum for the product category. In fact, the last three quarters for Mac have been its three best quarters ever. Last week, both iPad and Mac took a big step forward. We debuted a radically redesigned brand new iMac designed around in one's unmatched capabilities. And we've brought in one to iPad for the first time in a new iPad Pro with 5G capability and a liquid retina XDR display.

It was a quarter of sustained strength for wearables, home and accessories, which grew by 25% year-over-year. Apple Watch is a global success story and a category set March quarter records in each geographic segment, thanks to strong performance from both Apple Watch Series 6 and Apple Watch SE. It's an exciting and busy period ahead for wearables, home, and accessories with the launch of the next generation Apple TV 4K and our newest accessory AirTag. AirTag builds on the powerful and incredibly useful Find My experience, helping users privately and securely keep track of the items that matter most to them.

Third-party accessories and products can also make use of the Find My network, guaranteeing a great experience no matter what products you choose to use. Turning to services, we achieved growth of 27% year-over-year and set new records for services in each of our geographic segments, we continue to enhance and improve our current service offerings from Apple Music to Apple News, while continuing to launch new services that enhance our customers lives. Just last week, we introduced Apple Card Family, which reinvents how you can share credit cards and build credit together.

We also announced Apple Podcast Subscriptions, a global marketplace for listeners to discover premium content from their favorite creators and storytellers. While we're on the topic of services, in many ways, this quarter showed the unique value to customers created by Apple's belief in the deep integration of hardware, software, and services. Across our products and throughout our software ecosystem, we continue to deploy industry-leading new tools to protect users' fundamental right to privacy. In addition to the App Store privacy nutrition labels that we discussed on last quarter's call, we're proud to have launched the full implementation of App Tracking Transparency. This powerful yet simple idea gives users a choice over how their data is used and shared across the apps that they love and use every day.

No matter what device you enjoy it from, it is a milestone period for Apple TV+, racking up many new award nominations and wins, including its first Oscar nominations. Ted Lasso in particular, has been recognized with a multitude of awards and nominations, including, most recently, and AFI Program of the Year Recognition, Writers Guild of America Awards, and a clean sweep at the Critics Choice Awards. Apple TV+ also continues to be a place where we can tell stories that matter and lift up important voices and experiences like our new upcoming content Partnership with Malala or latest original documentary special, The Year the Earth Change, narrated by the legendary David Attenborough and released to commemorate Earth Day.

This is, of course, just one example of how Apple lives its values and operationalizes the idea that to whom much is given, much is expected. To begin with our environmental efforts, just last week, we marked a milestone Earth Day on multiple fronts. In addition to the progress we've made in our own efforts to achieve our pledge of a net zero carbon footprint by 2030 across our entire supply chain and use of our products, we're proud to play a role in the growing ripple of change taking place across the private sector.

As of this month, 110 of our suppliers have joined us in our renewable energy commitment, and we will bring online nearly eight gigawatts of new clean energy, the equivalent of taking three point four million gas powered vehicles off the road each year. Through Apple's, $4.7 billion in green bonds and related efforts, we've supported transformative environmental projects around the world from clean energy initiatives in China to two of the world's largest onshore wind turbines in Denmark to 180-acre solar project outside Reno, Nevada, and many more.

We're also keenly focused on how this wave of green innovation can lead to equitably shared prosperity through our new $200 million restore fund, we're helping local and rural communities around the world built sustainable industries around working for us, creating opportunities and removing up to one million metric tons of carbon from the atmosphere every year. And here in the United States, we've started a green impact accelerator, investing and supporting minority-owned businesses at the forefront of environmental fields.

As we look forward to WWDC, we're taking new steps to support and foster the unmatched community of developers we work with here in the United States and around the world. I'm particularly excited about our inaugural entrepreneur camp for black founders and developers, building on the success of our entrepreneur camp program, which we began in 2019, this program gives this profoundly innovative community of developers the chance to develop next level technical skills through hands-on technology labs and, with our partners at Harlem Capital, it also shares insights and mentorship on building and scaling an app business.

We were proud to announce that we have expanded and accelerated our commitment to the U.S. economy over the next five years. We will invest $430 billion, creating 20,000 jobs in the process. The investments will support American innovation and drive economic benefits in every state, including a new North Carolina campus and job-creating investments in innovative fields like silicon engineering and 5G technology.

Looking forward, whether you're running a business or just hoping to see family again after more than a year, it's tempting at this moment to let hope about the end of the COVID-19 pandemic outstripped clear-eyed realism about the challenges we still face in many places around the world.

New waves of infections driven by even more infectious variants of the virus are driving new lockdowns. Instead of simply assuming that the end is in sight, we at Apple are doing our part to make it a reality, beginning with an enduring and uncompromising commitment to the health and safety of our teams and extending well beyond our walls into the communities where we work. We also want to do everything we can to connect users to lifesaving vaccinations that are in ever greater supply.

Through Apple Maps, for example, we now showcase vaccine site locations here in the United States, building on our maps of testing locations in many countries around the world. It's worth remembering for much more than financial reasons, or year-ago compares just how we felt at this time last year when everything we knew had to change. Planes sat grounded. Entire business districts were empty and silent. People left groceries or care packages sitting in the garage or in the hall overnight in recognition of all that we didn't know and therefore had to imagine.

Thanks to researchers and scientists, doctors and nurses, everyone who can put a shot in an arm and even just check a name off a list, we have reached new days of hopeful resolve. Our work's not done, but as I said a year ago, while we can't say for sure how many chapters are in this book, we can have confidence that the ending will be a good one. With that, I'll hand things over to Luca.

Luca Maestri detail on the quarter

Luca Maestri

Thank you, Tim.

Good afternoon, everyone. We are extremely pleased to report record results for our March quarter, despite continued uncertainty in the macro environment. we've been operating in new ways for over a year, and we could not be more proud of the way our team continues to execute and innovate at unprecedented levels.

Our revenue reached a March quarter record of $89.6 billion, an increase of over $31 billion, or 54% from a year ago. We grew very strong double digits in each of our product categories, with all-time records for Mac and for services, and March quarter records for iPhone and for wearables, home, and accessories. We also set new March quarter records in every geographic segment, with growth of at least 35% in each one of them.

Products revenue was a March quarter record of $72.7 billion, up 62% over a year ago. As a result of this level of such performance and the unmatched loyalty of our customers, our installed base of active devices reached a new all-time record in each of our major product categories. Our services set an all-time record of $16.9 billion, growing twenty seven percent over a year ago, we established new records in each geographic segment and in most service categories.

I will provide more details about the performance of our services business later.

Company gross margin was 42.5% percent, up 270 Basis points from last quarter, driven by cost savings, a strong mix, and favorable foreign exchange. Products gross margin was 36.1% percent, growing 100 Basis points sequentially, also thanks to cost savings and effects partially offset by seasonal loss of leverage. Services gross margin was 70.1%, up 170 basis points sequentially, mainly due to a different mix.

Net income of $23.6 billion, diluted earnings per share of $1.40, and operating cash flow of $24 billion, were all of March quarter records by a wide margin. Let me get into more detail for each of our revenue categories. iPhone revenue set a March quarter record of $47.9 billion, growing 66% year-over-year as the iPhone 12 family continued to be in high demand. Performance was consistently strong across the world as we grew strong double-digits in each geographic segment and said March quarter records in most markets we track.

Thanks to the exceptional loyalty of our customer base and strength of our ecosystem, our active installed base of iPhones reached a new all-time high. In the U.S., the latest survey of consumers from 451 Research indicates customer satisfaction of over 99% for the iPhone 12 family.

Turning to services, we reached an all-time revenue record of $16.9 billion with all-time records for the App Store, cloud services, music, video, advertising, and payment services. Our new service offerings, Apple TV+ Apple Arcade, Apple News+ Apple Card, Apple Fitness+, as well as the Apple One bundle, continue to scale across users, content, and features and are contributing to overall services growth.

The key drivers for our services business all continue to move in the right direction. First, our installed base growth has accelerated and reached an all-time high across each major product category. Second, the number of both transacting and paid accounts on our digital content stores reached a new all-time high during the March quarter, with paid accounts increasing double digits in each of our geographic segments. Third, paid subscriptions continue to show strong growth. During the March quarter, we added more than 40 million paid subs sequentially and we have now reached more than 660 million paid subscriptions across the services on our platform. This is up 145 million from just a year ago and twice the number of paid subscriptions we had only two-and-a-half years ago. Finally, we're adding new services that we think our customers will love while also continuing to improve the breadth and quality of our current service offerings.

For example, Apple Arcade launched its biggest expansion yet, adding incredibly fun games to the catalog, including new exclusive Arcade originals, along with two entirely new categories: App Store greats and Timeless Classics. Apple Pay continues to expand geographically, launching in Mexico and South Africa, bringing our payment service to six continents.

Wearables, home, and accessories grew 25% year-over-year to $7.8 billion setting new March quarter revenue records in every geographic segment. Apple Watch continues to extend its reach with nearly 75% of the customers purchasing Apple Watch during the quarter being new to the product. We are very excited about the future of this category and believe that our integration of hardware, software, and services uniquely positions us to provide great customer experiences in this category.

Next, I'd like to talk about Mac, we set an all-time revenue record of 9.1 billion dollars, up 7% over last year, and grew very strongly in each geographic segment with an all time revenues in Europe and rest of Asia Pacific and March quarter records in the Americas, Greater China and Japan. This amazing performance was driven by the very enthusiastic customer response to our new Macs powered by the M1 chip.

iPad performance was also outstanding, with revenue of $7.8 billion, up 79%. We grew very strongly in every geographic segment with an all time record in Japan and a March quarter record in rest of Asia Pacific. Both Mac and iPad are incredibly relevant products for our customers in the current working and learning environments, and we are delighted that the most recent surveys of U.S. Consumers from 451 Research measured customer satisfaction at 91% for Mac and 94% for iPad.

With this level of customer satisfaction and with around half of the customer's purchasing Mac and iPad during the quarter being new to that product, the active installed base for both products continues to grow nicely and reach new all-time highs.

In the enterprise market, customers across many industries are accelerating their adoption of iPhone 12 and 5G as a key platform for the future of their business. Delta Airlines, for example, is putting iPhone 12 and 5G connectivity into the hands of flight attendants so they can provide the best passenger service possible as air travel rebounds.

Openreach in the UK has started equipping tens of thousands of field engineers with iPhone 12 to speed up their deployment of broadband services to homes around the country. And UC Health, a large health care provider in Colorado, was able to reduce per-patient vaccination time from three minutes to only 30 seconds, largely by moving from PC stations to iPhones. This has allowed their staff to rapidly scan and register new patients and vastly increase their daily vaccination capacity

Let me now turn to our cash position, we ended the quarter with over $204 billion in cash plus marketable securities. We issued $14 billion of new term debt and retired $3.5 billion of term debt, leaving us with total debt of almost $122 billion. As a result, net cash was $83 billion at the end of the quarter. This strong position allows us to continue to invest confidently in our future while also returning value to our shareholders. We are innovating and investing at an unprecedented pace, including accelerating our investment in the United States with our new commitment to contribute more than $430 billion and 20,000 jobs to the country over the next five years.

As we continue to execute an extremely high level, we were also able to return nearly $23 billion to shareholders during the March quarter. This included $3.4 billion in dividends and equivalents and $19 billion through open market repurchases of 147 million Apple shares. We continue to believe there is great value in our stock and maintain our target of reaching a net cash neutral position over time.

Given the confidence we have in our business today and into the future, our board has authorized an additional $90 billion dollars for share repurchases. We are also raising our dividend by 7% to $0.22 per share and we continue to plan for annual increases in the dividend going forward.

As we move ahead into the June quarter, I'd like to review our outlook, which includes the types of forward-looking information the pages referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we are not providing revenue guidance, but we are sharing some directional insights, assuming that the COVID-related impacts to our business do not worsen from what we are seeing today for the current quarter.

We expect our June quarter revenue to grow strong double digits year over year. However, we believe that the sequential revenue decline from the March quarter to the June quarter will be greater than in prior years for two reasons. First, keep in mind that due to the later launch timing and strong demand, iPhone only achieved supply/demand balance during the March quarter. This will cause a steeper sequential decline than usual. Second, we believe supply constraints will have a revenue impact of $3 to $4 billion in the June quarter.

We expect gross margin to be between 41.5 and 42.5%. We expect OpEx to be between $11.1 and $11.3 billion dollars. We expect OINE to be around $50 million and our tax rate to be around 14.5%. Finally, reflecting the approved 7% dividend increase I just mentioned, today, our board of directors has declared a cash dividend of $0.22 cents per share of common stock payable on May 13, 2021, to shareholders of record as of May 10th, 2021.

With that, let's open the call to questions.

Analysts questions

Shannon Cross, Cross Research

Thank you very much. Tim, I had sort of a big picture question on iPhone. I'm just curious, there are so many different things happening this cycle, you know, 5G, pandemic. How are you thinking about the opportunity for, you know, refreshing the installed base and attracting new customers? And, you know, are you seeing live shorten given some of the, you know, the programs that are being put out there by the carriers and by yourself? Just kind of maybe big picture if you can talk about what you're seeing in terms of, you know, iPhone out there on the market. Thank you.

Tim Cook

Sure, Shannon. We saw double digit increases on a year-over-year basis on both the new-to-iPhone and upgraders. So, in fact, in the March quarter, there was actually a record number of upgraders for a March quarter. And so we like what we see. It's obviously the early days of 5G, different countries are in different points, but penetration is still on a global level, is still low at this point, and so a lot of the 5G upgrades will be in front of us, not behind us.

You see in China, things have moved quickly to 5G. They're moving quickly in the United States, but a lot of the other regions are slower to adopt and slower to gain coverage in 5G.

Shannon Cross, Cross Research

OK, thank you, and then, Luca, can you talk about gross margin, I mean, 42% is is higher than it's been that I can kind of remember actually at this point. So maybe if you talk about the drivers of gross margin, you know, and maybe if there were any offset from, you know, higher component costs or the logistics costs that obviously were overshadowed by currency and other things. Thank you.

Luca Maestri

Yes Shannon. Yes, we did 42.5% during March, and we've got it to similar-to-slightly lower levels for June. So for March we were up 270 Basis points sequentially, really driven by three major factors: cost savings, which have been good for us during this cycle, a really strong mix, a strong mix on iPhone, but in general across all product categories, and that obviously was helpful. And foreign exchange sequentially again from December to March was favorable 90 Basis points. So that helped as well. So those are the three major factors there as we transition into June, as you know that we will expect some level of deleverage, but that will be offset by cost savings. Foreign exchange doesn't have much of an impact as we go from March to June.

Amit Daryanani, Evercore

Focusing just on services, you know, I think 90 days ago, the expectation was that line item would decelerate a little bit into the March quarter. It turned out it actually accelerated for us. I'd love to just understand, you know, what do you think drove exploration specifically? And, you know, if mid-20% sort of the growth norm as we go forward for services.

Luca Maestri

So, I mean, our services business did better than what we were expecting when we had the last call in January, it was stronger across the board. One of the things that we've noticed is that throughout COVID was that obviously digital services have done very well, and then we've had a couple of categories like AppleCare, because many of the points of sale and stores were closed, and advertising, because of the reduced economic activity that were negatively affected during COVID.

During the March quarter, we've seen a return to growth on AppleCare, and obviously, we've reopened a lot of the stores during the course of the quarter, and advertising, obviously, consumer sentiment has improved and, you know, advertising is coming back. And so the combination of these factors really delivered is very, very strong performance during the March quarter. You know, as we look ahead, as you know, we don't provide specific guidance for our product categories.

But in general, I talked during our prepared remarks, I mean, there are a number of things that we always look at around the services business. You know, how many new paid accounts that we have, what number of new subscriptions do we get? That, above all, is our installed base continuing to grow? Are we adding new services? Are we improving the quality of the existing services? And so when we look at all these fundamental factors of our services business, obviously we feel very good. We feel very good about it.

Amit Daryanani, Evercore

Got it, that's helpful and then Tim, if I could follow up with you, you know, it seems like engagement with iPhones and Apple devices generally has gone up materially over the last 12 months, and I don't think replacement cycles, at least in the data we see, has shrunk or changed that much at the end of the day. I'm wondering, does that combination of increased usage, replacement cycle time change, end up in, you know, iPhones potentially growing on a multi-year basis? Because usually I would imagine if I'm using something more, I have to replace it more often. So love your perspective on it.

Tim Cook

Yeah, we're clearly seeing strong performance in both the new-to-iPhone, or the switcher component, and upgraders, as I mentioned before. And in fact, the upgrader was the best March quarter that we've ever had, and so that speaks to what you're seeing, I think a lot. It's difficult with just this far into the cycle to make a statement about the cycle in general, because keep in mind that we just launched midway through the Q1 period, and so we've only been operating for four-and-a-half months or so. But clearly, we like what we see right now a lot.

But clearly, we like what we see right now a lot. If you look at how the iPhone did around the world, we had the top five models of smartphone in the U.S., the top-selling, the top two in urban China, four out of the top five in Japan, the top four in the UK, and the top six in Australia. And so it was a sort of across the board and some really key countries. We did really, really well.

I do think that the 5G cycle is important and you know, we're in the early days of it, frankly.

Katy Huberty, Morgan Stanley

Thank you, this was a pretty unbelievable quarter and investors are going to ask about the sustainability of current demand trends, especially as you lap some of the benefits from covid in areas like services and Macs later this year. So I know you don't guide beyond that or provide an outlook beyond the next quarter, but can you talk from a high level over the next year? Which segments do you see the opportunity to maintain strong revenue growth versus where is it reasonable to assume there will be some digestion as consumers shift their spending priorities? Then have a follow up, Luca.

Tim Cook

If you sort of look at the different products I found, I've already mentioned some of the great momentum that we had there. Keep in mind that the compare that we're running to would be the quarter Q2 of last year, the quarter that China would have entered a shutdown first, and then the rest of the world entered the shutdown in middle part of March. And so part of the growth is compare, is the comparison point. But that said, the results were fabulous across the board, the shortages that Luca spoke about in the color that he provided on the future effect, primarily the iPad in the Mac.

And so we'll have some challenges in there and challenges meeting the demand that we've got. The demand feels very strong right now, both on the Mac side. You have the combination of M1 and work from home and remote learning. And in iPad you've got remote learning and work from home as well. And with the product that we just announced is really killer, the iPad Pro with the M1 in it. And so there's a lot of great things, the strength of the product cycle, in addition to the trends that we're seeing in the marketplace and where this pandemic will end, it seems like many companies will be operating in a hybrid kind of mode.

And so it would seem that work from home and the productivity of working from home will remain very critical. If you look at wearables, then the watch had a fabulous quarter and I still think we're in the early innings on the watch. The number of new people that are new to the watch is almost three out of four. And so this is a, you know, a long way from being a mature market. And so and then the services by itself has really accelerated. And so, all in all, we feel very, very good.

Katy Huberty, Morgan Stanley

And then Luca, as I look at inventory plus vendor non-trade receivables, that grew only about 8% this quarter, which is a big deceleration from last quarter. Should we read into that as a leading indicator for how we should think about the revenue growth deceleration in the business as the world normalizes, or where there some supply disruptions during the quarter that caused you to drain inventory and create that tightness that you're talking about for June?

Luca Maestri

Now on as you think about the June quarter, Katy, I would point you to what we said in our prepared remarks around the two factors that will influence our normal seasonality, right? One is the fact that iPhone we launched the iPhone later than usual during this cycle, and so we reached supply/demand balance only during the March quarter, which makes obviously the sequential decline steeper than usual. And then these $3 or $4 billion dollars of supply constraints that Tim just said primarily on an iPad and Mac. So as you look at your model and you obviously can look at our numbers that we've done in the past, I think you can you can try to gauge that, from a channel inventory standpoint, we did what we normally do during during a March quarter.

So we reduce the inventory as it's typical on iPhone. We exited within our target range, so I would say that on the inventory side, it was pretty straightforward, obviously, given that the supply constraints are on the iPhone and the Mac, you know, we wish we had more inventory of iPad and Mac. But this is all a function of high demand for all our products.

Wamsi Mohan, Bank of America

Yes, thank you, Tim, your content offerings are still at very compelling price points, and you've seen other content providers, whether it be Spotify, Hulu, Netflix, all announced price increases recently. I'm just wondering how you are thinking about pricing as it pertains to your offering here, and if you could share any stats are on the uptake of TV+ paid subs, that would be great and have a follow for Luca.

Tim Cook

Let me start with TV+. TV+ is going very well. As you know, the objective and the philosophy that we've had on TV+ is to create high-quality original content and to be one of the most desired platforms for storytellers. And I see that happening day by day, as we sign and more shows and more storytellers and including Malala, as I mentioned in my opening comments. To date, we've received the Apple originals, have received 352 award nominations and had 98 wins. And this you know, this is from Oscar nominations to Emmy Awards to Critics Choice Awards and all the rest.

And we've got some shows that are have gotten some significant buzz, like Ted Lasso in The Morning Show and Defending Jacob and many others. And so we feel really good about where we are. We're not releasing subscriber numbers, but we feel good about where we are in terms of other services and pricing, I don't have anything to announce today. We try to give the customer a great value and we feel that we're doing that in the with the prices that we've got. And we'll, you know, we'll see where we go from here.

Wamsi Mohan, Bank of America

OK, thanks, Tim. As my follow up, Luca, on the June quarter guide, when you talk about the sequential decline being a little bit about perhaps the 13% or low teens percent that we've seen historically, are the supply constraints of the $3-4 billion impact included in that, or is that in addition to sort of the more than average sequential decline that you're offering to add any color on what specifically is driving the supply constraints of the subcomponent level? Thank you.

Luca Maestri

The yeah, so when you look at our normal seasonality and you mentioned the percentage there, that is really an average of several years, what we're saying is that we believe that the sequential decline this year is going to be higher than that. And it's a combination of the two factors, right? One is the timing of the launch and then the very high demand for iPhone during the March quarter and the $3 to $4 billion supply constraints that we mentioned.

And you know, you know, the constraints come from the semiconductor shortages that are affecting, you know, many, many industries and it's a combination of, you know, the shortages as well as the very, very high level of demand that we are seeing for both iPad and Mac.

For Mac, for example, if you just give it into context, the last three quarters of Mac have been the best three quarters ever in the history of the product right? So we are experiencing an incredible level of demand, which certainly is favored by the working from home and learning from home environment, but also by the incredible amount of new products and innovation that we put into the products that we launched during the last couple of quarters.

Aaron Rakers, Wells Fargo

Yeah, thanks for taking the question and congratulations on a great quarter.

I wanted to go back to iPhone. You know, as we think about the iPhone. As we think about the iPhone 12 cycle, appreciating that you guys don't give actual shipment numbers, it would appear though that the mix has been quite healthy. So I'm wondering if you could give us any context of what in this cycle you're seeing in terms of the mix relative to past cycles. Is that mix sustainable? I'm just trying to understand the mix within the iPhones and how that's driving particularly gross margin. And I have a follow-up.

Tim Cook

Aaron, let me give you a little color on that. Of the iPhone 12 family, or more broadly all iPhones, the iPhone 12 is the most popular. But we did see very strong sales of the Pro portion of the family as well, the Pro, plus the Pro Max. And and so the revenue that you're saying is a function of unit growth and revenue-per-unit growth. That help?

Aaron Rakers, Wells Fargo

Yeah, and can you give any context of how that might have changed the cycle relative to the prior cycles? Have we seen kind of a structural change to the higher band of the product category that you believe can be sustained going forward?

Tim Cook

You know, we don't predict going forward, other than for our own internal use, but we're really happy with the results.

Aaron Rakers, Wells Fargo

Okay. And then as a quick follow-up back to the supply constraints. I guess it's hard to kind of see, looking forward beyond this quarter, but what's your best assessment of when maybe the supply constraints could ease? Do you have any views of, you know, just the industry in general overcoming some of the supply constraint dynamics?

Tim Cook

Most of our issues on legacy nodes. And so on legacy nodes, there are many different people, not only in the same industry, but across other industries that are using legacy nodes. And so in order to really answer that question on it accurately, we would need to know the true demand from each of these players and how that's going to change over the next few months, and so it's very, very difficult to give you a good answer. I think we have a good handle on our demand, but you know, what everybody else is doing, I don't know. And so we will do our best. That's what I can tell you.

Harsh Kumar, Piper Sandler

Yeah. Hey, guys, congratulations on a very nice quarter. Question on semi supply as well. You just beat, by a substantial margin on the top line in the March quarter. I'm curious what went in your favor to be able to secure that kind of supply that you were able to beat by, I think it was $11 million or so? And then I had a follow-up.

Tim Cook

We did not have a material supply shortage in Q2. And so how were we able to do that? You wind up collapsing all of your buffers and offsets. And that happens all the way through the supply chain. And so that enables you to go a bit higher than what we were expecting to sell when we went into the quarter 90 days ago.

Harsh Kumar, Piper Sandler

That's very helpful. And then for my follow-up: I know there's a lot of moving parts to them, but, with the economy sort reopening here in the U.S., and you mentioned about supply constraints possibly on the Mac and the iPad. I was curious if I can get your thoughts, maybe just color-wise, on what you would expect for those two categories, Macs and the iPads, in the second half of this year?

Tim Cook

Well, we don't you know, we don't predict our guide to product-level detail. We're not even guiding to the top level at this point because of covid and install sidestep that question. But I would point to Luca's point earlier about the shortages and those shortages primarily affect iPad and Mac. So we expect to be supply-gated, not demand-gated.

Krish Sankar, Cowen & Co.

Yeah, hi. Thanks for taking my question and congrats on a fantastic quarter. First question for Tim or Luca. The Greater China sales are very strong in the March quarter. Can you give some color on what drove the strength, which hardware products or services enabled the solid outperformance in China? And then I had a follow-up.

Tim Cook

We were very pleased with our performance in China. We set a March quarter revenue record and grew strong double digits across each of the product categories. And so the revenue growth was broad. We've been especially pleased by the customer response in China to the iPhone 12 family. And as I mentioned earlier, you have to remember that China entered the shutdown phase earlier in Q2 of last year than other countries. And so they were relatively more affected in that quarter, and that has to be taken into account as you as you look at the results.

As I had mentioned earlier, we had the top two selling smartphones in urban China. So we're very proud of that. And iPad, Mac both had enormously positive quarters with great strength across the board. And we're seeing a strong reception to the new iPad Pro as well that we just announced, a lot of great comments. And about 2/3 of the people buying Mac and iPad were buying them for the first time. And so we're attracting some new customers in China, which is really important to us.

Krish Sankar, Cowen & Co.

That is very helpful. And then maybe as a follow-up, I kind of had like a big picture philosophical question, and to the extent you can answer this. One of the concerns many investors have is about the overhang of regulatory risks. And I understand it's very hard to handicap that, but I'm kind of curious, do you think giving more public disclosure on a services business like App Store would help alleviate some of those concerns? Or do you think that revealing a lot of competitive details… Kind of curious to know what do you think on services disclosure?

Tim Cook

I think with the regulatory questions and scrutiny, we have to make sure that we're telling our story and why we do what we do. And we're very focused on doing that. If we feel that more disclosure would help, we would obviously move in that direction. The App Store and other parts of Apple are not cast in concrete, and so we can move and are flexible with the times. For example, on the App Store, as you know, just a couple of quarters ago we lowered the commission rate for small developers to 15%. So that was an example of moving with the times and we've gotten a great, great reception to that. And so, you know, we continue to learn and I think it's very important that we're very clear about why we do what we do. The idea behind curating the App Store in order to get the privacy and security that our customers want, I think is very important. And we have to convey that in a very straightforward manner.

Kyle McNeely, Jefferies

Hi, thanks a lot for the question. One of the things we've been positive about is how growing iPhone sales can pull along Watch and AirPods sales well as customers shop the whole store. But you mentioned through COVID that accessories do much better in a physical store environment, and that's been hard due to the shutdowns, obviously. So my question is, have you seen any improvement in the attach rate for Watch and AirPods with iPhone? And can it get a lot better from here as the environment gets closer to normalization?

Tim Cook

I think we get a lot of benefit from our stores when they're open and are fully operational. And we were in better shape for parts of Q2 than we were previously. But, you know, we're still operating with a limited operational model in many stores, and there's still some stores today that are closed, like stores in Michigan and stores in France and so forth.

And so I think it will take some amount of time, but my view would be, as the stores get back up to speed, fully up to speed, we should be able to increase some of the accessory sales, although I think we're doing fairly well at the moment. So it's not something that we're not doing well.

Online has been much more beneficial and much more productive than we would have guessed going into this.

David Voit, UBS

Great, thanks, guys, and congratulations on a good quarter. Maybe if I could just ask a question, I know it's early days, I know it's early days, but any commentary color from maybe the developer community on ATT, and kind of what the initial feedback and data might look like that you can share with us? Thanks.

Tim Cook

ATT's focus is really on the user and giving the user the ability to make a decision about whether they want to be tracked or not. And so it's putting the user in the control, not Apple, not another company, but the user, where it should be. And so that's really the focus of it and the feedback that we've gotten from users both before it went live, when it was in the planning stages and so forth, and after has been tremendous. And so we're really standing up on behalf of the consumer here.

David Voit, UBS

Maybe just a quick follow up, then, can you kind of discuss what the downloads have looked like? I know it just rolled out earlier this week, and sort of the acceptance by the consumer at this point? Any sort of metrics that you can share with us, whether it's sort of opt in or opt out view from the consumer perspective?

Tim Cook

I don't even know the answer to that. It's not something that we would have predicted beforehand. And frankly, even if it's very low of people that don't want to be tracked, it's worth doing because those people should make their own mind up, whether they would like to be tracked or not.

Samik Chatterjee, JP Morgan

Hey, thanks for the question, and just want to get into the performance by geography here a bit, and Europe really exceptional results, particularly for this time of the year. Tim, I know you mentioned some of the 5g iPhone upgrades are in front of you and I would assume Europe's kind of in that category. But curious to hear, maybe if you can double click on what's driving the exceptional growth here in Europe and are consumers moving to 5G phones, even though some of the service provider plans are not rolled out or are we still expecting that to be much more in front of us?

Luca Maestri

Hey Samik, I'll take that one. You're right. I mean, we had great performance in Europe. We grew 56% during the quarter. And it was probably one of the geos where we actually saw results that were better than even our own expectations. We grew very strong double digits across the board, every product category. Particularly, I would say, iPad and Mac. They really were very, very strong.

Again, obviously Europe has been affected by lockdowns, more than most parts of the world. The lockdowns have lasted longer than here in the United States for example. Tim was mentioning, there are places in Europe still today where our stores are closed. And fortunately we have a very strong online business that has really helped us, working from home, learning from home, you know, limited entertainment options. That has all played in our favor.

Keep in mind that our Europe segment is a very broad version of Europe because it includes Western Europe, which has done very, very well. And then, Eastern Europe, and it goes into the Middle East, even India is part of Europe, and those emerging markets have done incredibly well, significantly better than company average. So very, very pleased with some of the results in India, for example, Russia, Middle East in general. So it's been very broad, both across product categories and across countries in Europe.

Samik Chatterjee, JP Morgan

And just a quick follow up for you. Luca, I think we all just wanted to understand the implications of the investment plans that you announced recently for the U.S. The $430 billion over a multi-year period. Just getting some questions from investors of how to think about the implication on the run rate of operating expenses for the company.

Luca Maestri

If you remember, we announced back in 2018, that we were making a very sizable commitment to the United States. At the time we announced $350 billion of investment over the following five years. And during these three years since then, we've overachieved on those commitments and we felt it was the right time to update these type of investments. And they span from obviously the investment that we made directly at Apple, for example, we talked about the creation of 20,000 new jobs at Apple over the next five years in the United States.

And of course our business has grown. And so our commitment, for example, to U.S. suppliers grows over time. And that shows in the higher numbers. In the meantime, we've got into new businesses, for example, Apple TV+, a lot of the content that we developed for our TV service is produced here in the United States. And so that's additional investment here in the United States.

From an OPEX standpoint, I think as you're seeing this year, we're getting a lot of leverage. This is one of those years, you know, we said many times, sometimes our OPEX grows faster than revenue and there are some of the cycles where the opposite happens. We are growing revenue this year much faster than our OPEX increased, but we want to continue to make all the necessary investments into the business. We will never under invest in our business. And so you will continue to see the fact that we will continue to grow our operating expenses, particularly on the R&D side, which continues to be the core of the company.

Apple has just announced its financial results for Q2 2021, covering the period between January 1 and March 31, 2021. The company posted quarterly revenue of $89.6 billion.

The quarter saw growth across all of Apple's product lines, including services. iPhone sales hit $47.94 billion, up substantially from the previous year, with Mac, iPad, wearables, and services all beating their year-ago results, too.

For a more detailed breakdown of Apple's Q2 results, head here.

Press release:

Apple Reports Second Quarter Results

Revenue up 54 percent to new March quarter record

Services and Mac revenue reach new all-time high

April 28, 2021 04:30 PM Eastern Daylight Time

CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2021 second quarter ended March 27, 2021. The Company posted a March quarter record revenue of $89.6 billion, up 54 percent year over year, and quarterly earnings per diluted share of $1.40. International sales accounted for 67 percent of the quarter's revenue.

"This quarter reflects both the enduring ways our products have helped our users meet this moment in their own lives, as well as the optimism consumers seem to feel about better days ahead for all of us," said Tim Cook, Apple's CEO. "Apple is in a period of sweeping innovation across our product lineup, and we're keeping focus on how we can help our teams and the communities where we work emerge from this pandemic into a better world. That certainly begins with products like the all-new iMac and iPad Pro, but it extends to efforts like the 8 gigawatts of new clean energy we'll help bring onto the grid and our $430 billion investment in the United States over the next 5 years."

"We are proud of our March quarter performance, which included revenue records in each of our geographic segments and strong double-digit growth in each of our product categories, driving our installed base of active devices to an all-time high," said Luca Maestri, Apple's CFO. "These results allowed us to generate operating cash flow of $24 billion and return nearly $23 billion to shareholders during the quarter. We are confident in our future and continue to make significant investments to support our long-term plans and enrich our customers' lives."

Apple's board of directors has declared a cash dividend of $0.22 per share of the Company's common stock, an increase of 7 percent. The dividend is payable on May 13, 2021 to shareholders of record as of the close of business on May 10, 2021. The board of directors has also authorized an increase of $90 billion to the existing share repurchase program.

Apple will provide live streaming of its Q2 2021 financial results conference call beginning at 2:00 p.m. PT on April 28, 2021 at apple.com/investor/earnings-call. This webcast will also be available for replay for approximately two weeks thereafter.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q1 2021 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon, everyone. Thanks for joining the call today. It's with great gratitude for the tireless and innovative work of every Apple team member worldwide that I share the results of a very strong quarter for Apple. We achieved an all-time time revenue record of $111.4 billion. We saw strong double-digit digit growth across every product category, and we achieved all-time time revenue records in each of our geographic segments. It is not far from any of our minds that this result caps off the most challenging year any of us can remember, and it is an understatement to say that the challenges it posed to Apple as a business paled in comparison to the challenge it posed to Apple as a community of individuals, to employees, to their families and to the communities we live in and love to call home. While these results show the central role that our products played in helping our users respond to these challenges, we are aware that the work ahead of all of us to navigate the end of this pandemic, to restore normal life and prosperity in our neighborhoods and local economies, and to build back with a sense of justice is profound and urgent. We will speak to these needs and Apple's efforts throughout today's call, but I want to first offer the context of a detailed look at our results this quarter, including why we outperformed our expectations. Let's get started with hardware. We hit a new high watermark for our installed base of active devices with growth accelerating as we passed 1.65 billion devices worldwide during the December quarter. iPhone grew by 17% year over year, driven by strong demand for the iPhone 12 family, and our active installed base of iPhones is now over one billion. The customer response to the new iPhone 12 models unprecedented innovation, from world-class cameras to the great and growing potential of 5G has been enthusiastic, even in light of the ongoing COVID-19 impact at retail locations. iPad and Mac grew by 41% and 21%, respectively, reflecting the continuing role these devices have played in our users lives during the COVID-19 pandemic. During this quarter, availability began for both our new iPad Air, as well as the first generation of Macs to feature our groundbreaking M1 chip. The demand for all of these products has been very strong. We have also continued our efforts to bring the latest iPads, enriching content and professional support to educators, students and parents, educational districts and governments worldwide are continuing major deployments, including the largest iPad deployments ever to schools in Germany and Japan. Wearables, home, and accessories grew by 30% year over year, driven by significant holiday demand for the latest Apple Watch, our entire air pods lineup, including the new AirPods Max, as well as the new HomePod mini this broad strength across the category led to new revenue records for each of its three subgroups. And we're very excited about the road ahead for these products. Look no further than the great potential of Fitness+, which pairs with Apple Watch to deliver real-time on screen fitness data alongside world-class workouts by the world's best trainers. There are new sessions added each week, and customers are loving the flexibility, challenge and fun of these classes, as well as how the pairing with Apple Watch pushes you to achieve your fitness goals. The steep integration of hardware, software and services have always defined our approach here, and it has delivered an all-time quarterly services record of $15.8 billion. This was the first quarter of the Apple One bundle, which brings together many of our great services into an easy subscription and with new content being added to these services every day, we feel very optimistic about where we are headed. The App Store ecosystem has been so important as individuals, families and businesses worldwide evolve and adapt to the COVID-19 pandemic, and we want to make sure that this unrivaled engine of innovation and opportunity continues. This quarter, we also took a significant new step to help smaller developers continue to experiment, innovate and scale the latest great app ideas. The App Store Small Business Program reduces the commission on the sale of digital goods and services to 15% for small businesses earning less than $1 million a year. The program launched on January 1, and we are already hearing from developers about how this change represents a transformation in their potential to create and grow on the App Store. Tomorrow is International Privacy Day, and we continue to set new standards to protect users right to privacy, not just for our own products, but to be the ripple in the pond that moves the whole industry forward. Most recently, we're in the process of deploying new requirements across the App Store ecosystem that give users more knowledge about and new tools to control the ways that apps gather and share their personal data. The winter holiday season is always a busy time for us and our products, but this year was unique. We had a record number of device activations during the last week of the quarter, and as COVID-19 kept us apart, we saw the highest volume of FaceTime calls ever this Christmas. As always, we could not have made so many holidays special without our talented and dedicated retail teams who helped us achieve a new all-time time revenue record for retail, driven by very strong performance in our online store. Particularly after the events of the last few weeks, we're focused on how we can help a moment of great national need. Because none of us should have any illusions about the challenges we face as we begin a new chapter in the American story, hope for healing, for unity and for progress begins with and depends on addressing the things that continue to wound us. In our communities, we see how every burden from COVID-19 to the resulting economic challenges to the closure of in-person learning for students falls heaviest on those who have always faced structural barriers to opportunity and equality. This month, Apple announced major new commitments to a 100 million dollar racial equality and justice initiative. The Propel Center, launched with a $25 million commitment and with the support of historically black colleges and universities across the country, will help support the next generation of leaders in fields ranging from machine learning to app development to entrepreneurship and design. And our new Apple Developer Academy in downtown Detroit will be the first of its kind in the United States. Detroit has a vibrant culture of black entrepreneurship, including over 50,000 black owned businesses. We want to accelerate the potential of the app economy here, knowing there is no shortage of good ideas and such a creative, resilient and dedicated community. Finally, we're committing $35 million across two investments to investments in Harlem capital and the Clear Vision Impact Fund that support, accelerate, and grow minority-owned businesses in areas of great potential in need. In December, we concluded an unmatched year giving. Since the inception of the Apple giving program in 2011, Apple employees have donated nearly $600 million dollars and volunteered more than one point six million hours to over 34,000 organizations of every stripe. Throughout partnership with Product Red, we've adopted our 14-year, $250 million effort to support HIV and AIDS work globally to ensure that care continues even in the time of COVID. That includes delivering millions of units of personal protective equipment to health care providers in Zambia. And here in the United States, even with COVID's effects, we are ahead of schedule on our multi-year commitment to invest $350 billion throughout the American economy. As proud as this makes us, we know there is much more to be done. Looking forward. We continue to contend with the COVID-19 pandemic, but we must also now work to imagine what we will inherit on the other side. When a disease recedes, we cannot simply assume that healing follows. Even now, we see the deep scars that this period has left on our communities. Trust has been compromised. Opportunities have been lost. Entire portions of our lives that we took for granted, schools for our children, meetings with our colleagues, small businesses that have endured for generations, have simply disappeared. It will take a society wide effort across the public and private sectors as individuals and communities, every one of us, to ensure that what's ahead of us is not simply the end of a disease, but the beginning of something durable and hopeful for those who gave, suffered, and endured during this time. At Apple, we have every intention to be partners in this effort, and we look forward to working in communities around the world to make it possible. And as this chapter of uncertainty continues, so will our tireless work to help our customers stay safe, connected and well with that, I'll hand things over to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. We started our fiscal 2021 with exceptional business and financial performance during the December quarter as we set all-time, records for revenue, operating income, net income, earnings per share, and operating cash flow. We are thrilled with the way our teams continue to innovate and execute throughout this period of elevated uncertainty. Our revenue reached an all-time time record of $111.4 billion, an increase of nearly $20 billion or 21% from a year ago. We grew strong double-digits in each of our product categories with all-time time records for iPhone, wearables, home, and accessories and services, as well as the December quarter record for Mac. We also achieved double-digit digit growth and new all-time time records in each of our five geographic segments and in the vast majority of countries that we track. Product revenue was an all-time time record of $95.7 billion, up 21% over a year ago. As a consequence of this level of sales performance, and yet unmatched loyalty of our customers, our install base of active devices past 1.65 billion during the December quarter and reached an all-time time record in each of our major product categories. Our services set an all-time time record of $15.8 billion growing 24% year-over-year. We established new all-time time records in most service categories and December quarter records in each geographic segment. I'll cover our services business in more detail later. Company gross margin was 39.8% up 160 basis points sequentially, thanks to leverage from higher sales and a strong mix. Product gross margin was 35.1% growing 530 basis points sequentially driven by leverage and mix services, gross margin of 68.4%, up 150 basis points sequentially, mainly due to a different mix. Net income, diluted earnings per share and operating cash flow were all-time time records, net income was $28.8 billion, up $6.5 billion or 29% over last year. Diluted earnings per share where a $1.68, up 35% over last year, and operating cash flow was $38.8 billion, an improvement of $8.2 billion. Let me get into more detail for each of our revenue categories, iPhone revenue was a record $65.6 billion, growing 17% year-over-year, as demand for the iPhone 12 family was very strong despite COVID-19 and social distancing measures which have impacted store operations in a significant manner. Our active installed base of iPhones reached a new all-time time high and has now surpassed one billion devices thanks to the exceptional loyalty of our customer base and strength of our ecosystem. In fact, in the U.S., the latest survey of consumers from 451 Research indicates iPhone customer satisfaction of 98% for the iPhone 12 family. Turning to services, as I said, we reached an all-time revenue record of $15.8 billion and set all-time records in App Store, cloud services, music, advertising, AppleCare, and payment services. Our new service offerings, Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+, as well as the Apple One bundle, are also contributing to overall services growth and continue to add users content and features. The key drivers for our services growth all continue to move in the right direction. First, our installed base growth has accelerated. And is at an all-time high across each major product category. Second, the number of both transacting and paid accounts on our digital content stores reached a new all-time high during the December quarter, with paid accounts increase in double digits in each of our geographic segments. Third, pay subscriptions continue to grow nicely, and we exceeded our target of 600 million paid subscriptions before the end of calendar 2020. During the December quarter, we added more than 35 million sequentially, and we now have more than 620 million subscriptions across the services on our platform, up 140 million from just a year ago. Finally, we continue to improve the breadth and quality of our current services offerings and are adding new services that we think our customers will love. For example, Apple Music recently released its biggest product update ever with features like Listen Now, all new search, personal radio stations and autoplay, 90% of Apple Music users on iOS 14 have already used these new features. In payment services, we continue to expand our coverage with nearly 90% of stores in the United States now accepting Apple Pay so that customers can easily have a touchless payments experience. Wearables, home, and accessories grew 30% year over year to $13 billion, setting new all-time time revenue records in every geographic segment. As a result of the strong performance of our wearables business is now the size of a Fortune 120 company. Importantly, Apple Watch continues to extend its reach, with nearly 75% of the customers purchasing Apple Watch during the quarter being new to the product. We're very excited about the future of this category and believe that our integration of hardware, software and services uniquely positions us to provide great customer experience in this category. Next, I'd like to talk about Mac. We set a December quarter record for revenue of $8.7 billion, up 21% over last year. We grew strong double digits in each geographic segment and said all-time time revenue records in Europe and rest of Asia Pacific, as well as December quarter records in the Americas, Greater China and in Japan. This performance was driven by strong demand for the new MacBook Air, MacBook Pro, and Mac Mini, all powered by our brand new M1 Chip. iPad performance was also very impressive, with revenue of eight point four billion, up 41%. We grew strong, very strong double digits in every geographic segment, including an all-time time record in Japan during the quarter, the all-new iPad Air became available and customer response has been terrific. Both Mac and iPad are incredibly relevant products for our customers in the current working and learning environments, and we are delighted that the most recent surveys of consumers from four or five one research measure customer satisfaction at 93% for Mac and 94% for iPad. With this level of customer satisfaction and with around half of the customer's purchasing Mac and iPad during the quarter being new to that product, the active install base for both products continues to grow nicely and reach new all-time time highs. In the enterprise market, we are seeing many businesses shifting their technology investment in response to COVID-19. One example is how businesses are handling their hundreds of millions of office desk phones while more employees are working remotely. Last quarter, Mitsubishi UFG Bank, one of the largest banks in the world, announced that it will be replacing 75% of its fixed phones with iPhones. By doing so, it expects to realize significant cost savings by providing a secure mobile platform to employees. We're also pleased with the rapid adoption of the Mac Employee Choice Program among the world's leading businesses. We're seeing improved productivity, increase employee satisfaction and talent retention. With the introduction of M1-powered Macs, we're excited to extend these experiences to an even broader range of customers and employees, especially in times of increased remote working. Let me now turn to our cash position. We ended the quarter with almost $196 billion in cash plus marketable securities and retire $1 billion of maturing debt, leaving us with a total debt of $112 billion as a result. And that cash was $84 billion at the end of the quarter. We returned over $30 billion to shareholders in the December quarter, including three point six billion in dividends and equivalents and $24 billion through open market repurchases of 200 million Apple shares as we continue on our path to reaching a net cash neutral position over time. As we move ahead into the March quarter, I'd like to provide some color on what we are seeing, which includes the types of forward-looking information that Tagis referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we will not be guiding to a specific revenue range. However, we are providing some directional insights, assuming the COVID related impacts for our business do not worsen from our current assumptions for the quarter. For total company revenue, we believe growth will accelerate on a year over year basis and in aggregate followed typical seasonality on a sequential basis. At the product category level, keep in mind two items. First, during the March quarter last year, we saw elevated activity in our digital services as lockdowns occurred around the world. So our services business faces a tougher year-over-year comparison. Second, we believe the year-over-year growth in the wearables, home, and accessories category will decelerate compared to Q1. As you know, we were chasing demand on AirPods last year. As we expand the channel inventory from Q1 to Q2 this year, we plan to decrease AirPods channel inventory, as is typical after the holiday quarter. We expect gross margin to be similar to the December quarter. We expect OPEX to be between $10.7 and $10.9 billion. We expect OI&E to be around 50 million and our tax rate to be around 17%. Finally today, our board of directors has declared a cash dividend of $0.205 per share of common stock payable on February 11, 2021, to shareholders of record as of February 8, 2021. With that, let's open the call to questions.

Analysts questions

Katy Huberty, Morgan Stanley

Certainly will go ahead and take our first question from Katy Huberty with Morgan Stanley, please go ahead. Thank you. Congratulations on a really strong quarter. First question for. The gross margin was particularly strong versus your outlook. Can you talk about whether you recognized the full impact of the weaker dollar in the December quarter, given your typical currency hedges? And then how are you thinking about the headwinds and tailwinds on gross margins as you go into the March quarter? Then I have a follow up for Tim.

Luca Maestri

Yes, Katie, so yes, the gross margin was strong, was better than we had anticipated at the beginning of the quarter. The reason for that was obviously we had very strong leverage from higher sales and the mix was strong, both the mix within products and the mix of services, and that was only partially offset by cost. As you know, we launched many new products during the fall and that always comes with new cost structures, but so in total was very good from the effects standpoint really, at the gross margin, level effects didn't play a role neither sequentially nor on a year over year basis for the December quarter, partially because of the hedges that you talked about, but also because some currencies are still weaker against the dollar. At the gross margin, level effects didn't play a role neither sequentially nor on a year over year basis for the December quarter, partially because of the hedges that you talked about, but also because some currencies are still weaker against the dollar. They're still weaker than a year ago. And look specifically to emerging markets in Latin America and Russia and Turkey and so on. Clearly, if the dollar remains weak or continues to weaken, that can become a tailwind for us as we get into the March quarter. At current rates, we expect some level of benefit, around 60 to 70 basis points for the March quarter.

Katy Huberty, Morgan Stanley

That's great, thank you and Tim, one of the challenges with valuing Apple is just a limited visibility that investors have into the roadmap and any new categories that you may enter over time. Without, of course, commenting on any given opportunity. Can you talk about the framework that you use internally to evaluate new markets that might be attractive and what you believe will determine your success as you look to enter new markets?

Tim Cook

Thanks, Katy, for the question and thanks for not asking me any specifics. The framework that we use is very much around... we ask ourselves that this is a product that we would want to use ourselves or a service that we would want to use ourselves. And that's a pretty high bar. And we ask ourselves if it's a big enough market to be on unless it's an adjacency product of which we're looking at it very much from a customer experience point of view. And so there's no set way that we're looking at it, you know, that no formula kind of thing, but we're taking into account all of those things and that kind of things that we love to work on are those where there's a requirement for hardware, software and services to come together because we believe that the magic really occurs at that intersection. And so hopefully that gives you a little bit of insight into how we look at it. And I think we have, you know, some really good opportunities out there. And I think if you look at our current portfolio of products, we are you know, we still have relatively low share in a number of cases in very big markets, and so we feel like we have really good upside there and we feel like we have really good upside in the services area, too, that we've been working on for quite some time with, you know, four or five new services just coming online in the last year, year plus. And so, yeah, thank you.

Wamsi Mohan, Bank of America Merrill Lynch

Yes, thank you. Luca, the iPhone growth exceeded your expectations despite a late launch, can you maybe share some color on what drove that? Was it more on the unit side or the ASP side? You refer to very strong mix a couple of times on the call. And how does this change your view on the on the March quarter? And if you could share any color on if you're still supply constrained and I will follow for Tim.

Luca Maestri

Yeah, yes, certainly iPhone was one of the major factors why we exceeded our own internal expectations at the beginning of the quarter, we have a fantastic product lineup and we know that. And it's been fantastic to see the customer response for the four new models, particularly the Pro models, the Pro and the Pro Max. So we've done very, very well, both on units and on pricing because of the strong mix. And we've had some level of supply constraints as we went through the quarter, particularly on the Pro and the Pro Max. As you said correctly, we launched these products in the middle of the quarter, two models after four weeks, the other two models after seven weeks. And so obviously we had a very steep ramp, which fortunately went very, very well. The products are doing very well all around the world. I think you've seen that our performance has been particularly strong in China, where we've seen phenomenal customer response, that probably there was also some level of pent up demand for 5G iPhones, given that the market is moving very quickly to 5G. And so as we look ahead into the March quarter, we're very optimistic. We believe we're going to be able to be in supply/demand balance for all the models at some point during the quarter, and it's you know, that the product is doing very well all around the world.

Wamsi Mohan, Bank of America Merrill Lynch

Thank you, Luca and Tim, you mentioned about the strength of the install base performance, which continues to grow very impressively at this scale. Can you maybe help us think through how the switcher versus upgrade activity has been tracking in recent quarters? I would love to get your thoughts on that. Thank you.

Tim Cook

Yeah, thanks for the question. If you look at this past quarter, which, you know, has we started selling to two of the iPhones four weeks into the quarter and the other two seven weeks into the quarter. And so I would caution that this is in the early going. But in looking at the iPhone 12 family, we saw both switchers and upgraders increase on a year over year basis. And in fact, we saw the largest number of upgraders that we've ever seen in a quarter. And so we were, you know, very thrilled about that.

Shannon Cross, Cross Research

Thank you very much, Tim, can you talk a bit about what you're seeing in China, clearly significant sequential growth, which I think has a lot to do with iPhone. But I'm curious, both from an iPhone as well as, you know, your other product categories, what you're seeing, and you know, how much back to normal you think the Chinese market is, and then I have a follow up. Thank you.

Tim Cook

Yeah, China was more than an iPhone story. iPhone did do very well there. And it's sort of like the world. If you look at both switchers and upgraders, we were up year over year. And China also had a record number of upgraders during the quarter, the most we've ever seen in a quarter. I think probably some portion of this was that people probably delayed purchasing in the previous quarter, as rumors started appearing about an iPhone. Keep in mind that 5G in China is the, network is well established, and that the overwhelming majority of phones being sold are 5G phones. And so I think there was some level of anticipation for us delivering an iPhone with 5G. And so iPhone did extremely well. However, the other products did as well. I mean, we could not have turned in a performance like we did with only iPhone. iPad did extremely well far beyond the company average. Mac was above the company average. Wearables, home, and accessories was above the company average. And so if you really look at it, we did really well across the board there in terms of of COVID, I think there at least for last quarter, they were sort of beyond COVID in very much in the recovery stage. This quarter, there are different reports about some cases in some places and lockdowns occurring. But we have not seen that in our business as yet. And, of course, those cases are much smaller than the ones in other countries.

Shannon Cross, Cross Research

Right. I guess the other thing I was curious about with regard to the services business, you know, if we could dig a little bit more, I think this is one of the first times when looking you talked about Apple TV+, Arcade, Apple Pay, some of the smaller services actually kind of moving the needle. And then I was also curious, you had a number of stores closed at least later in the quarter, and that typically has impacted some of your AppleCare revenue and yet you outperformed. So maybe if you could talk about a bit more about the drivers of the services revenue. Thank you.

Luca Maestri

Yeah. I mean, really, it's been strong across the board. There are two businesses during COVID that have been impacted negatively and then we talked about it in the past. One is AppleCare. Obviously, when the stores are closed, it's tougher, of course, for customers to have the interaction with us and advertising, which is, you know, it's in line with the overall level of economic activity. What happened during the December quarter is that in-store traffic improved and so AppleCare, we grew, we didn't grow as much as company average, but we grew in AppleCare, set an all-time record there in spite of the fact that, yes, we are running, particularly in December, we started closing a few stores, particularly here in the United States, but also in Western Europe. But in total, we were able to support more customers than in past quarters. We also saw a sequential acceleration in advertising, and so that also helped the overall growth rate. Clearly, the strength was in digital services; in the App Store, in cloud services, in music. Those were the services that really delivered very, very strong performance. And it's something that we've seen happen during the COVID environment.

Toni Sacconaghi, Bernstein

Yes, thank you. I also have one for Luca and one for Tim. Luca, I was wondering if we could just probe a little bit more into iPhone. Maybe you can just, you talked about a draw down in channel inventory last quarter. Are iPhone channel inventory is sort of at normal levels now exiting Q1? And should we be thinking about above-seasonal iPhone growth, given that you're still not in supply/demand balance and you had fewer selling days in fiscal Q1? Should we be thinking about sort of above-seasonal iPhone growth looking in into Q2?

Luca Maestri

So on the December performance, as you know, Tony, this was a very different cycle because we launch at a different time than usual. And so we had initial part of the quarter where obviously we didn't have the new phones. And then as we launched the new phones, we also did the channel fill that typically happens, to a certain extent, in the September quarter, at the end of the quarter, and the demand has been very strong. And so we've been constrained, as I said, on especially in the Pro models. At the end of December, we exited with a level of iPhone channel inventory, which was slightly below a year ago. And we still had some level of supply constraints which we believe we're going to be able to solve during the March quarter. In terms of the sequential change we talked about, during the prepared remarks, we talked about to the company average, and we said that we expect that sequential progression to be similar to the typical seasonality that you've seen in past years. Certainly last year is not typical because of COVID. But if you go back, you know, fiscal 17, 18, 19, you know, that's our typical seasonal progression. And we mentioned a couple of product categories, services and wearables, where we're going to be having a slightly more difficult compare. And so I think you can draw your conclusions around the iPhone.

Toni Sacconaghi, Bernstein

OK, thank you for that. And then, Tim, I was wondering if you could just comment more broadly around growth for Apple and sources of growth, the company, you know, this year is going to be well over $300 billion in revenue. Historically, you've eschewed acquisitions. And I'm wondering if you could comment whether you still feel confident that Apple has Apple organic growth opportunities and that you don't believe acquisitions are an important source of growth. And then I think perhaps most importantly, as you look out, let's say, over the next five years, what do you think is a realistic revenue growth rate for Apple going forward? Thank you.

Tim Cook

Yeah, Tony, as you know, we give some color on the current quarter, but not beyond that in terms of growth rates, so I'll punt that part of your question. But if you back up and look at the sort of the ingredients that we have at this point, we have the strongest hardware portfolio that we've ever had. And we have a great product pipeline for the future, both in products and in services. We have an install base that has hit new highs that we just talked about earlier in our opening comments. And we're still attracting a fair number of switchers and, of course, upgraders. We just set an all-time time service record, and we have that installed base to compound that, and particularly with the added services that we've had over the last year or so, that as they grow and mature, will contribute even more to the service's revenue stream. And on the wearable side, we've brought this thing from zero to a Fortune 120 company, which was no small feat. But I still think that we're in the early stages of those products. If you look at our share in some of the other products, whether when you look at iPhone or Mac or iPad, you find that the share numbers leave a fair amount of headroom for market share expansion. And this is particularly the case in some of the emerging markets where we're proud of how we've done, but there's a lot more headroom in those markets. Like if you take India as an example, we if we doubled our business last quarter compared to the year ago quarter, but our absolute level of business there is still quite low relative to the size of the opportunity, and you can kind of take that and go around the world and find other markets that are like that as well. And of course, the other thing from a market point of view is we've been on a multi-year effort in the enterprise and have gained quite a bit of traction there. You've heard some of the things and Luca's comments today and we comment somewhat on each quarter, we're very optimistic about what we can do in that space. And then, of course, we've got new things that we're not going to talk about that we think will contribute to the company as well, just like other new things have contributed nicely to the company in the past. So we see lots of opportunity. Thank you for the question.

Amit Daryanani, Evercore

I guess starting with you, Luca, I just wanted to go back to the gross margin discussion and, you know, we really haven't seen gross margins at this level, high 39, I think, since 2016. Do you think you can step back and talk about what has enabled a shift higher, what are the key drivers to get you there, and, you know, it's commodity tailwinds or in sourcing of some components, really a big part of this? So to understand the durability of the gross margin at these levels and what are the big drivers that got us here?

Luca Maestri

Well, I mean, of course, when you know, when you grow the way we've grown this you know, this quarter 21%, and it's obviously... we have a certain level of fixed cost in our product structures. Right. And so, you know, a high level of sales helps margin expansion, without a doubt. And so that has been probably the biggest factor, to be honest. And then, as I was saying earlier, we've had across the board, in services, in every product category, we've had a very strong mix of products like, you know, we were talking about the iPhone, the Pro and the Pro Max, and, you know, and that's been pretty much the case in every product category. So the mix has also been very good. The commodity environment is fairly benign and the one thing that has not affected us this time around is the effects that it's true, it has not been a tailwind yet, for the reasons that I was explaining to Katie, but at the same time, it has not been a negative. And the reality is that effects for us has been a negative over the last five or six years, almost every quarter. And so that is that has changed. And that obviously makes a difference.

Amit Daryanani, Evercore

And so that is that has changed. And that obviously makes a difference. Got it. And then, you know, Tim when I look at the growth rates on Mac and iPads, you know, they've been in the 20 to 40 percent range for the last three quarters. And I suspect some of this is just folks contending with the pandemic. But I'd love to understand. I feel when you look at these growth rates, how much of this do you think is replacement cycle driven folks upgrading what they have at home, versus new customers and new folks that are coming into the Apple ecosystem? And, you know, do you see, I guess, what sort of growth rate do you think is more durable, you know, predictable as you go forward?

Tim Cook

If you look at the new to Mac and new to iPad, these numbers are still about at a worldwide level. About half of the purchases are coming from people that are new. And so the installed base is still expanding with with with new customers in it. And so that's true on both iPad and Mac. If you look at Mac, the M1, I think gives us a new growth trajectory that we haven't had in the past. Certainly, if Q1 is a good proxy, there's lots of excitement about M1-based Macs. As you know, we're partly through the transition. We've got a lot more to do there. We're, you know, early days of a two-year transition, but we're excited about what we see so far. The iPad as we went out with the iPad Air, and we now have the best iPad lineup we've ever had. And it's clear that some people are using these as laptop replacements. Others are using them as complementary to their desktop. But the level of growth there has been phenomenal. You look at it at 41%. And yes, part of it is work from home, and part of it is just learning. But I think I wouldn't underestimate how much of it is the product itself in both the case of iPad and Mac. And of course, our share in the Mac is quite low in the for the total personal computer market. And so there's lots of headroom there

Samik Chatterjee, JP Morgan

Hi, thanks for taking my question and congrats on the record quarter from my side as well. I guess I wanted to start off with iPhone sales. I think a general impression we have is China and North America have more robust 5G infrastructure. I just want to see kind of what are you seeing in terms of customer engagement or velocity of sales for iPhone in Europe, where I think the general impression is that service providers haven't rolled out robust 5G services. Is that something that's impacting customer interest in the latest line up in the region? And I have a follow up. Thank you.

Tim Cook

If you look at the 5G rollout in Europe, it's true that Europe is not in the place of, certainly nowhere close to where China is, and nowhere close to the U.S. Either. But there are other regions that 5G has very good coverage, like Korea as an example. And so the world, I would describe it right now is more of a patchwork quilt. There are places that there's really excellent coverage, there are places where, within a country that is very good, but not from a nationwide point of view. And then there are places that really hasn't gotten started yet. Latin America is closer to the last one. There's lots of opportunity ahead of us there. And I think Europe is where there are 5G implementations there. I think most of that growth is probably in front of us there as well.

Samik Chatterjee, JP Morgan

Got it. As a follow up, if I can just ask you, I think you mentioned the momentum you're seeing for the Apple One bundle, which I think has been a couple of months now since you launched it. Any metrics to shed in terms of what are you seeing for conversion rate of customers or even insights into which services in that bundle are going to be the anchor services that's driving adoption of that bundle?

Tim Cook

It's really too early to answer some of those questions. As you know, we just got started into the quarter in Q1. So we have less than a quarter on this right now. What we wanted to accomplish with it, we're clearly accomplishing, which is making our services very easy to subscribe to. Our customers clearly told us that they wanted to subscribe to several services or in some cases all of our services. And so we've made that very simple, and it's clear from the early going that it's working. But we've just gotten started on it.

Krish Sankar, Cowen & Co.

Hi, thanks for taking my question and congrats on the very strong results. My first question is for Tim. Tim, I want to talk a little bit about your search and advertising business. How do you think the long term growth opportunities in advertising? How long can it go to the three times the App Store growth rate? And also, are there any applications of your fundamental search technology we are in to use could be adapted for other parts of the services business. That's the first question. And then I have a quick follow up from Luca after that.

Tim Cook

The search advertising business is going well, it's a you know, there's lots of intent from search, and we do it in a very private kind of manner, observing great privacy policies and so forth. And I think people see that and are willing to try it out. And we have been growing nicely in that area. That's a part of the advertising area that Luca spoke of earlier.

Krish Sankar, Cowen & Co.

I'm going to follow up for Luca. When you look at the services segment in the March quarter in China, you typically see a bump due to gaming downloads in Chinese New Year. So should we see a similar trend this time around? Or do you think, with the pandemic and people think 'I'm at home,' that kind of seasonal bump might not happen in China for game downloads?

Luca Maestri

Yeah, I mean it, and I think I was mentioning it during the prepared remarks, clearly in China, the March quarter is typically the strongest quarter for our services business and for the App Store because of Chinese New Year, as you mentioned. And last year was what we saw was an increased level of activity because after Chinese New Year, the whole country went into lockdown for several weeks, and so that propensity for playing games continued for several weeks, more than a typical cycle. So we expect, you know, to have a great quarter in China. But at the same time, you need to keep in mind that, you know, the compare is going to be particularly challenging because of what happened a year ago.

Chris Caso, Raymond James

Yes, thank you. First question is on iPhone ASPs, and I know you don't disclose the numbers there, but I wonder if you could speak about it qualitatively. You spoke about the richer mix, but there were also some price differences as compared to a year ago. iPhone 12 came a higher price point. The Pro established the new price point. Can you speak to how that, you know, the level of benefit that you saw there, and going forward, are you confident that you can continue to improve the mix in iPhone going forward?

Luca Maestri

So as I said earlier, we grew iPhone revenue 17 percent, and that growth came from both units sales and ASPs, because of the strong mix that I mentioned before. So I think that answers your question for the December quarter. What we've seen so far, it's very early because we launched the new products only a few a few weeks ago. What we're seeing so far is a very high level of interest for the Pro models, the Pro and the Pro Max. We worked very hard to ramp up our supply. We've had some supply constraints during the December quarter. We think we're going to be able to solve them during the March quarter. But so far, the mix has been very, very strong on iPhone.

Chris Caso, Raymond James

As a follow-up up question, if you could talk a bit to the benefit that you may have seen from some of the carrier actions, some very aggressive trades during the quarter, did that provide a benefit, in your view, on units, or mix, or perhaps both? And what would be the level of permanence that you would see in some of those actions such that, you know, if those subsidies were removed could potentially be a headwind going forward?

Tim Cook

I think, Chris, it's Tim; I think subsidies always help that anything that reduces the price to the customer is good for the customer, and obviously good for the carrier that's doing it, and good for us as well. And so it's a win across the board. I believe that at least based on what I see right now, is that there would be probably continuing to have quite a bit of competition in the market. If you're talking about the U.S. market. For customers as the carriers work to get more customers to move to 5G. Outside of the U.S., the subsidies are not used in all geographies, and so it really varies greatly by country. Some of them separate completely the handset and the service and those areas, we don't have subsidies.

Jim Suva, Citigroup

Thank you very much. It's amazing how your company has pivoted and progressed through this uncertain time in society. A lot of the pushback we get on our view on Apple is that, you know, everyone around them or that they know in developed countries has an iPhone or Apple product in the market is kind of being saturated some. But when I look at other countries like India, I believe statistically you are materially below that in market share. So are you doing active efforts there? It seems like there's been some news reports of you moving supply chain there, or you recently opened up an Apple Store. How should we think about that? Because it just seems like you're really not full market share equally around the world.

Tim Cook

Yeah, there are several markets, as I alluded to before. India is one of those where our share is quite low. It's it did improve from the year ago quarter. Our business roughly doubled over that period of time. And so we felt very good about the trajectory. We are doing a number of things in the area. We put the online store there, for example, and last quarter was the first full quarter of the online store. And that has gotten a great reaction to it and has helped us achieve the results that we got to last quarter. We are also going in there with retail stores in the future. And so we look for that to be another great initiative, and we continue to develop the channel as well. And so there's there's lots of things, not only in India, but in several of the other markets that you might name. Where our share is lower than we would like. And I and I again, I would also say even and even in the developed markets, when you look at our share, definitely everybody doesn't have an iPhone, not even close. And so, you know, we. We really don't have a significant share in any market. So there's a headroom left even in those developed markets where you might hear that.

Apple has just announced its financial results for Q1 2021, covering the period between October 1 and December 26, 2020. The company posted quarterly revenue of $111.4 billion.

The quarter saw net iPhone sales hit $65.6 billion, up substantially from the previous year, with Mac, iPad, wearables, and services all beating their year-ago results, too.

For a more detailed breakdown of Apple's Q1 results, head here.

Check out the transcript of Apple's Q1 2021 earnings call

Press release:

Apple Reports First Quarter Results

Revenue up 21 percent and EPS up 35 percent to new all-time records

iPhone, Wearables, and Services set new revenue records

CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2021 first quarter ended December 26, 2020. The Company posted all-time record revenue of $111.4 billion, up 21 percent year over year, and quarterly earnings per diluted share of $1.68, up 35 percent. International sales accounted for 64 percent of the quarter's revenue.

"This quarter for Apple wouldn't have been possible without the tireless and innovative work of every Apple team member worldwide," said Tim Cook, Apple's CEO. "We're gratified by the enthusiastic customer response to the unmatched line of cutting-edge products that we delivered across a historic holiday season. We are also focused on how we can help the communities we're a part of build back strongly and equitably, through efforts like our Racial Equity and Justice Initiative as well as our multi-year commitment to invest $350 billion throughout the United States."

"Our December quarter business performance was fueled by double-digit growth in each product category, which drove all-time revenue records in each of our geographic segments and an all-time high for our installed base of active devices," said Luca Maestri, Apple's CFO. "These results helped us generate record operating cash flow of $38.8 billion. We also returned over $30 billion to shareholders during the quarter as we maintain our target of reaching a net cash neutral position over time."

Apple's Board of Directors has declared a cash dividend of $0.205 per share of the Company's common stock. The dividend is payable on February 11, 2021 to shareholders of record as of the close of business on February 8, 2021.

Apple will provide live streaming of its Q1 2021 financial results conference call beginning at 2:00 p.m. PT on January 27, 2021 at apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

Apple periodically provides information for investors on its corporate website, apple.com, and its investor relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance, and details related to its annual meeting of shareholders.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q4 2020 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon and thanks for joining the call today. Back in April, I said we were in the most challenging environment in which Apple as a company has ever operated. That atmosphere of uncertainty, of resolve, of making difficult calls with limited information has not only come to define Apple's year, but each of our lives as individuals across this country and around the world. It has been a chapter that none of us will forget. In the face of these challenges, Apple stayed relentlessly focused on what we do best seeing and every obstacle and opportunity to do something new, something creative, something better on behalf of our customers. Today, we report a quarter and a fiscal year that reflects that effort this quarter, Apple achieved revenue of $64.7 billion, a September quarter record, despite the anticipated absence of new iPhone availability during the quarter and the ongoing impacts of covid-19, including closures at many of our retail locations. We also set a new all time record for Mac and services. Outside of iPhone, each of our product categories saw strong double digit year over year growth, despite supply constraints in several product categories. Our results for this quarter were ahead of our expectations, driven by stronger than expected iPhone and services performance. As we anticipated, we launched new iPhone models in October, a few weeks later than last year's mid-September launch. Up to that mid-September point, customer demand for iPhone was very strong and grew double digits. On services we saw stronger than expected performance across the board. Geographically, we set September quarter records in the Americas, Europe and rest of Asia Pacific. We also set a September quarter record in India, thanks in part to a very strong reception to this quarter's launch of our online store in the country. Greater China is the region that was most heavily impacted by the absence of the new iPhones during the September quarter. Still, we beat our internal expectations in the region, growing non iPhone revenue, strong double digits and iPhone customer demand grew through mid-September. When you pull back the lens to the entire fiscal year, it's a testament to the team's work and to the resilience of the business in the era of covid-19. This year, we set an all-time revenue record of $274.5 billion, growing six percent year on year. We grew every quarter, set all time yearly records in Mac, wearables, home and accessories and services, and grew by double digits in every product category outside of iPhone. When we first began to grapple with covid-19, I said there are worse things for a company whose business is innovation than having to periodically do just about everything, and in an entirely new way. This year, we not only launched our most powerful and compelling generation of hardware, software and services ever, we did it in a way that pushed us to reimagine every part of that innovation process down to how we share these announcements with the world and how we get new products into our customers hands. Working from kitchen tables and bedrooms and distanced office settings and reworked labs and manufacturing facilities, the team rebuilt every part of the plane while it was midair, and the results speak for themselves. In a year that has been enormously challenging, our retail team's contact centers and all those who work with our customers most closely have gone to creative and dedicated lengths to keep serving our customers from adapting our stores for contactless pickup, to new Apple Express storefronts, to new online customer support options amid store closings, reopenings and reimagining these teams have been an unfailing source of energy, creativity and determination, innovation isn't just about what you make, it's about how you approach problems. And these teams and every team across Apple have not faced a single question this year that they haven't found an answer to with passion and resolve. Their actions didn't just meet the moment. They will make us a better company moving forward. The pandemic has hit home for all of us and at Apple, we have seen it as a call to action. We have seen the pain in our communities. Many of us have seen our children work hard to adapt to remote learning. And we all know that the road ahead is uncertain. This quarter and throughout the year, our response to this crisis has been to ask, how can we help? In terms of covid-19 response, that has meant sourcing and donating millions of face masks, designing and manufacturing millions of face shields, and scaling the production of millions of test kits. But we have tried to live our values more broadly. We pledged a $100 million to our new racial equality and justice initiative. We've committed to be fully carbon neutral by 2030 across our entire supply chain and device usage as massive wildfires, hurricanes and floods bring home the consequences of climate change for all of us. And we deepened our enduring educational partnerships from coding education beginning in elementary school to new efforts with dozens of historically black colleges and universities. One of the many areas where covid-19 continues to have a significant impact is in education. As teachers, students and parents alike work hard to keep education relevant, creative and effective, our products have helped them meet the moment in a typical year. The back to school season is a bustling time for us. This year that was true and the biggest why ever. We've helped school districts around the world meet this moment in an unprecedented way, including starting nine of our 10 largest school district deployments ever. That alone will support over one million students and teachers. We have also supported these deployments and educators and learners everywhere with free tools and training, reaching over 150,000 teachers and millions of parents and students around the world. Looking forward, we feel great optimism about the road in front of us, we're in the midst of our most prolific product introduction period ever. In addition to the announcement of HomePod mini, which achieves unmatched sound quality and Siri and smart home capabilities in a small and affordable format, we just marked the beginning of a new era for iPhone with the arrival of our first 5G enabled devices. The iPhone 12 and 12 mini boast powerful breakthroughs like an edge to edge super retina XDR display, unprecedented durability with the new ceramic shield developed with our partners at Corning, new Magsafe charging and accessories, the fastest ever A14 bionic chip and a new dual camera system driven by computational photography. The iPhone 12 Pro and 12 Pro Max take all of this to an even higher level, driven by the most powerful photo and video tools ever delivered by a smartphone, including an all new LiDAR scanner and the ability to shoot an Apple ProRAW and full Dolby video. And of course, all of these devices bring the 5G experience users have been waiting for with lightning fast downloads and uploads a new standard in video streaming, more responsive gaming and much more. The early product reviews have been tremendously positive, and our customers had been similarly excited to get their hands on this next era of devices. We're very optimistic about what the next few weeks will bring. We're also seeing a very positive response to our September announcement, the all new Apple Watch Series 6 boast powerful new health and wellness features, including a blood oxygen sensor, a next generation altimeter and a wide variety of new colors and bands. The potential for Apple Watch's powerful health and wellness capabilities continues to grow. Just yesterday, the government of Singapore and Apple launched Lumi Health a first of its kind program designed to encourage healthy activity and behaviors using Apple Watch. Created in collaboration with a team of physicians and public health experts, Lumi Health uses technology and behavioral insights to encourage Singaporeans to keep healthy and complete wellness challenges through their Apple Watch and iPhone. Singapore is a trailblazer here, and we're proud to be their partner. Our iPad lineup continues to set the pace for the category, including the new iPad Air now shipping with the A14 Bionic, our most powerful chip ever. We announced Apple Fitness Plus, which delivers deep personalization and integration across the fitness tools our users love and depend on. An Apple One, launching tomorrow, is the easiest way for users to enjoy Apple's services, like music, TV+, Arcade, iCloud, News+ and Fitness+ on a single plan that is right for them and their family. Looking across services more broadly, we're really excited about what we see. This was a record quarter for the App Store, AppleCare, Cloud Services, Music and payment services. The App Store in particular, continues to play an essential role in helping small businesses, educational institutions and workplaces adapt to covid-19. Apple TV Plus continues to impress from fan favorites like Ted Lasso, which has won a worldwide audience with its hopeful tone during challenging times, to critical and award praise, including a prime time Emmy for Billy Cruddup in the morning show. Luca will speak in greater detail about our expectations for the December quarter. Without giving away too much, I can tell you that this year has a few more exciting things in store. Before I hand things off, I want to offer one more comment on resilience, because I think if I had to describe our performance this quarter in a single word, it's resilient. Financial performance aside, I don't think this year will be a time that any of us look back on with great fondness or nostalgia. Those of us who wake up every day hoping for a return to normal can count ourselves fortunate. Others don't have that luxury. There is the great pain of a lost loved one, the uncertainty and fear of a lost job, a deep well of concern for people we care about, who we are not able to see. A sense of opportunities missed, of plans delay, of time lost. Even though we're apart, it's been obvious this year that around the company, teams and colleagues have been leaning on and counting on each other more than in normal times. I think that instinct, that resilience has been an essential part of how we have navigated this year. Work can't solve for all the things we're missing right now. But a shared sense of purpose goes a long way. A belief that we can do more together than we can alone, that people of goodwill driven by creativity and passion, and that certain itch of a big idea can still do things that help other people in our own small way to teach, to learn, to create or just to relax at a time like this. Even as the things we make require us to operate at the very cutting edge of technology in materials, products and ideas that didn't exist just a few years ago, this year has forced us to face plainly the things that make us human; disease, resilience and hope. You never wished for a year like this one, but I couldn't be prouder of the team, the work we have done and the small role we have played in helping our communities find hope and resilience in this time. With that, I'll hand things over to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. We're very pleased to report today a new September quarter revenue record, which caps a remarkable level of performance for our fiscal year 2020, during which we set new all time records for revenue, earnings per share and free cash flow in spite of an extremely volatile and challenging macro environment, we could not be more proud of the way our team has innovated and executed throughout this unprecedented period of uncertainty. We reported total revenue of $64.7 billion for the September quarter, up 1% from a year ago. This is a very impressive level of performance when we consider that this year we did not launch and ship any new iPhone models during the quarter. Outside of iPhone, we grew 25% in aggregate and had strong double digit year over year revenue growth in each of our product categories. We set all time records for Mac and services and a September quarter record for wearables, home and accessories. We also achieved news September quarter records in the vast majority of countries that we track, including, among others, the US, Canada, Brazil, Germany, France, Italy, Spain, Turkey, Russia, India, Korea, Thailand, Malaysia and Vietnam. Products revenue was $50.1 billion, with very strong underlying performance across each product category. Our products outside of iPhone grew a combined 30%, despite supply constraints on iPad, Mac and Apple Watch throughout the quarter. For iPhone through mid-September, customer demand grew double digits. As a result of this level of sales performance and the unmatched loyalty of our customers, our installed base of active devices reached an all time high in aggregate and in each of our major product categories. Our services set an all time record of $14.5 billion, growing 16% year over year. We establish new all time records in many services categories, and September quarter records in each geographic segment. I'll covered this in more detail later. Company gross margin was 38.2%. This was up 20 basis points sequentially due to cost savings and a higher mix of services, partially offset by a different mix of product products. Gross margin was 29.8%, growing 10 basis points sequentially driven by cost savings, partially offset by a different mix. Services gross margin was 66.9%, decrease in 30 basis points sequentially, mainly due to a different mix. Let me get into more detail for each of our product categories. iPhone revenue was $26.4 billion, as we did not have availability of new iPhone models during the September quarter this year, which we had mentioned during our call in July. While covid-19 and social distancing measures impact the store operations in a significant manner, demand for iPhone remained very strong. In fact, through mid-September, customer demand for our current product line up to double digits and was well above our expectations. Our active installed base of iPhones reached a new all time high thanks to the exceptional loyalty of our customer base and strength of our ecosystem. In fact, in the U.S., the last survey of consumers from 451 Research indicates iPhone customer satisfaction of 98% for iPhone 11, 11 Pro and 11 Pro Max combined. Turning to services, as I said, we set an all time revenue record of $14.5 billion. We grew strong double digits and set all time records in App Store cloud services, music, advertising and payment services. We also set an all time record in Apple care as in-store traffic improved and we were able to support more customers. Our new services, Apple TV+, Apple Arcade, Apple News+, and Apple Card, are also contributing to overall services growth and continue to add users content and features. The key drivers for our services growth all continue to be moving in the right direction. First, our installed base continues to grow and is an all time high across each major product category. Second, the number of both transacting and paid accounts in our digital content stores reached a new all time high during the September quarter, with paid accounts increase in double digits in each of our geographic segments. Third, paid subscriptions grew more than 35 million sequentially and we now have over 585 million paid subscriptions across the services on our platform, up 135 million from just a year ago. With this momentum, we are very confident to reach and exceed our increased target of 600 million paid subscriptions before the end of calendar 2020. Finally, as Tim mentioned, we continue to improve the breadth and the quality of our current services offerings and are adding new service offerings that we think our customers will love, like Apple One and Apple Fitness+. Wearables, home and accessories establish a new September quarter record with revenue of $7.9 billion up 21% year over year. We said September quarter records in every geographic segment and for each of the three product categories, wearables, home and accessories. As a result, our wearables business is now the size of a Fortune 130 company. Importantly, Apple Watch continues to extend its reach, with over 75% of the customers purchasing Apple Watch during the quarter being new to the product. We're very excited about the future of this category, including the recent launches of our new products Apple Watch Series 6 NFC, HomePod Mini, and the MagSafe ecosystem of accessories. Next, I'd like to talk about Mac. Revenue was by far an all time record at $9 billion up 29% over last year and $1.6 billion above our previous record, in spite of supply constraints during the quarter. We grew strong double digits in each geographic segment and said all time revenue records in the Americas and the rest of Asia Pacific, as well as September quarter records in Europe and Japan. We've seen amazing customer response to the new MacBook Air and MacBook Pro and very strong demand during the back to school season. iPad performance was also very impressive, with revenue of $6.8 billion, up 46%, and our highest September quarter revenue in eight years despite supply constraints. Demand exceeded our expectations around the world as we grew very strong double digits in every geographic segment, including an all time record in Japan and a September quarter record in the Americas. Both Mac and iPad are incredibly relevant products for our customers in the current working and learning environments, and we are delighted that the most recent surveys of consumers from 451 Research measure customer satisfaction at 93% for Mac and 95% for iPad. With this level of customer satisfaction and with around half of the customers purchasing Mac and iPad during the quarter being new to that product, it is no surprise that the active installed base for both products reached a new all time high. In the enterprise market, our products are helping companies grow their business while achieving their sustainability goals. One example is Vestas,a leading producer of wind turbines, Vestas is using Apple products and native iOS apps extensively across their operations to deliver renewable energy efficiently to customers worldwide. For instance, they use iPads to help optimize onsite construction operations, cutting crane usage on average by one day per project. Vestas field technicians are using iPhone for work orders, troubleshooting a remote collaboration, saving them 400,000 service hours annually. More recently, they've started piloting the augmented reality capability in iPads to help customers visualize wind turbine installations in the field. Another example of how organizations are using Apple products to reduce carbon impact is digitizing paper workflows. In Switzerland alone, Zurich Insurance reduces paper consumption by over 10,000 sheets per day by equipping a thousand customer advisors with iPads. Canada is reducing its carbon footprint by over 2,200 metric tons annually by loading flight plans and manual's onto iPads rather than using paper. We are thrilled that our products are helping businesses run more efficiently and sustainably. Let me now turn to our cash position, we ended the quarter with almost $192 billion in cash plus marketable securities. We issued $5.5 billion of new term debt and decreased short term borrowing facilities by $6.2 billion during the quarter, leaving us with total debt of $112 billion. As a result, net cash was $79 billion at the end of the quarter, as we continue on our path to reaching a net cash neutral position over time. We return nearly $22 billion to shareholders during the September quarter, including $3.5 billion in dividends and equivalents and $18 billion to open market repurchases of 168.7 million Apple shares. We also retired an additional 3.1 million shares in the final settlement of our 16th ASR. Before looking ahead, I want to provide just a few highlights for the amazing fiscal year we just completed. In fiscal 20, we grew revenue by 6% to $274.5 billion and new all time record. We showed remarkable resilience throughout the year as we were able to grow both revenue and installed base of active devices in every quarter. In spite of the most challenging economic environment we can remember, we said new revenue records in the Americas, in Europe and in the rest of Asia Pacific. We grow our business outside of iPhone by 16%. We grew earnings per share 10% to a new all time record. And most importantly, we continue to deliver innovative products and services that our customers love. As we move ahead into the December quarter, I'd like to provide some color on what we are seeing, which includes the types of forward looking information that Tagis referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we will not be issuing revenue guidance for the coming quarter. However, we are providing some insights on our expectations for the December quarter for our product categories. These directional comments assume that Canada is reducing its carbon footprint by over 2,200 metric tons annually by loading flight plans and manual's onto iPads rather than using paper. We are thrilled that our products are helping businesses run more efficiently and sustainably. Let me now turn to our cash position, we ended the quarter with almost $192 billion in cash plus marketable securities. We issued $5.5 billion of new term debt and decreased short term borrowing facilities by $6.2 billion during the quarter, leaving us with total debt of $112 billion. As a result, net cash was $79 billion at the end of the quarter, as we continue on our path to reaching a net cash neutral position over time. We return nearly $22 billion to shareholders during the September quarter, including $3.5 billion in dividends and equivalents and $18 billion to open market repurchases of 168.7 million Apple shares. We also retired an additional 3.1 million shares in the final settlement of our 16th ASR. Before looking ahead, I want to provide just a few highlights for the amazing fiscal year we just completed. In fiscal 20, we grew revenue by 6% to $274.5 billion and new all time record. We showed remarkable resilience throughout the year as we were able to grow both revenue and installed base of active devices in every quarter. In spite of the most challenging economic environment we can remember, we said new revenue records in the Americas, in Europe and in the rest of Asia Pacific. We grow our business outside of iPhone by 16%. We grew earnings per share 10% to a new all time record. And most importantly, we continue to deliver innovative products and services that our customers love. As we move ahead into the December quarter, I'd like to provide some color on what we are seeing, which includes the types of forward looking information that Tagis referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we will not be issuing revenue guidance for the coming quarter. However, we are proCovid related impacts to our business in November and December are similar to what we're seeing in October. We just started shipping iPhone 12 and 12 Pro, and we're off to a great start. We are also excited to start preorders on iPhone 12 mini and 12 Pro Max next Friday. Given the tremendously positive response, we expect revenue to grow during the December quarter, despite shipping iPhone 12 and 12 Pro four weeks into the quarter and iPhone 12 mini and 12 Pro Max seven weeks into the quarter. We expect all other products in aggregate to grow double digits and we also expect services to continue to grow double digits. For gross margin, we expect it to be similar to our most recent quarters, despite the cost associated with the launch of several new products for OPECs, we expect to be between 10.7 and 10.8 billion. We expect OANE to be around 50 million and the tax rate to be around 16 %. Finally today, our board of directors has declared a cash dividend of 20.5 cents per share of common stock payable November 12, 2020 to shareholders of record as of November 9, 2001. With that, let's open the call to questions.

Analysts questions

Shannon Cross, Cross Research

Thank you very much. Tim, can you talk a bit more about China? And, you know, in terms of linearity, I think, Luca, you'd mentioned that services in all regions where at an all time high, I'm not sure exactly what your comment was, but, you know, maybe give us a little idea of, you know, whether you're seeing any blowback or benefit from the Huawei situation and just get a bit more into the trends we're seeing in China. And I have a follow up. Thank you.

Tim Cook

Hey, thanks, Shannon. If you look at China and look at last quarter's, I'll talk about both last quarter and this quarter a bit. Last quarter, what we saw was our non-iPhone business was up strong, double digit for the full quarter. And then if you look at iPhone and you look at it in two parts, one pre mid-September, which is pre the point at which the previous year we would have launched iPhones, that that period of time, which was the bulk of the quarter iPhone was growing from a customer demand point of view. And of course, the not shipping new iPhones for the last two week of September makes that number in the aggregate a negative. But the net is the underlying business in China last quarter was very strong and perhaps very different than than you might think from just a quick look at the stated number. In terms of this quarter, given the explanation for last quarter and the momentum that we've got, and as importantly, given the initial data points that we see on iPhone 12 and iPhone 12 Pro, although we don't guide to revenue, as Luca said, I would tell you that we are confident that we will grow this quarter in China. And so we're very bullish on what's going on there. A little more color on last quarter, we had a much more significant inventory draw down on the channel side than other regions. And so that is one reason why the numbers are different than other regions. And additionally, the new products in the year ago quarter were a higher percentage of our iPhone sales than they were in other regions. So hopefully that explains what's going on in China. In terms of the market there, 5G is fairly advanced there. They're forecasting 600,000 base stations by the end of the year. And so we're entering the market at a very good time. And with the reception that we've gotten so far, we're very confident there.

Shannon Cross, Cross Research

OK, great. And then can you talk a bit about just overall in, you know, the world, the cadence that you see, sort of the five 5G adoption launch, you know what what you see will be the key drivers. Obviously, there's a fair amount of subsidies going on in the U.S. at this point. Thank you.

Tim Cook

Yeah, we're working hard to provide the best experience for our iPhone users. To do so, we've been collaborating closely with carriers all around the world to ensure iPhone has great throughput and coverage and battery and call quality. We've completed 5G testing so far on over 100 carriers in over 30 regions. And so it's pretty pervasive around the world. But, granted, it will continue to roll out in more places as carriers continue to expand their coverage. And this will happen every week. And so it's just going to get better. There are obvious places in the world where it's more ahead than that in others. But we feel like we are entering at a sort of at exactly the right time.

Jeriel Ong, Deutsche Bank

Yeah, thank you so much, I guess. I appreciate the guidance for revenue to grow, but I guess my question perhaps if I could, is relative to seasonality. You guys, in the last five years, the seasonality is typically about 50 percent, quarter on quarter. Do you think you can beat that even with the later release?

Luca Maestri

So, as I said, we're not providing a range for the reasons that I explained during my prepared remarks. So you need to keep in mind a couple of things that are unique about this quarter versus the past. And that I'll mention again. The launch timing of the phones is different from the past. So we're launching the new iPhones four weeks into the quarter for two models for the 12 and 12 Pro and seven weeks into the quarter for the other two, the iPhone mini and the 12 Pro Max. So that is something to keep in mind as you think about the growth rates. With regard to all the other product categories, as I said, we are expecting to grow double digits essentially across the board for the rest of our products and for services. And so we are incredibly optimistic about what we're seeing so far, obviously. We started taking preorders five days ago and it's a bit early for the iPhone. But we think that there are a lot of tailwinds this year for iPhone, for the entire cycle. Some of the comments that Tim has already made, we've got the best lineup of iPhones that we've ever had. We've got an installed base of iPhone that is very large, continues to grow. It's an all time high. Obviously, 5G is a once in a decade opportunity. And as you've seen in some markets, certainly here in the United States, carrier offers are very aggressive. And so that is very good for consumers and ultimately very good for us. So very, very optimistic given what we're seeing so far.

Jeriel Ong

Awesome, thank you so much for that context and given us some of the levers to think about. I'd like to ask a little bit more of a strategic line, a little bit longer-term in nature. I think one thing that's interesting about the Apple One bundle is the desire to bundle in the first place. I guess I'm wondering and some investors have asked me this as well, why wouldn't you also take that rationale perhaps of hardware, perhaps maybe AirPods and iPhone or AirPods, Watch and iPhone? Because if it makes sense to bundle services, wouldn't it also make sense to bundle hardware? And if that's not the case, then are there benefits of services bundling that don't necessarily translate to hardware bundling? Thanks.

Tim Cook

Yeah, we don't have anything to announce today on a hardware bundle, but backing up a bit and we do view that people like to pay for their hardware, at least some substantial portion of it, monthly. And so that's the reason that we have implemented installments in our stores and online. And that's the reason you see in some of the channels t, selling the hardware on a per month kind of basis. That begins to look like a subscription, perhaps to some to some buyers, because they're used to holding the phone for a period of time and then turning it over and using the residual value of that phone in a way that gives them a de facto kind of subsidy on a new phone. And so, there is something today in the market that works somewhat similar. On the services side, we had customers coming to us and asking for an easier way to buy all of our services and we wanted to provide that. And we're looking forward to tomorrow to getting Apple One out there. Thank you for the question.

Katy Huberty, Morgan Stanley

Thank you, good afternoon. New technologies, including the chips that support 5G, put upward pressure on costs this year, but you managed to leave ASPs for iPhones relatively unchanged this product cycle. How should we think about the margin profile of iPhone 12 relative to past iPhone cycles?

Luca Maestri

Hi Katie. Obviously, we don't provide any outlook at the gross margin level for product categories. What I said in my prepared remarks, we expect gross margins in total for the company to be pretty much in line with what we've seen during the last quarter, which obviously, as you said, is very good, right, because we are offering the new phones at price points that are essentially unchanged and we are taking on a lot of new technology into the phones. I would say the commodity environment is good. For the first time in many, many quarters. I don't have to say that foreign exchange is a headwind getting into the quarter. It's not going to be a factor during the quarter, as we made it clear in our comments, we are bullish about, you know, our sales performance expectations. So we should be getting some leverage. And so I think that the gross margin dynamics are good and it's very good to see that we're able to offer so much more technology and still able to deliver the level of gross margins that I think investors are expecting.

Katy Huberty

OK, and shifting to the services business, this isn't dependent on certainly any one service, but licensing and others, historically, has been a driver of growth. That's where the ad based revenue comes in. When you think about the Google antitrust pressure, what's the risk that you see some shrinkage in your licensing and other segments within services? And do you see opportunities for other services to make up for any potential weakness?

Tim Cook

Katy, as you know, we've announced a number of services over the last couple of years and we are ramping those between Apple TV+ and Apple News+ and Apple Arcade, we've got Apple Card.

[Lost audio, missing transcripts]

Amit Daryanani, Evercore

... confident, better clarity and an extensive period of iPhone revenue growth, which is what we've seen the last couple of years.

Tim Cook

We are very bullish on this cycle, very bullish on it, because as I sort of stepped back from it and look at what we've now done, for the first time ever, we've launched four iPhones and there is an iPhone for everyone there. And it is the strongest lineup we've ever had by far. We do have a very large, loyal and growing install base and we're also reaching out to switchers. And so I'm very optimistic there. We've got a once in a decade opportunity with 5G. There's a lot of excitement around 5G and we've got some aggressive offers in the marketplace. And so when I think about all of those, and I look at the initial data points that we've got on the iPhone 12 and the 12 Pro, we are off to a great start.

Amit Daryanani

Got it. Luca, I had a follow up for you on the services gross margins, which have kind of continued to move higher rather nicely. I curious, do you think these levels, which are at 67 percent essentially are sustainable? And what do you think of the two or three factors that are enabling these gross margins to remain here as we go forward?

Luca Maestri

I mean, obviously, we're very pleased with the level of gross margin in services, as you said, you know, they've been expanding almost 300 basis points on a year over year basis. The reason for that is, of course, that we are growing the services revenue and therefore we getting leverage on a lot of these services, right? Some of it, you know, as I explained in the past, we have a portfolio of services that got different margin profiles. And so, you know, sometimes, you know, depending on the mix of products we can see, you know, margin expansion through mix as well. But we're also launching new services where we need to invest heavily up front. But we think we've been able to show, for example, this year that we've launched a lot of new services, made all the necessary investments and still being able to expand gross margin. So we feel quite confident about the trajectory that we have for services and that we're very, you know, very happy to see the customer response to really all of them, because as we mentioned earlier, I mean, we've seen revenue records across essentially every category, and across the entire world, right? We've seen, you know, September quarter records in every geography around the world. So all the dynamics, all the levers that we have in the services business are working very well right now. And that translates into margin, of course.

Samik Chatterjee, JP Morgan

Hi, thanks for taking the question. I just want to start off with the iPhone lineup here, particularly, as you mentioned, the carrier subsidies that you're seeing mixed optimistic about iPhone sales. I think just looking at some other factors here, earlier in the year, you had mentioned that iPhone sales were seeing an uptick with stimulus checks going out to consumers, helping in the consumer spending overall here in the U.S. So as we see some details here on that front, are you seeing anything change on the consumer spending side? Is the macro impacting how you think about iPhone sales, particularly even with the new product lineup? And I have a follow-up. Thank you.

Tim Cook

Prior to mid-September, we were seeing double-digit growth in customer demand on iPhone. So there is a lot of momentum there and there is a lot of momentum, even much more so now, given the launch of the 12 Pro and the and the iPhone 12, if you're asking whether it could have been even more with a different macro spending environment, I believe the answer to be yes, but you can't run the experiment, and so I don't know for sure. But I suspect that just covid in general takes something off from a worldwide economic point of view.

Samik Chatterjee

OK. And if I can just follow up and just following up on that Google discussion, we are potentially looking at a second wave, right. And I think all companies are trying to prepare for that, which you discussed as well in your prepared remarks. But if you can share any kind of thoughts about how you're preparing in relation to either inventory levels or sourcing from the supply chain to prepare for any potential disruption like we had earlier this year.

Tim Cook

Well, we're doing everything we can do, but we're prioritizing safety first, obviously, and so with our stores as an example, we've come up with a new concept that essentially turns the store into an express storefront. And we've implemented that in a number of places where we believe that helps from the safety of our employees, and the safety of the customers' point of view, but still allows for an interaction to take place. And so we also put a lot more people on the phones because a lot more people are reaching out to us in that way. And, of course, the online store has stayed up and running through the whole of this. I think if you take some of those, the channel is doing some similar things and then some different things as well. And so I think everybody, to the best of their ability is putting in contingency plans and finding a way to adapt to the environment. But it is difficult to call. And there's a level of uncertainty in it, obviously. And that's what Luca was referring to earlier.

Krish Sankar, Cowen & Co.

Thanks for taking the question. I have two of them, first one for Luca; I understand you don't want to give color on gross margin by product or segment, but Luca you mentioned gross margins should be similar in December versus September and also should go double digits. The general view that on the iPhone side, the bomb cost would be headwind for gross margin, but the carrier subsidies would be a tailwind. So I'm kind of curious, how should we think about the different gross margin levels into the December quarter, and then I have a follow-up question.

Luca Maestri

Yeah, so typically during the December quarter, we have positive factors because we have, you know, the typical seasonal leverage right sequentially as we go from September to the holiday season. And we also have an improved mix between products, particularly this year. As you know, we've launched the new iPhone. At the same time, we shouldn't forget that we have launched a lot of new products during the last several weeks. We launched four new models of iPhone, we launched new models of Apple Watch, new models of iPads. And so clearly, every time we launch a new product, the cost structure is higher. And so that is going to be the other side of the coin, you know. But, you know, we think that those two things should balance out. And again, as I was saying earlier, and we're accomplishing this while delivering a lot of new technologies, a lot of new features to our customers. This time, foreign exchange is not a factor. And that's something that is a bit different from the past. So but those are the pluses and minuses.

Krish Sankar

Got it. That definitely helps, Luca. And then a follow-up with Tim. Tim, it's kind of a surprise you didn't say a lot about the payments ecosystem in these prepared comments, kind of curious to find out from your vantage point how you think of your whole payment ecosystem, including Apple Card, AppleCare, Apple Cash, and how you're disaggregating the whole Symantec environment.

Tim Cook

Thanks for the question is there's just a limited number of things I can talk about, the only reason I didn't talk about it. We continue to be very enthusiastic about the whole payment services area. Apple Card is doing well and Apple Pay is doing exceptionally well. As you can imagine, in this environment, people are less want to hand over a card. So this contactless payment has taken on a different level of adoption in it that, I think, will never go back. The U.S. has been lagging a bit in contactless payment, and I think that the pandemic may well put the U.S. on a different trajectory there. And so we're we are very bullish about this area and view that there are more things that Apple can do in this space. And so it's an area of great interest to us.

Kyle McNeely, Jefferies

Hi. Thanks a lot for the question. I wanted to ask a little bit about the supply chain, given your later start for manufacturing the flagship iPhone lineup of this year, do you think the supply will be able to meet demand through the end of the calendar year? And are there any component shortages that you're seeing or are there any actions that you can take to increase weekly output versus last year?

Tim Cook

Yeah, I don't know if you're talking about iPhone in particular, but if you look at iPhone, we are constrained today. And that's not a surprise. We're at the front end of the ramp, if you will, and how long we will be supply constrained, it's hard to predict. I mean, we haven't taken orders yet for the iPhone 12 mini or the Pro Max either. And so those are coming. And so we shall see. But right now, we are supply constrained. We are also supply constrained — for avoidance of any confusion — we're supply constrained on Mac, where supply constraint on iPad, and we're supply constrained on some Apple Watches as well. And so we have a fair number of areas right now of focus. And we're working really, really hard to remedy those as quickly as we can. But at this point, I can't estimate when we'll be out of that.

Kyle McNeely

OK, great, thanks a lot. And then switching to Mac and iPad, how do you think about the durability of the strength you're seeing there with Mac and iPad, is there any potential for stronger than seasonal pullback after the strong back to school season and holiday season? And, you know, the supply constraints make it feel like there's a good chance for continuation of the strong demand trends and flow-through of that, you know, what should we think about the seasonality into the December and March quarter, you know, being more positive than seasonal or less positive than seasonal? Thanks.

Tim Cook

Yeah. We placed our thoughts in the color that Luca provided when he said that all products excluding iPhone, all products and services excluding iPhone are all products, rather, excluding iPhone would grow in the double digits. And so we continue to be bullish on what Mac and iPad can do. I think the moves that have taken place to promote learning and remote work are not going to go back to normal. Normal will be will become something different, because I think that people are learning that there are aspects of this that work well. And so I don't believe that we're going to go back to where we were. And I think that means that iPads and Macs are even more important in those environments. The growth in both of these last quarter were phenomenal, as you can tell from the datasheet with Mac at 29 and iPad at 46. These are tremendous numbers. And as Luca said, the September quarter was the all time high for Mac in the history of the company and not by little bit, by $1.6 one point six Billion. And so it was a substantial difference. Now we did have an aggressive promotion for college students that were going back to school. And so that that was invariably part of it. But I think the other part of it, the remote work thing is not something that's going to snap back to the way it used to be anytime soon.

Chris Caso, Raymond James

Yes, thank you. I guess first question is on iPhone pricing. There were some changes in the iPhone price this year, the iPhone price point for 12 moved up a bit. And I guess the difference, the gap between 12 and 12 Pro is smaller. And I guess that's after you made some adjustments in the years prior with the price point came down a bit. Can you talk through the thought process behind that and the potential implications for, you know, the unit out elasticity or blended ASP as a result of the price changes?

Tim Cook

Well, the iPhone 12 family starts at $699 in many places. In the deals, that people are really paying are very different than that, because a lot of people, particularly in this country, but also in several of the other countries in the world, connect to a carrier plan. And of course, those offers are a much more aggressive. And so the price that our customers are paying is probably the most important one. The iPhone 12, is at $799, and I think what you're saying is there's a $200 difference there, but I would guess that people are viewing it more as a $300 difference between the 12 mini and the 12 Pro. And so we'll see what the mix turns out. Right now, we have no data other than 12 and 12 Pro. We lack the data on the 12 mini and Pro Max because we're not taking orders yet. But what we try to always do in pricing is give the customer a great value. And I feel like we really did that this year. And that's despite, as was mentioned earlier, all of the extra features that we placed into the phones, including 5G.Thanks for the question.

Chris Caso

As a follow up, you mentioned, you know, some of the carrier incentives we've seen here in the U.S. and if you could provide some more color about that, about what you're seeing now, and obviously, as we went through, you know, years ago, the incentives from carriers were a lot larger. Does this mark some shift in the approach of carriers as we're moving into 5G? What's the extent of the permanence of some of these incentives? And then, you know, as 5G rolls out around the world into other geographies, is this something we should expect that as either they try to protect from switchers or kind of promote the 5G networks, we'll see a higher prevalence of incentives from carriers as we go forward?

Tim Cook

You know, I don't want to speak for our carrier partners. That would be up to them to talk about their plans. Generally, I think it's to the vast, vast majority of carriers around the world in their interest to move customers to 5G. I think it's in the customer's interest to move to 5G and obviously, we like that as well. And so I think you have a situation where everyone's oaring in the same direction and that's a very different kind of situation than normally we would have. And so it is one of the things, as I alluded to earlier, that makes me very bullish. Only one, though. The other things are very important too; the size of the installed base, the product line up. These things are critically important as well.

Apple has just announced its financial results for Q4 2020, covering the period between July 1 and September 26, 2020. The company posted quarterly revenue of $64.7 billion.

The quarter saw net iPhone sales hit $26.4 billion, down substantially from the previous year, while services hit $14.5 billion, up more $2 billion from a year ago. iPad sales came in at $6.8 billion and Mac at just over $9 billion, both up substantially from the year-ago quarter. Despite the hit to iPhone sales, revenue was up thanks to those strong iPad, Mac, and services numbers.

For a more detailed breakdown of Apple's Q4 results, head here

Check out the transcript of Apple's Q4 2020 earnings call

Press release:

Apple Reports Fourth Quarter Results

Company revenue sets September quarter record

Services and Mac revenue reach new all-time high

CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2020 fourth quarter ended September 26, 2020. The Company posted record September quarter revenue of $64.7 billion and quarterly earnings per diluted share of $0.73. International sales accounted for 59 percent of the quarter's revenue.

"Apple capped off a fiscal year defined by innovation in the face of adversity with a September quarter record, led by all-time records for Mac and Services," said Tim Cook, Apple's CEO. "Despite the ongoing impacts of COVID-19, Apple is in the midst of our most prolific product introduction period ever, and the early response to all our new products, led by our first 5G-enabled iPhone lineup, has been tremendously positive. From remote learning to the home office, Apple products have been a window to the world for users as the pandemic continues, and our teams have met the needs of this moment with creativity, passion, and the kinds of big ideas that only Apple can deliver."

"Our outstanding September quarter performance concludes a remarkable fiscal year, where we established new all-time records for revenue, earnings per share, and free cash flow, in spite of an extremely volatile and challenging macro environment," said Luca Maestri, Apple's CFO. "Our sales results and the unmatched loyalty of our customers drove our active installed base of devices to an all-time high in all of our major product categories. We also returned nearly $22 billion to shareholders during the quarter, as we maintain our target of reaching a net cash neutral position over time."

Apple's Board of Directors has declared a cash dividend of $0.205 per share of the Company's common stock. The dividend is payable on November 12, 2020 to shareholders of record as of the close of business on November 9, 2020.

Apple will provide live streaming of its Q4 2020 financial results conference call beginning at 2:00 p.m. PT on October 29, 2020 at apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

Apple periodically provides information for investors on its corporate website, apple.com, and its investor relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance, and details related to its annual meeting of shareholders.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q3 2020 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon, everyone. Thanks for joining the call today. Before we begin, I join the many millions across this country in mourning and memorializing Congressman John Lewis, who was laid to rest earlier today. We've lost a hero who walked among us, a leader in the truest sense, who urged his country to aim higher and be better until the very end. I was humbled and fortunate to know him, and as an Alabama native, his example inspires me still. It now falls to every American to be a living memorial to John Lewis and to carry forward the work and the mission that defined his life. Throughout the call, I'll speak in greater detail about Apple's support for equity and justice, topics of great urgency on a number of fronts. But first, I want to pull the lens back to consider the quarter in-full. In an uncertain environment. Apple saw a quarter of historic results demonstrating the important role our products play in our customers' lives. We set a June quarter record with revenue of $59.7 billion, up 11 percent from a year ago. But products and services set June quarter records and grew double digits, and revenue grew in each of our geographic segments, reflecting the broad base of this success. As always, and especially in times of real adversity, what makes us proud as a company is not merely what we did, but how we did it. As millions marched for justice in big cities and small towns alike, we committed $100 million to launch Apple's Racial Equality and Justice Initiative, as well as new and renewed internal efforts to foster diversity and inclusion at all levels of the company. As COVID-19 continues to represent great risks for individuals and great uncertainty for our communities, care and adaptability are defining how we conduct our work wherever we work. In some places that has met responsibly reopening our operations and retail stores with enhanced health and safety precautions. In others where the virus has reemerged, it's meant taking the challenging but necessary step of closing stores. I'll touch on these topics more and a little bit, but first I want to offer some more context on the quarter's results. Due to the uncertain and ongoing impacts of COVID-19, we did not provide our typical guidance when we reported our results last quarter, but we did provide some color on how we expected the June quarter to play out. I'd like to contextualize our results in terms of that color across each of our product categories, beginning with iPhone. iPhone revenue grew two percent this quarter. In April, we expected year over year performance to worsen, but we saw better than expected demand in May and June. We attribute this increase in demand to several interactive causes, including a strong iPhone SE launch, continued economic stimulus, and potentially some benefit from shelter in place restrictions lifting around the world. We expected iPad and Mac growth to accelerate, and we saw very strong double-digit growth for these devices this quarter. This remarkable performance came in spite of supply constraints on both products. We're working hard to get more iPads and Macs into customers' hands as quickly as possible, recognizing how integral they have become to working and learning from home, providing entertainment, and staying connected with loved ones. Wearables growth decelerated as we expected, but still grew by strong double digits and set a revenue record for a non-holiday quarter. Building on powerful new features built into watchOS 7 and AirPods Pro announced this quarter, we are very excited about the many opportunities in front of us for this product category. These strong results help drive our installed base of active devices to new all-time records across each of our product categories. Reflecting the deep integration of hardware, software, and services, services generated a June quarter record of $13.2 billion, up 15 percent year over year. As we mentioned during our last call, there were two distinct trends we were seeing and they played out as we thought. First, advertising and AppleCare were impacted by the reduced level of economic activity and store closures to a degree that was in line with our expectations. Second, we had strong performance in our digital services with all-time revenue records in the App Store, Apple Music, video, and cloud services, as well as elevated engagement on iMessage, Siri, and FaceTime. Customers are loving new offerings across Apple services like Apple News Today, our new daily audio briefing, and Greyhound, our new summer blockbuster starring Tom Hanks. In fact, Apple TV+ just hit a history-making 95 awards nominations and 25 wins and accolades. Based on these results and our performance over the last four quarters, we are proud to announce that we have achieved our goal of doubling our fiscal 2016 services revenue six months ahead of schedule. We're conscious of the fact that these results stand in stark relief during a time of real economic adversity for businesses large and small and certainly for families. We do not have a zero-sum approach to prosperity. And especially in times like this, we're focused on growing the pie, making sure our success isn't just our success and that everything we make, build or do is geared toward creating opportunities for others. The App Store is a great example. This quarter, a new study by independent economists at The Analysis Group found that the App Store facilitated more than half a trillion in commerce globally in 2019 alone. Especially in a time of COVID-19, you can measure economic resilience in the ways in which the App Store supports remote ordering for restaurants, digital commerce for small businesses, and an enduring entrepreneurial opportunity for creators and visionaries. Keeping learning vibrant and impactful in the time of COVID-19 is a priority everyone shares earlier this month, we announced significant enhancements to the development Swift and Everyone Can Code curricula, and we launched a new professional learning course available exclusively to educators. In just two weeks ago, our Community Education Initiative added 10 more historically black college and university regional coding centers to our roster, bringing the total to 24 locations nationwide, 12 of which are HBCUs, and 21 of which serve majority black and brown student populations. In Apple's backyard, we announced that we're allocating $400 million of our multi-year $2.5 billion affordable housing, commitment to new housing construction, homebuyer assistance programs, and support for those at greatest risk of experiencing homelessness across Silicon Valley. Apple's results this quarter are only possible due to our people and their ongoing ingenuity, flexibility, resilience, and determination during these ever-changing times. I want to thank our AppleCare and retail teams who have paired exceptional service during a time of intense demand with great adaptability during a quarter where stores have reopened in some places and re-closed in others. A dedicated team of specialists and experts has shouldered the task of caring for the well-being of our teams and communities, store by store, location by location, with evidence-driven granularity and agility that is unrivaled anywhere. Innovation from adversity certainly defined this year's Worldwide Developers Conference as well. This is an event where traditionally Apple's worldwide community of developers gathers together to share, celebrate and do big things together. Though we could not be together in person, Apple set a new standard for what online events can achieve with our celebrated all virtual event. The results here speak for themselves. More than 22 million viewers tuned in across all of Apple's streams. For our developers, we distributed more than 72 hours of video content. That's three full days of video. The week saw more than 200 direct video engineering and design sessions and about 4500 person to person appointments with developers across 227 virtual labs. And of course, that's even before you get to this year's announcements. From iOS 14, which boasts a radical redesign to the Home screen, powerful updates to Messages, streamlined and effortless App Clips, and even greater privacy, transparency and controls, to major updates to Apple Pencil, Siri, and calling in iPadOS 14, to much-anticipated sleep tracking new fitness and wellness features and unprecedented customization. in watchOS 7 to the new Mac OS Big Sur, boasting the biggest redesign upgrade to macOS since OS X. No less important for Apple's innovation roadmap is our transition to Apple's Silicon for the Mac. This two year effort will achieve both unprecedented performance for the Mac and a common architecture across all Apple products. Looking forward, we are profoundly optimistic about Apple's future and we recognize that with this success comes a real responsibility to lead with our values because those values helped make that success possible in the first place.Add Speaker00:05:56.210We are just as proud of our announcement this month that Apple will be communities.There are times when things seem to move slowly, when needed progress, economic or social scenes bog down, when the instinct to turn away from the horizon and hold on to what you've got feels inescapable. And then there are times like this, when people of goodwill step forward, when progress unmoors itself, when the insistence of hope forces something new. This is an immensely challenging moment. COVID-19 is still devastating many places, and we have work left to do to care for the health and well-being of the communities in which all of us live and work. But no community of people, whether a company or a country, can afford to miss this call when it comes. At Apple, we never have, and we don't intend to start now. With that, I'll hand things off to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. Our June quarter was a testament to Apple's ability to innovate and execute during challenging times. Our results speak to the resilience of our business and the relevance of our products and services in our customers lives. Total revenue was $59.7 billion. A new June quarter record up 11 percent from a year ago, despite a 300 basis point headwind from foreign exchange. Our performance was strong across our entire portfolio as we grew revenue in each of our product categories and said June quarter records for Mac, for wearables and for services. Similarly, our results were very strong all around the world, with growth in all geographic segments and new June quarter records in the Americas, in Europe, in Japan, and rest of Asia Pacific. Products revenue was $46.5 billion, up 10 percent, and a June quarter record. iPhone return to growth and we saw very strong double digit growth from iPad, Mac, and wearable. Lockdowns and point of sale closures were widespread during April and impacted our performance. But we saw demand for all products improve significantly in May and June. As a result of our strong performance and the unmatched loyalty of our customers, our installed base of active devices reached an all time high in all of our geographic segments and all major product categories, our services continue to grow strongly, up 15 percent year over year and reach a June quarter record of $13.2 billion. We said all time records in many services categories and June quarter records in each geographic segment. I'll cover this in more detail later. Company gross margin was 38 percent, this was down 40 basis points sequentially due to unfavorable effects of 90 basis points and a different mix of products partially offset by cost savings and services mix. Products gross margin was 29.7 percent, decrease in 60 basis points sequentially due to effects and a different mix partially offset by cost savings. Services gross margin was 67.2 percent, up 180 basis points sequentially, mainly due to mix. Net income was $11.3 billion and earnings per share with $2.58, up 18 percent and a June quarter record. Operating cash flow was also a June quarter record of $16.3 billion, an improvement of $4.6 billion over a year ago. Let me get into more detail for each of our revenue categories, iPhone revenue grew two percent to $26.4 billion, with customer demand improving as the quarter progressed. COVID-19 was most impactful during the first three weeks of April when lockdowns and point-of-sale closures became more widespread in many countries. We saw marked improvement around the world in May and June, which we attribute to an improved level of customer demand, helped by the very successful launch of iPhone SE and economic stimulus packages. Our active installed base of iPhones, again reached an all-time high as a result of the loyalty of our customer base and strength of our ecosystem. In fact, in the U.S., the latest survey of consumers from 451 research indicates iPhone customer satisfaction of 98 percent for iPhone 11, 11 Pro and 11 Pro Max combined. Turning to services, as I said, we had a June quarter record of $13.4 billion of revenue. We had all-time record performance and strong double-digit growth in the App Store, Apple Music, video, and cloud services. Our new services, Apple TV+, Apple Arcade, Apple News+, and Apple Card are also contributing to overall services growth and continue to add users content and features. At the same time, customer engagement in our ecosystem continues to grow at a faster pace and the number of both transacting and paid accounts on our digital content stores reached a new all-time high during the June quarter, with paid accounts increase in double digits in each of our geographic segments. In aggregate, paid subscriptions grew more than 35 million sequentially, and we now have over 550 million paid subscriptions across the services on our platform, up 130 million from a year ago. With this momentum, we remain confident to reach our increased target of 600 million paid subscriptions before the end of calendar 2020. Wearables, home, and accessories establish a new quarter record with revenue of $6.5 billion, up 17 percent year over year. Our wearables business is now the size of a Fortune 140 company and we said June quarter records in the majority of markets we track. Importantly, Apple Watch continues to extend its reach with over 75 percent of the customers purchasing Apple Watch during the quarter are new to the product. Next, I'd like to talk about the impressive performance of Mac revenue of $7.1 billion, up 22 percent over last year, and a June quarter record. We grew double digits each geographic segment and set all-time revenue records in Japan, and the rest of Asia Pacific, as well as June quarter records in the Americas and Europe. Customer response to our new MacBook Air and MacBook Pro launches has been extremely strong. iPad performance was equally impressive, with revenue of $6.6 billion, up 31 percent, and our highest June quarter revenue in eight years, demand was strong around the world with double-digit growth in each of our geographies segments including a June quarter record in Greater China. The launch of our new iPad Pro has been received incredibly well in every region of the world. Both Mac and iPad are extremely relevant products in the new working and learning environments and the most recent surveys of consumers from 451 Research measured customer satisfaction and 96 percent for Mac and 97 percent for iPad. Around half of the customers purchasing Mac and iPad during the quarter were new to that product. And as a result, the active installed base for both products reached a new all-time high. Our retail business had record June quarter revenue thanks to the performance of our online store. We set records in all geographic segments and grew across all major product categories. In June, we launched Apple Card Monthly Installments for more products in our U.S. stores, allowing customers to pay for their devices over time with zero percent interest. We're very pleased with the level of customer interest this new offering has generated. In the enterprise market, we continue to see companies leverage Apple products and offerings to successfully navigate their businesses through COVID-19. In health care. We're seeing rapid acceleration of telehealth to support a more flexible model of patient care. Many hospitals, such as UVA Health, Rush University Medical Center, and UC San Diego Health are using apps on iPad and iPhone to help triage monitoring care for patients who are at home. This helps free up hospital capacity to support patients who need inpatient care while enabling continued care for patients who do not require in-person visits. Since many call center employees are currently working remotely Apple Business Chat has proven an invaluable tool for staying connected with customers. This quarter, HSBC deployed Apple Business Chat in its U.S. and U.K. Connect Centers. Apple Business Chat provides a flexible and secure channel for digital banking assistance through a native Apple experience, improving the efficiency and experience for both customers and agents. We are seeing similar adoption by hundreds of other organizations. Let me now turn to our cash position. We ended the quarter with almost $194 billion in cash plus marketable securities. We issued $8.5 billion of new term debt, retired $7.4 billion of term debt, and increased short term borrowing facilities by $1.1 billion during the quarter, leaving us with total debt of $113 billion. As a result, net cash was $81 billion at the end of the quarter, and we continue on our path to reaching a net cash neutral position over time. We returned over $21 billion to shareholders during the June quarter, including $3.7 billion in dividends and equivalents and $10 billion through open market repurchases of $31.3 million Apple shares. We also began a $6 billion accelerated share repurchase program in May, resulting in the initial delivery and retirement of 15.2 million shares and finally retired an additional 4.8 million shares in the final settlement of our 15th ASR. As we move ahead into the September quarter, I'd like to provide some color on what we are seeing, which includes the types of forward-looking information that Tages referred to at the beginning of the call. Similar to last quarter, given the uncertainty around the world in the near term, we will not be issuing revenue and margin guidance for the coming quarter. However, we will provide some additional insight on our expectations for the September quarter for our categories. On iPhone, we expect to see recent performance continue for our current product lineup, including the strong customer response for iPhone SE. In addition, as you know, last year we started selling new iPhones in late September. This year, we project supply to be available a few weeks later. We expect the rest of our product categories to have a strong year over year performance. For services, we expect the September quarter to have the same trends that we observed during the June quarter, except for Apple care, where during the September quarter, a year ago, we expanded our distribution significantly. As a consequence, we expect a difficult comp for AppleCare, also considering the COVID related point of sale closures this year. For gross margin, keep in mind that we would have a different mix than in prior years, as I just explained, for OpEx, we expect to be between 9.8 and 9.9 billion. We expect the tax rate to be about 16 and a half percent and OINE to be 50 million. Also today, our board of directors has declared a cash dividend of 82 cents per share of common stock payable on August 13, 2020, to shareholders of record as of August 10, 2020. And finally today, we're announcing a four-for-one split of Apple common stock to make our stock more accessible to a broader base of investors. The shareholders of record at the close of business on August 24, 2020, we receive three additional shares for every outstanding share held on the record date, and trading will begin on a split-adjusted basis on August 31st, 2020. With that, let's open the call to questions.

Analysts questions

Katy Huberty, Morgan Stanley

Thank you, good afternoon. Tim, in light of the economic adversity that you talked about in the prepared remarks. Can you just walk us through how Apple's leveraging finance and trade-in programs to make technology more affordable and accessible during this period while also addressing the opportunity to recycle and reuse products and maybe also extend that to how these programs might expand over time?

Tim Cook

As Luca mentioned, in June, we actually rolled out to the overwhelming balance of our other products, the ability to do interest-free financing in our stores with payments. And that's in addition to trade-in, which is becoming a more common trend now, which I think is terrific because it is great for the environment and it acts as a subsidy, if you will, against the price of the new phone. And so when you compound these two things with the financing and the trade-in, it makes the products super affordable. And we're really happy with what we're seeing in that regard.

Katy Huberty And then as a follow up just specifically to iPhone, the category return to growth; as you pointed out, the installed base is larger today. Our math would suggest that replacement cycles in some cases are elongated, and then you have the affordability element that you just discussed. Is all of that combined to build confidence that we're entering a longer period of iPhone revenue growth after what's been six quarters of decline?

Tim Cook

We're very pleased with how we did on iPhone. It was better than we thought, largely because, as we pointed out in the prepared remarks, May and June were much better. If you look at iPhone in totality, the things that get me very optimistic is the size of the active install base. The fact that if you look in the major geographies like the U.S., we had the top two selling smartphones In the U.K. we had three of the top four. In Australia, we had five of the top six. In Japan, we had the top four. Urban China, iPhone 11 was the top-selling smartphone in the country. And so these are some very different geographies with very different competitive situations. And we're doing fairly well. The iPhone SE, it's also clear that from the early data, we're seeing a higher switcher number than we did in the previous year, which we feel very good about. And it also seemed to appeal to some people that were holding onto the device a little longer because they wanted a smaller form factor phone. And so the combination of the smaller form factor and an incredibly affordable price made the iPhone SE very popular. iPhone 11 is still the most popular smartphone, but iPhone SE definitely helped our results. And as Lucas said in his outlook, we do see that continuing into this quarter currently.

Krish Sankar, Cowen & Co.

Hi, thanks for taking my question. First one, Tim; when you look at the services business and in terms of your TV+ content production, have the movement restrictions impacted the content production as such? And along the same path, you know, four years ago, your premonition on services being $50 billion dollar business in 20 and it came sooner than expected. I don't know if you want to make any such forecasts four years out on how you think services revenue is going to be.

Tim Cook

I'm sorry I missed that second question because the audio didn't come through, but I think I got the gist of the first, and that is production has been affected for Apple TV+, as I think it has for most people. We are working to get restarted. I don't have a precise date yet when we will get restarted, but there will be some impact because we shut down in the March time frame and are yet to really restart in a significant way, particularly for those that are shot in the L.A. area, given the current status of the virus, the those and I'm sorry I missed the second part of your question.

Krish Sankar

Yes, Tim. Four years ago you made a good prediction that services is going to be $50 billion dollars by 2020. I was wondering if you have any update to the prediction four years down the road.

Tim Cook

We're not updating today. We feel good it. We want to take the moment and feel good about achieving the doubling six months early and we do have, still hanging out there, as you know, the subscription number that we're shooting for later in the year at 600 million. So we do have that objective out there.

Krish Sankar

This next one is for Luca. With a strong [unclear] for Mac, given the shelter-in-place, do you think the back-to-school season got pulled in by a quarter, or do you expect the momentum to continue? Thank you very much.

Luca Maestri

As I said when I was talking about providing some commentary for the September quarter, we expect all the non-iPhone product categories to have a very strong year over year performance. So we definitely ... I mean, the back to school season is clearly this one, and we are very excited not only for the Mac, but also for the iPad. We got a fantastic lineup of products and we know that these products are incredibly relevant, especially given the current circumstances. So we expect the performance that we've seen for Mac in the June quarter to continue.

Shannon Cross, Cross Research

Thank you very much. Tim, can you talk a bit about what you're seeing in China? I know the revenue was up two percent, and I think Luca talked about record iPad, but I'm just curious as to, given their 5G is a bit ahead, how you're seeing the market play out.

Tim Cook

Shannon, we did see growth in Greater China for the quarter of two percent. Currency affected China a bit more than in other places. It affected 400 basis points. And so in constant currency, we would have grown at six. As I mentioned before, the iPhone 11 has been our best selling phone and has been number one in urban China, and so we're very, very proud of that. iPad was helped in the June quarter there by the work from home and distance learning as it was in other geographies. And the Mac also grew strong, double-digit during the quarter. And services set a new June quarter record there. We also continue to see extremely high new customer rates on Mac and iPad there. To give you a perspective, about three out of four customers that are buying the Mac are new in China and about two out of three that are buying the iPad are new. And so these are numbers that we're super proud of.

Shannon Cross

Great. Then can you talk a little bit more about the decision to bring Mac silicon in-house and the benefits that you expect to see, or you've seen, from vertical integration of acquisitions like the Intel modem business? Thanks.

Tim Cook

Yeah, what we will wind up with is a common architecture across all of our products, which gives us some interesting things that we can do in products that are .. it sort of unleashes another round of innovation. I don't want to say a lot about it other than we're extremely excited about it. It's something that we've worked on quite a while to get to this point. And we're looking forward to shipping the first Mac with Apple Silicon later in the year.

Amit Daryanani, Evercore

Thanks a lot for taking my question, guys. I have one and a follow up as well. Tim, if I think about the trend you see with iPhones right now, do you have a sense in terms of, you know, where is this trend coming from? Is it more replacement cycles getting shorter or is it just getting new customers into the iOS ecosystem? Because clearly these growth rates seem fairly impressive in the context of a pandemic and the upcoming refresh cycle that we have.

Tim Cook

I think it's a combination of a strong launch with iPhone SE probably some pickup because of the economic stimulus that hit different countries at different points in time, and probably some of the reopening that took place across the quarter, particularly in May and June as stores started to reopen. And so it's a combination of all of those. And as you know, we've been having a strong cycle with the iPhone 11 and the 11 Pro. And so when you combine a strong cycle plus an iPhone SE launch, plus the reopening of the stores, et cetera, I think there were a lot of things that were going in the right direction there.

Amit Daryanani

Perfect. That's helpful. Luca, if I could just follow up with you, I'd love to get your perspective on how do we think about the overall 38 percent gross margins. What do you think are the levers to improve this as you go forward? Not really the September quarter, but over the next one or two years. And in that context, you know, do you see a point where the product gross margins start to stabilize because they have been trending somewhat lower for the last couple of quarters now?

Luca Maestri

Yeah, let me start with what we've seen during the June quarter. We were at 38 percent, we were down slightly sequentially, but up the same amount on a year over year basis. And really, the big negative impact that we felt for several quarters now has been the strength of the U.S. dollar. So the foreign exchange impact on a sequential basis was 90 basis points on a year over year basis was 130 basis points. So obviously that is something to keep in mind. And then the other aspect I think is always important to keep in mind is that we sell many different products. They have different margin profiles. And so sometimes a different mix can have an impact on the aggregate level of products' gross margins. And we're very pleased to see the performance of Mac, iPad and wearables. But, obviously, it's a different mix. Going forward, the variables are always the same if the foreign exchange will continue to play an impact, the mix of products that we're going to be selling will have an impact as well. The commodities market has been relatively benign. And we'll see how that plays out over time. As you know, now, for several years, we've been managing gross margin, I would say fairly well, in spite of some difficult situations like the one with the strength of the dollar. And we plan to continue to make good trade-off decisions between revenue and units and margins.

Kyle McNeely, Jefferies

Hi, thanks for the question. Our team in Asia recently did some survey work on smartphones in China. It showed that there's still a high proportion of the installed base that's on [iPhone] 6, 7, and 8 devices. I know you talked about the trade-in programs and promotions that you've been doing there, but I wonder if you can tell us whether there's anything else that you're doing to get these customers into your latest technology. What might those customers be looking for? And how should we think about when an upgrade cycle might come on more strongly there in China? Thanks.

Tim Cook

Customers upgrade at a different pace. I don't have in front of me the exact installed base data from China, but much like in other geographies, the upgrades have extended some. It extended some during the depths, if you will, of the pandemic and in China and the rest of the world, and probably to some degree is happening still at this point. The key things that we can do is, keep innovating, deliver a product that people can't imagine going through life without, and obviously keep rolling out these programs that make the front end purchase be much less. And this is things like the financing and the trade-in programs that you mentioned. And I do feel like those are going quite good in a number of geographies.

Kyle McNeely

OK, great, thanks. And one more, if I may. Congrats again on the strong iPad and Mac results. That's really impressive. I guess the obvious question is, should we ever think about how much of that might be pull-forward and what might do to future upgrades in the next few years? Anything else you can share on how you think about growth from here or whether there's a hangover period, or maybe after the back to school season or holiday season? That would be helpful. Thanks.

Tim Cook

The install base is growing and the new customer numbers that Luca went over in the aggregate are still very high, in the close to 50 percent kind of range, and so that to me bodes well for the future. There's clearly, as we'd indicated, there's some amount of work from home and remote learning that do affect the results of Mac and iPad positively. They probably affect wearables and iPhone the other direction. And but on Mac and iPad, these are productivity tools that that people are using to stay engaged with their work or stay engaged with their schoolwork. And we believe we're going to have a strong back to school season. Sitting here today, it certainly looks like that.

Ben Bollen, Cleveland Research

Good evening, everyone. Thanks for taking the question. Tim, I was hoping you could share a little bit about where you think channel inventory is. You talked about the tightness you saw exiting the June quarter for Mac and iPad. Interested where you think inventory is across the major product categories.

Tim Cook

We've gotten away from talking about channel inventories. But to give you a perspective, sitting here looking at it; on iPhone, the inventory slightly less than it was a year ago. And I'm saying that at a quarter endpoint. So at the end of Q3. Obviously iPad and Mac are constrained. And so both of those are less than they were in the year-ago quarter.

Ben Bollen

OK. And then, Luca, I'm interested, any color you could share about the impact COVID had on OpEx in the quarter for, you know, work from home stipends, less travel, other employee support costs, and also how the company is thinking about the longer-term opportunity of employees working remotely, maybe more permanently, and any considerations on how that could influence future OpEx. Thanks.

Luca Maestri

On the OpEx front, there are being obviously certain things that have been affected in terms of cost reductions, obviously, travel. It is a perfect example, you know, the number of meetings that we had internally, some of those costs are been reduced. We've also invested heavily in initiatives. For example, you know, we really trying to help during very difficult circumstances. We have a program, for example, where we match our employee donations. We made donations directly as a company around the world to many institutions and governments. On a net basis, I would say probably the cost outweighed the savings both during the March and the June quarter. But we think it's absolutely the right thing to do. From an employee perspective, what we said so far, is that, here in the United States, the majority of our population will continue to work from home until the end of the year. And then we'll see. I mean, we taken an approach that we try to understand how the virus is evolving over time. We've taken a very cautious approach both with our corporate facilities and with our retail stores. I think what you've seen with retail stores is that we have reopened in a number of geographies around the world. We have reopened here in the United States. We've had to re-closed some of the stores here in the United States as the number of cases has gone up. And we will continue to track out the virus is doing. And hopefully, at some point we're going to get to a point where there is a vaccine or there is a cure. And so we will make those decisions as we get more information.

Jeriel Ong, Deutsche Bank

Hi, yes, thank you so much. I have two questions. I'd like to focus on the gross margin expansion within the services line, all time record for the quarter, just curious whether you think that will sustain. I understand within services there's a pretty wide range of gross margins by business, and I'm wondering if that should continue to improve.

Luca Maestri

Well, as you've seen, obviously, we've had sequential expansion in gross margin for services, and that was driven primarily by mix, as you said. We have a very broad portfolio and depending on which one of the services does better than we have an impact on services gross margins. We like the services business because it's a recurring type of revenue and the margins are accretive to company margin. We did over 67 percent this quarter. But, we we want to offer very competitive services across the board.

Jeriel Ong

Got it. I really appreciate it. I want to ask a question on the wearable segment. It seems to me that you're categorizing the wearables business as maybe being a little bit impacted by the pandemics similar to the iPhones. And it's the first time that wearables hasn't materially upset in, at least, a while in recent memory, I guess the drivers of wearables being predominantly Watch and AirPods. What are your thoughts going forward on whether there's a little bit of pent up demand perhaps that might resume as we get back to a more normalized environment?

Tim Cook

I think on the Watch, in particular, is, like the iPhone, more affected by store closures, because people some people want to try on the Watch and see what it looks like, look at different band choices and those sorts of things. And so, I think as stores closed, it puts more pressure on that. We did come out, sort of the way we told you last quarter we were going to come out from the color that we gave you. So we knew things would decelerate because of the closures. So we wound up being very pleased with how we did. But the store closures definitely affect the wearables and the iPhone.

Jim Suva, Citigroup

Thank you very much. I have two questions I'll ask them at the same time. I have one for Time and one for Luca. Tim, regarding the Coronavirus, your company has done a fantastic job at overcoming all of the hurdles. So congratulations to you. As you look forward to the Christmas holiday shopping season, and given the economic challenges around the world with regards to the coronavirus and your product launches and things like that, can you give me commentary on how this Christmas you're looking forward to seeing, maybe, some past cycles of Christmas? Because it just seems like it's a little bit different, but Apple is really showing a lot more strength coming into this Christmas than maybe some of the past years. And then Luca, I think you made a quick comment, Luca, that you mentioned something about "a few weeks late." Was that for iPhone, iPhone chips, or product launches? Can you, maybe, expound upon that? I know things are more difficult, but I didn't quite catch the commentary. It was in your prepared comments about a few weeks late, that was just a quick little blurb. Thank you so much, gentlemen.

Tim Cook

Yeah, we take it one quarter at a time, and so we'll give you color on the December quarter in October. Generally speaking, I think we need to see a vaccine or therapeutic or both. And, you know, there's some optimism around that, in that particular time frame. And so we'll see. I don't have any information that isn't publicly available there, but I think that would boost consumer confidence quite a bit if it began to happen. And I think that any kind of consumer stock company would benefit from that.

Luca Maestri

Jim Suva

Congratulations to you and your entire organization and team. Thank you so much.

Tim Cook

Thanks so much.

Wamsi Mohan, Bank of America

Yes, thank you. I was wondering if you can maybe comment on the penetration of Apple Card users in the iOS install base and have you seen any change in the buying behavior of Apple Card users in terms of accelerating spend on more Apple products and services?

Tim Cook

We saw changes in consumer spending as the shutdowns occurred and the store closures occurred, we could see that across the Card. It affected the categories that you would guess the most, like travel and entertainment, et cetera. But overall, if you sort of pull the lens out on the Apple Card, we're very happy with the number of people that have an Apple Card. We believe, based on what we've heard, that it's the fastest rollout in the history of credit cards, and so we feel very good about that.

Wamsi Mohan

OK, thanks, Tim. And as a follow-up, now that Apple has Apple Silicon for Macs, would you ever consider monetizing this as a merchant silicon lender, or is this going to be forever for Apple use?

Tim Cook

Well, I don't want to make a forever comment, but we're a product company and we love making the whole thing. And because we can own the user experience in that way, with the goal of delighting the user. That's the reason that we're doing the Apple Silicon. Because we can envision some products that we can achieve with Apple Silicon that we couldn't achieve otherwise. And so that's how we look at it.

Apple has just announced its financial results for Q3 2020, covering the period between April 1 and June 27, 2020. The company posted quarterly revenue of $59.7 billion.

The quarter saw net iPhone sales hit $26.4 billion, up about $500 million from the prevous year, while services hit $13.2 billion, up nearly $2 billion from a year ago. iPad, Mac, and wearables sales figures were also up during Q3 over the same period in 2019.

You can get a detailed breakdown of Apple's financial results right here.

Check out the transcript of Apple's Q3 2020 earnings call

Press release:

Apple Reports Third Quarter Results

Revenue up 11 percent and EPS up 18 percent to new June quarter records

Cupertino, California — July 30, 2020 — Apple today announced financial results for its fiscal 2020 third quarter ended June 27, 2020. The Company posted quarterly revenue of $59.7 billion, an increase of 11 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.58, up 18 percent. International sales accounted for 60 percent of the quarter's revenue.

"Apple's record June quarter was driven by double-digit growth in both Products and Services and growth in each of our geographic segments," said Tim Cook, Apple's CEO. "In uncertain times, this performance is a testament to the important role our products play in our customers' lives and to Apple's relentless innovation. This is a challenging moment for our communities, and, from Apple's new $100 million Racial Equity and Justice Initiative to a new commitment to be carbon neutral by 2030, we're living the principle that what we make and do should create opportunity and leave the world better than we found it."

"Our June quarter performance was strong evidence of Apple's ability to innovate and execute during challenging times," said Luca Maestri, Apple's CFO. "The record business results drove our active installed base of devices to an all-time high in all of our geographic segments and all major product categories. We grew EPS by 18 percent and generated operating cash flow of $16.3 billion during the quarter, a June quarter record for both metrics."

Apple's Board of Directors has declared a cash dividend of $0.82 per share of the Company's common stock. The dividend is payable on August 13, 2020 to shareholders of record as of the close of business on August 10, 2020. The Board of Directors has also approved a four-for-one stock split to make the stock more accessible to a broader base of investors. Each Apple shareholder of record at the close of business on August 24, 2020 will receive three additional shares for every share held on the record date, and trading will begin on a split-adjusted basis on August 31, 2020. Apple will provide live streaming of its Q3 2020 financial results conference call beginning at 2:00 p.m. PT on July 30, 2020 at apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

Apple periodically provides information for investors on its corporate website, apple.com, and its investor relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance, and details related to its annual meeting of shareholders.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q1 2020 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon, everyone. Thanks for joining us today. I hope you're staying safe and well. Today, Apple reports $58.3 billion dollars in revenue, an all-time record for services, and a quarterly record for wearables, home, and accessories. It was also a quarterly revenue record for Apple retail. Powered by phenomenal growth in our online store. Amid the most challenging global environment in which we've ever operated our business, we're proud to say that Apple grew during the quarter. But before we dive more deeply into the numbers, I want to speak just for a bit on COVID-19. This is something Apple has been contending with since January. And I think that how we have responded, what we have been inspired to do tells an important story about Apple's great durability as a business and the enduring importance of our products and our customer's lives. It also speaks to Apple's unmatched capacity to be creative, to think always in terms of the long term, and to forge ahead when others may feel an instinct to pull back. Before COVID-19 was on the horizon. We anticipated that Q2 was going to be a prolific and energetic period for Apple. And when the pandemic did strike, our teams not only succeeded in growing the business, in introducing powerful new products and in meeting our customers' needs, but they also rose to the occasion in terms of meeting our broader obligations to the communities in which we live and work. Let's look quickly across the business. At the same time that they were leaving no stone unturned to get our latest generation of devices manufactured and into our customers' hands, our worldwide network of supply chain partners, logistics and operations spokes and every part of the company were also sourcing more than 30 million masks for frontline medical workers, ensuring they are donated to places of greatest need in every region around the world. While our product teams were preparing to launch a new iPad Pro, Magic Keyboard, MacBook Air, and the new iPhone SE, all of which have been very well received by reviewers and consumers alike, they were also working with our suppliers to design, test manufacture and distribute more than seven and a half billion face shields. And we continue to ship more than one million of these every week to the doctors, nurses, and medical personnel on the front lines. In a quarter where services teams achieved strong growth, which Luca will dig into in a minute, and which speaks to the real durability of our services strategy, these teams were also putting COVID-19 front and center. As Apple News reached 125 million monthly active users, we elevated trusted information from reliable sources through a special COVID-19 vertical. We let customers skip payments without incurring interest on Apple card for March and April in light of financial hardship for many families. We worked with everyone from Oprah to Lady Gaga to inform, entertain and get back through Apple TV and services like FaceTime and Messages set new all-time records for daily volume during this quarter as users relied on their devices to stay connected in a new reality. In software, at the same time that our teams work with great creativity and excitement as we prepare to deliver our first ever all online Worldwide Developers Conference later this quarter, they also worked with the same creativity and speed to put together our COVID-19 symptom checking Website, and app in partnership with the CDC. As of today, the app has been installed nearly two million times and the web tool has received over three million unique visits. and just this month to accelerate contact tracing. We are launching a joint effort with Google to enable the use of Bluetooth technology to help governments and health agencies to reduce the spread of the virus with user privacy and security central to the design. We've paired these programmatic efforts with a broader strategy to give back what's needed most. We've made major corporate donations to response efforts around the world to support Global Citizen, as well as a new fund for Americans experiencing food insecurity as a result of the crisis. When you tally these things up and consider our ongoing two-to-one match for employee donations. Apple's contributions to the global response are significant, diverse and a great source of pride for the whole team. We're also doing what we can to help our employees, their families and by extension, their communities stay safe and well by modifying our operations where appropriate. This extends, of course, to our retail employees. They are Apple's face to our customers and an instrumental part of our business, and we're compensating them normally despite store closures. During a quarter where circumstances evolve by the hour, we have been gratified by the resilience and adaptability of our global supply chain. While we felt some temporary supply constraints in February, our operations team suppliers and manufacturing partners have been safely returning to work and production was back at typical levels toward the end of March. At this time of social distance of shuttered schools and gathering places of delayed plans and new ways of socializing, we have seen significant evidence that our products have taken a renewed importance for our customers. Teachers and students around the world are relying on our technology to teach, learn, and stay connected with each other. We are in the process of deploying major orders of iPads to school systems, working to keep learning going strong at a distance, including tens of thousands in Ontario, Canada, Glasgow, Scotland, and Puerto Rico. A hundred thousand to the city of Los Angeles and three hundred fifty thousand to New York City. Our largest educational iPad deployment ever. Since early March, we've seen unprecedented demand for our pro apps from students, enthusiasts, and creative professionals. These folks are keeping us all entertained and inspired as we stay at home, and to help them do it, we made Final Cut Pro X and Logic Pro X available for free for 90 days for everyone. And the reaction has been overwhelming, driving software downloads and usage to record levels. Doctors and medical professionals are making even greater use of Apple Watch and other health features to communicate with patients and to treat them safely from a distance when necessary. With new FDA guidance on non-invasive remote patient monitoring, for example, the ECG app on Apple Watch is increasingly being used to facilitate remote ECG measurements and recordings for telemedicine usage, reducing patient and health care provider contact and exposure. Many hospitals, such as Geisinger Health System, NYU Langone Health, and Stanford Health Care are using apps on iPad and iPhone to support communication and video conferences between hospitalized patients and their care teams. This enables the care teams to keep a close watch on patients without entering isolation rooms, which helps to minimize exposure and reduces some of the need for personal protective equipment. Now, when you step back and tally all this up, when you consider all the ways COVID-19 has touched Apple, our customers, and the way we work, this may not have been the quarter it could have been absent this pandemic. But I don't think I can recall a quarter where I'd been prouder of what we do or how we do it. As I said at the outset, we achieve revenue of $58.3 billion. And underneath that was product revenue of $45 billion. The performance of our product business had three very different phases during the March quarter. Based on Apple's performance during the first five weeks of the quarter, we were confident we were headed toward a record second quarter. At the very high end of our expectations. In the next five weeks of the quarter, as COVID-19, started impacting China, iPhone supply was temporarily affected as well as demand for our products within China. This caused us to withdraw our revenue guidance in February. At that point, demand for our products outside of China was still strong and in line with our expectations. During the last three weeks of the quarter, as the virus spread globally and social distancing measures were put in place worldwide, including the closure of all our retail stores outside of Greater China on March 13th and many channel partner points of sales around the world, we saw downward pressure on demand, particularly for iPhone and wearables. Given the lack of visibility and uncertainty in the near-term, we will not be issuing guidance for the coming quarter. Over the long term, though, we have a high degree of confidence in the enduring strength of our business. Our global supply chain is profoundly durable and resilient. We have shown the consistent ability to meet and manage temporary supply challenges like those caused by COVID-19. We have continued to deliver innovative new products across multiple categories that appeal to a broad cross-section of customers, including the all-new iPhone SE, which achieved unmatched technological capacity at an incredible value. Our teams worldwide have tackled the complexities of this moment with unmatched creativity, good humor, and dedication to our customers. For a company whose business is innovation, there are real upsides in periodically having to figure out how to do just about everything in a brand new way. Our long-running investment in our services strategy is succeeding. This business is growing and is a reflection of our enduring large and growing robust cash position and our best product pipeline ever. Major investments, including our five year commitment to contribute $350 billion dollars to the economy here in the United States are moving forward, full speed ahead. It's in these moments that we set ourselves apart. We've always managed through difficult moments by doubling down and investing in the next generation of innovation. And that's our strategy today. And so while we can't say for sure how many chapters are in this book, we can have confidence that the ending will be a good one. Apple will continue to do everything we can do to help the global response and to keep our customers learning, creating, sharing and connecting so that life can remain as normal as it can during this challenging time. With that, I'll hand things off to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. It has been a very different quarter than we were expecting when we last talked to you at the end of January. But we could not be more proud of our Apple teams around the world. Our role in supporting local communities and our partners throughout the value chain and how resilient, our business and financial performance has been during these challenging times. The revenue for the quarter was $58.3 billion, up one percent from a year ago. Despite the extreme circumstances from the impact of COVID-19 and a headwind of 100 basis points from foreign exchange. Products, revenue was $45 billion, down three percent. After a very strong January, our performance was impacted, particularly during the last three weeks of the quarter when lockdown's and point of sale closures increased due to COVID-19 spreading around the world and affected our product sales. However, on a demand basis, our performance was stronger than our reported results as we reduced iPhone channel inventory more than we did a year ago. Importantly, our installed base of active devices reached an all-time high in all of our geographic segments and all major product categories. Services revenue followed a different trend with very strong year over year growth of 17 percent. We set a new all-time revenue record of $13.3 billion with all-time records in many of our services categories and in most countries we track. I'll provide more details on this later. Company gross margin was 38.4 percent, flat sequentially with cost savings, a mixed shift towards services offset by the seasonal loss of leverage. Products gross margin was 30.3 percent, decrease in 380 basis points sequentially due to loss of leverage and a favorable mix. This drop was more pronounced than under normal circumstances due to the COVID-19 impact I mentioned earlier. Services gross margin was 65.4 percent, up 100 basis points sequentially driven by favorable mix. Our reported tax rate for the quarter was 14.4 percent. This was lower than our 16.5 percent guidance due to one-time discrete items. Net income was $11.2 billion and earnings per share were up $2.55, up 4 percent. Operating cash flow was very strong at $13.3 billion, an improvement of $2.2 billion over a year ago. Let me get into more detail for each of our revenue categories. iPhone revenue of $29 billion declined 7 percent year over year as both iPhone supply and demand were affected by the impact of COVID-19 at some point during the quarter. On the supply side, we suffered from some temporary supply shortages during February, but we've been extremely pleased with the resilience and adaptability of our global supply chain, as well as its ability to get people back to work safely when circumstances allow. Our operations team and manufacturing partners put forth an extraordinary effort to restore production quickly, and we exited the quarter in a good supply position for most of our product lines. On the demand side, after a very strong first five weeks, we saw the impact of COVID-19 affect demand in China for the next five weeks and then more broadly around the world for the last three weeks of the quarter where locked downs and point of safe closures became more widespread in many countries. While we did see a slight elongation in our replacement cycle towards the end of the quarter, which we attribute to the widespread point of safe closures, our active installed base of iPhones has reached an all-time high. This speaks to the quality of our products and strength of our ecosystem. In fact, in the US, the latest survey of consumers from 451 Research indicates iPhone customer satisfaction of 99 percent for iPhone 11, 11 Pro and 11 Pro Max combined. Turning to services, we had an all-time revenue record of $13.3 billion. We had strong performance across the board with all-time revenue records in the App Store, Apple Music video, cloud services, and our App Store search ad business. And we also said a March quarter record for AppleCare. Our new services; Apple TV+ Apple Arcade, Apple News+, and Apple Card continue to add users, content, and features while contributing to overall services growth. As we mentioned, we are well on our way to accomplishing our goal of doubling our fiscal 16 services revenue during 2020. App Store revenue grew by strong double digits thanks to robust customer demand for both in-app purchases and subscriptions. Our third party subscription business grew across multiple categories and increased over 30 percent year over year, reaching a new all-time high. Our first party subscription services also continue to perform very well. Apple Music and Cloud Services both set all-time revenue records and AppleCare set a March quarter record. Paid subscriptions for all three of these services were up strong double digits. Customer engagement in our Eco-System continues to grow strongly, and the number of both transacting and paid accounts on our digital content stores reach a new all-time high during the March quarter. In particular, the number of paid accounts increased double digits in all of our geographic segments. We now have over 515 million paid subscriptions across the services on our platform, up 125 million from a year ago. On a sequential basis, paid subscriptions grew by over 35 million. This is the highest sequential growth we have ever experienced. With this momentum, we are confident we will reach our increased target of 600 million paid subscriptions before the end of calendar 2020. Wearables, home, and accessories establish a new March quarter record with revenue of $6.3 billion, up 23 percent year over year, with strong double-digit performance across all five geographic segments. Our wearables business is now the size of a Fortune 140 company, and we're very excited by the many opportunities in front of us for this product category. For example, Apple Watch continues to extend its reach at over 75 percent of the customers purchasing Apple Watch around the world during the quarter were new to the product. Next, I'd like to talk about Mac and iPad. Mac revenue was $5.4 billion. iPad revenue was $4.4 billion. Towards the end of the quarter, we launched a brand new iPad Pro that includes a first-in-class LiDAR scanner with some really exciting augmented reality applications and a MacBook Air with significantly improved performance at a lower price. We're very pleased with the strong customer interest for both products. Importantly, around half of the customers purchasing Macs and iPads around the world during the quarter were new to that product. And the active installed base for both Mac and iPad reached a new all-time high. The most recent surveys of consumers from 451 Research measured customer satisfaction at 95 percent for iPad and 96 percent for Mac. In the enterprise market, businesses everywhere have been making the transition to working remotely. We've created content to assist our customers in this transition, including an On-Demand video learning series focused on topics like remote deployments of iPads and Macs and security. We've also realigned our own retail business and enterprise teams to provide timely and relevant support to customers as they navigate new work environments.Add Speaker00:03:43.200Some of our largest customers offering Mac to employees such as IBM and SAP have been able to pivot quickly to allow employees to easily set up and secure their devices from home, benefiting from Apple Business Manager and zero-touch deployment. And we've seen countless examples of new projects and remote deployments implemented in just a few hours. Peloton, for instance, worked with our New York teams to deploy an entire fleet of Macs overnight so their team could work remotely. In essential sectors such as grocery and financial services, we're seeing organizations adopt our technology to better serve their customers safely. Leading grocers around the world like Trader Joe's, Woolworths, Lawson's, Sainsbury's, Lido, and Karifore offer Apple Pay so customers can use contactless payments. And as stores shift to become fulfillment centers for online orders, organizations are leveraging apps for remote shoppers and food delivery to reduce foot traffic. In banking, where safety and security are a top priority, one way to protect company and client information is by providing corporate iOS devices to employees who use mobile phones daily as part of their jobs. As an example, Bank of America is purchasing tens of thousands of additional iOS devices for their workforce. Let me now turn to our cash position. First, I want to note that liquidity has not been an issue for us during these highly unusual financial market conditions. We have an extraordinarily strong balance sheet, very deep access to capital markets, and unmatched free cash flow generation. We ended the quarter with $193 billion in cash plus marketable securities, total debt of $110 billion. And as a result, net cash was $83 billion at the end of the quarter. We returned $22 billion to shareholders during the March quarter, including $18.5 billion through open market repurchases of $64.7 million Apple shares, and $3.4 million in dividends and equivalents. Finally, as we move ahead into the June quarter, I'd like to provide some color on what we are seeing, which includes the types of forward-looking information that Cage has referred to at the beginning of the call, as they mentioned, given the lack of visibility and certainty in the near term, we will not be issuing guidance for the coming quarter, however, based on what we have seen in April, and how we think things might play out, I would like to provide some additional insight on headwinds and tailwinds we're facing. From a foreign exchange standpoint, the U.S. dollar has appreciated recently against most currencies around the world. And as a result, we expect our revenue to be negatively impacted by more than $1.5 billion dollars on a year over year basis. Our global supply chain is back up and running. We are in a typical supply position, including our usual ramp associated with new products recently launched. These newly launched products — iPad Pro, MacBook Air, and iPhone SE — have all received outstanding customer response even during these extreme circumstances. On iPhone and wearables, we expect a year over year revenue performance to worsen in the June quarter relative to the March quarter on iPad and Mac, we expect the year over year revenue performance to improve in the June quarter. On services which we are seeing two distinct trends. First, customers are actively engaging with our ecosystem and digital services, and we believe the very strong recent performance in the App Store video, music, and cloud services will continue throughout the June quarter. Second, due to overall reduced level of economic activity, due to the lockdowns around the world, services like AppleCare and advertising are being impacted. AppleCare is comprised of our product repair business and the warranty agreements with our customers, both of which have been obviously affected by store closures and reduced level of customer traffic. Advertising, which is comprised of third party agreements, our App Store search ads, and Apple News ads has been impacted by overall economic weakness and uncertainty on when businesses will reopen. For gross margin, sequential headwinds include foreign exchange, the mix within products, and the seasonal loss of leverage on our product business. Foreign exchange will have a 70 basis points impact sequentially and 130 basis points impact year over year. Regarding product mix, keep in mind the commentary we provided at the revenue level. Sequential tailwinds include cost savings and the mix shift towards services. With regard to capital allocation, our approach remains unchanged. We continue to invest confidently in our future while also returning value to our shareholders. We are in the midst of developing our most exciting pipeline of products and services ever while contributing over $350 billion dollars to the U.S. economy and expanding our footprint in many cities around the country over a five year period. We also continue to believe that there is great value in our stock and we are maintaining our target of reaching a net cash neutral position over time. As a testament to the confidence we have in our business today and into the future, our board has authorized $50 billion for share repurchases in addition to the over $40 billion authorization remaining under the current share repurchase plan. Our board has also authorized a six percent increase in our quarterly dividend and today declared a cash dividend of 82 cents per share of common stock payable on May 14, 2020, to shareholders as of May 11th, 2020. Finally, and most importantly, we are managing Apple for the long term, as we've always done during uncertain times historically, we have continued to invest in the business and this remains our philosophy. We will continue to stay focused on what we do best, investing in our product and service pipeline, managing the business wisely and taking care of our teams and believe we will come out from this stronger. With that, let's open the call to questions.

Analysts questions

Shannon Cross - Cross Research

Thank you very much for taking my question, and I hope everyone is well. Tim, you talked about seeing some improvement in the second half of April. So I was wondering if you could just talk maybe a bit more on the segment, a geographic basis, you know, what you're seeing and in the various regions that you're selling in and what you're hearing from their customers. And then I have a follow-up. Thank you.

Tim Cook

Sure, Shannon. I'll start with China. If you look at what happened in China, we were having a really good January. The lockdown started there, toward the end of January, as you know, February, we saw a steep decline in demand. We closed our stores in February. As the lockdown completed in mid-February toward the second half of February, we begin to open stores, we open on a staggered basis, that took about 30 days until mid-March. And from a demand point of view, we saw an improvement in March, over February. And if you look at, kind of, where we are today, we've seen further improvement in April as compared to March. And so that's China. You look at the rest of the world; We were doing great in January, the first five weeks of the quarter, and we do believe that we were headed toward to sort of the top end of our expectations that we had talked to you about on the last call. The next five weeks were spent reacting and getting the supply chain back up in full force and working through the sharp decline in China that I already talked about. The real thing for the rest of the world happened in March when the shelter in place orders went in and the work from home order began. For those two, three weeks periods at the end of the quarter we saw a sharp decline in demand. If you now step out into April and look at that, early April, starting like the end of March, but in the second half of April, we've seen an uptick across really across the board. It's not just related to a certain geo or a certain product. We think, by looking at it, a part of it is due to just our new products, a part of it is due to the stimulus programs taking effect in April, and then a part of it is probably the consumer behavior of knowing this is going to go on for a little while longer and getting some devices and so forth lined up to work at home, more. In particular for, as I think Luca shared, we believe that iPad and Mac are going to improve on a year over year basis during this quarter, and that's customers that are either taking online education or working remotely. So complex answer to your question, but that's what we're seeing.

Shannon Cross

Thank you. That was that was helpful. Luca, unless I missed it, you talked about various puts and takes in the quarter, but didn't really discuss operating expenses. I know you mentioned some cost savings on the COGS line. I'm curious how you're thinking about your spending and OpEx, given some of the macro challenges that you may be facing. Thank you.

Luca Maestri

Yes, well, Shannon, as we said, you know, we manage the company for the long term, right. So we know that, you know, the core of the business, the core of the company is innovation and product and services development. So we will continue to invest in our pipeline. We're very excited about what we have in store. And so we will continue to invest there. Obviously, we are aware of the environment and so we will manage, you know, the SGNA portion of the company tightly, we are making new investments in the new services that we launched recently. As you know, we purchased the baseband activities from Intel. And obviously we want to develop that technology because we consider it's a core technology for us. And so we will try to balance, you know, the need to continue to invest during difficult circumstances and the fact that we like to manage the business wisely.

Wamsi Mohan, Bank of America Merrill Lynch

Yes. Thank you, Tim. I think I speak for everyone on the call that we're all very appreciative of Apple's contribution during this pandemic. We all appreciate it. Tim, in past downturns, we have not really seen Apple pull back from investing. And you as a company have largely maintained the product introduction cadence. But given these are unprecedented times and there are a lot of challenges associated with product development, during a time when you have a global footprint for such activities and unable to really do a lot of things in person. How should we think about the product development and introduction cadence as we go over the next several quarters? And I will follow up.

Tim Cook

Well, we're continuing to operate. And so, as you can tell, along with everything else going on. We were able to launch and ship iPhone SE, the iPad Pro with the Magic Keyboard, and the MacBook Air. And so the business continues and the new products are our lifeblood. And so we're continuing to work. Everybody's getting used to working at home. In some areas of the company, people maybe even more productive in some other areas, with others not as productive. And so it's mixed, depending upon what the roles are. But as you can tell, from what we did this quarter, despite the environment, we have our head down and are working because we know that our customers want the products that we've got. They're even more important in these times.

Wamsi Mohan

Thank you, Tim. As a follow-up, I know you're doing a lot with the Apple Card and financing plan for iPhones, to get your products in the hands of customers. But I was wondering, would you consider using the strength of your balance sheet, maybe a little differently; structure, maybe deferred payments or things like that? Or do you think that there could be other steps like bundling that you will consider versus what you already currently do? Thank you.

Tim Cook

Well, as you know, we launched the payment plan earlier on Apple Card for iPhone. We're working on doing that for other products as well. And you'll see something on that shortly. So we're very focused on the affordability point. The trade-in programs also are fairly wide across the board and act as both something great for the environment. Also something great from a way to get that entry price down. In terms of deferred payments; nothing to announce today. But as you know, having access to the card, at least in the United States, gives us more degrees of freedom. And that is not using our balance sheet. But we play a key role in deciding what kind of programs go with the card.

Katy Huberty, Morgan Stanley

Thank you for the question. I hope the whole team is staying healthy and safe. Tim, I want to start on a longer-term question. Where do you see structural changes on the back of this health crisis that might present opportunities for new revenue streams at Apple? And I'm particularly thinking about your past comments on health and augmented reality. But I'm sure there are even more areas of inspiration and creativity coming out of the company. And then I have a follow-up.

Tim Cook

I think there are things from just a great reminder of how important our products are for remote work. And it's pretty clear to me that where things will get a lot closer to normal than they are today, obviously. I think many people are finding that they can learn remotely. And so I suspect that trend will accelerate some. I think that's probably also true about working remotely in some areas and in some jobs. And so I think we have significant solutions and products for all of those groups. On the health area, I gave some examples in my opening comments about the ECG being used on the Watch. You can bet that we're looking at other areas in this. We were already doing that because we viewed that that area was a huge opportunity for the company and a way for us to help a lot of people. And so you will see us continue on that. I wouldn't say that the health door opened wider. I would say it was already opened fairly wide.

Katy Huberty

OK. And then as a follow-up; the $50 billion share repurchase authorization is impressive in absolute terms, but it is a bit lower than the last couple of years. Is there any, you know, any context around the thought process of landing on $50 billion. And then, you know, related to that, you have one of the strongest balance sheets in the world. Does the current environment change your thinking at all around M&A opportunities?

Luca Maestri

Well, let me answer that, Katie. First of all, on the buyback; as I said, in general, our approach to capital allocation has remained the same for the last several years, and it's not changing now. Keep in mind here, we're talking about just the authorization. Right? And when you look at our actual results at the end of every quarter, you see how much we actually do in terms of share repurchases. The $50 billion is in addition to over $40 billion that is still remaining from the past authorization that we've received from our board. That is the total available or outstanding in terms of authorization is over $90. And as you look at our run rate during the last several years, you know that is a very adequate amount. And as you know, we will provide an additional update a year from now. So nothing really has changed there and nothing has changed on our approach for M&A. We've been quite active over the last several years. We purchase companies on a very regular basis. We're always looking for ways to accelerate our product roadmaps or fill gaps in our portfolio, both on the hardware side, on the software side, on the services side. So we will continue to do that. And so also on the M&A front, nothing has changed.

Amit Daryanani, Evercore

Thanks for taking my question. I have two as well. Full stop on the channel inventory. I was hoping you could talk about how did channel inventory look like in the March quarter, because it sounds like it may be below the historical ranges, and then the discussion you had for June quarter performance of iPhone. What are you embedding from a channel building back inventory levels are not in that expectation.

Tim Cook

Amit it's Tim. If you look at the iPhone channel inventory during Q2, the reduction of it was more than the reduction from the previous year. It's not unusual that we reduce in Q2. In fact, if you look back, generally speaking, in the first half of the calendar year, we reduce channel inventories. During the second half of the calendar year, we generally raise channel inventories. That's a seasonal thing, and sitting here today, I believe that will happen this year as well. So hopefully that answers your question. And by the way, we ended in a comfortable position so you could conclude from that that we were within a target range.

Amit Daryanani

That's really helpful. As for fall off, I'm hoping you could maybe talk a little bit about, how do you think about Apple's manufacturing strategy and perhaps need for some diversity, especially given everything the company has gone through over the last 12 months. How do you think about that? And do you feel comfortable that the supply chain and the manufacturing base is well situated today to launch the traditional fall product that they used to get from Apple?

Tim Cook

As you know, our supply chain is global and so our products are truly made everywhere. And I would focus on that versus focus on one element of the manufacturing process, which tends to get more visibility, which is the final assembly. We have some final assembly in the United States. We have final assembly in China as well. I think you'd have to conclude, or at least I conclude, that if you look at the shock to the supply chain that took place this quarter, for it to come back up so quickly really demonstrates that it's durable and resilient. And so I feel good about where we are. That said, we're always looking at tweaks and it's just not something we talk about, because if we view it as confidential and competitive information. So we will look, as we get out of this totally, we will look to see what we learned and what we should change.

Jeriel Ong, Deutsche Bank

Hi, guys, thanks for letting me ask a couple of questions. So I want to focus my question on services. The segment was solid in the quarter despite overall macro weakness. I can kind of see the logic behind it being strong despite product weakness overall. As you kind of look at the rest of the year. Do you think that sustains or at some point does the macro impacts worldwide impact the services line?

Luca Maestri

So let me let me take that one. We typically don't give a lot of specifics about our categories. But I've said as we look into the June quarter, we see two distinct trends in our services business overall. Our ecosystem is very strong. Our customers are very engaged. We are continuing to grow double digits, the number of transacting accounts and paid accounts. And so we expect our digital services to continue at the same level of performance that we have seen during the March quarter. And that includes the App Store. Of course, our video business, our music business, cloud services. So we expect all these businesses to continue to grow very strongly. Given the overall economic environment, the level of demand right now, there are two businesses that we believe are going to be impacted during the June quarter. One of them is AppleCare. AppleCare is essentially comprised of our product repair business and the warranty agreements that we signed with our customers when they purchase our devices. Both these businesses have been affected, obviously, by the store closures. And not only our retail stores, but also our partners points of sale. And obviously, the reduced level of customer traffic because of the social distancing measures. Right. And we do expect AppleCare to be affected during the during the June quarter. The other business, which we think is going to be impacted by the overall economic weakness and the uncertainty on when businesses will reopen is advertising, which is the sum of our advertising business on the App Store, on Apple News, and the third party agreements that we have on the advertising front. So these are two things that during the June quarter, we'll create a headwind for for the services business.

Jeriel Ong

Got it. Appreciate that. My next question is about the overall purchasing decisions in ranking. So far, through April, have you seen increased perhaps downticks across your product lines? So for example, somebody might have, you know, a shift maybe toward the lower end of the storage mix of certain products. And do you expect that going forward, as, you know, unemployment uptick and macro impacts kind of layer on through the rest of 20? Thanks.

Tim Cook

I haven't seen what you're asking, No. I have seen a strong customer response to iPhone SE, which is our most affordable iPhone. But it appears that those customers are primarily coming from wanting a smaller form factor with the latest technology, or coming over from it from Android. So those are the two principal, kind of, segments versus somebody buying down, as you're talking about it. We've also launched the iPad Pro in the midst of all of this and the reception there has also been incredibly good. And that's obviously our top of the line iPad. And so I'm not seeing what you're alluding to, at least at this point.

Samik Chatterjee, JP Morgan

Hi, thanks for taking my question. If I can just start with a question on, kind of, what you're seeing in China. You mentioned going to be pick up in activity, but is that driven by more, kind of, footfall in the stores, or what are you seeing relative to online activity? And how much of this recovery is being driven online? Any thoughts on that?

Tim Cook

Yeah, what we saw in China for the full quarter, and I'll speak about mainland China because I think that's the source of your question, we saw strong results in iPad and in wearables, and in services. And if you look up underneath the full quarter, we saw a strong January, and then a significantly reduced demand in February as the shelter in place orders and the lockdowns went into effect in China and the stores closed. And then in March, as stores reopened, the recovery began. And then we've seen further recovery in April. Where that goes, we will see. But that's kind of what we've seen so far there. To your question about store traffic; Store traffic is obviously up from where it was in February, but it is not back to where it was pre the lockdown. There has been, however, more move to online. And as I mentioned earlier in my remarks, it's pretty phenomenal, actually. Retail had a quarterly record for us during the quarter. And that's despite stores being closed for the three week period around the world. And then China was closed prior to that three weeks. And that's partly because the online store had such a phenomenal quarter, and that included in China. But it was also other regions as well. So there is definitely a move, and whether that's a permanent shift, I would hesitate to go that far because I think people like to be out and about. They just know that now is not the time to do that.

Samik Chatterjee If I can just follow up on your previous comment about the strong demand you're seeing for iPhone SE. Just given the price point, I'm wondering if you're expecting any change in terms of the geographic mix-up, where the demand comes from relative to typically what do you see for other iPhone from the line up on just giving the lower price point?

Tim Cook

I think it plays in every geo, but I would expect to see it doing even better in areas where the median incomes are less. And so we'll see how that plays out in. And I expect to, you know, some fair number of people switching over to iOS. It's it's an unbelievable offer. It's, if you will, the engine of our top phones in a very affordable package. And I think it's faster than the fastest Android phones. And so it's an exceptional value.

Chris Caso, Raymond James

Yes. Thank you. I wanted to follow up with the other question on on iPhone SE and the decision to bring it back and where it sits with the total iPhone strategy. I guess coupled with the fact that iPhone 11, you made the decision to bring down a lower price point, what does that tell us? With respect to your approach to iPhone pricing and flexibility? Is this helping to add users and kind of bring people into the ecosystem? And if so, what does that imply for gross margins?

Tim Cook

First, we've always been about delivering the best product at a good price. And that fundamental strategy has not changed at all. As you know, we did have an SE for a while. It's great to to bring it back. It was a beloved product. And so I wouldn't read anything into that other than we want to give people the best deal that we can while making the best product.

Chris Caso

OK. As a follow up question, it's on commodity pricing. I think you had expected to see some commodity price declines through the March quarter. If you could talk about what you expect as you go through the year, perhaps in this new environment and again, whether that turns into a challenge or a headwind for the U.S. margins as you go into the second half.

Tim Cook

For March, Chris, we saw NAND pricing increase slightly while DRAM and Display's and the other commodities declined for the June quarter. We would expect NAND and DRAM pricing to remain at this historically low level while displays and most other commodity prices we expect to decline.

Transcripts complete.

Apple has just announced its financial results for Q2 2020, covering the period between January 1 and March 28, 2020. The company posted quarterly revenue of $58.3 billion.

Read the full transcript of Apple's Q2 earnings call

Press release:

Apple Reports Record Second Quarter Results

Total Revenue Grows, Services Revenue Reaches New All-Time High of $13.3 Billion

April 30, 2020 04:30 PM Eastern Daylight Time

CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2020 second quarter ended March 28, 2020. The Company posted quarterly revenue of $58.3 billion, an increase of 1 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.55, up 4 percent. International sales accounted for 62 percent of the quarter's revenue.

"Despite COVID-19's unprecedented global impact, we're proud to report that Apple grew for the quarter, driven by an all-time record in Services and a quarterly record for Wearables," said Tim Cook, Apple's CEO. "In this difficult environment, our users are depending on Apple products in renewed ways to stay connected, informed, creative, and productive. We feel motivated and inspired to not only keep meeting these needs in innovative ways, but to continue giving back to support the global response, from the tens of millions of face masks and custom-built face shields we've sent to medical professionals around the world, to the millions we've donated to organizations like Global Citizen and America's Food Fund."

"We are proud of our Apple teams around the world and how resilient our business and financial performance has been during these challenging times," said Luca Maestri, Apple's CFO. "Our active installed base of devices reached an all-time high in all of our geographic segments and all major product categories. We also generated operating cash flow of $13.3 billion during the quarter, up $2.2 billion over a year ago. We are confident in our future and continue to make significant investments in all areas of our business to enrich our customers' lives and support our long-term plans — including our five-year commitment to contribute $350 billion to the United States economy."

Apple's board of directors has declared a cash dividend of $0.82 per share of the Company's common stock, an increase of 6 percent. The dividend is payable on May 14, 2020 to shareholders of record as of the close of business on May 11, 2020. The board of directors has also authorized an increase of $50 billion to the existing share repurchase program.

Apple will provide live streaming of its Q2 2020 financial results conference call beginning at 2:00 p.m. PT on April 30, 2020 at www.apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

Apple periodically provides information for investors on its corporate website, apple.com, and its investor relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance, and details related to its annual meeting of shareholders.

This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include without limitation those about the Company's expectations regarding the impact of the COVID-19 pandemic; anticipated revenue, gross margin, operating expenses, other income/(expense), and tax rate; and plans for return of capital. These statements involve risks and uncertainties, and actual results may differ materially from any future results expressed or implied by the forward-looking statements. Risks and uncertainties include without limitation: the effect of the COVID-19 pandemic on the Company's business, results of operations, financial condition, and stock price; the effect of global and regional economic conditions on the Company's business, including effects on purchasing decisions by consumers and businesses; the ability of the Company to compete in markets that are highly competitive and subject to rapid technological change; the ability of the Company to manage frequent introductions and transitions of products and services, including delivering to the marketplace, and stimulating customer demand for, new products, services, and technological innovations on a timely basis; the effect that shifts in the mix of products and services and in the geographic, currency, or channel mix, component cost increases, increases in the cost of acquiring and delivering content for the Company's services, price competition, or the introduction of new products or services, including new products or services with higher cost structures, could have on the Company's gross margin; the dependency of the Company on the performance of distributors of the Company's products, including cellular network carriers and other resellers; the risk of write-downs on the value of inventory and other assets and purchase commitment cancellation risk; the continued availability on acceptable terms, or at all, of certain components, services, and new technologies essential to the Company's business, including components and technologies that may only be available from single or limited sources; the dependency of the Company on manufacturing and logistics services provided by third parties, many of which are located outside of the US and which may affect the quality, quantity, or cost of products manufactured or services rendered to the Company; the effect of product and services design and manufacturing defects on the Company's financial performance and reputation; the dependency of the Company on third-party intellectual property and digital content, which may not be available to the Company on commercially reasonable terms or at all; the dependency of the Company on support from third-party software developers to develop and maintain software applications and services for the Company's products; the impact of unfavorable legal proceedings, such as a potential finding that the Company has infringed on the intellectual property rights of others; the impact of complex and changing laws and regulations worldwide, which expose the Company to potential liabilities, increased costs, and other adverse effects on the Company's business; the ability of the Company to manage risks associated with the Company's retail stores; the ability of the Company to manage risks associated with the Company's investments in new business strategies and acquisitions; the impact on the Company's business and reputation from information technology system failures, network disruptions, or losses or unauthorized access to, or release of, confidential information; the ability of the Company to comply with laws and regulations regarding data protection; the continued service and availability of key executives and employees; political events, international trade disputes, war, terrorism, natural disasters, public health issues, and other business interruptions that could disrupt supply or delivery of, or demand for, the Company's products; financial risks, including risks relating to currency fluctuations, credit risks, and fluctuations in the market value of the Company's investment portfolio; and changes in tax rates and exposure to additional tax liabilities. More information on these risks and other potential factors that could affect the Company's business and financial results is included in the Company's filings with the SEC, including in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings. The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

Apple revolutionized personal technology with the introduction of the Macintosh in 1984. Today, Apple leads the world in innovation with iPhone, iPad, Mac, Apple Watch, and Apple TV. Apple's five software platforms — iOS, iPadOS, macOS, watchOS, and tvOS — provide seamless experiences across all Apple devices and empower people with breakthrough services including the App Store, Apple Music, Apple Pay, and iCloud. Apple's more than 100,000 employees are dedicated to making the best products on earth, and to leaving the world better than we found it.

NOTE TO EDITORS: For additional information visit Apple Newsroom (www.apple.com/newsroom), or call Apple's Media Helpline at (408) 974-2042.

© 2020 Apple Inc. All rights reserved. Apple and the Apple logo are trademarks of Apple. Other company and product names may be trademarks of their respective owners.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q1 2020 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon and thanks to all of you for joining us. We're thrilled to report Apple's biggest quarter ever, which set new all-time records in both revenue and earnings. We generated revenue of 91.8 Billion dollars, which is above the high end of our guidance range, with revenue growth accelerating for the third consecutive quarter. Geographically, we set all-time records in the Americas, Europe and the rest of Asia Pacific and saw Greater China return to growth. Our record performance was fueled by iPhone, where December quarter revenue was up 8% year over year and by our fifth consecutive quarter of double-digit growth outside of iPhone, including a new all-time record for services and another blowout quarter for wearables. Our active install base of devices has now surpassed 1.5 Billion, up over 100 million in the last twelve months alone, reaching a new all-time high for each of our main product categories and geographic segments. Not only is our large and growing installed base a powerful testament to the satisfaction, engagement, and loyalty of our customers, but it's also fueling our growth across the board, particularly in services. Let's take each category one by one. On iPhone; revenue in the December quarter was 56 billion dollars. Again, that's up 8% over a year ago, thanks to the exceptional demand for the iPhone 11, iPhone 11 Pro, and iPhone 11 Pro Max. In fact, iPhone 11 was our top-selling model every week during the December quarter, and the three new models were our three most popular iPhones. We had double-digit growth in many developed markets, including the U.S., the U.K., France, and Singapore, and also grew double digits in emerging markets led by strong performances in Brazil, mainland China, India, Thailand, and Turkey. These new models are by far the best iPhones we've ever shipped with advanced technologies, an unprecedented leap in battery life to easily get through the day and a best in class camera experience. We have been wild with the photos. Customers have shared and are all new Night mode photo challenge. This month. Turning to services, Q1 revenue reached 12.7 Billion dollars, an all-time record growing 17% over last year. Once again, we saw double-digit growth in all five of our geographic segments and established new all-time records for multiple categories, including cloud services, music payment services and our App Store Search ad business, as well as setting a December quarter record for the App Store and Apple Care. 2019 was a historic year for our services business and I'd like to touch on some highlights for the app store. 2020 started off strong with customers spending a new single-day record 386 million dollars on New Year's Day alone, a 20% increase over last year. Apple Arcade, our new game subscription service, has been fast off the blocks with a catalog of over 100 new and exclusive games. You won't find anywhere else all playable across Apple devices with new games and expansions added every month. Apple TV+ is off to a rousing start, and I want to congratulate the entire team at the morning show for their multiple Golden Globe nominations. Jennifer Aniston on her Screen Actors Guild award and Billy Crudup on his Critics Choice Award. We continue to focus on telling stories that matter like Little America, which recently premiered to widespread critical acclaim with much more great content still to come. Apple News now draws over 100 million monthly active users in the US, UK, Australia and Canada and provides a curated and personalized experience using on-device intelligence to recommend stories. Apple News+ continues to add new titles offering subscribers seamless access to the world's top publications across all of their devices. For Apple Pay; revenue and transactions more than doubled year over year with a run rate exceeding 15 billion transactions a year. Apple Pay transit support expanded with customers paying for journeys on transport for, and more easily with Apple Pay Express Transit, and in spring of 2020, iPhone and Apple Watch, customers will be able to simply tap to ride trains and buses and even more cities, including Shenzhen and Guangzhou. We are thrilled with the continued growth of Apple Card, and last month customers began using Apple Card monthly installments at Apple Retail and online to purchase new iPhones and pay for them over 24 months. We see great promise for these recently launched services and we're optimistic about what we've got in the pipeline for each of them. Now, turning to wearables, we had another incredible quarter. Setting an all-time record in virtually every market we track around the world, and this product category is now the size of a Fortune 150 company. Demand for AirPods continues to be phenomenal, particularly for our recently launch Air Airpods Pro, our new additions to the AirPods family that features active noise cancelation. Apple Watch had a great start to fiscal 2020, setting an all-time revenue record during the quarter. It continues to have a profound impact on our customers' lives and it continues to further its reach as over 75% of the customers purchasing Apple Watch during the quarter were new to Apple Watch. Both AirPods and Apple Watch were must-have holiday gifts, helping drive unprecedented results for the category. Even as we face supply constraints for Apple Watch Series 3 and Airpods Pro. Mac and iPad generated 7.2 and 6 billion in revenue respectively, and the high level of customer satisfaction and loyalty for both products drove the active installed base of both Mac and iPad to new records in all geographic segments. For iPad, we saw growth in key emerging markets like Mexico, India, Turkey, Poland, Thailand, Malaysia, the Philippines, and Vietnam. With our current lineup of iPad Pro, iPad Air, iPad mini, and iPad, along with the new iPadOS, we give customers an unparalleled tablet experience, integrating hardware, software and services in a way that only Apple can. This was also a very exciting quarter for the Mac as we launched our most powerful notebook ever. The 16-inch MacBook Pro as well as Mac Pro and Pro Display XDR, the most powerful tools Apple has ever put in the hands of pros. And we've already seen a strong response from the pro community, from developers, photographers and music producers to filmmakers and scientists who rely on the Mac to create their life's best work. We also want to take a moment to congratulate all the Grammy-winning and nominated artists this past weekend who rely on Logi Pro 10 and their Mac to create incredible music we all love. I want to call out and celebrate the exceptional work of our retail and online teams. This quarter, we opened a beautiful new store in Kawasaki Japan, and exciting things are taking place inside each and every store. Thanks in part to a doubling in iPhone trade-ins versus last year, our retail and online stores set an all-time record and delivered strong double-digit growth in iPhone. We see a very bright future for these efforts, and we continue to innovate to ensure that everyone who visits an Apple retail location has a great experience. We begin 2020 with our greatest product lineup ever. And we are only deepening our commitment to do our part to make the world a better place. In November, we released a completely redesigned Everyone Can Code curriculum to help introduce more elementary and middle school students to the world of coding. The new curriculum includes even more resources for teachers, a brand new guide for students, and updated swift coding club materials. Today, millions of students and more than 5000 schools worldwide use Everyone Can Code curriculum to bring their ideas to life and develop important skills, including creativity, collaboration, and problem-solving. November also saw the launch of our new research app, the latest in our ongoing effort to put the future of health in the hands of every user. Customers in the U.S. can enroll in three landmark multi-year health studies that we're undertaking with leading academic and research institutions. The Apple Women's Health Study, the Apple Heart and Movement Study and the Apple Hearing Study. As in everything we do, we built user privacy into the research app from the ground up. This quarter, we also announced a 2.5 Billion dollar plan to help address the housing availability and affording crisis in our home state of California. We feel a great responsibility to help the region, we have always called home, stay vibrant and to ensure that it remains a great place for everyone to live and raise a family, including those who do so much to serve the community like firefighters and teachers. In much more recent news. We're closely following the development of the Coronavirus. We're donating to groups that are working to contain the outbreak. We're working closely with our Apple team members and partners in the affected areas, and our thoughts are with all of those affected across the region. As we close the books on a record-breaking December quarter, we are already well underway on some new and exciting developments for the future, Apple strength will always be its boundless creativity and innovation, and this year will be no different. But for now, for more details on the results, I'd like to turn the call over to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. Our business and financial performance in the December quarter were exceptional. As we set new all-time records for revenue, net income and earnings per share. Revenue for the quarter was 91.8 Billion, up 7.5 billion or 9 % from a year ago, in spite of a one billion dollar headwind from foreign exchange. Geographically, we establish all-time revenue records in many major developed and emerging markets, including, among others, the U.S., Canada, Mexico, Brazil, the U.K., Germany, France, Italy, Spain, Poland, Thailand, Malaysia, and Vietnam. Products revenue was 79.1 billion, up 8% as iPhone returned to growth and we had incredibly strong results in wearables, where we set all-time records for both Apple Watch and AirPods. Services revenue grew 17% to a new all-time record, 12.7 billion dollars with double-digit growth in every geographic segment, and new all-time records across our portfolio. Company gross margin was 38.4 %, up 40 basis points sequentially driven by leverage from higher revenue in spite of a -60 basis point impact from foreign exchange. Product gross margin was 34.2%, up 260 basis points sequentially, thanks to leverage and favorable mix. Services gross margin was 64.4%, up 30 basis points sequentially driven by favorable mix. Our reported tax rate for the quarter was 14.2%. Before discrete items, the rate was 16.5%, exactly in line with our guidance. A favorable one-time item impacted the rate by 230 basis points. Net income was an all-time record at 22.2 billion dollars, up 2.3 billion or 11% over last year. Diluted EPS was also an all-time record at $4.99, up 19%. And operating cash flow was a very strong 30.5 billion dollars, an improvement of 3.8 billion over a year ago. Let me get into more detail for each of our revenue categories. iPhone revenue of 56 billion grew 8% year over year as we saw great customer response to the launch of our newest iPhones. We set all-time revenue records in several countries, including the US, Mexico, the UK, France, Spain, Poland, Thailand, Malaysia, and Vietnam. Our active installed base of iPhones has reached an all-time high and is growing in each of our geographic segments. In the U.S., the latest survey of consumers from 451 Research indicates iPhone customer satisfaction of 98% for iPhone11,11Pro, and 11 Pro Macx combined. Among business buyers planning to purchase smartphones in the next quarter, 84% plan to purchase iPhones. Turning to services. We set an all-time revenue record of 12.7 billion with double-digit growth in all of our five geographic segments. As Tim mentioned, we establish new all-time records for Apple Music, Cloud Services, Payment Services and our app store Search Ad business and December quarter records for the App Store and Apple Care. We are well on our way to accomplishing our goal of doubling our fiscal year 16 services revenue during 2020. We've actually already reached that goal on a run-rate basis with the results of the December quarter. Customer engagement in our ecosystem continues to grow and the number of both transacting and paid accounts on our digital content stores reached a new all-time high, with paid accounts growing double digits in all of our geographic segments. We now have over 480 million paid subscriptions across the services on our platform, up 120 million from a year ago. And at this point, we expect to hit our goal of surpassing the 500 million mark already during the March quarter. Given the tremendous momentum we are experiencing across our services offerings, we are increasing our target for paid subscriptions and aim to reach 600 million before the end of calendar 2020. App Store revenue grew strong double digits thanks to robust customer demand for both in-app purchases and subscriptions. Our third party subscription business grew across multiple categories and increased almost 40% year over year. Our first party subscription services also continue to perform extremely well. Apple Music set an all-time revenue record offering a catalog of over 60 million songs to our customers. iCloud also generated an all-time revenue record, growing very strong double digits while offering our customers a safe, secure, and seamless experience across all their devices. It was a December quarter record for Apple Care thanks to strong service agreement attach rates and expanded distribution. Many of our partners have come to appreciate the strength of the AppleCare brand and our ability to deliver the very best service and support in the world. That value resonates with both our partners and our customers, and we are very happy to see that quality of experience delivered to more and more of our users. Next, I'd like to talk about Mac and iPad. Mac revenue was 7.2 Billion and iPad revenue was 6 billion. Both products had a difficult year over year comparison, due to the launches of MacBook Air, Mac Mini, and iPod Pro during the December quarter a year ago and the subsequent channel fill. Despite the tough compare on a demand basis, our performance for both Mac and iPad was around even to last year. Importantly, around half of the customers purchasing Macs and iPads around the world during the quarter were new to that product, and the active installed base for both Mac and iPad reached a new all-time high. The most recent surveys from 451 Research measured a 93% customer satisfaction rating for Apple from consumers and 92% from businesses. And among both consumers and businesses who were planning to purchase tablets in the March quarter, 78% plan to purchase iPads. Wearables, home, and accessories established a new all-time record with revenue of 10 billion up 37% year over year with very strong double-digit performance across all five geographic segments and growth across wearables, accessories, and home. We set all-time records for wearables in virtually every market we track, even as we experience some product shortages due to very strong customer demand for both Apple Watch and AirPods during the quarter. We also continue to see strong demand for our products in the enterprise market as our technology solutions enable businesses to do their best work. 100% of Fortune 500 companies in the health care sector use Apple technology in areas such as patient experience, clinical communications, and nursing workflows. And we're also seeing smaller companies in this sector drive innovation with our technology and apps. One example is Goss Surgical, which uses Coramale [sp?] In iOS to more accurately estimate blood loss during childbirth and surgery. This helps clinicians have more complete and timely information on whether a patient needs an intervention, which can impact both clinical outcomes and cost. Another example is Butterfly Network, a medical imaging company which makes a handheld ultrasound device that connects to iPhone or iPad to enable clinicians to take an ultrasound anywhere at a cost that is dramatically lower than other solutions on the market today. Let me now turn to our cash positions. We ended the quarter with 207 billion in cash plus marketable securities. We issued a 2 billion euro-denominated green bond, retire, one billion dollars of maturing debt and reduced commercial paper by one billion during the quarter, leaving us with total debt of 108 billion. As a result, net cash was 99 billion at the end of the quarter, and we maintain our target of reaching a net cash neutral position over time. We returned nearly 25 billion dollars to shareholders during the December quarter. We began a 10 billion accelerated share repurchase program in November, resulting in the initial delivery and retirement of 30.4 Million shares. We also repurchased 40 million Apple shares for 10 billion dollars through open market transactions and we paid 3.5 Billion in dividends and equivalence. As we have done for the last several years, we will share our plans for the next phase of our capital return program when we report the results for the March quarter. Finally, as we move ahead into the March quarter, I'd like to review our outlook, which includes the types of forward-looking information that Teges [sp?] referred to at the beginning of the call. We expect revenue to be between 63 and 67 billion dollars. The wider than usual revenue range comprehends uncertainty related to the recently unfolding public health situation in China. We expect gross margin to be between 38 and 39 percent. We expect OPEX to be between nine 9.6 And 9.7billion dollars. We expect ONE to be about 250 million and we expect the tax rate to be about 16.5%. Also today, our board of directors has declared a cash dividend of 77 cents per share of common stock, payable on February 13, 2020, to shareholders of record as of February 10, 2020. With that, let's open the call to questions.

Analysts questions

Amit Daryanani, Evercore:

Thanks a lot. Good afternoon, guys. I guess first one for me, on wearables, it's fairly impressive to see it's already a 10 million dollar business for you guys. Can you just touch on the growth that you see on the wearable side, how much of the growth is coming from first-time buyers of AirPods or Apple Watch versus folks that seem to be just upgrading the products that they have? Because it looks to us adoption rates are fairly low in your installed base or that there should be a long runway, but not just understand how you see that good divide between those two buckets.

Tim Cook

Yeah, Amit, it's Tim. If you look at the wearables as a category within the wearables, home, and accessories revenue, wearables grew 44%. So it was very strong, as you say. Both Apple Watch and AirPods did very well in terms of collecting new customers - Apple Watch in particular - 75% of the customers are new to the Apple Watch. And so it's still very much selling to new customers at this point.

Amit Daryanani:

Perfect. Yes. Luca, if you could just touch on gross margins. The March quarter guide, I think, implies gross margins are flat to actually up 10 - 15 basis points. It's rare for you guys to actually have gross margins up in March, I think because you have a fairly high seasonal sales deleverage happening. So what are the offsets that are enabling what looks like a better-than-seasonal guide for gross margins?

Luca Maestri

Yes, that's right Amit. It's about flat sequentially and by the way, significantly higher on a year over year basis. But on a sequential basis, you're right. On one side, we've got the loss of leverage from the usual seasonality. But we expect that that loss of leverage will be offset by better mix and cost savings.

Tom Forte, D.A Davidson & Co:

Great. Thank you for taking my question. Congrats on the launch of Apple TV+. I wanted to know, internally, how you were gaging success. Is it purely on critical acclaim? Is it a number of consumers that are using the service contribution of service revenue, et cetera? Thank you.

Tim Cook

Tom, it's Tim. We are primarily measuring ourselves on the number of subscribers. As you can tell from the way that we launched the product, we started with a very aggressive price at $4.99. And in addition to that, we have our bundle where if you buy pretty much any device, you're getting a year for free. And so we're very focused on subscribers. That said, the product itself is about storytelling and we think if we do that well then we'll find that there will be some number of those that will also be critically acclaimed. And we're seeing that with The Morning Show. We're seeing that with Little America and others.

Tom Forte:

Great, and then my second question is, I think you indicated that last month you started offering consumers the ability to use your Apple Card to buy an iPhone on an installment basis. Can you talk about how that's had an impact on your unit sales for iPhones?

Tim Cook

The retail stores did fantastic on iPhone. Very strong double-digit growth in iPhone from a year over year point of view, and one of the factors that enabled that was getting to monthly payments on the Apple Card to make it very simple. Of course, that's U.S. only at this point. But the U.S. is a very key market for us. And so it was an important part of it.

Shannon Cross, Cross Research:

Thank you very much. I want to go back to revisit China. Tim, can you talk about what you're seeing in the region — what you were seeing in the region prior to the health crisis? And then can you also update us a bit in terms of your manufacturing strategy, dual sourcing, geographic diversification even within the region? Just we have some ideas of how this will be managed. Thank you.

Tim Cook

Yeah, thanks, Shannon. In terms of China, the results from last quarter (and then I'll get into the Coronavirus second), for the results from last quarter. We had double-digit growth for iPhone in Mainland China. So that was an important change from where we had been running. We also had double-digit growth in services in Mainland China and we had extremely strong double-digit on wearables and so really there were a number of different factors in terms of the things that customers are responding to. iPhone 11 is doing particularly well there. The product has been very well received with its battery life and the camera is unbelievable. We also, as you probably know, have certain trade-in programs going and financing programs. These have also been well received. And so it's sort of the sum of all of this. And we're attracting quite a large percentage of new customers on products like the Mac. Three-quarters of the customers buying a Mac in China are new and nearly two-thirds of the customers buying iPad are new, and so it was a terrific quarter. We had three of the top four selling smartphones in urban China, according to Kantar. In terms of the Coronavirus, as I mentioned earlier, first and foremost, our thoughts are with all of those that are affected across the region. And as I've mentioned, we're donating to groups that are working to contain the outbreak. We're also working very closely with our team and our partners in the affected areas. And we have limited travel to business-critical situations as of last week. The situation is emerging and we're still gathering lots of data points and monitoring it very closely. As Luca had mentioned, we have a wider than usual revenue range for the second quarter due to the greater uncertainty. I'll talk about supply chain and customer demand some to give you some color. With respect to the supply chain, we do have some suppliers in the Wuhan area. For all of the suppliers, there are alternate sources and we're obviously working on mitigation plans to make up any expected production loss. We factored our best thinking in the guidance that we've provided you. With respect to supply sources that are outside the Wuhan area. The impact is less clear at this time. The reopening of those factories after Chinese New Year has been moved from the end of this month to February 10th, depending upon the supplier location. And we've attempted to account for this delayed start-up through our larger range of outcomes that Luca mentioned earlier. With respect to customer demand and sales. We've currently closed one of our retail stores and a number of channel partners have also closed their storefronts. Many of the stores that remain open have also reduced operating hours. We're taking additional precautions and frequently deep cleaning our stores as well as conducting temperature checks for employees. While our sales within the Wuhan area itself are small, retail traffic has also been impacted outside of this area, across the country in the last few days. And again, we have attempted to account for this in our guidance range that we've provided you. I hope that gets you some color.

Shannon Cross:

Yeah, that was really helpful. Luca, maybe if you could just touch some on gross margin perspective, the commodity pricing environment, and availability. Obviously there's been some movement on DRAM and NAND, so if you can talk about how you're thinking about inventory levels and managing that going forward. Thank you.

Luca Maestri

Yes. As I said earlier to the question around the gross margin guidance for the March quarter, we are seeing a benign commodity environment. Most commodities have been declining during the December quarter and we expect the same to happen in the March quarter. As always, and as you probably know, we look at the way these prices move. And at times when we feel it's appropriate, we buy certain commodities in advance. And so we will continue that practice as we go through the year.

Katy Huberty, Morgan Stanley:

hank you. Good afternoon, Luca, can you address the modest slowdown in services growth this quarter, 17% vs. 18% in September? Which services categories accelerated vs. where did you see some deceleration in the growth?

Luca Maestri

Katy, let me make a couple of comments here. For the 17% during the December quarter, we look at it against our fiscal year 19 growth rate, which was 16%, so we feel very good about the results for the December quarter. As Tim and I mentioned during our prepared remarks, it was a very broad-based growth because we grew double digits in services across all the five geographies. We set all-time records for many, many categories music, cloud, search ads, payment services, December records for the App Store and Apple Care. If you remember, we had set two goals for ourselves in the services segment. First, we set a goal to double our fiscal 16 revenue during 2020. And when we look at it on our run-rate basis, we've already achieved that goal with the results of the December quarter. We also set a goal to pass 500 million paid subscriptions during 2020. And given that we are already at 480 at the end of December, we expect to pass that mark during the March quarter. And so now we are setting a new target for ourselves for paid subscriptions. And so we are now aiming to reach 600 million before the end of calendar 2020. So we feel that the services business is going incredibly well. Of course, we have launched new services very recently. For example, Apple TV+ just launched in November. And so while these services did not have a material impact in our December quarter results, we expect that over time this starts contributing to the growth of the services business. But, you know, we feel very happy with the 17%.

Katy Huberty:

Thank you for that, Tim, as a follow-up, at some point in the future, Apple will launch a 5G iPhone. How big of a demand driver do you view 5G capability in a handset? And what's your view as to what the killer app will be from a consumer perspective?

Tim Cook

You know we don't comment on future products, and so I'll try to sidestep a bit. With respect to 5G, I think we're in the early innings of its deployment on a global basis. We obviously couldn't be prouder of our line up and are very excited about our pipeline as well, and wouldn't trade our position for anybody.

Kyle McNeely, Jefferies:

Thanks a lot. So we're seeing some signs of a new spectrum being deployed for 5G deployments and even additional 4G capacity. And it's already having a positive impact for handset upgrades to use that new capacity. Do you get the sense that wireless carriers are getting more incentivized to upgrade handsets to get leverage of these new network investments? How much might this be helping? Do you think it will continue to accelerate?

Tim Cook

I think that we've had some great partners, not only in the U.S. but also around the world, that were really helpful this quarter as partners. And so I think that probably a part of that is the level of investments they have and that a part of it is probably making sure that those customers stick with them in an environment where there's a lot of trading back and forth. So I'm optimistic that it will continue.

Kyle McNeely:

OK, great. And then the comment that you made about capacity in your wearables division with AirPods Pro and Apple Watch 3; what should we think about the timeline of when those capacity constraints might be alleviated and will they come from capacity additions or the end of the natural work out of, kind of, unit shipments and something on the demand side?

Tim Cook

I'm hopeful that the Series 3 will come into balance during this quarter. On AirPods Pro, I don't have an estimate for that for you. I just can't predict when at this point. We seem to be fairly substantially off there and we're working very hard to put in additional capacity.

Wamsi Mohan, Bank of America:

Yes. Thank you, Tim. Apple has a very valuable installed base of users. Can you see a future where Apple can become larger in the advertising market as you build out TV+, given you could have the unique position and ability to drive targeted ads to users without compromising on privacy?

Tim Cook

I think it is possible to have advertising in a straightforward manner that doesn't encroach on people's privacy. I wouldn't want to conjecture about us in that business. I think for the TV+ business, we feel strongly that what that customer wants is an ad-free product. That's not our aversion to ads. It's what we believed in the customer wants.

Wamsi Mohan:

OK. Thank you. And Luca, can you just clarify if the services revenue this quarter had any impact of deferrals associated with TV+ at all, and how can you help us maybe size the impact of the amortization of the content costs associated with TV+ as we think about next couple of years? Thank you.

Luca Maestri

So, yes. Of course, we launched the service and so that was a very small contribution to revenue from the deferral. And there was also contribution to revenue from the people, the subscribers that are actually paying for the service. When you think about what goes into the Apple TV+ revenue, at this point, there are two components. There are paid subscribers. These are the customers that pay for the service and we recognize revenue over their subscription period. And then we got the, what we call the Apple TV+ bundled subscribers. These are the customers that buy an eligible hardware device and redeem the offer for a free year of TV+ services. We deferred revenue for this offer based on three items. The first one is the value of the service that is being provided. The one year of Apple TV+. The second one is the number of customers that are eligible for the offer. And the third one is our estimate of the expected number of customers that will redeem the offer. So you need to keep in mind that from our total eligible device sales, you need to make a number of reductions for family sharing, for multiple device purchases, and for geographic availability. Also, the take rate can also be impacted by the availability of local content. And we also require a payment method on file. So this estimate is reviewed quarterly and gets updated based on actual trends of the offer. And so these inputs provide us with the amount of revenue that we deferred for each device sale that then gets recognized over the one-year period that the TV+ service is provided. And so when you take the combination of pay subscribers and bundle subscribers, you get the Apple TV+ revenue. Of course, because we've launched the service very recently, the amount of revenue that we recognized during the quarter was was immaterial to our results. With regard to the cost of developing the content, we essentially, as we incurred these costs, we will put them on the balance sheet and then we amortize them over a certain period of time, depending on the type of content that we produce.

Krish Sankar, Cowen & Co.:

Hi. Thanks for taking my question and congrats on the great results. I have two questions. Tim, I just wanted to pick your brain a little bit on the overall smartphone market. There's a general view that when 5G phones come out, they're going to be more expensive due to higher component costs. But at the same time, it looks like you guys have proven that there is a market for low-cost geographies with phones like iPhone SE. So how do you see these two different segments within the smartphone market evolving over the next one to three years? And then at a follow up for Luca.

Tim Cook

Again, I want to stay away from commenting about future products, but generally, I think it's important when you think about 5G, is to look around the world at the different deployment schedules and some of those look very different perhaps than what you might be seeing here. And that's very important. In terms of the price, I wouldn't want to comment on the price of handsets that are announced.

Krish Sankar:

Got it. No worries, Tim. And then I'll follow to Luca. You know, the OPEX as a percentage of sales for March looks like about 15%, higher than in the prior quarters. Kind of curious how much of that is part of it is driven by some of the Intel modem asset purchases or TV+ in the OPEX. Or how do we think about it in a go-forward basis?

Luca Maestri

Yeah, I think we felt good about our OPEX results because they were at the low end of our guidance range. But you know, clearly, we want to make all the necessary investments in the business and from in terms of the new services, not only for TV+ but all the new services that we launched during 2019. This is a period where we're making the necessary investments in advertising and marketing and that level of investment is reflected in our OPEX results. And also, as you correctly stated, we completed the acquisition of the Intel baseband business during the December quarter. And so we reflected that the run rate of the expenses relates to that business partially during the quarter after the completion of the transaction. And that is a very important core technology for the company. So we will continue to make all the necessary investments also, there. There is a third category of expenses that affected the December quarter and it is the fact that our revenue was very strong and we have certain variable expenses, for example, credit card fees, that are associated with that with the higher volume and of course, impacted our OPEX results.

Mike Olson, Piper Sandler:

Afternoon. Thanks for taking the questions. So slightly different take on an earlier question on wearables and that is; what impact you think wearables is having on driving people into the Apple ecosystem. You mentioned 75% of watch buyers are new to the Apple Watch, but are many of them new to Apple overall. I'm sure a lot of existing iPhone, iPad, or Mac users are going to be wearables customers. But do you think wearables bring people into the ecosystem to buy other devices in a material way?

Tim Cook

[00:05:13] Michael, it's Tim. With each Apple product that a customer buys, I think they get tighter into the ecosystem because that's the reason that they're buying into it, it's that they like the experience, the customer experience. And so from that point of view, I think each of our products can drive another product. I would think in that case, it's more likely that the iPhone comes first. But there's no doubt in my mind that there are some people that came into the ecosystem for the Watch.

Mike Olson, Piper Sandler:

And then I think you recently mentioned that augmented reality will pervade our entire lives. And I'm wondering if you could share your thoughts about how you think it starts to impact our lives most significantly. For example, will the inflection point AR come from gaming or industrial usage or some other category. In other words, where will the average person kind of first feel the impact of AR on their lives in a significant way? Thanks.

Tim Cook

When you look at AR today, you would see that there are consumer applications, there are enterprise applications. This is the reason I'm so excited about it is, you rarely have a new technology where business and consumer both see it as key to them. And so I think the answer is that that's the reason that I think it's going to pervade your life is because it's going to go across both business and your home life. And I think these things will happen in parallel. There are already companies that are deep into the enterprise business that are working on applications for the enterprise. And of course, you can go on the Store and see thousands of apps that are ARKit enabled at this time. And with even more coming.

Chris Caso, Raymond James:

hank you, good afternoon. Yes, the first question is on gross margins and you spoke about the favorable mix. Wondering if you could expand on that a little bit. And clearly, iPhone is doing well within the overall mix of that growing year on year. But if you could talk about what's happening to the mix within iPhone, is that improving as well and also helping margins? And is there anything else you would point to with regard to the overall mix and margins?

Luca Maestri

Yes, I think that the mix helped us both in Q1, and it's helping us with the guidance for Q2. And as you said, some of it is mix of iPhones. The customer response for iPhone 11, 11 Pro, and11 Pro Max has beej exceptional. And that clearly has helped our mix. iPhone 11 was our top-selling model throughout the quarter, every single week of the quarter, and so certainly better mix within the iPhone. The other point that I like to point out is that as we move from Q1 to Q2, the proportion of revenue coming from services increases versus the holiday quarter. And given the fact that services at accretive to gross margin for the company, we end up getting a better mix from services as well.

Chris Caso:

OK. Thank you. And just to follow one question with regard to OPEX. You know, it has been growing at a faster rate than revenue for, I guess largely over the last three years or so. Can you set up some expectation with regard to, you know, when you get a return on that investment? I understand there are new investments that are happening now. But, you know, how should we think about, you know, potential leverage going forward? Is there a point in time where the OPEX spending, you know, tends to level off and you get some return on that? Or is it just a function of faster revenue growth in the future?

Luca Maestri

Well, I would start by saying that our expense-to-revenue ratio is incredibly competitive relative to other companies in our sector. There are years when our OOPEX grows faster than our revenue, but we've also had years in the recent past where the opposite has happened. We continue to believe that we have a lot of great opportunities in front of us. And, you know, if you look at this past year, we launched many new initiatives, for example, on the services front, which we want to support with the appropriate level of investment, not only marketing and advertising, but also in R&D. As I mentioned earlier, we closed the acquisition of the Intel baseband business because we think it is a very important strategic core technology for the company going forward. And I think from the results that you've seen during this quarter and the guidance that we provided for the March quarter, I think we're doing a pretty good job of balancing the level of investments that we are making on the expense front with the level of returns that we get both, in terms of revenue and in terms of profitability that we're getting. Our net income, for example, was up 11% during the December quarter.

Samik Chatterjee, JP Morgan:

Hey, thanks for taking the question. Just wanted to kind of ask on the iPhone revenue growth and the fact that you're going to see a return to growth. Based on the velocity of momentum you're seeing for the products exiting the quarter, how comfortable are you feeling about sustaining growth in iPhone revenues through the year? And I have a follow-up.

Tim Cook

You know, we have a practice of forecasting the current quarter. And so we've given you the range that we expect for the current quarter and really don't give a range beyond that.

Samik Chatterjee:

OK, if I can just maybe then follow up in terms of, obviously you've returned to growth in most of the regions. You report one of the regions that are declining is Japan. So if you can share your thoughts on what actions you need to take there to return that segment, that geographically to grow and what are the product trends there? What's probably the headwind of limiting growth there?

Luca Maestri

Yeah. So Japan was down 10% during the December quarter. It was primarily due to iPhone performance, which was challenged because there were some regulatory changes that took effect on the 1st of October, where essentially the regulators decoupled the mobile phone pricing from the two-year contracts and they're capping the maximum amount of carrier discounts that can be made. At the same time, I would say within a more difficult macro environment, iPhone did incredibly well during the quarter. Six of the top seven selling smartphone models in Japan during the December quarter with iPhones. So it was a very strong performance by iPhone in a difficult environment. Also in Japan, we had very strong double-digit growth from services, stronger than company average, and very strong double-digit growth in wearables, also stronger than company average. So we feel very good. You know, Japan is a country where historically we've had great success. The customers are very loyal and very engaged and we have a very strong position there and we feel we have a very good momentum.

Apple has just announced its financial results for Q1 2020, covering the period between October 1 and December 28, 2019. The company posted quarterly revenue of $91.8 billion.

Press release:

Apple Reports Record First Quarter Results

iPhone, Wearables & Services Drive All-Time Record Revenue and Earnings

January 28, 2020 04:30 PM Eastern Standard Time

CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2020 first quarter ended December 28, 2019. The Company posted quarterly revenue of $91.8 billion, an increase of 9 percent from the year-ago quarter and an all-time record, and quarterly earnings per diluted share of $4.99, up 19 percent, also an all-time record. International sales accounted for 61 percent of the quarter's revenue.

"We are thrilled to report Apple's highest quarterly revenue ever, fueled by strong demand for our iPhone 11 and iPhone 11 Pro models, and all-time records for Services and Wearables," said Tim Cook, Apple's CEO. "During the holiday quarter our active installed base of devices grew in each of our geographic segments and has now reached over 1.5 billion. We see this as a powerful testament to the satisfaction, engagement and loyalty of our customers — and a great driver of our growth across the board."

"Our very strong business performance drove an all-time net income record of $22.2 billion and generated operating cash flow of $30.5 billion," said Luca Maestri, Apple's CFO. "We also returned nearly $25 billion to shareholders during the quarter, including $20 billion in share repurchases and $3.5 billion in dividends and equivalents, as we maintain our target of reaching a net cash neutral position over time."

Apple is providing the following guidance for its fiscal 2020 second quarter:

• revenue between $63.0 billion and $67.0 billion
• gross margin between 38.0 percent and 39.0 percent
• operating expenses between $9.6 billion and $9.7 billion
• other income/(expense) of $250 million
• tax rate of approximately 16.5 percentApple's board of directors has declared a cash dividend of $0.77 per share of the Company's common stock. The dividend is payable on February 13, 2020 to shareholders of record as of the close of business on February 10, 2020.

Apple will provide live streaming of its Q1 2020 financial results conference call beginning at 2:00 p.m. PT on January 28, 2020 at www.apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

Apple periodically provides information for investors on its corporate website, apple.com, and its investors relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance and details related to its annual meeting of shareholders.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q4 2019 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Thank you, Nancy. Good afternoon and thanks to all of you for joining us, especially those of you listening in on our new noise-canceling AirPods Pro, which are available beginning today. This was Apple's highest revenue in a September quarter ever. And I want to take you through some of the highlights before we get into greater detail on the conclusion of a remarkable fiscal 2019 for Apple. We achieved revenue of $64 billion in the quarter at the high end of our expectations, even in spite of a predicted foreign exchange drag of almost a billion dollars. Geographically, we set new Q4 revenue records in the Americas and rest of Asia Pacific and saw further improvement in our revenue trends in Greater China. In iPhone, where customers have only begun to get their hands on the strongly popular and unmatched iPhone Eleven and iPhone Eleven pro models, our year over year performance continue to improve. More on that in a moment. Outside of iPhone, our September quarter revenue was up 17%. We reached a new all time high for services, with growth accelerating to 18%. We generated well over 50% revenue growth from wearables. And I'm thrilled to say that we set Q4 records for wearables in each and every market we track. We've got a lot to cover, so let's dove right into the details. iPhone revenue in the September quarter was $33 billion. This 9%decline over last year is a significant improvement over the 15% decline we saw across the first three quarters. The significant upswing in demand in the final part of the quarter is mirrored in the overwhelmingly positive reviews, customer feedback, and in-store response we've seen for this new generation of devices. Not to mention a wave of the best photos you've seen from a smartphone. iPhone 11 features the Apple-designed A13 bionic, the fastest, most powerful chip ever in a smartphone, plus an all new dual camera system and even longer, all day battery life all wrapped in six great new colors. Since its launch, the iPhone 11 has quickly become our best selling iPhone. iPhone 11 Pro and iPhone 11 Pro Max deliver even more advanced performance for users who want the very best out of their smartphone. The new Super Retina XDR Display is the brightest ever in an iPhone, and the new triple camera system provides a pro level photography experience with an ultra-wide, wide, and telephoto camera. All three of our new iPhones feature Night mode, delivering huge improvements to photo capture in low light environments either indoors or outdoors. They also produce the highest quality video in a smartphone, supporting 4K video with extended dynamic range for more highlight detail and cinematic video stabilization. iOS 13 is driving user experience forward across the iPhone family with a bold new look and dark mode, major updates to the apps our customers use every day, such as photos and maps, new ways to help protect their privacy with Sign-in with Apple and performance improvements across the entire system. For services; Revenue was $12.5 billion. That's up 18% over last year and it beats the previous record set in the June quarter by more than a billion dollars. This isn't a local phenomenon. We saw double digit services, revenue growth in all time records and all five of our geographic segments. And it wasn't a narrow success either. We established new all time highs for multiple services categories, including the App Store, Apple Care, Music, Cloud Services and our App Store Search Ad business. We are well on our way to accomplishing our goal of doubling our fiscal year 16 services revenue during 2020. I want to touch on a number of services in brief. We had all time revenue record revenues from payment services for Apple Pay, revenue and transactions more than doubled year over year, with over three billion transactions in the September quarter exceeding PayPal's number of transactions and growing four times as fast. Apple Pay is now live in 49 markets around the world, with over 6,000 issuers on the platform. We believe that Apple Pay offers the best possible mobile payment experience and the safest, most secure solution on the market. We're glad that thousands of banks around the world participate. Apple Card launched in the U.S. in August, and we've been thrilled by the positive reception we've seen. Users can apply for Apple Card through the Wallet app on iPhone in minutes and start using it right away in stores, in apps and on websites. They've told us they love Apple Card's simplicity, privacy, security, and transparency, which has helped them make healthier financial choices. Apple Card has absolutely no fees, and major apps and retailers like Uber, Uber EATS, Walgreens, Duane Reade, and T-Mobile have already joined to offer 3% daily cashback on Apple Card transactions. And I'm very pleased to announce today that later this year we're adding another great feature to Apple Card. Customers will be able to purchase their new iPhone and pay for it over 24 months with zero interest. And they will continue to enjoy all the benefits of Apple Card, including 3% cashback on the total cost of their new iPhone with absolutely no fees and the ability to simply manage their payments right in the Apple Wallet app on iPhone. We think these features appeal broadly to all iPhone customers, and we believe this has been the most successful launch of a credit card in the United States ever. Last month, we launched Apple Arcade. Our groundbreaking game subscription service offering an all new way for the whole family to enjoy games online or offline. Apple Arcade subscribers get unlimited access to a curated selection of games from many of the most innovative developers in the world, with almost 100 new titles playable across iPhone, iPad, iPod Touch, Mac, and Apple TV today and more are being added all the time. Customer feedback to date has been overwhelmingly positive and we're very excited for the future of the service. We're also thrilled to be working with Oprah Winfrey to bring Oprah's Book Club to Apple Books, connecting a community of readers worldwide to important stories by today's most thought-provoking authors. Together, we envision a vibrant, global book club that has the power to bring the world together through reading. We also expanded the reach of Apple News+ beyond the United States and Canada to readers in Australia and the United Kingdom, bringing together popular publications such as The Times of London, The Australian, and Hello magazine, in addition to major publications like The Wall Street Journal, The L.A. Times, The New Yorker, People, GQ, and much more. And rounding out our newest services, just two days from now, we're launching the hotly anticipated Apple TV+ in over 100 countries and regions. It's the first all original video subscription service, which shows from the best, most ambitious, and most creative minds in the industry. One of the great perks of this job is that I've gotten to binge watch almost all of them. And while I won't spoil anything, there's so much to look forward to here for lovers of great storytelling. We premiered shows like See and The Morning Show in L.A. and New York over the past couple of weeks, and the stage is set for a truly exciting debut. And we're pleased that customers who have purchased qualifying Apple devices starting September 10th can opt in to 12 free months of Apple TV+. Turning to wearables, we had amazing results thanks to the phenomenal popularity of Apple Watch, AirPods and Beats products. As I said at the outset, we said Q4 revenue records for wearables in every single market that we track around the world. In September, we launched Apple Watch Series 5 with the always-on retina display, that means you never have to pause a workout or tasks to raise or tap the display. New location features help users better navigate their day. While international emergency calling allows them to call emergency services directly from Apple Watch in over 150 countries, even without an iPhone nearby. And combined with the power of watchOS 6 users are empowered to take charge of their health and fitness with new features like Cycle Tracking, the Noise App, and Activity Trends. The ECG app, now available in 32 markets, including India, has become a widely celebrated illustration of Apple's commitment to your health, giving users the ability to document and monitor the functioning of their heart and provide critical data to their doctors. We're deepening Apple's commitment to medical research. We announced a new research app paired with three unprecedented medical studies spanning hearing, heart and movement, and women's health. We're collaborating with leading health institutions to reach more participants than has ever been possible, enabling them to contribute to potential medical discoveries and help create the next generation of innovative health products. Leveraging the devices customers use everyday and world class security and privacy, we hope to democratize medical research and bring everyone to the table to make the next big breakthroughs possible. Turning to iPad; we generated 17 % growth driven by iPad Pro and the ongoing momentum of our wider lineup. In September, we introduced the seventh-generation iPad, bringing more screen area and support for the full-sized smart keyboard to our most popular and most affordable iPad. For the first time, we also released iPadOS, built on the same foundation as iOS, but with powerful apps designed for iPad's, large multi-touch display, letting users multitask with intuitive gestures and drag and drop a file with a fingertip. For Mac; we generated $7 billion in revenue. We had a tough comparison to last year's fourth quarter when we updated both models of MacBook Pro, but for fiscal 2019, overall, we generated the highest annual revenue ever from our Mac business. In July, we updated our MAC portables with great pricing for students, and MacBook Air in particular has been a hit in the back to school season. Earlier this month, we released macOS Catalina with all new entertainment apps, the innovative Sidecar feature that uses iPad to expand the Mac workspace, and new accessibility tools that enable users to control their Mac entirely with their voice. Catalina also brings the Apple Arcade experience to the Mac, and we are already seeing some amazing third-party developers bring their iPad apps to the Mac App Store with Mac Catalyst, including Twitter, Post-it and more. And for our pro customers who push the limits of what Mac can do, we're very excited about the upcoming launch of our newly-redesigned Mac Pro this fall, which we are proud to be manufacturing in Austin, Texas. Pulling back the lens from a single quarter, we are incredibly proud of our accomplishments over the course of a remarkable fiscal 2019, a year where we crossed $100 billion in revenue in the United States for the first time. We introduced new services from Apple Card to Apple TV+ and generated over $46 billion in total services revenue, setting new yearly services records in all five of our geographic segments, and driving our services business to the size of a Fortune 70 company. We delivered incredible new hardware in all our device categories. Our wearables business showed explosive growth and generated more annual revenue than two-thirds of the companies in the Fortune 500. And we set a yearly revenue record for Mac. All told, outside of iPhone, our revenue grew by $17 billion to almost $118 billion. Our overall success was achieved widely across our markets with annual revenue records in the U.S., Canada, Brazil, the UK, Germany, France, Italy, Poland, Korea, Malaysia, the Philippines, and Vietnam. And as we head into the holiday season, we have an enormous amount to look forward to. We believe that we lead in innovation because we lead with our values at a time of urgency and action on climate change. We continue to drive breakthroughs in clean power, sustainable materials and device recycling by running 100% of our global operations on renewable energy and challenging our entire network of suppliers do the same, we're driving a virtuous cycle of demand for clean sources of power. And we see the award Apple recently received from the United Nations Global Climate Action Program as a mandate to deepen this vital work. We continue to invent and improve on cutting edge renewable materials, including the 100% recycled aluminum alloy found in many of our products. And we've added rare earth elements to our list of recycled materials with the introduction of iPhone 11. We're disassembling, recycling, or refurbishing millions of devices every year with the help of Daisy, our recycling robot. And we're pushing the entire global supply chain toward recycled or renewable materials. We're driving access to critical coding skills development to educators and students through programs such as our teaching coding academies and our free "Everyone Can Code" curriculum. We continue to put user-privacy at the center of everything that we do. And we know that Apple is strongest when our commitment to diversity and inclusion brings all voices to the table. I'd like to thank our customers, our developers, our business partners, and our employees for making fiscal 2019 such a success. And I look forward to another great year in 2020. Now for more details on our September quarter results, I'll turn the call over to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. Revenue for the quarter was $64 billion, up 2% from a year ago to a new September quarter record. As we had predicted, foreign exchange negatively impacted our revenue by close to a billion dollars. And in constant currency, our growth was 3%. Product revenue was $51.5 billion, down 1% from last year, mainly due to iPhone, but largely offset by a very strong performance from wearables and iPad. Services revenue grew 18 % to $12.5 billion, up over $1.9 billion year-over -year and almost $1.1 Billion sequentially, to a new all-time record with broad based growth around the world and across our portfolio. On a geographic basis, we set new fourth-quarter revenue records in our Americas and he rest of Asia-Pacific segments. We also saw continuous improvement in Greater China, where year-over-year revenue comparisons became more favorable each quarter of fiscal 2019 from a 27% decline in the first quarter to a 2% decline in the fourth quarter. At a country level. we established new Q4 records in many major developed and emerging markets, including the U.S., Canada, Germany, France, Korea, Singapore, Brazil, India, Thailand, Malaysia and Vietnam. Company gross margin was 38%, up 40 basis points sequentially, driven by leverage from higher revenue. Products gross margin was 31.6%, up 120 basis points sequentially, due to leverage and favorable mix. Services gross margin was 64.1% even with the June quarter. Net income was $13.7 billion. Diluted EPS was a Q4 record at $3.03 and up 4% year-over-year. And our operating cash flow of $19.9 billion was also a Q4 record, up almost $400 million from the previous record we set last year. Let me get into more detail for each of our revenue categories. iPhone revenue of $33.4 billion, a year-over-year decline of 9%. This was a meaningful improvement to the 12% decline in the third quarter and the 16% decline in the first half of the fiscal year. And we saw great customer response to the launch of iPhone 11, 11 Pro, and 11 Pro Max at the end of the quarter. Our active installed base of iPhone continued to grow to a new all time high in each of our geographic segments and in the U.S., the latest survey of consumers from 4511 research indicates iPhone customer satisfaction of 99% for iPhone XR, Xs, and Xs Max combined. Among business buyers who plan to purchase smartphones in the December quarter, 83% plan to purchase iPhones. Turning to services, we had a very strong quarter with the all time record performance and growth accelerating from the June quarter. All five geographic segments set new all time services revenue records, and all grew double digits. We also established new all-time records for the App Store, Apple Care, Music, Cloud Services, Payment Services and our App Store Search Ad business. In total services accounted for 20% of our revenue mix and 33% of our gross margin mix. Customer engagement in our ecosystem continues to grow, and the number of both transacting and paid accounts on our digital content stores reached a new all -time high with double digit growth in paid accounts in all our geographic segments. We now have over 450 million paid subscriptions across the services on our platform compared to over 330 million just a year ago. And we are well on our way to our goal of surpassing the 500 million mark during 2020. Absolute revenue grew strong double digits thanks to robust customer demand for both in-app purchases and subscriptions. Our third-party subscription business grew across multiple categories and increased almost 40% year-over-year. There are now more than 35,000 subscription apps on our platform, with the largest accounting for less than 0.25% of total services revenue. Among our many all-time services records, it was the best quarter ever for Apple Care thanks to strong service agreement attach rates and expanded distribution. And to better meet our customers needs, we announced a new iPhone repair program, making it easier for independent providers across the U.S. to tap into the same resources as our Apple authorized service provider network and offering customers additional options for the most common out of warranty iPhone repairs. The new program complements our continued investment in our growing global network of over 5,000 Apple authorized service providers that lead the industry for customer satisfaction and helped millions of people with both in and out of warranty service for all Apple products. Next, I'd like to talk about the Mac. Revenue with $7 billion down 5% from last year due to a different mix of products. Given the strength of our MacBook Air lineup and a difficult comparison to last year's launch of MacBook Pro Models. Despite the tough compare, we generate an all time revenue record for Mac in the U.S. And in India, and a fourth quarter rate of revenue record in Japan. More than half of the customers purchasing Macs during the quarter were new to Mac and the active installed base of Macs again reached a new all-time high. We had great results for iPad with revenue of $4.7 billion up 17% from a year ago. iPadd revenue grew in all five of our geographic segments with a Q4 revenue record in Japan. In total, over half of the customers purchasing iPads during the September quarter were new to iPad and the iPad active installed base also reached a new all-time high. The most recent surveys from 451 Research measured a 95% customer satisfaction rating for a part from consumers and 97% from businesses. And among both consumers and businesses who plan to purchase tablets in the December quarter, more than 80% plan to purchase iPads. Wearables, home and accessories. Establish a new fourth quarter record with revenue of $6.5 billion up 54% year-over-year, with growth accelerating from the third quarter across all five geographic segments.Performance was driven by tremendous growth across Apple Watch AirPods, Beats products and accessories, and as Tim mentioned, we set Q4 records for our wearables category in every single market we track around the world. Our retail and online stores produced fantastic results, generating record September quarter revenue in all five geographic segments and strong double-digit growth across iPhone, iPad, Apple Watch ,and accessories. We also continue to see great results from our trade-in program with more than five times the iPhone trade in volume we had a year ago. Last month, we reopened the stunning Apple Fifth Avenue store in New York with an even more welcoming layout beneath the landmark Glass Cube, providing nearly twice the space of the original store. This iconic store is open seven days a week, 24 hours a day, and provides an even better environment for customers to experience our latest products, meet with our geniuses, creative pros and specialists, and attend our free daily Today at Apple sessions. We also opened our newest and largest store in Japan and fifth store in Tokyo in the Marinucci Business District. Across from the historic Tokyo Station. And we opened a beautiful new store in the heart of Mexico City's vibrant Polanco district to welcome visitors to experience the best of Apple in Mexico. We are seeing strong demand for our products in the enterprise market with growth significantly ahead of our business overall. And we have great momentum transforming major industries. One example is retail. Eighty of the 100 largest retailers in the world are choosing Apple to modernize their customer and employee experiences across all functions of their business. Retailers are using iPhone, iPad, and Mac to optimize their back of house operations, modernize point of sale, and deliver differentiated customer and employee experiences. Customer engagement and assisted selling have been areas of particular focus. And we're seeing great results for iconic brands such as Burberry, Ralph Lauren Sephora USA, Gap Inc., and many others. We're also helping government agencies around the world use technologies to improve the effectiveness and efficiency of the way they deliver critical services to the public. For example, the U.S. Census Bureau is making fundamental changes to the design and implementation of next year's census, with the goal of producing quality results by reducing costs by leveraging the mobility, user experience, and privacy of iOS. Hundreds of thousands of Apple devices will be deployed this fiscal year to support an innovative new model for the collection and management of census data. And we are proud that our products will play an important role in driving quality to this critical initiative while safeguarding the privacy and security of this data. CDW — Apple's partner in this initiative —will also utilize Apple Financial Services — our enterprise financing platform — to help minimize the cost to the public by taking advantage of the uniquely strong residual value of Apple devices. Let me now turn to our cash position. We ended the quarter with almost $260 billion in cash plus marketable securities. We issued $7 billion of new term debt, retire $3 billion of maturing debt and reduced commercial paper by $4 billion during the quarter, leaving us with total debt of $108 billion. As a result, net cash was $98 billion at the end of the quarter, and we continue on our path to reaching a net cash neutral position over time. We returned over $21 billion to shareholders in the September quarter, including almost $18 billion through open market repurchases of 86 million Apple shares and $3.5 billion in dividends and equivalents. We also retired an additional seven million shares in the final settlement of our 14th ASR. As we move ahead into the December quarter, I'd like to review our outlook, which includes that type of forward-looking information that Nancy referred to at the beginning of the call. We expect revenue to be between $85.5 and $89.5 billion. This range includes a negative impact from foreign exchange of over $1 billion. We expect gross margin to be between 37.5 and 38.5%. We expect OPIX to be between $9.6 and $9.8 billion. We expect OINE to be about $200 million and we expect the tax rate to be about 16.5%. Also today, our board of directors has declared a cash dividend of $0.77 per share of common stock payable on November 14, 2019 to shareholders of record as of November 11, 2019. Before we open the call to questions I also have a special announcement to make today. Nancy Paxton, our head of Investor Relations for the last 23 years, has decided to retire at the end of December after a wonderful 33-year career at Apple and 93 earnings calls. Nancy has been the face of Apple with analysts and investors over a period of incredible growth and success. Her passion for our company, her commitment and dedication to serve our entire investor base, and her sense of humor will be missed greatly. Personally, I'm very grateful for the advice and support you have given me during these last six years. We all wish you the very best for the next and exciting phase of your life. With that, let us open the call to questions.

Nancy Paxton

Thank you very much for the kind remarks, Luca. It's obviously been a great privilege for me to engage with so many investors an analysts on behalf of Apple over the last couple of decades. And of course, it's been an extreme pleasure to work alongside so many brilliant people here at Apple on a day to day basis. But let's get to the business at hand for the 93 time and open the call to questions. We ask that you limit yourself to two questions. Operator, may we have the first question, please?

Analysts questions

Katy Huberty, Morgan Stanley:

Thank you. Good afternoon. Congratulations on the quarter. iPhone revenue trajectory did improve, but it still declined 9%. So can you talk about the drivers that will allow you to get that category back to growth? And if you think that's something that's realistic to expect in fiscal 20?

Tim Cook

Katie, it's Tim. We're very thrilled with what we're seeing in the early going on iPhone 11, iPhone 11 Pro and Pro Max. You know, it's early, but the trends look very good. So I don't want to make a long range forecast here. We've put our current thinking in the guidance, and you can tell that from the guidance we are bullish.

Ms. Huberty:

Great. And Luca; on margins, guidance is consistent with September, but there's a lot going on under the covers. Tariffs could expand in mid-December. There's some impact from the TV+ bundle. There are some big currency and commodity price moves. So can you just talk about the gives and takes that landed you at the December quarter gross margin guidance?

Luca Maestri

Yes, of course. As you said, at the midpoint of the range, we are essentially flat sequentially. On the positive side, we expect leverage from higher revenue. On the other side, foreign exchange, for us, continues to be — probably the biggest headwind that we got right now is going to be negative 70 basis points on a sequential basis. Also, keep in mind that during the holiday season, we have a higher mix of products revenue than we have in other quarters. And that obviously is is diluted to the company margin. On a year-over-year basis, we are also about about flat. And on one side, we've got better commodity pricing. The environment is better than than it was a year ago. But foreign exchange is a negative impact of 120 basis points on a year-over-year basis.

Mike Olson, Piper Jaffray:

Good afternoon. Thanks for taking my questions. So wearables category has been strong and it's hard to believe it's now essentially the same size as Mac, but related to Apple's initiatives in health care; do you think health related features are a primary driver of wearables growth? And maybe conversely, how important is a rising installed base of wearables and the data that's associated with that to the ongoing innovation within Apple Health?

Tim Cook

Michael, it's Tim. The wearables have done extremely well, it was acceleration further from the previous quarter, and so we're thrilled with the results. As to what's driving it, it's the it's the totality that's driving it. For some people, it's about fitness. For some people, it's about health. For some other people, it's about communication. For some people, it's all of the above. And I think the new feature of always on on Series 5 is a game-changer for many of our users. And in terms of other health related things that we have going, we will be continuing to build out our health records connection into the health app. It really democratizes the information about people's health. And so they can easily go from doctor to doctor. We've got the research going that I mentioned earlier. There will be more of those through time. And obviously, we've got things that we're not going to talk about just yet that we're working on. But as I've said before, my view is there will be a day in the future that we look back and Apple's greatest contribution will be to people's health.

Mr. Olson:

Thanks, and then with the strong slate of content in Apple TV+, can you just talk about the strategy behind giving it away to those that are buying an applicable device versus charging for it? And my congrats to Nancy and thank you.

Tim Cook

Yeah, it's a gift to our users. And from a business point of view, we're proud of the content and we'd like as many people as possible to view it. And so this allows us to focus on maximizing subscribers, particularly in the early going. And so we feel great about doing that. I think it's a bold move. And the price also for those people that are not buying a device in the period of time that we offer this, the price is very aggressive as well. You think about the quality of content that you get for $4.99 and it's amazing. It is amazing.

Amit Daryanani, Evercore:

Yep. Thanks a lot, guys. I guess two questions for me, as well. The first one; You know, Tim, if you think about the services business, you know, less than $2 billion away from the targeted laid out a few years back. But I'm wondering if you think about the growth rates you've had in the business of the last several years, the high teens average, I think. How much of that do you think was driven by the install base growing vs. incremental monetization of installed base? And do you see that ratio essentially flipping or changing as you go forward?

Tim Cook

I think we have opportunities and met in both the growth of the installed base, as Lucan mentioned in his comments. We continue to grow across every category, hit new highs in the last quarter, and we hit new highs in all of our top 20 markets. And so the install base is clearly a piece of it. Getting the the trade-in program going and the secondary market moving has been helpful in that as well. And of course, ultimately the thing that builds the install base is to make customers happy. And that that's always our top objective is to have satisfied customers. The other thing that is obviously happening is in many areas the ARPU is increasing. And so as there is more offers out there, I mean, the one that is, today, getting the attention is on the streaming side. But if you look at the number of services that have been added over the years, it's significant and people love them. And so it's really both of those. And obviously, finally in getting more people that are enjoying things for free to to elect to pay for some of the premium services. So it's sort of all three of those.

Mr. Daryanani:

Got it. I'm just going to go back to the variables discussion, I especially think about Apple Watch and AirPods, is there a sense or way to think about what the attach rate today to iOS devices for Apple Watch or AirPod, I'm just trying to understand, if I think about the 900 million plus iPhone install base, what kind of penetration do you have at variables and how long could this one may be as you go forward?

Tim Cook

Well, we're not releasing the precise numbers of our wearables, but is a really nice try to get me to say that. What we're seeing in terms of new adds on the watch, I think Luca may have mentioned this in his comments, is about three quarters of the Apple Watch buyers are new to Apple Watch. And so we are still in significantly in the build mode there. And so, don't think of the penetration as anywhere near a sort of a mature penetration. We have a lot left there. And the AirPods just keep hitting new highs. And I anticipate that will carry over to this quarter, too. And we're really proud to add another product out there for people wanting noise canceling with the AirPods Pro beginning to sell today.

Shannon Cross, Cross Research:

Thank you very much. First, Nancy, I just want to send you our best wishes. We'll definitely miss you, I'm sure. I agree with Luca, I you've been very instrumental over the years. [Thank you.] My questions though, is with regard to China, and Tim, if you can talk more about what you're seeing in China, the trend during the quarter. You know, the reception specifically there to the iPhone. Any thoughts on, you know, Hong Kong used to be a big market. There's obviously some turmoil there. So if you provide some more in China, that would be helpful. Thank you.

Tim Cook

Yeah. We had a very good September, Shannon. And the the lead of that is sort of the reception of iPhone 11 and 11 Pro and 11 Pro Max. And so we feel really good about how we've gotten started there. As you can tell from the numbers, we've significantly improved since the beginning of the year. We've gone from minus well into the to the 20s to minus two last quarter. And if you looked at that in constant currency, we actually grew one. And so there's a very slight growth there. We obviously want that to be better. But we feel good about how we're doing. I think it's a combination of things that are, that have turned things around on a macro basis. I think the trade tension are less, and and that clearly looks positive right now with the comments that we've been reading in the press. Secondly, the products have been extremely well received there. Third, the things that we've done from a pricing and monthly payments point of view and trade-in, getting the trading program up and running, all of these things have had moved the dial. And so it's sort of the sum of all of that. I would also say it's not all about iPhone in China. The services area grew double digit. We began to see more gaming approvals in the quarter. Or I should say, some key gaming approvals. It's not all about quantity, but about which ones. We saw that. Also wearables. Wearables are doing so great at a company level, they're doing even better in China. And so lots of lots of positives there.

Ms. Cross:

Thank you. And then I'm curious, Luca, maybe you can talk a bit about how you think about operating expense growth. It continues to grow significantly faster than revenue. So I'm just curious as to where you're targeting the incremental spend. And then, is there a point at which we might just see some leverage? Thank you.

Luca Maestri

Well, you know, Shannon, we've gone through different cycles. In some cases, our revenue growth exceeds our opics growth. In other cases, like fiscal 19, it was the the other way around. But our approach, frankly, is not changing over time. We want to invest in the business. Our primary investments during the last few years have been in the R & D space because obviously we want to continue to innovate, improve the user experience, differentiate our products. We continue to run SG&A tightly. Obviously, if you look at what we've launched in the last few quarters and few years, we've launched a lot of new products and now we're launching a lot of new services. And when we do that, we need to make the adequate investments in marketing and advertising to raise the awareness of the new products and new services. And that is what you're seeing, for example, in the guidance that we provided for the first quarter as we're launching new services right now. And so we are making investments both in engineering and in advertising to support the new launches.

Toni Sacconaghi, Bernstein:

Thank you. I think this is for Luca and then I have a follow up as well. If I look at your guidance, the midpoint of your guidance for revenues on a sequential basis, it's up about 36.5%. Historically, fiscal Q4 to Q1 was up 50% or more. And even last year, given that iPhone is a slower growing product. You guided for revenues to be up 45% sequentially. So given the enthusiasm about the iPhone 11 launch and the new wearables products and the new services, I guess the question is, why is your guidance not stronger for Q1 on the top-line? And is that sort of a reflection of conservatism, given that there's a lot of uncertainty in the world and we certainly saw that last year? Or are there other forces at work that we should be considering?

Luca Maestri

Tony, thanks for the question. The guidance that we are providing, if you look at it at the midpoint, implies an acceleration of growth from the performance that we've seen during the course of fiscal 19. As I said earlier, foreign exchange is clearly a headwind for us right now. This is about a billion-one of negative foreign exchange on a year-over-year basis. So that that is something to keep in mind. We feel very good, as Tim said, about the iPhone, the way the new cycle is started. And we do expect an improvement in our year-over-year growth rate on iPhone. Wearables has very, very strong momentum. The portfolio services also has incredible momentum. One thing to keep in mind, as we look at this guidance range, is the fact that we also contemplated the comparison to the launch of the iPad Pro a year ago for iPad, as well as the new MacBook Air that was launched during the December quarter last year. So for the iPad and Mac categories, you need to keep in mind that our launch timing is different on a year over year basis.

Mr. Sacconaghi:

And then if I could follow up just on the bundling of Apple TV+, I guess for you, Tim, this is really the first time we've seen a significant bundling of services offering and a hardware offering. I'm wondering if you view this as kind of a strategic advantage of Apple and whether we might see more hardware plus services offerings — bundled offerings — and and ultimately, you know, to you. Do you ever believe that your hardware itself might be offered as a bundled service? And maybe while we're on that, either you or Luca could could give us the 30 second tutorial on how we should think about the deferred revenue accounting; approximately how much of the $60 are you going to you're going to be deferring. And what's your expectation for attach rate on that?

Luca Maestri

Let me cover that accounting issue first. Obviously, we need to make some assumptions around the take rate of our customers on the on Apple TV+. Right. And we don't want to get into the details of that because we view those assumptions as confidential and competitively sensitive. But you need to keep in mind that we contemplate a number of factors, including the fact that we have family sharing as part of the service. The fact that there are multiple device purchases, the geographic availability around the world, the availability of local content at the beginning of the service, how many people do we have with payment methods on file? So we use all these things to make assumptions around what the take rate is going to be. Obviously those assumptions will possibly change over time as we get more information on how the customers behave. We haven't launched the service yet. We're gonna start serving our customers tomorrow, so we'll see how it goes. But, we take into account all these different factors.

Tim Cook

On the bundle question, Tony, we look at each service and decide what's best to do for it and with TV+, we concluded that a great way to get more people to see the content would be to do this and it would be a good gift for our users. And so that's what we're doing. You can also see that on the other services, we're not doing that. And so it's not part of a broader pattern, although I wouldn't want to rule out for the future that we might not see another opportunity at some point in time. In terms of hardware as a service or as a bundle, if you will, there are customers today that essentially view the hardware like that because they're on upgrade plans and so forth. And so to some degree that exists today. My perspective is that will grow in the future to larger numbers. It will grow disproportionately. And one of the things we're doing is trying to make it simpler and simpler for people to get on these sort of monthly financing kind of things. That's a part of what we announced with the Apple Card earlier in the call. So we're we're cognizant that there are lots of users out there that want, sort of, a recurring payment like that and the receipt of new products on some sort standard kind of basis. And we're committed to make that easier to do than than perhaps it is today.

Chris Caso, Raymond James:

Yes. Thank you. Good afternoon. And Nancy, our congratulations to you, too, and we're going to miss you. [Thank you.] My first question is about pricing and the effect of some of the lower price points for iPhone 11 as compared to last year. And it looked like, you know, margins and revenues did well on that and also follow up some price adjustments you made in emerging markets last year. And obviously, we've seen some improvement in China as well. So if you could talk about maybe what that tells us about pricing strategy in general and perhaps that that you're willing take a little more flexible approach to drive some elasticity if you think that's going to have a positive effect.

Tim Cook

Chris, I think that the price moves we've made have been smart and well-received and do show a level of elasticity. But the most important thing by far is the product. And I think we've got the best lineup we've ever had. And the customer response to the product is what the product does for them is really is really incredible. And the photos I'm getting from many users around the world are just incredible that people are taking. And so I think it's product first and then prices sort of falls out of that. And we did we did decide to be more aggressive and looking at the results in the early going. I think it was the right call. In terms of emerging markets, we picked sort of locally relevant prices and in some cases where the dollar had become stronger, we took an exchange rate that would have reflected a while back instead of the current exchange rate. In other words, we tried to stay as close as we could to a local price point that we knew was effective for that particular market. And those, in addition to the U.S. price that has gotten more of a discussion, have had been extremely well received.

Mr. Caso:

Thank you. As a follow on, perhaps you could talk about the potential for some of the tariffs that are upcoming. You know, Do you have a view of what potential impact that could have going forward and how Apple is looking to address it? Will you need to adjust your own pricing if, in fact, the tariffs are imposed?

Tim Cook

We're paying some tariffs today, as you know, some that went into effect pre-September and some others that went into effect in September. So we are paying some. That's been comprehended. But in general, my view is very positive in terms of how things are going. And that positive view is obviously factored in our guidance as well. And, you know, just the the tone, I think, has changed significantly. And I have long thought that it was in both countries best interests to to get to an agreement that maybe initially doesn't solve everything, but solves some things that each party may want and get to a better place than where we're at. And I'm hopeful that that's where we're headed.

Samik Chatterjee, JP Morgan:

Hi and good afternoon. Thanks for taking my question. I just want to start off with one of the new services, Apple Arcade, and if you have any insights in terms of what you're seeing for engagement or retention of customers being on the initial trial period, how you partnerships with developers progressing there and how does the pipeline look like and any early projections of what that business longer term might look like?

Tim Cook

We're not going to give out projections on it, but I would tell you that we were really pleased with the number of people that entered the trial period. People are just coming out of the 30-day trial period in the last few days or a week or so. And so it's really too early to tell what the conversion rate will be. But I feel like we're off to a good start and, most important of everything, the customer feedback to date has really been incredible. And we're very excited for the future of the service.

Mr. Chatterjee:

As a follow up, if I can as a question on the wearables angle, what are you seeing in terms of consumer behavior up creating wearables like Apple Watch or AirPods, and how are you thinking about your ability to actuate some of that replacement cycle by driving innovation?

Tim Cook

I think, because the watch is relatively young. We haven't seen enough upgrade cycles to really establish a pattern as yet. And as I mentioned before, three out of four customers buying an Apple Watch currently, or last quarter, I should say, we're buying an Apple Watch for the first time. And so there's still a very, very large new to Apple Watch, in this regard. I do think the upgrade market will get larger over time, but just don't have a current view as to, you know, how often and so forth. On the AirPods, we're anxious to see the customers for the new AirPod Pro. But I would guess that one, particularly in the early going, will be people that have AirPods today and want also have a pair for the times that they need noise cancelation.

That's it for Apple's Q4 19 earnings call!

Apple has just announced its financial results for Q4 2019, covering the period between July 1 and September 30, 2019. The company posted quarterly revenue of $64 billion.

Press release:

Apple Reports Fourth Quarter Results

Services Revenue Reaches All-Time High of $12.5 Billion

EPS Sets New Fourth Quarter Record of $3.03 October 30, 2019 04:30 PM Eastern Daylight Time

CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2019 fourth quarter ended September 28, 2019. The Company posted quarterly revenue of $64 billion, an increase of 2 percent from the year-ago quarter, and quarterly earnings per diluted share of $3.03, up 4 percent. International sales accounted for 60 percent of the quarter's revenue.

"We concluded a groundbreaking fiscal 2019 with our highest Q4 revenue ever, fueled by accelerating growth from Services, Wearables and iPad," said Tim Cook, Apple's CEO. "With customers and reviewers raving about the new generation of iPhones, today's debut of new, noise-cancelling AirPods Pro, the hotly-anticipated arrival of Apple TV+ just two days away, and our best lineup of products and services ever, we're very optimistic about what the holiday quarter has in store."

"Our strong business performance drove record Q4 EPS of $3.03 and record Q4 operating cash flow of $19.9 billion," said Luca Maestri, Apple's CFO. "We also returned over $21 billion to shareholders, including almost $18 billion in share repurchases and $3.5 billion in dividends and equivalents, as we continue on our path to reaching a net cash neutral position over time."

Apple is providing the following guidance for its fiscal 2020 first quarter:

• revenue between $85.5 billion and $89.5 billion
• gross margin between 37.5 percent and 38.5 percent
• operating expenses between $9.6 billion and $9.8 billion
• other income/(expense) of $200 million
• tax rate of approximately 16.5 percentApple's board of directors has declared a cash dividend of $0.77 per share of the Company's common stock. The dividend is payable on November 14, 2019 to shareholders of record as of the close of business on November 11, 2019.

Apple will provide live streaming of its Q4 2019 financial results conference call beginning at 2:00 p.m. PDT on October 30, 2019 at www.apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

Apple periodically provides information for investors on its corporate website, apple.com, and its investors relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance and details related to its annual meeting of shareholders.

The Apple Watch can show a lot of really nifty pieces of information on its clock face, which is great for seeing important data at a glance. But when it comes to setting your weather, stock, and default world clock to show on the watch face, it can be hard to figure out how — and where — to do it. Here's the easiest way to make sure the data you want is showing up on your Apple Watch.

• How to set a default weather location on the Apple Watch
• How to set a default stock on Apple Watch
• How to set a default world clock on the Apple Watch

How to set a default weather location on the Apple Watch

The Apple Watch works in tandem with your iPhone apps to display the information you want; as such, you first need to set up some weather options in the Weather app on your iPhone.

In order to use the Weather app with your Apple Watch, make sure it's downloaded onto your iPhone.

1. Make sure you have the location(s) you want set up in the Weather app on your iPhone.
   • How to set up weather locations on your iPhone
2. Open the Apple Watch app on your iPhone.
3. Tap My Watch at the bottom.
4. Tap Weather.
5. Tap Default City.
6. Tap the Current Location to use that as your default. Otherwise, choose a default location from the locations on the list. (You can change the list in the Weather app on your iPhone.)

How to set a default stock on Apple Watch

In order to use the Stocks app with your Apple Watch, make sure it's downloaded onto your iPhone.

1. Make sure you have the stock(s) you want set up in the Stocks app on your iPhone.
   • How to set up stocks on your iPhone
2. Open the Apple Watch app on your iPhone.
3. Tap My Watch at the bottom.
4. Tap Stocks.
5. Tap to choose between Current Price, Points Change, Percentage Change, and Market Cap for the complication.
6. Tap on Default Stock to choose the stock that will appear in your Stocks complication. You can choose to mirror the first stock listed in the Stocks app on your iPhone or from any other stock on that list.

How to set a default world clock on the Apple Watch

By default, the World Clock will display all the cities you added in the order you added them. You can rearrange the order of the list at any time. It's a good way of keeping the times you truly care about the most visible.

1. Launch the Clock app from your Home screen.
2. Tap on the World Clock tab. It's the globe in the bottom left corner of your screen.
3. Tap on the Edit button. It's in the top left corner of your screen.

4. Tap and hold the Reorder button on the city you want to move. It's the three horizontal lines on the right side of the screen.
5. Drag your finger up or down to your desired spot in the list.
6. Let go of the screen.
7. Tap on the Done button. It's in the top left corner of your screen.

You're Apple Watch will now display the top World Clock in your list.

Updated March 2019: Updated for watchOS 5 and iOS 12. Serenity Caldwell contributed to a previous version of this article.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q3 2019 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon and thanks to all of you for joining us today. We're thrilled to report a return to growth at a new June quarter revenue record of $53.8 billion. We saw significant improvement in yea- over-year iPhone performance compared to last quarter. Very strong performances for both Mac and had an absolute blowout quarter for wearables where we had accelerating growth of well over 50% and a new high watermark for services where we set an all-time revenue record of $11.5 billion. When you step back and consider wearables and services together to areas where we have strategically invested in the last several years they now approach the size of a Fortune 50 company. Geographically we're happy with our performance across the board including a return to growth in mainland China. We accomplish these results despite strong headwinds from foreign exchange, which impacted our top-line growth rate by 300 basis points, compared to a year ago. That's equivalent to about $1.5 billion of revenue. Importantly, in constant currency, our revenue grew in all five of our geographic segments. For iPhone, we generated $26 billion in revenue. While this is down 12% from last year's June quarter, it is a significant improvement to the 17 % year-over-year decline in Q2. We're encouraged by the results we're seeing from the initiatives that we spoke about in January, including strong customer response to our in-store trade-in and financing programs. In fact, iPhone in our retail and online stores, returned to growth on a year-over-year basis in the month of June. Our active installed base of iPhone reached a new all-time high and was up year over year in each of our top 20 markets underscoring the quality of our products and the satisfaction and loyalty of iPhone customers around the world. Revenue excluding iPhone was up 17 % from last year with growth across all categories starting with services we generate at all-time record revenue of $11.5 billion. That's up 13% year-over-year. And if we exclude the $236 million favorable onetime item from the June quarter, last year services growth was 15% or 18% in constant currency which is consistent with our Q2 performance. Our strong services performance was broad-based. We set new all-time records for Apple Care. Music cloud services and our App Store search ad business. And we achieved a new third-quarter revenue record for the app store. What's more, we had double-digit services revenue growth in all five of our geographic segments. We surpassed 420 million paid subscriptions to services across our platform and we remain on track to double our fiscal year 16 services revenue in 2020. In May, we launched our all-new Apple TV app in over 100 countries, bringing together all the ways to watch TV in a single app across iPhone, iPad, Apple TV, and select smart TV's. Monthly viewers in the Apple TV app in the United States are up over 40% year-over-year. We've seen our success being driven here by several factors. First, the fact that we have been able to integrate content from over 150 leading content providers all in one place. Second, the same ease of use and unmatched user interface that sets Apple apart in other categories sets us apart in TV as well. And third, we're benefiting from a broader secular move to over-the-top services. We're engaging with this third trend in five ways our Apple TV hardware Apple TV channels where customers can choose to pay only for the channels they want. Our massive library of over a hundred thousand iTunes Movies and TV shows the app store where users can find their favorite streaming services and later this year our original programming serve as Apple TV plus Apple Pay is now completing nearly 1 billion transactions per month more than twice the volume of a year ago. Apple Pay launched in 17 countries in the June quarter, completing our coverage in the European Union and bringing us to a total of 47 markets currently. Based on June quarter performance, Apple Pay is now adding more new users than Pay Pal, and monthly transaction volume is growing four times as fast. In the United States, in addition to a successful integration into Portland's transit system in May, we're beginning the rollout of New York City transit and will launch in Chicago later this year. In China, Apple Pay launched the payment card for Didi, the world's largest ride-hailing provider. As I've said before transit integration is a major driver of a broader digital wallet adoption and we're going to keep up this push to help users leave their wallet at home. In more and more instances. On a related note, thousands of Apple employees are using Apple card every day in our beta test and, we plan to begin the rollout of Apple card in August. As I mentioned at the outset, it was another sensational quarter for wearables with growth accelerating to well over 50 percent. We had great results for Apple Watch, which set a new June quarter revenue record, and is reaching millions of new users, Over 75% of customers buying Apple Watch in the June quarter we're buying their first Apple Watch. We continue to see phenomenal demand for AirPods, and when you tally up the last four quarters, our wearables business is now bigger than 60% of the companies in the Fortune 500. We had great performance from iPad with revenue of over $5 billion, and growth driven by iPad Pro, and by strong customer response to the new iPad Mini and iPad Air. This was our third consecutive quarter of growth and with revenue up 15% year to date, we feel great about where we're headed with our current lineup of iPad, iPad mini, iPad Air, and iPad Pro we've got the perfect device for everyone from young learners to professionals. We were also very happy with double-digit revenue growth from Mac fueled by a strong performance of MacBook Air and MacBook Pro. Looking forward there's an enormous amount to be excited about for Mac on the heels of our Mac mini and iMac updates earlier in the fiscal year. We brought significant updates to the bulk of our notebook lineup in the last couple of months. We now have a $999 MacBook Air that is killer for college students and for our pro users who push the limits of what a Mac can do. We were thrilled to unveil the most powerful Mac ever; the new Mac Pro and the all-new Pro Display XDR which will be available this fall. They're designed for maximum performance expansion and configure ability and at breakthrough pricing. And they're the most powerful tools Apple has ever put in the hands of pro customers. What's more, the Mac ecosystem, as a whole is about to get a big boost. At our recent Worldwide Developers Conference, we announced a game-changing tool to help developers easily adapt their iOS and iPadOS apps for the Mac. I'll have a bit more to say on that in a moment. I'd like to provide some color on our performance in Greater China where we saw significant improvement compared to the first half of fiscal 2019 and return to growth in constant currency. We experienced noticeably better year over year comparisons for our iPhone business there than we saw in the last two quarters. And we had sequential improvement in the performance of every category. The combined effects of government stimulus consumer response to trade and programs financing offers and other sales initiatives and growing engagement with the broader Apple ecosystem had a positive effect. We were especially pleased with the double-digit increase in services driven by strong growth from the App Store in China. Turning to the future, last week we announced an agreement with Intel to acquire the majority of its smartphone modem business. This is our second-largest acquisition by dollars and our largest ever in terms of staff. We're looking forward to welcoming all of them to Apple. We see this as a great opportunity to work with some of the leading talents in this field to grow our portfolio of wireless technology patents to over 17,000 to expedite our development of our future products. And to further our long term strategy of owning and controlling the primary technologies behind the products that we make. We also had our best WWDC ever last month, packed with announcements of great new features coming this fall across our four software platforms making them more powerful, more personal, and more private. For iPhone users, iOS 13 will take on a dramatic new look with dark mode while delivering major updates to the apps you use every day, including Photos, Camera, and Maps. iOS 13 offers great new ways to help you manage your privacy and security, including Sign-on with Apple, which uses face ID or Touch ID to quickly sign in to apps and websites without sharing your personal information and improvements across the entire system will make iPhone even faster and more delightful to use than ever before. For the first time iPad is getting its own version of iOS called iPadOS, A strategic step forward that takes the iPad experience to a whole new level. The redesigned Home screen powerful new multitasking tools and deeper integration with Apple Pencil, take productivity and creativity further, including using your iPad as an extended and interactive second monitor for your Mac. For Apple TV, tvOS 13 will make the big screen experience even more personal. With a redesigned home screen and multi-user support, everyone in the family can get a more engaging and tailored experience with their favorite TV shows, movies, sports, and news, along with Apple Music and photos and videos in iCloud, and an app store with thousands of great games and apps. watchOS 6 is a major step forward in helping Apple Watch users stay healthy active and connected. Apple Watch now has a dedicated App Store that users can access directly from the device, and new watch faces, Siri enhancements, and music and audio features make Apple Watch more useful than ever. And of course we continue to innovate on Apple Watch's promise to be an intelligent guardian for your health. watchOS 6 includes powerful new features, like notifications that warn about high decibel noise to protect your hearing, and cycle tracking to aid in women's health care decisions. In the June quarter we expanded the availability of the ECG app and irregular rhythm notifications to five additional European countries, and added Canada and Singapore just last week making them available in 31 countries and regions around the world, with more to come later this year. We're very proud of the muscle we built in bringing regulated products like these to market. This is an important competency that creates exciting opportunities for us moving forward. As I noted earlier we believe macOS Catalina will be a breakthrough in the Mac ecosystem. A new tool included in macOS Catalina, called Mac Catalyst, gives developers a major head start in bringing their iOS apps to the Mac. Thousands of developers are already using it to bring their apps to the Mac ecosystem, and we expect to see a wave of popular apps arriving for the Mac as early as this fall. Again, it's worth taking a step back in digesting the bigger picture here. These updates are the latest steps in a broader strategic effort to make the user experience across iOS, macOS, iPadOS watchOS, and tvOS more effortless and more intuitive. Apple is alone in offering this kind of value and ecosystem to its customers. And these devices and their platforms are unmatched in their ease of use, their seamlessness, and their privacy and security. And while providing these things, we've created a dynamic environment where a developers benefit greatly from creating for and distributing on these platforms. And our customers of course benefit greatly from access to all this creativity and innovation. We also unveiled other exciting technologies to make it easier and faster for developers to create powerful new apps. Swift UI provides an intuitive new framework for building sophisticated user interfaces across our software platforms using simple easy to use code. CoreML 3 supports the acceleration of more types of advanced real-time machine learning models and CreateML lets developers build machine learning models without writing code. We had the world's largest augmented reality enabled platform and thousands of ARKit-enabled applications in the App Store. Building on the strategy and our momentum in this area we introduced three new AR-based technologies. ARKit 3 uses on-device real-time machine learning to recognize the human form and integrates people seamlessly into AR experiences. RealityKit is a new developer framework, built from the ground up to provide all the tools and technologies required to make AR objects virtually lifelike, and Reality Composer brings a content creation to tens of millions of developers who have no 3D experience. Our developers are already running with these new technologies and we think our customers are going to love some of the apps that these creators have in store in the months ahead. On so many fronts, there's an enormous amount to look forward to over the next few months including the launch of new services like Apple Arcade, Apple TV +, and Apple Card. And without giving too much away we have several new products that we can't wait to share with you. Until then thanks for joining us today. And for more details on the June quarter results, I'll turn the call over to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon everyone. We're happy to report a June quarter revenue record of $53.8 billion, up 1% year-over-year. We returned to growth despite a difficult foreign exchange environment around the world, which impacted our year-over-year growth rate by 300 basis points. We set June quarter revenue records in the Americas, in Japan, and the rest of Asia Pacific. And, as Tim mentioned earlier, all our geographic segments grew in constant currency. Overall products revenue was $42.4 billion, down 2% year-over-year, which is significantly better than the 8% decline in products revenue that we experienced during the first half of the fiscal year. Product categories outside of iPhone grew 20% with strong results in wearables. Mac and iPad services revenue grew 13% to a new all-time record of $11.5 billion, excluding the onetime item we highlighted a year ago in connection with the final resolution of various lawsuits. Services revenue growth was 15% and 18% in constant currency terms. On a geographic basis, we saw marked improvement in our year-over-year comparisons from emerging markets relative to the first half of this fiscal year, particularly in the BRIC countries where year-over-year performance went from a 25% revenue decline in the first half to 3% growth in the June quarter. We set June quarter revenue records in several major developed markets, including the U.S., Canada, Germany, France, Japan, Australia, and Korea. In emerging markets, we returned to growth in mainland China, grew strong double digits in India and in Brazil, and we set new Q3 records in Thailand, Vietnam and the Philippines. Company gross margin was 37.6%, flat sequentially and in line with our guidance. Products gross margin was 30.4%, down about 80 basis points sequentially, due to seasonal loss of leverage and product makes, partially offset by favorable cost. Services gross margin was 64.1%, up 30 basis points sequentially, primarily due to a favorable mix. Net income was $10 billion. Diluted earnings per share with $2.18 and operating cash flow was $11.6. Let me get into more detail for each of our revenue categories. iPhone revenue was $26 billion, down 12% compared to a year ago. This was significantly better year-over-year performance than last quarter's 17% decline, with sequential improvement in year-over-year comparisons in 15 of our top 20 markets. Our active install base of iPhone continue to grow to a new all-time high in each of our geographic segments, and in the U.S., the latest survey of consumers from 451 Research indicates iPhone customer satisfaction of 99% for iPhone XR iPhone XS and XS Max combined. Among business buyers who plan to purchase smartphones in the September quarter 83% plan to purchase iPhones. Turning to services; we reached an all-time revenue record in spite of foreign exchange headwinds with double-digit growth from the App Store, Apple Music, cloud services, and Apple Care. And triple-digit growth from Apple Pay and our App Store search ad business. All geographic segments at double-digit growth in services revenue and set new June quarter records with all-time records in the Americas and the rest of Asia-Pacific. In total, services accounted for 21% of Apple revenue and 36% of gross margin dollars. Customer engagement in our ecosystem continues to grow. The number of transacting accounts on our digital content stores reached a new all-time high in the June quarter and the number of paid accounts grew strong double-digits compared to last year. We now have over 420 million paid subscriptions across the services on our platforms and we are well on our way to our goal of surpassing the 500 million mark during 2020. On the App Store, our growth accelerated sequentially. Our subscription business continues to grow strongly and is extremely diversified across many categories such as entertainment, lifestyle, photo, and video, and music. Third-party subscription revenue grew by over 40%, and across all third-party subscription apps, the largest accounted for only 0.25% of total services revenue. Among our many services records, it was our best quarter ever for Apple Care. We are seeing an increase in service contract attach rates and our expanding distribution of Apple Care through our partners. We also recently expanded our authorized service provider network, and nearly 1000 Best Buy stores across the US are now offering expert service and repairs for Apple products. This expansion provides an even more convenient access to repairs using parts certified for safety, quality, and reliability. In addition to Apple retail stores there are over 1,800 third-party Apple-authorized service providers in the U.S., which is three times as many locations as three years ago. Next I'd like to talk about the Mac. Revenue was $5.8 billion, up 11%compared to last year. Mac revenue grew in four of our five geographic segments and set June quarter records in the U.S., Europe, and Japan, as our overall market performance significantly outpace the global PC industry. Nearly half of the customers purchasing Macs during the quarter were new to Mac with revenue growing in both developed and emerging markets, and the active installed base of Macs again reached a new all time high. We also had great results for iPad with $5 billion in revenue up 8%. iPad revenue grew in all five of our geographic segments with a Q3 revenue record in Mainland China and double digit growth in emerging markets. In total, over half of the customers purchasing iPads during the June quarter were new to iPad, and the iPad active installed base also reached a new all time high. The most recent recent surveys from 451 Research measured a 94% customer satisfaction rating for iPad from consumers. Among business customers who plan to purchase tablets in the September quarter, 75% plan to purchase iPads. Wearables, Home, and accessories revenue accelerated across all our geographic segments. Growing 48% to over $5.5 billion and setting a June quarter record. This growth was fueled primarily by the strong performance of our wearables business which was up well over 50%, and has become the size of a Fortune 200 company over the last 12 months. In addition, we generated double digit revenue growth from Apple TV and accessories during the quarter. Our retail and online stores produce their best June quarter revenue ever, with double digit revenue growth across Apple Watch, iPad, Mac, and accessories. Our trade-in program is showing great momentum with more than five times the number of iPhones traded in compared to a year ago. We opened stunning new stores in the Carnegie Library in Washington D.C. and the busy Shinji District in Taipei, as well as a beautiful new location in the Dallas Galleria. We ended the quarter with 506 physical stores in 22 countries alongside our online store presence in 35 countries. In the enterprise market we are gaining traction with our strategy of transforming major industries by expanding our leading positions in key functional areas to grow our reach and modernize customer and employee experiences in the financial services industry. Ninety of the largest hundred banks by assets size are deploying Apple products to improve efficiency and effectiveness across their organizations. iPhone and iPad are overwhelmingly the preferred mobile devices for bankers on the go. For example 60% of the biggest banks are supporting iPads for wealth managers in retail banking. Two-thirds of top banks are deploying iPad for branch transformation, and modernizing legacy interfaces with a unified iPad experience. One of the world's largest banks created an iPad suite that reduced customer onboarding time from more than an hour to just 12 minutes. Bank branch employees are also using Apple Watch for communication and notifications, and Apple TV for customer presentations from iPads using AirPlay. Financial institutions also tell us that they receive positive feedback from leveraging Apple's solutions for direct customer engagement. American Express, Credit Suisse, Discover, and T.D. Ameritrade have launched Apple business chat as a dynamic way to support and interact with customers. The intuitive interface of Messages on iOS enables rich communication between customers and contact centre staff. T.D. Ameritrade has also become the first brokerage in the world to enable immediate funding of accounts using Apple Pay, eliminating the two to three business days it used to take to fund accounts by wire transfer. Let me now turn to our cash position. We ended the quarter with almost $211 billion in cash plus marketable securities. We retired $3 billion of term debt and reduce commercial paper by $2 billion during the quarter, leaving us with total debt of $108 billion. As a result, net cash was $102 billion at the end of the quarter, and we continue on our path to reaching a net cash neutral position over time. We returned over $21 billion to shareholders during the quarter, including $17 billion through open market repurchases of almost 88 million Apple shares and $3.6 billion in dividends and equivalents. As we move ahead into the September quarter I like to review our outlook, which includes the types of forward-looking information that Nancy referred to at the beginning of the call. We expect revenue to be between $61 and $64 billion. This guidance includes almost $1 billion of year-over-year negative impact from foreign exchange. We expect gross margin to be between 37.5 and 38.5%. We expect all packs to be between $8.7 and $8.8 billion. We expect OINE to be about 200 million and we expect our tax rate to be about 16.5 %. Also today, our board of directors has declared a cash dividend of $0.77 per-share of common stock, payable on August 15, 2019, to shareholders of record as of August 12, 2019. With that, I'd like to open the call to questions.

Analysts questions

Amit Daryanani, Evercore: Thanks a lot. Thanks for taking my question guys. I guess two for me. First off, could just talk about, what I think about, the September quarter guide. It's implied, I think, up 16% or so sequentially. Historically at least, that guide has been in a 10%, low double-digit kind of range. Just maybe help us understand what gives you the confidence for a better-than-seasonal gain in September, from a geo product basis, would be helpful.

Luca Maestri

Amit, this is Luca. Of course, this is our best estimate of where we think we will land. Clearly, we expect to have continued strong growth from the non-iPhone categories. We have great momentum in wearables. We mentioned that we were up almost 50% in the June quarter. Actually over 50 percent in the June quarter services business. We set an all-time record in June. And so, you know, these two categories have become really important and really large for us, and so, as we continue to grow quickly that is going to help us as we go through the year. Keep in mind that the guidance includes an estimated almost $1 billion of foreign exchange headwind for the quarter.

Fair enough. That's really helpful. And if I could just follow up on China, I'm impressed to see the continued recovery you guys are seeing that, despite all the headlines that are out there. Just curious, what are the few things that are driving the success in China and how sustainable do you think these changes are for Apple as you go forward.

Tim Cook

Amit, hi it's Tim, and I apologize for my voice. I'm suffering from an allergy, but what happened last quarter in China was ... It's a confluence of things. The government stimulus, this came in terms of a VAT reduction, a very bold one. We took some pricing action. We instituted our trade-in and financing programs in our retail stores, and worked with certain channel partners on that, as well. And we're seeing a growing engagement with the broader Apple ecosystem during the quarter. So when you look at it, each of our categories; iPhone, iPad, Mac, wearables, services, everything improved sequentially. So, we couldn't be happier with the results, or the progress, I should say. I would point out, I think I'd mentioned in my comments, that we actually grew in constant currency for Greater China, and we grew in mainland China on a reported basis. So there are several things going on there that are quite positive.

Shannon Cross, Cross Research: Can you talk a bit about what's going on within services, some of the puts and takes. I know, Luca, you gave us some some color in terms of the growth rates and that, but I'm just curious, and I know you won't talk about future products, but you know, as you think about the opportunity, think about what you've got now and in the future, and then some of, you know, what's been going on with China, and that, is this something that could reaccelerate, or you know, again the 18% on a constant currency basis is obviously quite strong, but how are you thinking about it?

Luca Maestri

Yeah, I think I think it's important to start with that 18% in constant currencies, Shannon. Our reported results are on a normalized basis, removing the onetime item from last year, was 15%. Clearly, affects, you know, plays a role around the world, 300 basis points of effects impact during the June quarter, in spite of that, it was an all-time record revenue. Our installed base continues to grow. It's growing in every geography, and it's growing across all our major product categories, and that is very very important for the services business. I would say, I'll give you a bit more color around two offsetting factors around this performance during the June quarter. On one side, the App Store, I mentioned in my prepared remarks that the growth accelerated sequentially. We had double digit growth on the App Store in every geography. In China we saw significant acceleration. As you know, we tend to monetise in China on the App Store through game titles, and the government has approved a few key game titles during the quarter that has helped our performance there. On the other side, Apple Care, I mentioned, Apple Care was an all time record in June, so a really strong performance, but our growth has decelerated in Apple Care due to factors that we fully expected because we are comping this expansion of our coverage for Apple Care that we've had ... we've had significant success during the last 18 to 24 months in really broadening our coverage of Apple Care around the world with some key partners, carriers, and resellers. And obviously, as we go through the year those comps become a bit more difficult. Having said all that, you know that we've given ourselves a couple of targets and we feel very confident about reaching those targets. The first one is that we wanted to double the size of the services business from our fiscal 16 to 2020. We are on our way there. Paid subscriptions is another target that is important to us. It's an important way for us to monetize our ecosystem. We set a target of surpassing half-a-billion paid subscriptions on the ecosystem during 2020. We're already at 420 million now. So we feel confident there, and of course as you mentioned, we're very excited about the fact that we're going to be launching new services soon. As Tim said, we starting the rollout of Apple Card in August, and still more important services, that we're going to be adding to our portfolio during the fall. One is Apple arcade, which is our gaming subscription service, and of course Apple TV +, which is our video streaming service. So obviously these services will help us carry on with the momentum that we have in services.

Great. Thank you. And then this is probably for you as well, Luca. Can you talk about gross margin. The guidance was was pretty solid. Obviously, there are various things that are at play here. I know you mentioned a billion dollars worth of top line impact I think from currency next quarter. But maybe you can, kind of, talk about what went into your your gross margin guidance.

Luca Maestri

So, of course, Shannon as you've seen, our guidance for margin is 50 basis points higher than the guidance that we had given for June. I would say on the positive we expect to benefit from leverage, as you've seen from our revenue guidance, and from cost savings, because as you know, the commodity environment is fairly favorable right now. On the negative side, the headwind on gross margins on a year-over-year basis from foreign exchange is about 100 basis points. And so, we need to keep that in mind, but we feel pretty good about the guidance we provide.

Katy Huberty, Morgan Stanley: Yes. Thank you. I'd like to go back to the discussion around strength in China in the quarter and understand what linearity looked like. I ask because there was some industry data around the smartphone market in China that seemed to deteriorate in the month of June. The app store data deteriorated a little bit in June and just curious if that's something you saw in the business and if it at all informs you or your outlook around that the pace of the China business as you go into September.

Tim Cook

Katy, it's Tim. We obviously took into account all of the information that we had and coming out with the guidance including linearity across last quarter and how the this quarter has started. And so, you know, we obviously look at that in quite much detail.

And then just on the App Store, I appreciate that there's not a lot of detail out around exact timing, and even some pricing of the new services, but how should we think about the new services that launched in March impacting the overall service's growth? Does that start to benefit the model in the back half of this calendar year or will the impact be more longer term in nature and really show up in 2020?

Luca Maestri

Let me just talk about the new services that we've announced in March and then also about the timing of how we get to revenue right. We've announced Apple News + and this is the service that is available for consumers right now. We've announced our channel service, which has also become available a few weeks ago. The other three services; the card is launching in August, the gaming service and the video service are starting in the fall. Keep in mind for all these services, there's a trial period upfront. There's going to be different trial periods. We'll see what they look like. So the road to monetization takes some time and obviously, all of them will add to our base and will help us with growth rates as we get into next year.

Krish Sankar, Cowen & Co.: Hi. Thanks for taking my question. I have two of them. First one on the iPhone trade-in program. How effective was it and what percentage of iPhone sales came from the trade-ins, and are there any other geographies where you'll have to rule it out? Then a follow-up.

Tim Cook

Hi, it's Tim. In retail, it was quite successful. We got going in a larger way during that quarter. We were pretty much just ramping in the previous quarter and trade-in as a percentage of the total sales is significant and financing is a key element of it. Those two things in the aggregate led retail, the combination of retail and online, (we just short form that as retail), our Apple store led to growth in June, and so we feel very very good about the trajectory. We are obviously taking those programs and advocating those more widely. And that is at different levels of implementation throughout different geographies. We're working with our carrier partners on those and retail partners.

Got it. That's very helpful. And then a follow up for you; a much longer-term question. I understand we are in the very early innings of the services growth story. Is there a way to think about it down the road, that you know three or five years down the road, would the services growth be focused or would it still be tethered to the hardware of the iPhone, or do you think at some point down the road services would be independent by itself and not really tied to your hardware installed base?

Tim Cook

Well there are elements today that are not necessarily tethered to iPhone, right. We have other products where people are purchasing things. They're watching Apple TV. We offer Apple Music on Android, and so there's a series of things that are outside of that. And so we'll see what we do in the future. I don't want to really get in get into that, but more broadly to answer your question about growth as we go forward; the way I see it is, we have the strongest hardware portfolio ever. We've got new products on the way. The pipeline is full of great new stuff both on the product and the services side. We're very fortunate and work very hard to have loyal customers, and to continue attracting an impressive number of switchers. The install base is growing. Hit a new record. That's obviously good. And it hit a new record across all geographies and across all categories. And so this is a, you know, this is a really good thing. And we've got the wearables area that is, you know, doing extremely well we stuck with that when others perhaps didn't and really put a lot of energy into this and a lot of R&D and are in a very good position today to keep playing out what's next there. At the same time, on the market side, we have emerging markets where we have low penetration and during the quarter tactically, the emerging markets had a bit of a rebound. In fact, on a constant currency basis, we actually grew slightly in emerging markets. We still declined on a reported basis. India bounced back during the quarter, we returned to growth there. We're very happy with that. We grew in Brazil, as well. We're also continuing to focus on the enterprise market. Luca mentioned some of this in his comments. And we think that continues to be a big opportunity for us. And then we've got lots of, what I would call, core technology kinds of things like augmented reality where we're placing big bets and bet that we have a big future, in addition to the health kinds of things that may fall out of the Watch. And so hopefully, that kind of gives you a view over the total. And so we're focusing on products and services and there will be some services that aren't hooked and some that are hooked, not on current period sales: very much services are rarely connected on that today or at least not a high percentage by any means there. They're more correlated to the installed base the active install base and also the level transacting customers that are there and the amount per customer, which relates also to the offering that we have.

Wamsi Mohan, Bank of America Merrill Lynch: Yes. Thank you. Tim the China trade situation remains sort of fluid over here. And recently more recently you asked for some tariff exceptions, were not granted those. How are you thinking about the longer-term footprint for manufacturing, and can you talk about any potential alternatives that you've looked at and considered in moving parts of production potentially out of China. And I have a follow-up.

Tim Cook

Yeah. I know there's been a lot of speculation around the topic of different moves and so forth. I wouldn't put a lot of stock in those if I were you. The way that I view this, is the vast majority of our products are kind of made everywhere. There's a significant level of content from the United States, and a lot from Japan to Korea to China, and the European Union also contributes a fair amount. And so. That's the nature of a global supply chain. I think, largely, I think that will carry the day, in the future as well. In terms of the exclusions we've been making the Mac Pro in the U.S. We want to continue to do that. And so we're working and reinvesting currently incapacity to do so because we want to continue to be here. And so that's what's behind the exclusions. And so we're explaining that, and hope for a positive outcome.

OK. Thanks, Tim. And Luca, this may be for you. There's been some significant destocking of inventory in the first calendar half of this year in iPhone. Can you comment about the broader channel inventory levels where you are in your typical ranges, especially given the comment around June iPhone sales being quite strong, and do you expect anything atypical in channel inventory dynamics in the September quarter? Thank you.

Luca Maestri

Yes, Wamsi. As you know, we're not getting into this topic very much, but I think I can give you some color here. You know that, in general, we decrease our inventory during the March quarter and the June quarter. That has been traditionally what we've done. This year, we did use channel inventory for iPhone slightly more than last year, and that is true in total. And it's true for Greater China as well. So we feel very good about our channel inventory ranges as we get into the September quarter. Hope that that helps you with that.

Jim Suva, Citigroup: Thanks very much. The first question is probably for Tim and the second is for Luca. I'll ask them at the same time so you can pick and choose whichever one you want to answer first or second. The first one is for you, Tim. Regarding the installed base comment you've made which is quite encouraging, yet when you look at the iPhone revenue year-over-year the past several quarters, has been down. Can you help us bridge the gap of how the install base growing? Is it mostly because like secondary users are the new ones coming into this system as people are holding more phones longer? And what does that user typically bring in with them or something really unique relative to what we historically know? And then for Luca, you've been investing a lot a lot lot lot, and a lot of these services are now coming to pass, whether it be Apple Care, Apple cloud, all these wearables and soon Apple Pay and Arcade. Are we at a point now where a lot of harvesting is going to happen, or do you kind of continue the relatively same investments that you've been doing for the future strategy? Thank you.

Tim Cook

Jim it's Tim. I'll start with your install base question. Installed base is a function of upgrades and, you know, the time between those. It's a function of the number of switchers coming into the to the iOS macOS and so forth, tents. It's a function of the robustness of the secondary market, which we think overwhelmingly hits incremental customers. And it's a function still in the emerging markets, and somewhat developed markets to a lesser degree, of people that, you know, they're buying their first smartphone. There are still quite a few people in the world in that category. And so the reason that the installed base doesn't correlate to the 90-day clock, is that what's happening underneath the numbers, is switchers are still a very key piece of what's going on. The secondary market is very key, and we're doing programs, etc., to try to increase that because we think we wind up hitting a customer that we don't hit in another way. And the upgrades where people are holding onto the device a bit longer than they were, they're staying in the ecosystem. And then you have the people in the new category, as well. And so that's sort of the equation. I don't want to go into the specific numbers, but I think you can see readily mathematically, how the install bases is growing in an environment where the iPhone revenue is declining within a 90 day kind of window.

Luca Maestri

And Jim on OpEx it obviously is very important for us to continue to invest in the business particularly on the side because we will always want to bring more innovation into the market. We want to improve the user experience and differentiate our products and services in the marketplace. So we will continue to do that. There are some types of investments of course that are very strategic for us and they will have long term implications. You've seen the announcement that we made around the Intel acquisition. Very important, strategically, for us. It requires upfront investment, of course. As you've seen from this quarter and also from the past, we will continue to run our SGNA portion of our OpEx tightly. We will, of course, we'll continue to invest in marketing and advertising. We talked about a lot of new services that we are launching during the fall, and Apple Card next month, obviously, they will require the appropriate level of marketing and advertising as we launch them to the general public. When you look, in total, at where we are in terms of our expense-to-revenue ratio for operating expenses, you know quite well that we are extremely competitive, relative to other tech companies. So we want to continue to to be competitive. And at the same time, we will not under invest in the business.

Samik Chatterjee, JP Morgan: Hey. Thanks for taking the question. I just want to start off with the announcement of the WWDC around the independent App Stores for the Watch and the iPad. What level of interest have you seen from developers and how are they thinking about the ability to monetize services independently on those App Stores and how does that help you position wearables more firmly into the health and fitness category?

Tim Cook

We're seeing good interest across virtually everything that we announced to WWDC. I couldn't be happier with it. The developer tools around ARKit and AR, in general, that I went through earlier. Lots of interest there. Lots of interest from the Watch App Store to, the Catalyst that will be released with macOS Catalina, which allows developers quickly to port an iOS app to the Mac. We think this is huge and so great for the user experience. And so you look at all of these and all the things that I talked about earlier, and I couldn't be happier with the reception that we're getting and the work that is going on behind the scenes right now to ready ... for the developers readying their apps for the fall.

Can I just follow up on the China market. One of the things that we're looking at is with, going into the new year, into 2020, there'll be a lot of 5G phones launching in that market from the Android. How do you enter a more competitive landscape there as you enter next year?

Tim Cook

We don't comment on future products. You know with respect to 5G, I do think most people would tell you, it's sort of the extremely early early innings of it. And even more so on a global basis. So we couldn't be more proud of what our lineup is and we're excited about the great pipeline of both hardware and software and we wouldn't trade our position for anyone's.

Apple has just announced its financial results for Q3 2019, covering the period between April 1 and June 30, 2019. The company posted quarterly revenue of $53.8 billion as it saw its various services continue growing at record rates.

Press release:

Apple Reports Third Quarter Results

Company Revenue Sets June Quarter Record

Services Revenue Reaches New All-Time High

July 30, 2019 04:30 PM Eastern Daylight Time CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2019 third quarter ended June 29, 2019. The Company posted quarterly revenue of $53.8 billion, an increase of 1 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.18, down 7 percent. International sales accounted for 59 percent of the quarter's revenue.

"This was our biggest June quarter ever — driven by all-time record revenue from Services, accelerating growth from Wearables, strong performance from iPad and Mac and significant improvement in iPhone trends," said Tim Cook, Apple's CEO. "These results are promising across all our geographic segments, and we're confident about what's ahead. The balance of calendar 2019 will be an exciting period, with major launches on all of our platforms, new services and several new products."

"Our year-over-year business performance improved compared to the March quarter and drove strong operating cash flow of $11.6 billion," said Luca Maestri, Apple's CFO. "We returned over $21 billion to shareholders during the quarter, including $17 billion through open market repurchases of almost 88 million Apple shares, and $3.6 billion in dividends and equivalents."

Apple is providing the following guidance for its fiscal 2019 fourth quarter:

• revenue between $61 billion and $64 billion
• gross margin between 37.5 percent and 38.5 percent
• operating expenses between $8.7 billion and $8.8 billion
• other income/(expense) of $200 million
• tax rate of approximately 16.5 percent
• Apple's board of directors has declared a cash dividend of $0.77 per share of the Company's common stock. The dividend is payable on August 15, 2019 to shareholders of record as of the close of business on August 12, 2019.

Apple will provide live streaming of its Q3 2019 financial results conference call beginning at 2:00 p.m. PDT on July 30, 2019 at www.apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

Apple periodically provides information for investors on its corporate website, apple.com, and its investors relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance and details related to its annual meeting of shareholders.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q2 2019 earnings call. Here's our ongoing live transcript of their remarks! If you want more info on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon and thanks to all of you for joining us today. This has been an exciting and productive quarter for Apple. In my letter to investors at the beginning of January, I wrote that one of Apple's great strengths is our culture of flexibility, adaptability, and creativity. This quarter featured some important announcements that speak to the power of our commitment to innovation and long term thinking. I'd like to start with some top line highlights and then move into greater detail with you. I'll get started with financial results. Our revenue was $58 billion, toward the high end of our guidance range. We see this result as a positive outcome in light of ongoing headwinds from weaker foreign currencies relative to the US dollar. In constant currency, our year over year revenue performance would have been 200 basis points better than our reported results indicate. We had great results in a number of areas across our business. It was our best quarter ever for services, with revenue reaching $11.5 billion. We had a blockbuster quarter for iPad, with revenue up 22% from a year ago — this is our highest iPad revenue growth rate in six years. And it was another sensational quarter for wearables, with growth near 50%. This business is now about the size of a Fortune 200 company, an amazing statistic when you consider it's only been four years since we delivered the very first Apple Watch. I'll talk more about these categories later.

While we grew year over year in developed markets, and while we had record March quarter results in a number of major markets, including the United States, Canada, the United Kingdom, and Japan. We did experience a revenue decline in emerging markets, but we feel positive about our trajectory. Our year over year revenue performance in Greater China improved relative to the December quarter and we've seen very positive customer response to the pricing actions we've taken in that market, our trade-in and financing programs in our retail stores, the effects of government measures to stimulate the economy, and improved trade dialogue between the United States and China. Our App Store results are still reflecting the impact of the slowdown in regulatory approval of gaming apps in China, but we're encouraged by the recent increase in the pace of approvals. We believe strongly in our long-term opportunity in China thanks to our robust ecosystem, our talented developer community, and the country's growing population of tech savvy consumers who value the very best products and services.

For iPhone, while our worldwide revenue was down 17% from a year ago, declines were significantly smaller in the final weeks of the March quarter. Looking back at the past five months, November and December were the most challenging so this is an encouraging trend. We like the direction we're headed with iPhone and our goal now is to pick up the pace. Importantly our active installed base of devices continues to grow in each of our geographic segments and set a new all-time record for all major product categories. That growing installed base is a reflection of the satisfaction and loyalty of our customers and it's driving our services business to new heights. In fact, we had our best quarter ever for the App Store, Apple Music, cloud services, and our App Store search ad business. And we set new March-quarter revenue records for Apple Care and Apple pay. Apple Pay transaction volume more than doubled year over year and we're on track to reach 10 billion transactions this calendar year. Apple Pay is now available in 30 markets and we expect to be live in 40 markets by the end of the year. More and more transit systems are accepting Apple Pay and New York's MTA system will begin the rollout in early summer. As we've seen in places like London, Tokyo, and Shanghai, contactless entry into transit systems helps to spur broader Apple Pay adoption and we believe this will get even more people using Apple Pay in the United States. And TicketMaster has just announced that they will be accepting Apple Pay for ticket purchases on the web and through the Ticketmaster app and over 50 of their entertainment and sporting venues are launching contactless tickets this year, including the vast majority of NFL stadiums. Subscriptions are a powerful driver of our services business. We reached a new high of over 390 million paid subscriptions at the end of March, an increase of 30 million in the last quarter alone. This was also an incredibly important quarter for our services moving forward. In March we previewed a game-changing array of new services, each of them rooted in principles that are fundamentally Apple. They're easy to use; they feature unmatched attention to detail; they put a premium on user privacy and security; they're expertly curated, personalized, and ready to be shared by everyone in your family. These features aren't just nice to have, they actually helped to eliminate the boundary between hardware, software, and service creating a singularly exceptional experience for our users. First, building on the great momentum of Apple News which is already the number-one news app in the United States and the United Kingdom, we launched Apple News+. It will bring together over 30 popular magazines, leading newspapers, and digital publishers into a beautiful, convenient, and curated experience within the Apple News app. Apple News+ builds on our commitment to supporting quality journalism from trusted sources while providing the best magazine and news-reading experience ever for mobile devices. Advancing our vision to replace the wallet, we announced Apple Card built on principles Apple stands for like transparency, simplicity, and privacy. Apple Card is integrated into the Wallet app and delivers all new experiences that only Apple can provide, integrating our hardware, software, and services in an elegant solution, it places the customer at the center. It's the first card to encourage you to pay less interest, eliminate fees, and give you daily cash on all your purchases, and customer interest to date has been terrific. We also previewed Apple Arcade, the world's first game subscription service for mobile, desktop, and the living room. With over 100 new games all with no ads or ad-tracking, no additional purchases, and respect for user privacy, we've created a service for players of all ages — kids to teens to adults — and one that families can enjoy together.

The App Store is already the world's biggest gaming platform and we think Apple Arcade is a way to unleash the creativity of the game developer community with a collection of new games not available on any other mobile platform or in any other subscription service. We can't wait for our customers to experience it for themselves beginning this fall. We were thrilled to provide a peek at what's new for TV. Beginning in mid-May, the all new Apple TV app will bring together the different ways to discover and watch shows, movies, sports, news, and more in one app across iPhone, iPad, Apple TV, Mac, smart TV's, and streaming devices. And users can subscribe to and watch new Apple TV channels like HBO, Showtime, and Starz, paying only for services they want — all on-demand available on and offline. And coming this fall, Apple TV+ will be the new home for the world's most creative storytellers, featuring exclusive original shows, movies, and documentaries.

We also had several major product introductions during the quarter. We launched a new, more powerful iMac with dramatic increases in both compute and graphics performance, making it a great update for consumers and pros alike. For our Mac business overall, we faced some processor constraints in the March quarter, leading to a 5% revenue decline compared to last year, but we believe that our Mac revenue would have been up compared to last year without those constraints and don't believe this challenge will have a significant impact on our Q3 results. For iPad, we were very happy to return to growth in Greater China while generating strong double-digit growth in each of our other geographic segments. Our great iPad results were driven primarily by strong customer response to iPad Pro. Late in the quarter, we launched an all new iPad Air with an ultra-thin design, Apple Pencil support, and high-end performance powered by Apple's A12 Bionic chip. In addition, we introduced a new iPad mini — a major upgrade for iPad fans who love an ultra-portable design and, like the new iPad Air, it delivers the power of the A12 bionic and support for Apple Pencil. Last month, we introduced new AirPods, the second generation of the world's most popular wireless headphones, and demand has been incredible. This is nothing less than a cultural phenomenon. With a new Apple-designed H1 chip, the new AirPods deliver faster connect times, more talk time, and the convenience of hands-free "Hey Siri." Our retail and online stores continue to be a key point of innovation. As we mentioned in January, we've been working on an initiative to make it simple to trade in a phone in our store, finance the purchase over time, and get help transferring data from the old phone to the new phone. As part of this initiative, we rolled out new trade-in and financing programs in the U.S., China, the UK, Spain, Italy, and Australia. The results have been striking. Across our stores, we had an all-time record response to our trade-in programs and with more than four times the trade-in volume of our March quarter a year ago. With each passing quarter, we're more inspired by the impact our products are having on people's fitness and health. This quarter we brought the ECG app on Apple Watch Series 4 to Hong Kong and 19 European countries including France, Germany, Italy, Spain, and the UK. Just like when the ECG app launched in the United States, there's hardly a day that goes by that I don't get a letter or an email from a customer in one of these countries talking about how this feature has significantly changed their life. We believe we're really just beginning to tap in to what we can do to help our users actively manage their health and well-being. For example, last month Stanford Medicine reported results of the Apple Heart Study, the largest study ever of its kind, which enrolled over 400,000 participants from all 50 states in a span of only eight months. And hundreds of institutions are now supporting Health Records on iPhone with recent additions including Michigan Medicine and UT Health Austin. In February, we announced that we are working with the U.S. Department of Veterans Affairs to make Health Records on iPhone available to veterans. This will be the first records-sharing platform of its kind available to the V.A. which is the largest medical system in the US, providing service to more than 9 million veterans across more than 1,200 facilities.

Apple's innovation extends beyond the impact we have in the lives of our customers to the impact we leave on the world around us. We recently marked Earth Day with several major announcements about our efforts to lead the world better than we found it. We have completed the allocation of our $2.5 billion Green Bond proceeds across 40 environmental initiatives around the world to projects ranging from solar power generation, to water conservation, to development of custom alloys for our products made from 100% recycled aluminum. We've announced a major expansion of our recycling programs, including quadrupling the number of locations where US customers can send their iPhones to be disassembled by Daisy, our recycling robot. Each Daisy can now disassemble 1.2 million devices per year, allowing recovered materials to be recycled into the manufacturing process. And we've partnered with a record number of our suppliers to follow our lead and transition to 100% clean energy. With the help of these 44 suppliers, we will exceed our goal of bringing four gigawatts of renewable energy into our supply chain by 2020, with over one additional gigawatt projected within that timeframe. In the last calendar year alone, the partners that have joined this effort have generated enough clean energy to power over 600,000 homes in the United States. We're very proud of the progress that we and our partners are making and hope our actions will inspire other businesses to do what they can to protect the world that we share.

We are as excited as ever about our great pipeline of hardware, software, and services, and we're looking forward to sharing more information about the future of our four software platforms at our Worldwide Developers Conference, now less than five weeks from now. Everyone here is hard at work to prepare for WWDC and it's always a privilege to get to share the future of our platforms with the community of world-changing developers who bring it to life. You are not going to want to miss this one.

We're in the fortunate position of generating more cash than we need to run our business and invest confidently in our future, so today we're announcing the latest update to our capital return program, including an increase to our share repurchase authorization and our quarterly dividend. For more details on that and our March quarter results, I'll turn the call over to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. Revenue in the March quarter was $58 billion, near the high end of the guidance range that we provided 90 days ago and down 5% from last year. Our revenue decline reflects 200 basis points of negative foreign exchange due to the strength of the US dollar. Overall products revenue declined 9%, driven primarily by iPhone, while services revenue grew 16% to a new all-time record. We also set a new March quarter record for wearables, home, and accessories, and we recorded our best iPad growth rate in six years. Company gross margin was 37.6%, in line with our guidance. Products gross margin was 31.2%, down about 310 basis points sequentially due to the seasonal loss of leverage and headwinds from foreign exchange. Services gross margin was 63.8%, up 100 basis points sequentially, due to a different mix and leverage from higher revenue. Net income was $11.6 billion, diluted earnings per share were $2.46, and operating cash flow was $11.2 billion. Let me provide more color for our various revenue categories. iPhone revenue was $31.1 billion. We've seen positive customer response to recent pricing actions in certain emerging markets as well as enhancements to our trading and financing programs and our year over year performance improved relative to our December quarter results in greater China, in the Americas, and in Japan. Our active installed base of iPhone reached a new all-time high at the end of March. This growing installed base reflects the industry-leading satisfaction and loyalty of our customers. The latest survey of U.S. consumers from 451 Research indicates customer satisfaction of 99% for iPhone XR, XS, and XS Max combined and among business buyers who plan to purchase smartphones in the June quarter, 81% plan to purchase iPhones. Turning to services, as Tim said, it was our best quarter ever with $11.5 billion in revenue, an increase of 16% from last year. We generated double-digit revenue growth across the App Store, Apple Music, cloud services, Apple Care, Apple Pay, and our App Store search ad business, and we set all-time services revenue records in four of our five geographic segments. We're very happy with this performance. As you can see from our new disclosures, services accounted for 20% of our March quarter revenue and about one-third of our gross profit dollars. Customer engagement in our ecosystem continues to grow — the number of transacting accounts on our digital content stores reached another new all-time high during the quarter with a number of paid accounts also setting a new all-time record and growing by strong double digits over last year.

And we now have over 390 million paid subscriptions across our services portfolio, an increase of 120 million versus just 12 months ago. All subscription categories are growing strong double digits, and as we mentioned a quarter ago, we expect the number of paid subscriptions to surpass half a billion during 2020. On the App Store, our subscription business is extremely diversified and is growing strongly around the world. In fact, the number of paid third-party subscriptions increased by over 40% compared to last year in each of our geographic segments. And across all third-party subscription apps, the largest accounted for only 0.3% of our total services revenue. Next I'd like to talk about the Mac. Revenue was $5.5 billion compared to $5.8 billion a year ago, with the decline driven primarily by processor constraints on certain popular models. In spite of this challenge, we generated double-digit Mac revenue growth in Japan and Korea, setting new all-time Mac revenue records in both markets. On a global basis, nearly half of the customers purchasing Macs during the quarter were new to Mac and the active installed base of Macs reached a new all-time high. We had great results for iPad with $4.9 billion in revenue and growth accelerating from the December quarter to 22%. iPad revenue grew in all five of our geographic segments, with a return to growth in Greater China and strong double-digit growth in all other segments. We had our best March quarter ever for iPad in Japan and we were especially pleased by performance in Korea, Thailand, and Mexico where revenue more than doubled over last year. In total, over half of the customers purchasing iPads during the March quarter were new to iPad and the iPad active installed base also reached a new all-time high. iPad revenue growth has been fueled primarily by the great customer response to our new iPad Pros. These completely redesigned iPads with full-screen Liquid Retina displays, Face ID, a powerful A12 Bionic chip with Neural Engine, and support for the new Apple Pencil and Smart Keyboard make iPad Pro the perfect PC laptop replacement for both consumers and professionals. The most recent surveys from 451 Research measured a 93% customer satisfaction rating for iPad overall. Among customers who plan to purchase tablets, 77% of consumers and 75% of businesses plan to purchase iPads. Wearables, home, and accessories revenue set a new March quarter revenue record of $5.1 billion, fueled primarily by the strong performance of our wearables business, which grew close to 50%. Within this category, Apple Watch is the best-selling and most loved smart watch in the world and produced its best results ever for a non-holiday quarter. It's reaching many new customers with three quarters of purchases going to customers who have never owned an Apple Watch before. Interest in AirPods has been off the charts and we are working hard to catch up with the incredible customer demand. Turning to our retail and online stores, we generated very strong double-digit revenue growth from Apple Watch and iPad. We also announced 50 new Today at Apple sessions during the quarter in three new and expanded formats — Skills, Walks, and Labs — free at our stores around the world. We're making important progress in the enterprise market, helping transform major industries. We're building on Apple's leading position in key functional areas to expand our reach and share within large accounts. Aviation is a strong example of this strategy at work. Across 450 airlines, iPad is overwhelmingly the preferred solution for the pilot's electronic flight bag. We've been making great progress expanding Apple's footprint beyond the cockpit into the cabin, where more than half of the top 50 airlines have now implemented iOS enhance the guest experience as well as enable a new use case with mobile point of sale. We're also seeing traction with other mission-critical airline functions in ground operations and flight maintenance. For example, one of the largest airlines in the world tells us that the adoption of iPad has cut maintenance delays in half. Apple services are also making their way onboard, including growing adoption of Apple Pay for food and beverage purchases and in-flight access to Apple Music. We're also seeing significant iOS traction with large enterprise platforms which are the face of complex backend systems to tens of millions of employees around the world. The end-user employee experience is vital to engagement and productivity and with the increasing mobility of today's modern workforce, those experiences are best on native iOS applications. We see great momentum through the growing number of iOS SDKs being delivered by the world's largest enterprise platforms. For instance, SAP's SDK for iOS continues to gain strong traction with their customers, growing by more than 40% in the last six months. And this past quarter, Salesforce released its SDK enabling developers to build native iOS applications directly on top of the Salesforce platform.

And finally, our enterprise channels continue to build momentum. In February, our Apple at Work initiative was launched with AT&T. This extension to our ongoing collaboration with AT&T will make it easy for more customers to choose the best Apple products for their needs in the enterprise and modernize their business. AT&T will enable business services for Apple products to help companies with their I.T. strategy including device management, security, productivity, and collaboration.

Let me now turn to our cash position. We ended out the quarter with $225 billion in cash plus marketable securities. We also had $101 billion in term debt and $12 billion in commercial paper outstanding for a net cash position of almost $113 billion. As a result, we're in a very strong position that allows us to invest confidently in all areas of the business while continuing to return value to our shareholders. Just last year we announced a commitment to contribute more than $350 billion to the US economy over the next five years, including the creation of 20,000 jobs. More recently we've announced a major expansion in Austin, Texas and in other cities across the country. All these efforts are essential investments to make sure that we're incorporating innovative ideas and top talent wherever they emerge. As we execute those initiatives, we were also able to return over $27 billion to investors during the March quarter. We began a $12 billion accelerated share repurchase program in February, resulting in the initial delivery and retirement of 55.1 million shares. We also repurchased 71.7 million Apple shares for $12 billion through open market transactions and we paid $3.4 billion in dividends and equivalents. Our priorities for cash have not changed over the years. Most importantly, we always want to maintain the cash we need to run our business, maintain strategic flexibility, and invest in our future. We're well on our way towards meeting the investment projections we laid out early last year. We also want to work towards a more optimal capital structure and as we said before, it is our plan to reach a net cash neutral position over time. Given our confidence in Apple's future and the value we see in our stock, our board has authorized an additional $75 billion for share repurchases. And because we know many of our investors value income, we are also raising our quarterly dividend for the seventh time in less than seven years to 77¢, an increase of about 5% from the previous amount. We've paid over $14 billion in dividends and equivalents over the last four quarters alone, making us one of the largest dividend payers in the world. Going forward, we continue to plan for annual increases in dividends per share. As we move ahead into the June quarter, I'd like to review our outlook which includes the types of forward-looking information that Nancy referred to at the beginning of the call. We expect revenue to be between $52.5 and $54.5 billion. This guidance range comprehends 300 basis points of negative foreign exchange impact year over year. Also, as a reminder, in the June quarter last year our services revenue included a favorable 236 million one-time item in connection with the final resolution of various lawsuits. We expect gross margin to be between 37% and 38%. We expect OpEx to be between $8.7 and $8.8 billion. We expect OINE to be about $250 million. And we expect the tax rate to be about 16.5%. Also reflecting the approved increase, today our board of directors has declared a cash dividend of 77¢ per share of common stock, payable on May 16, 2019, to shareholders of record as of May 13, 2019. With that, I'd like to open the call to questions.

Analyst questions

Shannon Cross, Cross Research: Thank you very much for taking my question. Tim, can you talk a bit more about what you're seeing in China? Clearly it looks like things are improving sequentially. You also mentioned that the last few weeks of the quarter were stabilizing in emerging markets, I believe. So what are customers saying there, what are your partners saying in China? And then have a follow up.

Tim Cook

Thanks for the question Shannon. We're seeing, in the iPhone space, we saw a better year over year performance in the last weeks of the quarter as compared to the full quarter or November and December which was sort of appears to be the trough. I think there's a set of reasons for this: One, we made some price adjustments — essentially backing out the weaker currency effect and then some; there's stimulus programs that the government has executed, including — and this happened in early April — VAT being reduced from 16% to 13%. So they've been aggressive in the stimulus side; three, our trade in and financing programs that we implemented in our retail stores have been very well received there. And I'm happy with the results to date there; and then four, there is an improved trade dialogue between the US and China and from our point of view this has affected consumer confidence on the ground there in a positive way. And so I think it's a set of all of these things and we certainly feel a lot better than we did 90 days ago.

Great, thank you. And then I'm sure you're probably expecting a question on the Qualcomm settlement. So, what would you like to say on the settlement? How are you thinking about, you know, your component providers going forward and how should we think about this with regard to, I don't know, your development plans in the future (because I'm sure you're not going to talk about when you're gonna do 5G but clearly it helps that path)? Thank you.

Tim Cook

Yeah, thank you, Shannon. We're glad to put the litigation behind us and all the litigation around the world has been dismissed and it's settled. We're very happy to have a multi-year supply agreement and we're happy that we have a direct license arrangement with Qualcomm which was, I know, important for both companies. And so we feel good about the resolution.

Katy Huberty, Morgan Stanley: Thank you. Luca, if I look back over the past five years, June quarter revenue typically declines about 15% from the March quarter — you're guiding to an 8% drop this year. Can you just talk about which regions or product segments you think can outperform that typical seasonality?

Luca Maestri

Yes Katie, and keep in mind, by the way, we are reporting this guidance including a 300 basis point negative impact from foreign exchange, so actually in constant currency the numbers would be even stronger. At the at the product category level we expect that we will continue to have strong revenue growth from the non-iPhone categories as we've had for the first half of our fiscal year. We're also expecting a relative improvement in our iPhone performance on a year over year basis in Q3 versus the first half. As Tim said, March was the strongest month of the quarter on a year over year basis and so this has given the confidence to provide the guidance that you've seen. Geographically, of course you know as you've seen from our results, for the March quarter China is the geo where we have found some challenges but we believe that trajectory should improve over time.

Thank you. And then just as a follow up, as Shannon said, you're not going to talk specifics around the timing of the 5G phone but Tim, maybe you can talk about how the company approaches a new technology like this given the higher costs but also potentially significant benefit — how you think about the right timing for coming to market with a product with those characteristics and then just generally how meaningful you think 5G is as a demand driver for upgrades in your iPhone installed base. Thank you.

Tim Cook

Katy, this is one that I'm going to largely punt on as you would probably guess. We look at a lot of things on different technologies and try to look at and select the right time that things come together and get those into products as soon as we can. And certainly from a cost point of view, the technologies have had cost pressure over the last couple of years or so, but on the flip side of that, there's a number of things in the commodity markets going in the other direction at the moment like DRAM and NAND. And so it's difficult to project what happens next, but it's the it's the aggregate of all of it that that really matters from a price point of view.

Wamsi Mohan, Bank of America Merrill Lynch: Yes, thank you. Tim, you shared a lot of color around trade-ins but I was also hoping maybe you can characterize what sort of dynamics you're seeing across your installed base on these trade-ins. What type of devices are being traded in? Is the profile of someone who has a really old iPhone or are you seeing folks that have newer iPhones trading in? And what sort of incentives are you providing beyond sort of the financing to drive that? And do you see this as something that can accelerate replacement cycles here over the next year or so? And I have a follow up.

Tim Cook

Actually the product that's being traded in is all over the place, to be honest. It's 6, 6 Plus, 6s, 6s Plus, 7, 7 Plus, and then fewer 8 and 8 Plus but there's some of each of those and so you get customers that are on the two-year cycle, and some customers on a one-year cycle, and then customers, as well, on the three- and four-year cycles. And so it's really all over the place. In terms of the incentives, we're offering currently in our retail stores a trade-in value that is more than sort of the blue book of the device, if you will for lack of a better description, and so we have topped those up to provide an extra benefit to the user. The installments are different in each geography. I would say that at the moment the geography that is doing the best in installments would be China. And we have a bit of a unique offering there, I think, versus what you can get in the regular market and so that probably further helps us there. And so you can bet that we're learning on each of these finding the parts that the user likes the most. I think the key is we're trying to build something into the consumer mindset that it's good for the environment and good for them to trade in their current device on a new device and we do our best at getting the current device to someone else that can use that or, in some cases, if the product is at an end of life we are recycling the parts on it to make sure that it can carry on in another form.

Thanks for the color, Tim. And as my follow up, Luca, can you just clarify if the settlement with Qualcomm is creating either a headwind or tailwind to gross margins in the near term? And does your guidance contemplate incremental pricing actions that could be creating some gross margin headwinds? Thank you.

Luca Maestri

As Tim has explained, we've reached this comprehensive agreement with Qualcomm. As part of this, we have agreed that we're not going to share the financial terms of the agreement. So we plan to honor that. What you see in our gross margin guidance for the June quarter, we guided 37% to 38%, fully comprehends the outcome of the agreement with Qualcomm.

Mike Olson, Piper Jaffray: Thanks for taking my question. So you have more than 1.4 billion active devices and at your event you announced services that leverage that installed base and you have, obviously, a remarkable position with kind of this Trojan horse of devices out in so many households. So I guess the question is — and I know some of these services aren't even live yet — but should we expect a continuation of the building out of new services categories like what we saw at the March event? Is there a pipeline of new services in the works, or have we kind of seen what we're likely to see on that front for the near to intermediate term? And then I have a follow up.

Tim Cook

Yeah I would want to get into announcing things on the call, but obviously we're always working on new things. But right now we're really focused on getting these four out there — we have the News+ in the market today, we'll have the Apple Arcade and the Apple TV+ products in the market in the fall, and Apple Card will go out in the summer timeframe — and so we've got lots in front of us and we're very excited about getting these out there.

All right and then you mentioned the App Store search ad business a couple of times in the prepared remarks. Is that reaching a point where it's become material and maybe moving the needle for overall services revenue, or is there anything you can quantify related to that? I also imagine that this is a high-margin business — at least maybe higher than the overall services margin — but wondering if you can confirm if that's the case or not? Thanks.

Tim Cook

It's growing very, very fast Mike. I think it was up around 70% over the previous year. We are expanding into new geographies, as well, and we still have more geographies out there that we think can move the dial further so it is definitely a business that is big and getting bigger.

Louis Miscioscia, Daiwa Capital Markets: Thank you for taking my question. Tim, when you look at the four things that you have announced — and I realize they have different dates when they're coming out — but which ones would you say over the next 12 months has the most potential to help your services line? And then maybe which one has the best long-term potential? And then I have a quick follow up.

Tim Cook

We're going to wait 'til we get these things out and what I can tell you right now is that we're taking sort of consumer interest on the Apple Card, and there's been a significant level of interest on that, and we're excited, as you know, gaming is the top category on the App Store and so the Apple Arcade will serve some of that market and it serves it with a different kind of game, which we think will be great for developers and great for users. The TV+ product plays in a market where there's a huge move from the cable bundle to over-the-top. We think that most users are going to get multiple over-the-top products and we're going to do our best to convince them that the Apple TV+ product should be one of them. And then we're working very hard to try to get everyone to give Apple News+ a look because we think it's a very unique product and I love magazines and we have really wanted to support the publishers. And so we're working very hard, but at the very beginning of the ramp there. We wouldn't do a service if we didn't think they'd be meaningful, so that's sort of the way I look at it. Yeah, these aren't hobbies.

OK, I have a quick follow up on India — obviously market share there is well, well below China. I believe you're looking to start manufacturing there. But what's the — obviously the potential could be huge — but the market already seems to be pretty dominated on the Android side so maybe you could just talk about trying to really aggressively ramp up share there? Thank you.

Tim Cook

I think India is a very important market in the long term. It's a challenging market in the short term but we're learning a lot. We have started manufacturing there which is very important to be able to serve the market in a reasonable way. And we're growing that capability there and we would like to place retail stores there and we were working with the government to seek approval to do that and so we plan on going in there with sort of all of our might. We've opened a developer accelerator there which we're very happy with some of the things coming out of there. It's a long term play. It's not something that's going to be an overnight huge business. But I think the growth potential is phenomenal and it doesn't bother me that it's primarily an Android business at the moment because that just means there's a lot of opportunities there.

Apple has just announced its financial results for Q2 2019, covering the period between January 1 and March 31, 2019. The company posted quarterly revenue of $58 billion, with services revenue hitting an all-time high of $11.5 billion.

Press release:

Apple Reports Second Quarter Results

Services Revenue Reaches New All-Time High of $11.5 Billion

April 30, 2019 04:30 PM Eastern Daylight Time

Cupertino, California — April 30, 2019 — Apple today announced financial results for its fiscal 2019 second quarter ended March 30, 2019. The Company posted quarterly revenue of $58 billion, a decline of 5 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.46, down 10 percent. International sales accounted for 61 percent of the quarter's revenue.

"Our March quarter results show the continued strength of our installed base of over 1.4 billion active devices, as we set an all-time record for Services, and the strong momentum of our Wearables, Home and Accessories category, which set a new March quarter record," said Tim Cook, Apple's CEO. "We delivered our strongest iPad growth in six years, and we are as excited as ever about our pipeline of innovative hardware, software and services. We're looking forward to sharing more with developers and customers at Apple's 30th annual Worldwide Developers Conference in June."

"We generated operating cash flow of $11.2 billion in the March quarter and continued to make significant investments in all areas of our business," said Luca Maestri, Apple's CFO. "We also returned over $27 billion to shareholders through share repurchases and dividends. Given our confidence in Apple's future and the value we see in our stock, our Board has authorized an additional $75 billion for share repurchases. We are also raising our quarterly dividend for the seventh time in less than seven years."

Reflecting the approved increase, Apple's board of directors has declared a cash dividend of $0.77 per share of the Company's common stock, an increase of 5 percent. The dividend is payable on May 16, 2019 to shareholders of record as of the close of business on May 13, 2019.

The management team and the Board will continue to review each element of the capital return program regularly and plan to provide an update on the program on an annual basis.

Apple is providing the following guidance for its fiscal 2019 third quarter:

• revenue between $52.5 billion and $54.5 billion
• gross margin between 37 percent and 38 percent
• operating expenses between $8.7 billion and $8.8 billion
• other income/(expense) of $250 million
• tax rate of approximately 16.5 percent

Apple will provide live streaming of its Q2 2019 financial results conference call beginning at 2:00 p.m. PDT on April 30, 2019 at www.apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

Apple periodically provides information for investors on its corporate website, apple.com, and its investors relations website, investor.apple.com. This includes press releases and other information about financial performance, reports filed or furnished with the SEC, information on corporate governance and details related to its annual meeting of shareholders.

Siri can't be your financial advisor or broker – yet! – but Siri can look up stock prices and exchange positions for you. Whether you want to find out what's happening with APPL or GOOG, or if the DOW or NASDAQ is up or down, Siri's got you covered!

• How to check individual stocks with Siri
• How to check stock exchanges with Siri

How to check on individual stocks with Siri

1. Press and hold the Side button (iPhone X and newer) or Home button (iPhone 8 and older), or say "Hey, Siri" to launch Siri.
2. Say something like "What is Apple's stock at today?" or "Show me stock information for Google." Siri will then show you an overview of the particular stock you asked about.
3. Tap the stock widget to be taken to the built-in Stocks app for more information on that specific stock.

How to check stock exchanges with Siri

Besides giving you information on different stocks, you can also ask Siri for information on an entire exchange, including NASDAQ, NYSE, FTSE, Nikkei, or others.

1. Press and hold the Side button (iPhone X and newer) or Home button (iPhone 8 and older), or say "Hey, Siri" to launch Siri.
2. Ask Siri about the exchange you'd like information for by saying something like "What is the New York Stock Exchange's current position?" or "How did NASDAQ close?" Siri will then present you with information about that specific exchange.
3. If you want more information, tap on the stock widget and Siri will automatically launch the built-in Stocks app.

Updated April 2019: Added new images, updated instructions to reflect changes in more recent iPhones.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q1 2019 earnings call. Here's our ongoing live transcript of their remarks! If you want more info on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Thank you, Nancy and thanks to everyone for joining us today. This isn't the first time you've heard from us regarding the December quarter so the first thing I want to do is provide some final results and connect those back to the letter we shared at the beginning of the month.

As you know, our December quarter revenue was below our original expectations coming in at $84.3 billion. That's down 5% from a year ago or down 3% adjusting for foreign exchange. We noted four factors that would impact our results when we provided guidance in November: different iPhone launch timing from a year ago, FX headwinds, supply constraints on certain products, and macroeconomic conditions in emerging markets. One of those factors, weak macro conditions in some emerging markets, was significantly more severe than we originally foresaw, especially in Greater China. As our letter noted, that challenge was compounded by quarterly iPhone upgrades that were lower than we anticipated. We'll returned to upgrades in a moment, but I first want to say a bit more about our business in Greater China. Our revenue there was down by $4.8 billion from last year with declines across iPhone, Mac, and iPad. Most of the shortfall relative to our original guidance and over 100% of our worldwide, year over year revenue decline was driven by our performance in Greater China. Despite iPhone upgrades being lower than we anticipated, our business grew outside of China including new records in the Americas, Western Europe, Central and Eastern Europe, and our rest of Asia Pacific segment. We had record performance in large markets including the United States, Canada, Mexico, Germany, Italy, Spain, and Korea.

In the letter we shared earlier this month, we said we are proud to participate in the Chinese marketplace and that we believe our business has a bright future there over time. But I think some of that got lost. So I want to share a bit more detail on the positives we see in China. We generated record December quarter services revenue in Greater China fueled by an amazing ecosystem with over 2.5 million registered iOS developers. We saw very strong results from our wearables business there with revenues up over 50%. We also continued to grow our total active installed base by adding new customers. In fact, more than two thirds of all customers in China who bought a Mac or an iPad during the December quarter were purchasing that product for the first time. Finally, for perspective, despite the challenging December quarter our revenue from China grew slightly for the full calendar year. Macroeconomic factors will come and go, but we see great upside in continuing to focus on the things that we can control.

Returning to iPhone, I'd like to talk about our results in the context of those lower than expected upgrades. iPhone XR, iPhone XS, and iPhone XS Max are by far the best iPhones we've ever shipped. They share advanced technologies, including the A12 Bionic, the most powerful chip ever in a smartphone with our next generation neural engine, capable of 5 trillion operations per second. These are also completely modern iPhones with stunning, large full screen displays and Face ID, the most secure authentication of any kind available in a smartphone. And the cameras are simply amazing with Portrait Mode and Depth Control to allow users to create studio-quality photos as well as stunning 4K video, opening a whole new era of photography. We couldn't be more proud of our iPhone lineup and our industry-leading customer satisfaction. We wouldn't change our position for anyone's. Now, our customers are holding on to their older iPhones a bit longer than in the past. When you paired this with the macroeconomic factors, particularly in emerging markets, it resulted in iPhone revenue that was down 15% from last year. Our iPhone results accounted for significantly more than our entire year over year revenue decline. In fact, outside of iPhone our business grew strongly by 19%. So what's behind this? It's important to understand what's going on from the customer perspective at the point of purchase. We believe that is the sum of several factors. First, foreign exchange: The relative strength of the U.S. dollar has made our products more expensive in many parts of the world. In Turkey, for example, the lira depreciated by 33% over the course of calendar 2018 and in the December quarter our revenue there was down by almost $700 million from the previous year. Second, subsidies: For various reasons, iPhone subsidies are becoming increasingly less common. In Japan, for example, iPhone purchases were traditionally subsidized by carriers and bundled with service contracts. Competitive promotional activity frequently increased the amount of subsidy during key periods. Today, local regulations have significantly restricted those subsidies as well as related competition. As a result, we estimate that less than half of iPhones sold in Japan in Q1 of this year were subsidized compared to about three quarters a year ago and that the total value of those subsidies have come down as well. Third, our battery replacement program. For millions of customers, we made it inexpensive and efficient to replace the battery and hold onto their existing iPhones a bit longer. Some people have suggested that we shouldn't have done this because of the potential impact on upgrades, but we strongly believe it was the right thing to do for our customers.

What's very important, however, is that — in spite of these factors — our total active installed base of devices has grown from 1.3 billion at the end of January 2018 to 1.4 billion by the end of December, reaching a new all-time high for each of the main product categories and for all five of our geographic segments.

Not only is our large and growing installed base a powerful testament to the satisfaction and loyalty of our customers but it's also fueling our fast growing services business. In fact, services revenue set an all-time record of $10.9 billion in the December quarter, growing 19%. We not only generated our highest global services revenue ever, but we also had all-time records across multiple categories of services including the App Store, Apple Pay, cloud services, and our App Store search ad business. And we had a December quarter record for AppleCare. And I'm very proud to say that nearly 16 years after launching the iTunes Store, we generated our highest quarterly music revenue ever thanks to the great popularity of Apple Music — now with over 50 million paid subscribers. The App Store wrapped up its best year ever, with record holiday period results propelled by the biggest Christmas Day and Christmas week ever. Customers also spent over $322 million on New Year's Day alone, setting a new single-day record for both the number of customers and purchase volume. It was also a great holiday season for Apple Pay, with over 1.8 billion transactions in the quarter, well over twice the volume of the year ago quarter. Merchant adoption continues to reach new milestones. Customers can now use Apple Pay with iPhone and Apple Watch at nearly 3,000 Speedway locations, while all Target, Taco Bell, and Jack in the Box stores will be accepting Apple Pay soon. We launched Apple Pay in three new countries in the December quarter — Germany, Belgium, and Kazakhstan — and it's now live in 27 markets around the world. The roll out in Germany has been a huge success, with Deutsche Bank reporting more activations for Apple Pay in one week than for Android in an entire year. This is yet another example of what's possible when you bring together Apple's world-class hardware, software, and ecosystem with our engaged and active user base. Shoppers around the world love Apple Pay and it has increasingly become an indispensable part of daily life. Revenue from cloud services continues to grow rapidly, with year over year revenue up over 40% in the December quarter. And readership of Apple News set a new record with over 85 million monthly active users in the three countries where we've launched, the United States, the UK, and Australia. Here in the U.S., the latest data from ComScore shows that Apple News has the largest audience of all news apps and the international audience will continue to grow with our first ever bilingual launch in Canada, available to customers later this quarter.

In summary, we're very happy not only with the growth but also the breadth of our services portfolio. Our revenue from services has grown from less than $8 billion in calendar 2010 to over $41 billion in calendar 2018. The largest category represents less than 30% of total services revenue and the new services we've launched in the last few years are all experiencing tremendous growth.

We had our best quarter ever for Mac revenue which was up 9% fueled by our new MacBook Air and Mac Mini introduced in October. The MacBook Air includes a beautiful new Retina Display, Touch ID, and Force Touch trackpad, while the new Mac Mini provides a powerful, flexible solution for everything from home automation to giant render farms.

iPad revenue was up 17%, its highest growth rate in almost six years. Powered by the new iPad Pro released in November with its edge to edge Liquid Retina Display, Face ID, and A12X Bionic chip, the new iPad Pro has been described by reviewers as a tablet with no equal and the most powerful mobile device ever made.

We also had our best quarter ever for wearables, home, and accessories with 33% growth in total and almost 50% growth from wearables, thanks to strong sales of both Apple Watch and AirPods.

We don't measure our success in 90-day increments. We manage Apple for the long term and when we consider the keys to our success over time there are three that stand out: our highly satisfied and loyal customers, our large and growing active installed base, and at the heart of it all our deeply ingrained culture of innovation. Thanks to all this, our ecosystem is stronger than ever before. We have an amazingly talented team creating hardware, software, and services optimizing each of them to create an unparalleled user experience. Apple Watch is a powerful example of that. It's humbling to read e-mails from customers around the world telling us how Apple Watch has dramatically changed their lives by motivating them to be more fit and active, by alerting them to potentially serious health conditions such as A-Fib, and by helping them in times of crisis with features like Fall Detection and Emergency SOS. We believe we are just beginning to see the impact we can make to improving health and are deeply inspired by the possibilities. Another example is the work we're doing with silicon. We've embedded machine learning directly into the silicon with our A12 Bionic chip. Our custom neural engine not only provides power efficiency and incredible performance in a very small package, but it also enables processing of data and transactions directly on the device. This means iPhone can recognize patterns, make predictions, and learn from experience and it does all this while keeping personal information private. This is a powerful example of how innovation and privacy can go hand in hand at a time when these issues are increasingly important to our users.

We are undertaking and accelerating a number of initiatives to improve our results. It's not in our DNA to just stand around and wait for macroeconomic conditions to improve. One such initiative is making it simple to trade in an iPhone in our stores and raising awareness of this opportunity. Because of the quality and durability of iPhones, they maintain significant residual value making trade ins a great opportunity. It's not only great for the environment, it's great for the customer, as their existing phone acts as a subsidy for their new phone and it's great for developers, as a phone that is traded in and redistributed can help grow our active installed base. Beginning last week, we started making it easier for people to pay for their phones over time with installment payments and we're working on rolling out this program to more geographies as soon as we can. We are as confident as ever in the fundamental strength of our business and we have a very strong pipeline of products and services with some exciting announcements coming later this year. Apple innovates like no other company on Earth and we are not taking our foot off the gas. We'll continue to invest through near-term headwinds just as we always have and will emerge stronger as a result. Now for more details on our December quarter results I'd like to turn the call over to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon everyone. As Tim said, revenue for the December quarter was $84.3 billion. This result was below our expectations but we were able to set new all time revenue records in the U.S., Canada, Latin America, Western Europe, Central and Eastern Europe, and Korea. Results were especially strong in the U.S. where revenue was up by more than $1.5 billion compared to a year ago and in several markets where revenue grew by double digits including, among others, Germany, Spain, Poland, Mexico, Malaysia, and Vietnam. Looking at product categories iPhone revenue declined 15% from a year ago where revenue from the rest of our business grew 19%, an all time record, including our best results ever for services, for wearables, and for Mac. Company gross margin was 38%. This quarter for the first time we're making an important new disclosure to our investors, as we believe it will foster a better understanding of our business. We are now reporting, on a quarterly basis, gross margin for products in aggregate and for services in aggregate. Products gross margin was 34.3% and services gross margin was 62.8%. On a sequential basis, products gross margin increased 60 basis points due to positive leverage from the holiday quarter partially offset by higher cost structures as we launched several new products and by headwinds from foreign exchange. Services gross margin also increased 170 basis points sequentially due to favorable mix and leverage partially offset by foreign exchange. While both products and services gross margins improved sequentially, total company gross margin was down 30 basis points due to a different mix between products and services. Net income was $20 billion, about flat to last year, and diluted earnings per share with an all time record at $4.18 an increase of 7.5% over last year. Operating cash flow was also very strong at $26.7 billion.

Let me provide more color for the various products categories. iPhone revenue was $52 billion. On a geographic basis most of the decline from last year came from Greater China and other emerging markets where difficult macro and foreign exchange conditions affected our results. We also believe that the reduction of carrier subsidies and our battery replacement program had an impact in a number of countries around the world. And as Tim mentioned we had a lower number of upgrades than we had anticipated at the beginning of the quarter. However, our global active installed base of iPhones continues to grow and has reached an all time high at the end of December. We are disclosing that number now for the first time and it has surpassed 900 million devices up year over year in each of our five geographic segments and growing almost 75 million in the last 12 months alone. We plan to provide information on the iPhone installed base as well as total installed base on a periodic basis. Customer satisfaction and loyalty for iPhone continue to be outstanding and are the highest in the industry. The latest survey of U.S. consumers from 451 Research indicates customer satisfaction of 99 percent for iPhone XR, XS, and XS Max combined. And among business buyers who plan to purchase smartphones in the March quarter, 81% plan to purchase iPhones. Based on the latest information from Kantar. iPhone experience a 90% customer loyalty rating for iPhone customers in the U.S., 23 points above the next highest brand measured. Turning to services, it was our best quarter ever with revenue of $10.9 billion, up 19% year over year with new December quarter records in all five of our geographic segments. Many services categories set new all time revenue records and we are on track to achieve our goal of doubling our fiscal 2016 services revenue by 2020. To be clear, and as we have already explained 90 days ago, our 2020 goal remains unchanged and it excludes the impact of the revenue reclassification between products and services we recorded in connection with ASC606, the new revenue recognition accounting standard, that we adopted at the beginning of fiscal '19. The level of engagement of our customers in our ecosystem continues to grow. The number of transacting accounts on our digital stores reached a new all time high during the quarter with the number of paid accounts growing by strong double digits over last year. And we now have over 360 million paid subscriptions across our services portfolio, an increase of 120 million versus a year ago. Given the continued strength and momentum in this part of the business, we now expect the number of paid subscriptions to surpass half a billion in 2020. Our subscription business has become very large and diversified covering many different categories from entertainment, to health and fitness, to lifestyle. In fact, more than 30,000 third-party subscription apps are available today on the App Store and the largest of them accounts for only 0.3% of our total services revenue. Next I'd like to talk about the Mac. We saw great response to the new MacBook Air and Mac Mini that we introduced in October which helped drive a 9% increase in Mac revenue over last year to a new all time record. Mac revenue was up in the vast majority of countries we track, with double digit growth in many large markets, such as the U.S., Western Europe, Central and Eastern Europe, Japan, Korea, and South Asia. Our active installed base of Macs reached a new all time high and half of all the customers purchasing Macs in the December quarter were new to Mac. We also have great results for iPad. With revenue up 17% percent from a year ago and strong performance of both iPad and iPad Pro and generated double digit growth in four of our five geographic segments. Similar to the Mac, our installed base of IPads reached a new all time high and among customers purchasing iPad during the quarter, half were new to iPad. The most recent consumer survey from 451 Research measured a 94% customer satisfaction rating for iPad overall with iPad Pro models scoring as high as 100%. Among business customers who plan to purchase tablets in the March quarter 68% plan to purchase iPads. Wearables, home, and accessories revenue grew 33% to an all time record in each of our geographic segments. Revenue from this category was up over $1.8 billion compared to a year ago thanks to the amazing popularity of Apple Watch and AirPods, both of which were supply constrained as we exited the quarter. Based on revenue over the past four quarters our wearables business is approaching the size of a Fortune 200 company. Our retail and online stores generated strong results from Mac and iPad and all time record performance from services and from wearables. Following the launch of the new iPhone trade-in campaign, our stores more than doubled the volume of iPhones traded in compared to last year reaching an all time high in Q1. We added Thailand to our footprint with a beautiful store in Bangkok and we opened a stunning new store in Champs-Élysées in Paris exiting the quarter with 506 physical stores in 22 countries.

In enterprise across multiple industries our technology continues to enable businesses to do their best work. In healthcare iPhones and iOS apps continue to streamline and support clinical workflows, communications, and care delivery across leading health systems including Johns Hopkins Medicine, Massachusetts General Hospital, Stanford Healthcare, and St. Jude Children's Research Hospital. In manufacturing, SKF, the world's largest producers of bearings and seals, has transformed their manufacturing processes on iOS and iPhone with incredible success. With custom iOS apps available to production operators across their worldwide locations, SKF has reduced production errors from 20% to zero while saving 70% in system-related time. Apple technology has made possible a simplified user experience integrating the SAP cloud platform yielding better accuracy, efficiency, and employee experiences across the board. We're also seeing great innovation in the construction industry with iPad and new third party apps made for iOS. For instance, Procore Technologies has introduced an app to help decrease building errors on the job site by using Metal in split view with the iPad camera, construction workers can compare building plans and 3D models to what is actually being built in real time. This new iOS app reduces wasted raw materials and helps keep building projects on time and on budget.

Let me now turn to our cash position. We ended the quarter with $245 billion in cash plus marketable securities. We also had $102.8 billion in term debt and $12 billion in commercial paper outstanding for a net cash position of $130 billion. As we explained in the past, it is our plan to reach a net cash neutral position over time. As part of this plan we returned over $13 billion to our investors during the December quarter. We repurchased 38 million Apple shares for $8.2 billion through open market transactions and we paid $3.6 billion in dividends and equivalents. Consistent with our historical cadence, we plan to provide an update on our overall capital return program when we report our March quarter results. As we move ahead into the March quarter I'd like to review our outlook which includes the types of forward looking information that Nancy referred to at the beginning of the call. We expect revenue to be between $55 and $59 billion. This range reflects a negative year over year impact of $1.3 billion from foreign exchange which represents about 210 basis points of last year's revenue and a more uncertain macroeconomic environment than a year ago, especially in emerging markets. We expect gross margin to be between 37% and 38%. On a sequential basis this range reflects seasonal loss of leverage and a 60 basis point unfavorable impact from foreign exchange partially offset by commodity cost savings. We expect OpEx to be between $8.5 and $8.6 billion. We expect OINE to be about $300 million. And we expect the tax rate to be about 17%. Also today our Board of Directors has declared a cash dividend of 73 cents per share of common stock, payable on February 14, 2019 to shareholders of record as of February 11, 2019.

With that, I'd like to open the call to questions.

Analyst questions

Katy Huberty, Morgan Stanley: Good afternoon. Services growth did decelerate from the growth rates in recent quarters, so can you talk about the factors that played into that slower growth? And then appreciate the new disclosure around paid subscribers, but if you compare what you added in 2018 versus what you expect to add over the next two years, that implies a slowdown in annual net new subscriber. So should we be thinking about services as a lower growth segment than what you experienced in 2018? And then I have a follow up.

Luca Maestri

Katie, let me take that one. First of all when we talk about the services business, it is very important to start from the momentum that we have. As you know we have set an ambitious target for ourselves to double the size of our business from fiscal '16 to 2020 which implied at the time a 19% […]. So far we've been able to grow above 20% — in fiscal '18 we grew 22%, so we are on track to achieve our objective and it's important to understand what is driving the growth of the business. First of all is our installed base. As we just told you the installed base continues to grow very nicely. It has reached 1.4 billion active devices at the end of December and really very little of our services revenue is driven by what we sell in the last 90 days. The second factor for the growth of the services business is that within this installed base the percentage of users who are paying for at least one service is growing very strongly. This is due to several factors. First of all we are offering more and more services. During the last few years as you know we've launched Apple Music, Apple Pay, an advertising service for our developers on the App Store. All these businesses are growing very strongly. Second, we are making it easier for our customers to transact on our digital stores. We accept many more payment methods today which are very common in certain countries around the world. We've also increased our distribution coverage for many of these services. We're bringing AppleCare to more points of sale around the world. We're launching Apple Pay in more and more markets and so on. Thirdly, as you mention our subscriptions are becoming a very large portion of our business and they're growing very well above services average. And the fact that we are saying that we will surpass half a billion during 2020, we're not putting a specific date during 2020, but I think you've seen over recent quarters that we've been adding about a 120 million on a year over year basis for a number of quarters now and this is an incredible staggering number, right, when you think about it. We're also broadening the scope of many of these services. If you take Apple Pay as an example it started off as the most convenient, most private, and most secure way to make a payment in a store or in an app. Then we took Apple Pay to Safari, then we started a peer to peer service, and we are launching it in new markets across the world every quarter so we are broadening that scope. And, of course, similar to what we've done in the past, in the last three years we launched several new services, we're also looking to launch new services going forward that we believe will provide great value to our users and we really are very excited about the opportunities that we see in front of us. I think you're referring to the deceleration in the growth rate that we've seen in the December quarter. And I think you're referring back to the growth that we reported in September. I think an important point I need to make and I think it's helpful that you asked the question is that a portion of this deceleration is truly just a reclassification of the amortization of free services that we've made in connection with the adoption of the new revenue recognition standard. And as we explained 90 days ago, this amortization of free services in the past was reported and the products and now gets reported and the services. The reclassification is actually dilutive to our growth rate because the amortization of free services is a relatively stable number which gets applied to a growing base. So this reclassification reduces our growth rate versus the previous classification. This factor by itself represents roughly one-third of the deceleration that you've seen. We talked about 27% growth in the September quarter — with the reclassification, that growth rate was about 24.5%. So that explains about a third of that deceleration. There are I would say three factors that explain this difference between the 24.5% to the 19%. The first one is that foreign exchange plays a role — roughly 60% of our services business is outside the United States. And, as you know, the US dollar has appreciated in recent months. And in general we tend not to reprice our services for foreign exchange on a very frequent basis. The second factor is a well-known issue around the App Store in China. The App Store in China is a large business for us. We believe this issue around the approval of new game titles is temporary in nature but clearly is affecting our business right now. And then thirdly we are seeing some level of deceleration in AppleCare which has had very, very strong growth during fiscal '18. Where we are starting to lap some of the increase in distribution coverage that we put in place recently and the channel fill of Apple components that happened when we increased the distribution coverage. But in general we are very, very pleased with 19% growth and we think that the business will continue to grow nicely going forward.

Thank you for that color. Just a quick follow up, Luca — share repurchases in the December quarter were well below the run rate from the June and September quarters. How much did a weaker quarter play into your ability to carry out the buyback at the same level? And what should we think about as the right run rate going forward?

Luca Maestri

Well, we've always said that we're very committed to executing our program. We have done almost $250 billion dollars of repurchases from the beginning of the program, but we've also said that we want to execute the program in an efficient, effective, I would say disciplined manner and that takes into account also overall market conditions. So that's what we did during the course of the December quarter. Our fundamental view remains the same. We are optimistic about our future and we think there is great value in our stock. And so we will continue to execute the program. We will continue to report at the end of every quarter and, by the way, when we report our March quarter results we will also talk about the next step in our capital return program which is something that we do traditionally in the spring.

Steve Milunovich, Wolfe Research: Thank you very much. Some have the perception that you priced the new products — the new iPhones — too high. What have you learned about price elasticity? And do you feel that, perhaps, you pushed the envelope a little bit too far and might have to bring that down in the future?

Tim Cook

Steve, it's Tim. If you look at what we did this past year, we priced the iPhone XS in the U.S. the same as we'd priced the iPhone X a year ago. The iPhone XS Max, which was new, was $100 more than the XS. And then we priced the XR right in the middle of where the entry iPhone 8 and entry iPhone 8 Plus have been priced. So that's actually a pretty small difference in the United States compared to last year. However, the foreign exchange issue that Luca spoke of in the call made that difference or amplified that difference in international markets in particular the emerging markets which tended to move much more significantly versus the dollar. And so what we have done in January and in some locations and some products is essentially absorb part or all of the foreign currency move as compared to last year and therefore get close or perhaps right on the local price from a year ago. So yes, I do think the price is a factor. I think part of it is that the effects piece and then secondly, in some markets, as I had talked about in my prepared remarks, the subsidy is probably the bigger of the issues in the developed markets. I had mentioned Japan but also even in this country even though the subsidy has gone away for a period of time, if you're a customer that your last purchase was a 6s, or 6, or in some cases even a 7, you may have paid $199 for it and now in the unbundled world it's obviously much more than that. And so we are working through those and we've got a number of actions to address that including the trade in and the installment payments which I had mentioned as well.

I know that you're not giving units going forward but you said you might make qualitative comments. I was wonder if you have a comment particularly on the ASP on a year over year basis.

Luca Maestri

Well, Steve, we did mention on the call last quarter that the different timing of our phone launches would affect the year over year compares. If you remember, our top models the XS and XS Max shipped during the September quarter which placed the channel fill and the initial sales in that quarter, while last year the iPhone X shipped in Q1 in the December quarter placing the channel fill and initial sales in the December quarter. So we knew that this would create a difficult compare for Q1 of '19 and this is essentially what happened. It was pretty much in line with our expectations. To give you more color, I would say that the XR is our most popular model, and it's followed by the XS Max, and then the XS.

Toni Sacconaghi, Bernstein: Thank you. I have one for Luca and one for Tim. Luca, it looks like the midpoint of your Q2 revenue guidance implies the steepest Q1 to Q2 sequential decline in iPhone revenues in history. It's also implies a year over year deceleration in iPhone revenues. And I'm wondering if you can comment about whether that's conservatism, whether you're entering the quarter with a high level of channel inventory — and maybe you can comment explicitly on that — or whether you actually think the macroeconomic conditions are getting worse.

Luca Maestri

Yeah, I mean three questions there. The first one is the question around conservatism. As we always do when we provide the range it's a range that we believe we're going to fall within. We've done pretty well with that up until the December quarter, right? I mean we've been we didn't miss in years and years. So that's the idea. There isn't a specific level of conservatism. We believe that this is the range where we're going to fall within. On channel inventory, as you know our historical pattern for iPhone channel inventory is that typically we increase inventory in Q1 and we decrease in Q2 and we think this year will be similar. And we've exited the December quarter with levels of inventory that we are comfortable with. So that leaves us with the reality that our iPhone performance in Q1 from a revenue standpoint was a -15% and we expect that the key factors that Tim mentioned during the call affecting iPhone performance in Q1 will also have an effect on Q2, starting with the strong U.S. dollar environment. On a year over year basis, the negative impact from currency is going to be about $1.3 billion. So that's about a bit more than two points versus last year's revenue and so that obviously plays a role. And the macroeconomic environment particularly in emerging markets will continue to be there. On the positive side, we expect that we will continue to grow revenue nicely from the rest of the business which is not iPhone.

OK, thank you. Tim, at your September event Lisa Jackson, an Apple V.P., stated the company needed to, "design products to last as long as possible," and Apple is clearly doing that by helping with the battery replacement program, iOS working on an older range of products, etc. But I guess the question is why doesn't that mean that replacement or upgrade cycles for iPhones should continue to extend going forward? And, in part, because that's almost one of your objectives and maybe to that end, maybe you can help us understand what iPhone's average replacement cycle might be today and how that may have changed over the last three to five years? And, again, why wouldn't you expect it to elongate over time given some of the aforementioned things? Thank you.

Tim Cook

We do design our products to last as long as possible. Some people hold on to those for the life of the product and some people trade them in. And then that phone is then redistributed to someone else. And so it doesn't necessarily follow that one leads to the other. The upgrade cycle has extended, there's no doubt about that. As we've said several times I think on this call and before that the upgrades for the quarter were less than we anticipated due to all the reasons that we had had mentioned. So where it goes in the future, I don't know. But I'm convinced that making a great product that is high quality is the best thing for the customer and we work for the user and so that's the way that we look at it.

Shannon Cross, Cross Research: Thank you very much. I wanted to ask about the trajectory of services gross margin up about 500 basis points, it appears, year over year. You talked a little bit about sequential but what's driving the improvement or will it be volatile as we go through the year depending on quarters and mix? Just whatever color you can give us as we start to forecast this. Thank you.

Luca Maestri

Yes, Shannon and I think you've seen that services gross margins increased on a year over year basis by a significant amount. Let me start with sequential because I think it's probably most relevant for us. Sequentially we increased 170 basis points. It's a business that is growing nicely so we get good support from our scale. Some of these services are scaling quickly and so we tend to expand gross margins there. And also we had favorable mix — as you probably know we have a very broad portfolio of services. Some of them tend to be accretive to the average gross margin for services, also because of the way we account for them. For example, you know that on the App Store we book revenue on a net basis and therefore the gross margins tend to be accreted. But we also have services that are very successful that are below the average for the services business and so depending on how these separate businesses do in the marketplace we are going to be seeing some level of movement going forward on services margins. But you've seen that for the last twelve months that they've gone up nicely 450 basis points and sequentially they've gone up 170 basis points. But I wouldn't draw, necessarily, a conclusion on how the services gross margin is going to move over time. We will report, of course, at the end of every quarter, but it's important to keep in mind it's a broad portfolio with very different gross margin profiles within the portfolio. It is important for us to grow gross margin dollars. And if at times we grow services that are at a level of gross margins which is below average as long as this is good for the customer and as long as we generate gross margin dollars, we're going to be very pleased.

OK, thank you. And then Tim can you talk a bit about video? You've signed a myriad of deals. You know there was announcement about your TV app directly on Samsung so, perhaps, when this comes out you'll be multi-platform. I'm just curious how you view the opportunity in video and, you know, I guess assuming you can just leverage the costs as you've made already it should be accretive to margin I would think.

Tim Cook

Yeah, Shannon we see huge changes in customer behavior taking place now and we think that it will accelerate as the year goes by to sort of the breakdown of the cable bundle that's been talked about for years and I think that it will likely take place at a much faster pace this year. And so we're going to participate in that in a variety of ways. One of those is through Apple TV and you're well familiar with that product. The second way is AirPlay 2 which we have, as you just pointed out, we have support on a number of different third-party TVs and we're excited about that. It makes the experience in the living room with people using our products even better. We think that people are really going to like that. Another way is, of course, all the third-party video subscriptions that are on the store. We're participating in this today and I would guess that that's going to accelerate into the future as the bundle breaks down and people begin to buy likely multiple services in place of their current cable bundle. And then finally original content. We will participate in the original content world. We have signed a multi-year partnership with Oprah. But today I'm not really ready to extend that conversation beyond that point. We've hired some great people that I have super amount of confidence in and they're working really hard and we'll have something to say more on that later.

Walter Piecyk, BTIG: Great, thanks. I just have a question on the free services. Can you just describe how the math works on that? Is it that the free services are non-cash revenue that's getting booked in the services revenue with no cost and then the costs come out of products? Can you just run us through what the current state is versus how you were accounting for that before?

Luca Maestri

Yeah, in essence, when we sell a product at a certain price we make an assumption — we estimate the value that can be associated to providing free services. In our case, it's providing maps services, providing Siri, and providing free iCloud to all the customers that purchase a product. And so we calculate an estimated value, that value gets deferred and gets amortized over the estimated period of time that we deliver the free services. In the past, that deferral and the subsequent amortization was reported on the products. Now in connection with the new revenue recognition standard, we are reclassifying, essentially, that amortization from products revenue to services revenue. So total revenue has not changed, we just report that estimated value under the services category. We also reclassify the cost that we need to incur to provide those services. So the gross margin rate of free services is clearly significantly dilutive to the overall services margin. I hope I've helped with that.

So it's in the services gross margin, got it. And then my second question is just when you think about growth in services, you have selling more to existing paid subscription customers, or it's the 300 going to a half a billion, if you can just talk at a high level as far as when you look at growth going forward is it about — like what is the mix in terms of selling more to existing users, getting new users, or? And maybe some of the individual services that you see the biggest growth opportunity, thank you.

Luca Maestri

Yeah, I mean, as I said, I mean, essentially what we sell services to is our installed base. So the first driver is growing the installed base. Installed base has grown nicely over the last several years, we've added a hundred million in the last 12 months alone. So That's the first step. Then within that installed base of course we want to make sure that there are more people that are so interested in our services that in addition to transacting on those services on a free basis they also are interested in paying for those services and I mentioned that the percentage of paid accounts has increased strong double digits. So we want to continue to do that. We want to make it easier for our customers to actually use our services and so we are accepting more and more payment methods around the world. And clearly, as you said, the idea of adding new services is very important to us. During the last three years we've added Apple Pay which has been incredibly successful and it's a wonderful customer experience. We've added Apple Music where we now have more than 50 million paid subscribers and continues to grow very nicely. And we've added a very useful service to our developers — we provide an advertising service for developers on the App Store. The way we've added these services in the past, obviously we're also very interested in adding new services that can provide great value to our customers in the future. And we don't want to get into product announcements here but obviously that is part of our strategy.

Apple has just announced its financial results for Q1 2019, covering the period between October 1 and December 31, 2018. The company posted quarterly revenue of $84.3 billion, seeing a rise in revenue for Macs, wearables, home devices, accessories, and iPads, while seeing a 15% drop in revenue for the iPhone versus the same quarter last year.

Press release:

Apple Reports First Quarter Results

Services, Mac and Wearables Set New All-Time Revenue Records

EPS Reaches All-Time High at $4.18

January 29, 2019 04:30 PM Eastern Standard Time

CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2019 first quarter ended December 29, 2018. The Company posted quarterly revenue of $84.3 billion, a decline of 5 percent from the year-ago quarter, and quarterly earnings per diluted share of $4.18, up 7.5 percent. International sales accounted for 62 percent of the quarter's revenue.

Revenue from iPhone® declined 15 percent from the prior year, while total revenue from all other products and services grew 19 percent. Services revenue reached an all-time high of $10.9 billion, up 19 percent over the prior year. Revenue from Mac® and Wearables, Home and Accessories also reached all-time highs, growing 9 percent and 33 percent, respectively, and revenue from iPad® grew 17 percent.

"While it was disappointing to miss our revenue guidance, we manage Apple for the long term, and this quarter's results demonstrate that the underlying strength of our business runs deep and wide," said Tim Cook, Apple's CEO. "Our active installed base of devices reached an all-time high of 1.4 billion in the first quarter, growing in each of our geographic segments. That's a great testament to the satisfaction and loyalty of our customers, and it's driving our Services business to new records thanks to our large and fast-growing ecosystem."

"We generated very strong operating cash flow of $26.7 billion during the December quarter and set an all-time EPS record of $4.18," said Luca Maestri, Apple's CFO. "We returned over $13 billion to our investors during the quarter through dividends and share repurchases. Our net cash balance was $130 billion at the end of the quarter, and we continue to target a net cash neutral position over time."

Apple is providing the following guidance for its fiscal 2019 second quarter:

• revenue between $55 billion and $59 billion
• gross margin between 37 percent and 38 percent
• operating expenses between $8.5 billion and $8.6 billion
• other income/(expense) of $300 million
• tax rate of approximately 17 percent

Apple's board of directors has declared a cash dividend of $0.73 per share of the Company's common stock. The dividend is payable on February 14, 2019 to shareholders of record as of the close of business on February 11, 2019.

Apple will provide live streaming of its Q1 2019 financial results conference call beginning at 2:00 p.m. PST on January 29, 2019 at www.apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q4 2018 earnings call. Here's our ongoing live transcript of their remarks! If you want more info on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon, everyone and thanks for joining us. I just got back from Brooklyn where we marked our fourth major launch event of the year. In addition to being a great time, it put an exclamation point at the end of a remarkable fiscal 2018. This year, we shipped our two-billionth iOS device, celebrated the 10th anniversary of the App Store, and achieved the strongest revenue and earnings in Apple's history. In fiscal year '18, our revenue grew by $36.4 billion. That's the equivalent of a Fortune 100 company in a single year. And we're capping all that off with our best September quarter ever. Revenue was $62.9 billion ahead of our expectations. That's an increase of 20% over last year and our highest growth rate in three years. We also generated record Q4 earnings with 41% year over year growth in EPS. Record results from iPhone, services, and wearables drove our momentum and we produced strong double-digit revenue growth in all of our geographic segments.

It was a big year and a big quarter for iPhone. Q4 revenue was up 29% over last year an increase of over $8 billion to a new September quarter record fueled by continued momentum for iPhone 8, 8 Plus, and X, and the very successful launch of iPhone XS and iPhone XS Max. These latest devices are our most advanced iPhone's ever with the industry's first 7 nm A12 Bionic chip, with an Apple-designed 8-core Neural Engine capable of executing an astounding 5 trillion operations per second. The A12 Bionic is many years in the making and a huge technological leap forward. It sets the iPhone experience far apart from the competition using real-time machine learning to transform the way we experience photos, gaming, augmented reality, and more. It makes full use of the dual-camera system that shoots Portrait Mode photos with Smart HDR and dynamic depth of field. And Face ID is even faster. The response has been powerful. As one reviewer put it, "iPhone XS and XS Max are the perfect blend of design and craftsmanship as well as seamlessly intuitive user experience." We're not done yet. Just last week we began shipping iPhone XR, bringing the latest iPhone breakthroughs to even more users. With an all-screen glass and aluminum design and the most advanced LCD in a smartphone, the product reviews have been overwhelmingly positive.

iOS 12 has gotten off to an incredible start — it's been installed on more systems in its first month than any version of iOS ever. iOS 12 is delivering systemwide performance enhancements, Siri shortcuts, and new tools to help people reduce interruptions and manage screen time for themselves and their kids. Siri shortcuts, in particular, is already deeply integrated with some of the most popular apps out there. Whether you're tracking your workouts or rushing to catch a flight, you can be sure all of your most relevant apps are working together with Siri in the driver's seat. iOS 12 also features ARKit 2, a major upgrade to our augmented reality engine. ARKit 2 makes possible simultaneous multi-user experiences and real-world object incorporation. Our developer community is really running with this technology. From gaming to shopping, we're seeing great new use cases emerge. iOS devices deliver the best AR experiences of any products on the market today and with the announcement of our new iPad Pro this week, we've made that gap even wider. More powerful than the vast majority of PC laptops, the new iPad Pro is unrivaled in its versatility and performance. When paired with a beautifully refined Apple Pencil and a new streamlined full-size Smart Keyboard, iPad Pro will extend its lead as the ultimate creativity and productivity device. And finally, just this week, we delivered the highly anticipated Group FaceTime functionality to all FaceTime-enabled devices.

For services, it was our best quarter ever with revenue of $10 billion. Excluding the impact of a favorable one-time accounting adjustment of $640 million a year ago, our services growth was 27%. We set new Q4 records in all of our geographic segments and new all-time revenue records for the App Store, cloud services, Apple Care, Apple Music, and Apple Pay. We also continue to see strong growth in paid subscriptions, reaching over 330 million in our ecosystem. I want to spotlight the exceptional performance of Apple Pay, which is by far the number-one mobile contactless payment service worldwide. Transaction volume tripled year over year, and to put that into perspective Apple Pay generated significantly more transactions than even PayPal Mobile with over four times the growth rate. As a testament to accelerating U.S. growth, Costco completed the rollout of Apple Pay to over 500 US warehouses last quarter, while Neiman Marcus is now accepting Apple Pay at over 40 stores across the country. With these additions, 71 of the top 100 merchants and 60 percent of all US retail locations support Apple Pay. We continue to invest in our strategy to replace the wallet with the recent launch of student ID passes at several major US universities. And 10 months following its launch, Apple Pay Cash is the highest-rated mobile peer-to-peer service by Consumer Reports based on exceptional payment authentication and data privacy.

We set an all-time quarterly record for Mac revenue thanks to strong performance in MacBook Pro and the impact of the back-to-school season. In September we delivered macOS Mojave, bringing powerful new features to Mac like Dark Mode, Stacks, and a completely redesigned Mac App Store. Considered alongside the release of iOS 12, watchOS 5, and a new tvOS, macOS Mojave tells a powerful story of the seamless integration of world-class hardware, software, and services that define the Apple ecosystem. As I mentioned at the beginning of the call, earlier this week we announced exciting updates to the Mac lineup. The all-new MacBook Air brings a stunning Retina Display, Touch ID, the latest processors, and an even more portable design to the world's most beloved notebook. We also unveiled the biggest update ever to Mac Mini, the small yet muscular desktop that powers everything from the music and sound effects at Broadway shows to the developers who build some of the most popular apps in the App Store. The new Mac Mini boasts an amazing five times faster performance than before.

With revenue growth over 50%, it was another record quarter for wearables, which includes Apple Watch, AirPods, and Beats products. With the highest customer satisfaction in the industry, Apple Watch has become an essential part of people's lives. The customer response to the Apple Watch Series 4 has been overwhelmingly positive, driven by its all new design, larger display, faster performance, fall detection, enhanced cellular reception, and electrical heart sensor. Later this year the ECG app will be available to Apple Watch Series 4 customers in the US, giving them the ability to take an electrocardiogram any time right from their wrists. And for US customers with Apple Watch Series 1 and later, watchOS will soon enable periodic checks for irregular heart rhythms that may be suggestive of A-Fib. These are unprecedented and potentially life-changing features, showing how Apple Watch is not only an indispensable communication and fitness companion, but also an intelligent guardian for your health. More broadly we see this as just one further example of the kind of contribution we can make in the health space and we look forward to making more in the future.

We are proud to bring HomePod to new customers. I was in Spain last week as HomePod became available there and in Mexico. HomePod delivers the highest fidelity audio quality working together with an Apple %Music subscription to stream over 50 million songs into any room of your home.

Our retail team posted record Q4 results to conclude their biggest year ever. They are transforming our stores into places where customers come to connect, learn, and be inspired together with people from their community. Our Today at Apple sessions are a terrific example of what that looks like in practice. We hosted over 250,000 Today at Apple sessions this quarter connecting aspiring creators with local photographers, illustrators, and other experts who can help them get the most out of their devices. Apple stores also hosted 74,000 kids at Apple Camp. The relationship Apple has with our customers is about more than just making a purchase. With the recent addition of beautiful new stores in Italy, Japan, China, and in just a few weeks Thailand, we will have 506 stores where we can further those relationships, almost half of which are outside the United States.

Before I turn the call over to Luca, I'd like to touch on two items that may not show up in our financial statements but are just as integral to Apple's mission and our commitment to making the world a better place. First, education. More than 5,000 schools, community colleges, and technical colleges worldwide are now using Everyone Can Code, our free coding curriculum. Ideas, creativity, and passion for technology's potential aren't limited by zip code or country and we don't think opportunity should be either. We're also excited educators in more than 350 schools around the world have started working with Everyone Can Create, the free collection of tools and project guides we introduced this Spring, designed to help unleash kids' creativity throughout their school day with the help of iPad.

Next is the environment. This was a milestone year for Apple's commitment to our planet. In April we announced that 100% of our global operations are powered by renewable energy. We also made progress in doing the same in our supply chain. And just this week we announced that the enclosures of new products like MacBook Air and iPad Pro will be made from 100% recycled aluminum, a strong, durable, and beautiful new alloy designed by Apple. This is a great example of how a commitment to do right on the issues that matter can drive once-unimaginable innovation, new ways of approaching old problems, and beautiful solutions that set us apart.

I'd like to thank all of our employees, customers, developers, and business partners for helping us deliver outstanding results across our fiscal 2018. We are headed into the holidays with our strongest product lineup ever and we could not be more bullish about Apple's future. And now Luca has more details to share with you on the September quarter. Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. We are extremely pleased to report record results for our September quarter, which capped a tremendously successful Fiscal 2018, a year in which we saw double-digit revenue growth in every geographic segment and established new revenue and earnings records in every single quarter. Revenue in the fourth quarter was $62.9 billion, up 20% and more than $10 billion over last year, with strong double-digit growth in each of our geographic segments and record Q4 revenue in the Americas, in Europe, Japan, and rest of Asia Pacific. In fact, we said new revenue records in almost every market we tracked with especially strong growth in Germany, Italy, Sweden, Switzerland, Japan, and Korea, all major markets where revenue growth was 25% or higher. We also set new fourth quarter revenue records for iPhone and wearables and new all time records for services and Mac. Gross margin was 38.3%, flat sequentially in line with our expectations, as leverage from higher revenue offset seasonal transition costs. We set new September quarter records for net income, EPS, and cash flow from operations. Net income was $14.1 billion, up $3.4 billion or 32% over last year. Diluted earnings per share were $2.91, up 41%. Cashflow from operations was $19.5 billion, up $3.8 billion from a year ago. iPhone revenue grew 29% with growth of more than 20% in every geographic segment. iPhone ASP was $793, compared to $618 a year ago driven by strong performance of iPhone X, 8, and 8 Plus as well as the successful launch of iPhone XS and XS Max in the September quarter this year, while we launched iPhone X in the December quarter last year. We sold 46.9 million iPhones during the quarter with growth of 20% or more in several markets including Japan, Australia, New Zealand, Sweden, Norway, Chile, and Vietnam. Customer satisfaction with iPhone continues to be outstanding and it's the highest in the industry. The latest survey of US consumers from 451 Research indicates customer satisfaction of 98% for iPhone 10, 8, and 8 Plus combined. And among business buyers who plan to purchase smartphones in the December quarter, 80% plan to purchase iPhones.

Turning to services, it was our best quarter ever in total and virtually in every market around the world with revenue of $10 billion. A year ago we had a one-time $640 million favorable impact to services revenue due to an accounting adjustment, and taking that into account, our services growth in Q4 this year was 27%. As Tim mentioned, we reached new all-time quarterly revenue records for many services categories and we are well on our way to achieve our goal to double our fiscal 2016 services revenue by 2020. We now have over 330 million paid subscriptions on our platform, an increase of over 50% versus a year ago. We are very pleased not only with the growth but also with the breadth of our subscription business. In fact 30,000 third-party subscription apps are available on the App Store today and the largest of them all represents less than 0.3% of our total services revenue.

Next, I'd like to talk about the Mac. We saw great response to our new MacBook Pro models that we launched in July, with strong double-digit revenue growth driving an all-time quarterly record for Mac revenue. We were especially pleased with Mac momentum in emerging markets, with strong growth in Latin America, in India, the Middle East and Africa, and Central and Eastern Europe. At over 100 million units, our active installed base of Macs is at an all-time high and the majority of customers purchasing Macs in the September quarter were new to Mac.

We sold 9.7 million iPads during the quarter, gaining share in nearly every market we track, based on the latest estimates from IDC. We generated iPad growth in a number of key regions around the world including Latin America, Europe, Japan, India, and South Asia. Among customers around the world purchasing iPads during the quarter, nearly half were new to iPad and our active installed base of iPad reached a new all-time high. NPD indicates that iPad had 68 percent share of the U.S. tablet market in the September quarter, up from 64 percent share a year ago. And the most recent consumer survey from 451 Research measured iPad customer satisfaction ratings of 96 percent for both iPad and iPad Pro and among business customers who plan to purchase tablets in the December quarter, 74 percent plan to purchase iPad.

Other products revenue grew 31 percent to a new September quarter record with an increase of over $1 billion compared to a year ago thanks to wearables growth of over 50 percent and the strong performance of Apple TV in addition to the introduction of HomePod earlier this year. As we look back across fiscal 2018, we have made great progress in the enterprise market where iOS is transforming how business gets done across multiple industries. In fact, over 450 airlines and 47 of the top 50 around the world have adopted iOS to help pilots fly safer, more efficient flights and many airlines are also using iOS to support better customer experiences and improve maintenance operations. We're also making great strides in the retail sector where nine of the top 10 global retailers use iOS devices to transform their customer and employee experiences. We are seeing industry-wide adoption of iOS by thousands of retailers, from neighborhood boutiques to many of the best-known retailers in the world. Deployment of iOS devices is growing steadily as retailers replace their traditional point of sale systems and use custom iOS apps on iPhone and iPad to provide highly personalized shopping experiences.

Our success in enterprise is supported by our key partnerships. Since launching our first strategic partnership with IBM, 240 large customers have signed mobile-first for iOS deals. Additionally earlier in the year we introduced two new technology offerings: IBM Watson services for CoreML and the IBM cloud developer console for Apple that are enabling businesses to combine machine learning and cloud for a new generation of dynamic smart apps for millions of Salesforce developers to build their own native apps with a new Salesforce mobile SDK for iOS. And finally, we recently announced Apple Business Manager, a new way for IT teams to deploy Apple devices at scale. The response from companies around the world has been tremendous with over 40,000 companies currently enrolled.

Let me now turn to our cash position. We ended the quarter with $237.1 billion in cash plus marketable securities, we also had $102.5 billion dollars in term debt and $12 billion in commercial paper outstanding for a net cash position of $122.6 billion dollars. As explained earlier this year, it is our plan to reach a net cash neutral position over time. As part of this plan, we returned over 23 billion to investors during the quarter. We purchased 92.5 million Apple shares for $19.4 billion through open market transactions and we paid $3.5 billion in dividends and equivalents. For our fiscal year 2018, revenue grew over $36 billion to $265.6 billion — an all-time record. Every geographic segment grew double-digits, with new records in the Americas, Europe, Japan, and rest of Asia Pacific. We also set new all-time records for net income, up 23% versus last year and EPS up 29%. And we returned a total of almost $90 billion to our investors during the year, including almost 14 billion in dividends and equivalents and over 73 billion in share repurchases. Before we discuss our December quarter outlook, I'd like to describe a number of changes in our financial reporting that we're implementing as we enter our new fiscal year. First, given the increased importance of our services business, and in order to provide additional transparency to our financial results, we will start reporting revenue as well as cost of sales for both total products and total services beginning this December quarter. Second, also beginning this December quarter, we are adopting the new standard for revenue recognition. This will not result in any change to our total revenue but it will impact the way we report the classification of revenue between products and services. In particular, the revenue corresponding to the amortization of the deferred value of bundled services such as Maps, Siri, and free iCloud services was previously reported in product revenue. After adopting the new standard, this revenue will now be reported in services revenue. The change in classification between products and services will also apply to the costs that are associated with the delivery of such bundled services. After we file our 10k, we will post a schedule to our Investor Relations website showing the reclassification of fiscal 2018 revenue from products to services in connection with the adoption of the new standard. The size of this reclassification amounts to less than 1% of total company revenue and for clarity, this reclassification was not contemplated in our previously stated goal of doubling our fiscal '16 services revenue by 2020. Said goal remains unchanged and excludes the revenue that is now shifting from products to services over that timeframe. Third, starting with the December quarter we will no longer be providing unit sales data for iPhone, iPad, and Mac. As we have stated many times, our objective is to make great products and services that enrich people's lives and to provide an unparalleled customer experience so that our users are highly satisfied, loyal, and engaged. As we accomplish these objectives, strong financial results follow. As demonstrated by our financial performance in recent years, the number of units sold in any 90 day period is not necessarily representative of the underlying strength of our business. Furthermore, a unit of sale is less relevant for us today than it was in the past given the breadth of our portfolio and the wider sales price dispersion within any given product line. Fourth, starting with the December quarter we will be renaming the other products category to wearables, home, and accessories to provide a more accurate description of the items that are included in this product category.

As we move ahead to the December quarter, I'd like to review our outlook which includes the types of forward looking information that Nancy referred to at the beginning of the call. We have the strongest lineup ever as we enter the holiday season and we expect revenue to be between 89 billion and 93 billion — a new all-time record. This range reflects a number of factors to be considered: First, we consider the effect on Q4 and Q1 of the launch timing of our new iPhones this year versus last year. Second, we expect almost $2 billion of foreign exchange headwinds. Third, we have an unprecedented number of products ramping, and while our ramps are going fairly well, we have uncertainty around supply and demand balance. And fourth, we also face some macroeconomic uncertainty particularly in emerging markets.

We expect gross margins to be between 38 and 38.5%, we expect OpEx to be between $8.7 and $8.8 billion, we expect OINE to be about $300 million, and we expect the tax rate to be about 16.5% before discrete items. Also today our Board of Directors has declared a cash dividend of $0.73 per share of common stock payable on November 15, 2018 to shareholders of record as of November 12, 2018. With that I'd like to open the call to questions.

Analyst questions

Wamsi Mohan, Bank of America Merrill Lynch: Yes, thank you. Tim, there has been some real deceleration in some of these emerging markets partly driven by some concerns around some of the rules the administration is contemplating and partly driven by things that are more specific to China for instance like some of the regulations around gaming. So can you talk about how you see the trajectory there for the business and what do you think of the initiatives of some companies like Netflix and Fortnight trying to bypass the App Store around subscriptions? And I have a follow up.

Tim Cook

Sure, great question. Starting with emerging markets, the emerging markets that we're seeing pressure in are markets like Turkey, India, Brazil, Russia. These are markets where currencies have weakened over the recent period. In some cases that resulted in us raising prices and those markets are not growing the way we would like to see. To give you a perspective of some detail, our business in India in Q4 was flat. Obviously we would like to see that be a huge growth. Brazil was down somewhat compared to the previous year. And so I think or at least the way that I see these is each one of the emerging markets has a bit of a different story and I don't see it as some sort of issue that is common between those for the most part. In relation to China specifically, I I would not put China in that category. Our business in China was very strong last quarter — we grew 16 percent, which we're very happy with. iPhone, in particular, was very strong double-digit growth there. Our other product category was also stronger. In fact, a bit stronger than even the overall company number. The App Store in China, we have seen a slowdown, or a moratorium to be more accurate, on new game approvals. There is a new regulatory setup in China and things are not moving the way they were moving previously. We did see a few games approved recently but it's very far below the historic pace and as you've probably seen some of the larger companies there that are public have talked about this as they announced their earnings as well. We don't know exactly when approvals will sort of return to a normal pace so I would not want to predict that. I don't view that that issue has anything to do with the trade-related discussions between the countries. I think that is strictly a domestic issue in China. In terms of larger developers if you sort of step back and look at the value proposition for people from the App Store, there are two key constituencies in that equation: there's the user and there's the developer. If you start with a user, what the App Store provides people is sort of the best and safest place for users to get apps. And we've put a — we have a tremendous process and infrastructure around achieving that and where it is not perfect we wind up reviewing over 100,000 apps per week between new apps and updates for existing apps. And then we work with developers quickly to fix the issues and we also provide the user a one-payment model for purchasing apps, and subscriptions, and in-app purchases, et cetera so that they are not in a position that they have to share their private information across many companies. And so that's sort of the proposition for the user. For the developer, we obviously provide the developers a tremendous amount of developer tools, programs, compilers, languages, of course the operating system, APIs, SDKs, and have a huge developer relations team and we do a tremendous amount of marketing for developers including the new Today editorial that we just started in the past few months, personal recommendations, search tools, and so on and so forth. So there will be — there's no doubt in my mind there have already been some large developers that concluded that they could do something on their own. We're fine with that. I think Luca mentioned in his comment that if I look at the largest developer, they make up less than 0.3% of the services revenue. So it's probably good to think about that in that context and there are millions of apps on the store, obviously, and 30,000 or so subscription apps. And so the subscription business itself is nearly as broad as the App Store itself is. And so that's the value proposition. I think that the vast majority of people are very happy with it, including the most important people at all, which is the user.

Thank you, Tim. I appreciate the response. If I could just ask you really quick on Apple's role in healthcare, it's been growing significantly since the early introduction of the Watch. And then you know the various kits for developers including HealthKit, CareKit, etc. And when you combine that with your very staunch advocacy for privacy, I see Apple could become a really large intermediating force in all the friction in the healthcare industry today in the way medical information is shared and distributed. Is this the way that you see the future for Apple and healthcare and do you see a means to also grow your services business through the healthcare offerings that could become subscriptions to your customers? Thank you.

Tim Cook

I think Apple has a huge opportunity in Health and you can see from the past several years that we have intense interest in the space and are adding products and services — non-monetized services so far — to that. And I don't want to talk about the future because I don't want to give away what we're doing but this is an area of major interest to us. Thank you.

Shannon Cross, Cross Research: Thank you very much for taking the question. Given the $4 billion range in revenue that you're giving for the quarter and all of the, you know, all the things that are going on the world right now, can you maybe give a little detail about the variables that you took into account when you were coming up with this? Geopolitical political trade, macro, component costs, I don't know if you can just give us some idea of what the puts and takes were. Thank you.

Luca Maestri

Yes, Shannon, I'll take this one. At the revenue level we started from the fact that we are very, very excited about the lineup of products and services that we have getting into the holiday season. It's the strongest lineup that we've ever had. And our guidance range, by the way, represents a new all time quarterly revenue record, right. As I explained in my prepared remarks, there are a number of things that need to be considered as part of this guidance range, right. The first one is the fact that the launch timing of the new iPhones this year is essentially the reverse order versus last year. And that has had an effect on Q4 and will have an effect on Q1. Last year we launched the top end of our iPhone lineup, which was iPhone X during Q1, and placed the entirety of the channel field for iPhone X in Q1. This year we launched the top end of the lineup, which is the XS and the XS Max during Q4. Obviously this resulted in a more pronounced ASP growth in Q4 of '18 and obviously a tougher compare for Q1. So I think it's important to keep that in mind as you look at the revenue guidance that we provided. The second point that needs to be kept in mind, it is a fact of life and we've dealt with it for a number of years now is the fact that when I look at currencies around the world, virtually every foreign currency has depreciated against the US dollar in the last 12 months. And when we look at the impact of foreign exchange on our revenue for the December quarter we're looking at 200 basis points of headwinds which translates, given the size of our business, to almost $2 billion of headwind to our revenue. The third point that I think is important to keep in mind — and Tim has talked about this — we are launching in the last six weeks we've launched an unprecedented number of new products. They're all ramping right now. The ramps are going fairly well but obviously we have some uncertainty around supply demand balance for some of these products. And then finally the last point that we've taken into account is what Tim's talked about in terms of some level of uncertainty at the macroeconomic level in some emerging markets where clearly consumer confidence is not as high as it was 12 months ago. So take that into account and that's how we got to the range.

OK, thank you. And then I just want to talk a little bit about the pullback in terms of guidance from a unit perspective. I understand you don't want to give guidance because 90 days is a short period of time and it can be, you know, fluctuate but what kind of qualitative commentary do you think you'll be able to provide? Because, you know, obviously investors have spent the last however many years going you know, P times Q. So, you know, how should we think about what we can expect and sort of how how are you going to manage this process as we go through? I know it's our job to forecast, but—

Luca Maestri

Let me walk you through the rationale that we've used and then I'll talk about this qualitative commentary that you were mentioning. As I said right now our objective is to make great products, provide the best customer experience, and get our customer satisfied, engaged, and loyal to our ecosystem. When you look at our financial performance in recent years — take the last three years for example — the number of units sold during any quarter has not been necessarily presentative of the underlying strength of our business. If you look at our revenue during the last three years, if you look at our net income in the last three years, if you look at our stock price in the last three years, there's no correlation to the units sold in any given period. As you know very well, in addition our product ranges for all the major product categories become wider over time and therefore a unit of sale is less relevant for us at this point compared to the past because we got this much wider sale price dispersion so unit of sale per se becomes less relevant. As I know you're aware, by the way, our top competitors in smartphones and tablets and computers do not provide for that unit say of information either. But of course we understand that, you know, this is something of interest and when we believe that providing qualitative commentary on unit sales offers additional relevant information to investors we will do so.

Tim Cook

Let me make one additional point there just for clarity is that, Shannon, our intention is to continue to give revenue guidance at the company level and gross margin guidance in the other categories that we've been providing and so our guidance isn't changing — it's the actual report that changes.

Mike Olson, Piper Jaffray: Thanks very much and good afternoon. With the staggered iPhone launch, were you able to discern any impact on the XS and XS Max from buyers potentially waiting for the XR and what, if anything, can we take away from the December quarter guidance related to what you're seeing for early demand of the XR? And then I have a follow up, thanks.

Tim Cook

Mike, it's Tim. The XS and XS Max got off to a really great start and we've only been selling for a few weeks. The XR, which we've only had out there for I guess five days or so at this point and so we have very, very little data there. Usually there there is some amount of wait until another product shows up in look but in looking at the data on the sales data for XS and XS Max, there's not obvious evidence of that in the data as I see it.

Got it. And you mentioned record levels for various components of the services business. As we look forward, if growth of services is to maintain something close to the recent pace, what are the components of services that you're particularly excited about that could drive that and be the strongest drivers? And maybe an offshoot to that, it seems like the news flow around augmented reality has slowed a little bit in recent months. Is that potentially a material contributor to services in the near future? Thanks.

Luca Maestri

As we said, during the September quarter we set new records for many, many services categories, right, from Apple Music, to cloud services, to the App Store, to Apple Care, and Apple Pay really has an exponential trajectory right now. When we look at our services business we think about the fact that we have a very large and growing installed base. The installed base of all our major product categories is at an all-time high and has been growing over the last several quarters, so the opportunity for us to monetize our services business continues to grow over time. Of course we are also improving the quality of the services that we provide. And if you look back in the last three years we've added new services to our portfolio. We added Apple Pay, we added Apple Music, we added this advertising business on our App Store, and clearly we will want to continue to offer new services over time. So there are a number of factors that allow us to continue to grow the business over time. We have stated that we want to double the size of the services business from the level that we had in fiscal '16 by 2020. We are well on pace to achieve that and we feel very, very confident about the future and the opportunities that we have in the services space.

Tim Cook

Mike, in terms of your question on AR, I have a different view than you do on this one. Just a year ago, practically a year ago, we came out with ARKit 1, six months or so after that we came out with 1.5, we then recently came out with ArKit 2. The number of things that you can do are growing significantly. The number of developers that either have done something or even more the case that are working on things that I've seen are growing tremendously. There's a lot of interest out there. And the number of categories that I'm seeing from gaming, to shopping, to I was in China a few weeks ago and saw AR in an art exhibit. I was in Berlin last week and saw it being used in a historical educational kind of sense. I'm seeing it sort of everywhere I go now. And so I think we are in the early days and it'll keep getting better and better but I'm really happy with where things are at the moment.

Katy Huberty, Morgan Stanley: Thank you. Tim, given the current trade negotiations and broader geopolitical risk do you have any plans to consider diversifying the supply chain? And if if you were to do that either on your own or sort of forced do you think it would have significant impact on the business or profitability?

Tim Cook

Katie, if you look at the products that that we create and are manufacturing, they're really manufactured everywhere. You know we have significant content from the U.S. market, we have content from Japan to Korea to many countries, and we have we have great content from China as well. And so there are many hands in the product. The vast majority or almost all of the R&D is in the United States as well as a lot of the support organizations. I think that basic model where you look around the world and find the best in different areas, I don't expect that model to go out of style so to speak. I think there's a reason why things have developed in that way and I think it's great for all countries and citizens of countries that are involved in that. And I'm still of the mindset that I feel very optimistic and positive that the discussions that are going will be fruitful. You know these trade relationships are big and complex and they clearly do need a level of focus and a level of updating and modernization. And so I'm optimistic that the countries, the U.S. and China and the U.S. and Europe and so forth can work these things out for the benefit of everyone.

That's helpful color. And Luca, as a follow up, NAND prices fell significantly during the September quarter. Why aren't we seeing that flow through to margin expansion for the overall company?

Luca Maestri

You are referring to that guidance that we provided for Q1, I imagine, and let me give you the puts and takes. Katie, you're correct. We are going to be getting some benefits from commodities in general and memory in particular. Memory on a sequential basis — it's about 30 basis points favorable for us going into the December quarter. And obviously we're going to be benefiting from the leverage which is typical of our seasonality in the December quarter. On the other hand as I mentioned before currencies have weakened against the U.S. dollar and the impact that we expect at the gross margin level from foreign exchange is a 90 basis points headwind sequentially. And of course at this point in the cycle we also have higher cost structures because, as I said, we've launched so many new products in the last six weeks. So those are the puts and takes leverage and commodity savings on one side and effects and the new products on the other side.

Jim Suva, Citigroup: Thank you very much. A question for Tim and a question for Luca and I'll ask them at the same time so you can decide who wants to go first or second. But operationally Tim, you know, I think your company is at a disadvantage relative to others in India giving, you know, where items are produced, versus shipped ,versus taxed, versus installed, as well as ability to own stores. So can you help us, you know, address that — is India going to potentially be a big area — I think you've got about only 1% market share but it sounded like things maybe softened there. And then for Luca, you know there'll probably a lot of pushback about not giving iPhone unit data. It sounds like you're still going to give revenue data if I heard that correctly. But, you know, some people may fear that this now means that the iPhone units are going to start going negative year over year because you know it's easy to talk about great things and, you know not sure the details of things that aren't so great. So thank you very much gentlemen.

Tim Cook

OK, I'll start with India. We've had really great productive discussions with the Indian government and I fully expect that at some point they will agree to allow us to bring our stores into the country. We've been in discussions with them and the discussions are going quite well. There is, as you point out, there are import duties in most of the product categories that we're in. In some cases they compound. And this is an area that we're giving lots of feedback on. We do manufacture some of the entry iPhones in India and that project has gone well. I am a big believer in India. I am very bullish on the country, and the people, and our ability to do well there. The currency weakness has been part of our challenge there as you can tell from just looking at the currency trends, but I sort of view these as speed bumps along a very long journey though. And the long term, I think, is very, very strong there. There's a huge number of people that will move into the middle class. The government has really focused on reform in a major way and made some very bold moves and I applaud them for doing that and sort of can't wait for the future there.

Luca Maestri

Jim, let me let me take the question on units. First of all, as Tim said, our approach to guidance — providing guidance — doesn't change at all. We continue to provide the same metrics that we were providing before. In terms of reporting results one of the things that we are doing — and it's new and it's in addition to the information we provide to investors because we've heard some significant level of interest around this — is starting with the December quarter for the first time we're going to be providing information on revenue and cost of sales and therefore gross margins for both products and services. And this will be the first time that we're going to provide gross margin information for our services business, which we believe is an important metric for our investors to follow. I've given the rationale on why we do not believe that providing unit sales is particularly relevant for our company at this point. I can reassure you that it is our objective to grow unit sales for every product category that we have. But, as I said earlier, you know, a unit of sale is less relevant today than it was in the past. To give you an example, the unit sales of iPhone at the top end of the line have been very strong during the September quarter and that's very important because we're attracting customers to the most recent technologies, and features, and innovation that we bring into the lineup, but you don't necessarily see that in the number that is reported. And so, therefore, we will as I said we will provide that qualitative commentary when it is important and relevant. But at the end of the day we make our decisions from a financial standpoint to try and optimize our revenue and our gross margin dollars and that we think is, you know, the focus that is in the best interest of our investors.

Tim Cook

Jim let me just add a couple of things to that for color. Our installed base is growing at double digits. And that's probably a much more significant metric for us from an ecosystem point of view, and the customer loyalty, etc. The second thing is this is a little bit like if you go to the market and you push your cart up to the cashier and she says or he says, "How many units you have in there?" It doesn't matter a lot how many units there are in there in terms of the overall value of what's in the cart.

Apple has just announced its financial results for Q4 2018, covering the period between July 1 and September 30, 2018. The company sold 46.9M iPhones, 9.7M iPads, and 5.3M Macs. The company's quarterly revenue was $62.9 billion.

Press release:

Apple Reports Fourth Quarter Results

Revenue Up 20 Percent and EPS Up 41 Percent to New September Quarter Records

Services Revenue of $10 Billion Reaches New All-Time High

CUPERTINO, California — November 1, 2018 — Apple today announced financial results for its fiscal 2018 fourth quarter ended September 29, 2018. The Company posted quarterly revenue of $62.9 billion, an increase of 20 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.91, up 41 percent. International sales accounted for 61 percent of the quarter's revenue.

Services revenue reached an all-time high of $10 billion. Excluding a one-time favorable adjustment of $640 million recognized in the fourth quarter of fiscal 2017, Services revenue grew from $7.9 billion in the fourth quarter of fiscal 2017 to $10 billion in the fourth quarter of fiscal 2018, an increase of 27 percent.

"We're thrilled to report another record-breaking quarter that caps a tremendous fiscal 2018, the year in which we shipped our 2 billionth iOS device, celebrated the 10th anniversary of the App Store and achieved the strongest revenue and earnings in Apple's history," said Tim Cook, Apple's CEO. "Over the past two months, we've delivered huge advancements for our customers through new versions of iPhone, Apple Watch, iPad and Mac as well as our four operating systems, and we enter the holiday season with our strongest lineup of products and services ever."

"We concluded a record year with our best September quarter ever, growing double digits in every geographic segment. We set September quarter revenue records for iPhone and Wearables and all-time quarterly records for Services and Mac," said Luca Maestri, Apple's CFO. "We generated $19.5 billion in operating cash flow and returned over $23 billion to shareholders in dividends and share repurchases in the September quarter, bringing total capital returned in fiscal 2018 to almost $90 billion."

Apple is providing the following guidance for its fiscal 2019 first quarter:

• revenue between $89 billion and $93 billion
• gross margin between 38 percent and 38.5 percent
• operating expenses between $8.7 billion and $8.8 billion
• other income/(expense) of $300 million
• tax rate of approximately 16.5 percent before discrete items

Apple's board of directors has declared a cash dividend of $0.73 per share of the Company's common stock. The dividend is payable on November 15, 2018 to shareholders of record as of the close of business on November 12, 2018.

Apple will provide live streaming of its Q4 2018 financial results conference call beginning at 2:00 p.m. PDT on November 1, 2018 at https://www.apple.com/investor/earnings-call/#mn_p This webcast will also be available for replay for approximately two weeks thereafter.

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• How to add stocks for iPhone
• How to rearrange stocks for iPhone
• How to delete stocks on iPhone
• How to view stocks on iPhone
• How to view trends over time
• How to manage Stocks notifications on iPhone
• How to check on individual stocks with Siri
• How to check stock exchanges with Siri
• How to check on individual stocks with Siri
• How to check stock exchanges with Siri
• How to delete the Stocks app from your iPhone
• How to check business news in the Stocks app

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The Stocks app on iOS is powered by Yahoo! Finance and is a great way to keep track of the ever-changing rise and fall of the stocks that matter to you. By using the above-mentioned tips you can customize your stock dashboard with only the information that is most relevant to you, or you can use Siri to get updates as you like.

How to delete the Stocks app from your iPhone

iOS 10 lets you delete a bunch of built-in apps, which is great if you're one of the folks who doesn't use the Stocks app (oh, you mean everybody?).

1. Tap and hold on the Stocks app icon on the Home Screen until it starts to jiggle.
2. Tap the x that appears on the top left corner of the app icon.
3. Tap Remove when prompted.

If you ever want Stocks back, you can just download it from the App Store.

How to check business news in the Stocks app

iOS 12 is bringing a refreshed look to the Stocks app, and business and finance news along with it, which you can check right in the app.

1. Launch the Stocks app from your Home screen.
2. Tap and drag the Business News slider up.
3. Tap a story to read more details.
4. Drag the slider down when you're finished reading the news.

Questions?

Any questions about the Stocks app? Let us know in the comments below!

Updated August 2018: Screenshots and steps updated for the latest version of iOS. Added a section on reading business news in the Stocks app and added a section on viewing stock trends over time.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q3 2018 earnings call. Here's our ongoing live transcript of their remarks!

If you want more info on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Thank you, Nancy, and thanks to everyone for joining us.

Today we're proud to report our best June quarter revenue and earnings ever, thanks to the strong performance of iPhone, services, and wearables. We generated $53.3 billion in revenue — a new Q3 record. That's an increase of 17% over last year's results, making it our seventh consecutive quarter of accelerating growth, our fourth consecutive quarter of double-digit growth, and our strongest rate of growth in the past 11 quarters. Our team generated record Q3 earnings per share of $2.34, an increase of 40% over last year. We are extremely proud of these results and I'd like to share some highlights with you.

First, iPhone had a very strong quarter. Revenue was up 20% year over year and our active installed base grew by double digits, driven by switchers, first-time smartphone buyers, and our existing customers whose loyalty we greatly appreciate. iPhone X was the most popular iPhone in the quarter once again, with a customer satisfaction score of 98% according to 451 Research. Based on the latest data from IDC, iPhone grew faster than the global smartphone market, gaining share in many markets including the U.S., Greater China, Canada, Germany, Australia, Russia, Mexico, and the Middle East and Africa.

Second, we had a stellar quarter in services which generated all time record revenue of $9.5 billion, fueled in part by double-digit growth in our overall active installed base. We feel great about the momentum of our services business and we're on target to reach our goal of doubling our fiscal 2016 services revenue by 2020. Our record services results were driven by strong performance in a number of areas and I'd like to briefly mention just some of these. Paid subscriptions from Apple and third parties have now surpassed 300 million, an increase of more than 60% in the past year alone. Revenue from subscriptions accounts for a significant and increasing percentage of our overall services business. What's more, the number of apps offering subscriptions also continued to grow — there are almost 30,000 available in the App Store today.

The App Store turned 10 years old this month and we set a new June quarter revenue record. The App Store has exceeded our wildest expectations, igniting a cultural and economic phenomenon that has changed how people work, learn, and play. Customers around the world are visiting the App Store more often and downloading more apps than ever before. And based on third-party research estimates, the App Store generated nearly twice the revenue of Google Play so far in 2018. The app economy is thriving and thanks to the App Store, it's generating jobs for tens of millions of people around the world. Our developers have earned over $100 billion from the App Store since its launch and we couldn't be more proud of them and what they've accomplished. We're hearing lots of developer excitement around our upcoming OS releases — which I'll talk about more in a moment — and can't wait to see what they can come up with next. We've experienced rapid growth in our App Store search ad service, and as we announced earlier this month, we are expanding our geographic coverage to Japan, South Korea, France, Germany, Italy, and Spain.

We're also seeing strong growth in many of the other services as well. Just a few examples: Apple Music grew by over 50% on a year over year basis; Apple Care revenue grew at its highest rate in 18 quarters, partly due to our expanded distribution initiative; cloud services revenue was also up over 50% year over year; our communications services are experiencing record usage — we've hit all time highs for both the number of monthly active users of Messages and the number of FaceTime calls made, with growth accelerating from the March to June quarters; Siri requests have already exceeded 100 billion so far this fiscal year; and the number of articles read on Apple News more than doubled year over year; Apple Pay continues to expand, with well over 1 billion transactions last quarter — triple the amount from just a year ago, with growth accelerating for the March quarter. To put that tremendous growth into perspective, this past quarter we completed more total transactions than great companies like Square and more mobile transactions than PayPal. Apple Pay is now live in 24 markets worldwide with over 4,900 bank partners and we look forward to adding Germany later this year. We're excited to share that in the U.S., eBay is beginning to enable its sellers to accept Apple Pay and CVS pharmacy and 7-Eleven will roll out Apple Pay acceptance in locations nationwide this fall. Transit is another important area of growth and Apple Pay can be used with iPhone and Apple Watch to quickly and conveniently ride public transit in 12 metropolitan areas. Apple Pay Cash, our peer-to-peer payment service is already serving millions of customers across the U.S. less than eight months following its launch.

Our third highlight of the quarter is the outstanding results in wearables, which comprises Apple Watch, AirPods, and Beats, and was up over 60% year over year with growth accelerating from the March quarter. Our wearables revenue exceeded $10 billion over the last four quarters, a truly remarkable accomplishment for a set of products that has only been in the market for a few years. Apple Watch delivered record June quarter performance, with growth in the mid 40% range. And we're thrilled to see so many customers enjoying AirPods, it reminds me of the early days of iPod when I started noticing white ear buds everywhere I went.

A number of other notable events in the quarter: We expanded distribution of HomePod to three additional markets and we added new immersive-listening features with support for HomePod stereo pairs and a new multi-room audio system. In June, we hosted an extremely successful developers conference that previewed many major advances coming this fall to our four operating systems: iOS, macOS, watchOS, and tvOS. Developer and customer reaction has been very positive and we have over 4 million users participating in our new OS beta programs. Starting with iOS 12, Siri will take a major step forward with Siri shortcuts which deliver a new, much faster way to get things done and allow any app to work with Siri. We believe this will make Siri even more useful and significantly expand its adoption. We've also designed performance improvements across iOS 12 to make everyday tasks faster and more responsive, camera launches up to 70% faster, the keyboard appears up to 50% faster, and apps can launch up to twice as fast. We've always been about empowering users to get the most from our products, but not about spending all of their time using them. And so we're adding tools to iOS to help our customers understand and take control of the time both they and their families spend interacting with their iOS devices. Activity Reports will provide information on the amount and nature of time spent on iPhones an iPads, and Screen Time will enable parents to monitor and limit their children's activity from their own iOS devices using Family Sharing in iCloud. Developers will be able to build even more intelligent apps with just a few lines of code using the power of machine learning with CoreML and CreateML. We've also included our third release of ARKit in only one year. With ARKit 2, iOS 12 will provide an even more powerful platform to make dynamic AR apps, integrating shared and persistent AR experiences, object detection, and image tracking. We believe AR can enable profound experiences and Apple is uniquely positioned to provide the best AR experience because of the seamless integration of our hardware and software. The new capabilities of ARKit 2 will build on the potential of the thousands of AR apps already available in the App Store that are changing the way iPhone and iPad users see and experience the world. Turning to Mac, we want to empower our developers to bring their innovative apps from the iOS ecosystem to the Mac with minimal effort. Though iOS and macOS are different, they've shared common foundations from the very beginning. So we've taken key frameworks from iOS and adapted them to specific Mac behaviors, like using a mouse or trackpad, resizing windows, copy and paste, and drag and drop. We've started with some of our own apps, so this fall, News, Stocks, Voice Memos, and Home will be available on the Mac for the first time with macOS Mojave, and we'll be bringing these great new tools to our developers next year. We believe this will dramatically broaden the ecosystem to benefit all Mac users, creating even more great reasons to choose Mac. Also this fall, the Mac App Store is getting a full redesign with rich editorial content to help customers discover great Mac apps from our developers.

We believe privacy is one of the most important issues of the 21st century and we're always working to make our products more private and more secure for our users. As we announced at WWDC, beginning this fall, Safari will prevent share buttons and comment widgets on web pages from tracking users without their permission. Safari already protects personal data as users browse the web so they won't be retargeted by ads. For Apple Watch, users will see a significant expansion of features and functionality in watchOS 5. Apple Watch will become an even stronger companion for fitness, communication, and quick access to information, with features including new workouts, activity sharing competitions, auto workout detection, advanced running features, walkie talkie, Podcasts, and third-party apps on the Siri Watch face. For Apple TV we've seen major growth in sales since the introduction of Apple TV 4K last fall, as video providers around the world choose Apple TV 4K to deliver their subscription services. Later this year, Charter Communications will begin offering Apple TV 4K to its customers in nearly 50 million U.S. households, providing access to live channels and tens of thousands of on-demand programs via the Spectrum TV app on Apple TV 4K, iPhone and iPad. And tvOS will take the cinematic experience of Apple TV 4K to the next level this fall, with support for Dolby Atmos audio and new features to easily find popular shows and movies. Apple TV 4K already offers customers the largest collection of 4K HDR movies, and this fall iTunes will be the home to the largest collection of Dolby Atmos supported movies anywhere.

I'm proud that our team's hard work has an impact even beyond these innovative industry-leading products and services. We are always working to leave the world better than we found it, and as part of our commitment to address climate change and increase the use of renewable energy in our supply chain, we recently announced a first-of-its-kind investment fund in China. Initially, 10 suppliers will join us in investing nearly $300 million over the next four years into the China Clean Energy Fund. The fund will invest in and develop clean energy projects totaling more than 1 gigawatt of renewable energy in China — the equivalent of powering nearly one million homes.

We're seeing great momentum in our Everyone Can Code and Everyone Can Create initiatives. More than 5,000 schools and community colleges are now teaching Everyone Can Code and more than 350 schools have committed to incorporating Everyone Can Create into their curricula for the upcoming school year. Coding skills are opening doors for students and job seekers around the world as tremendous growth in the app economy creates opportunity everywhere we look. We're also teaming up with leading educators for blind and deaf communities across the United States who will start teaching Everyone Can Code this fall.

Looking ahead, we couldn't be more excited about the products and services in our pipeline, as well as limitless applications for augmented reality and machine learning technology. We're working with key partners in the enterprise to change the way work gets done with iOS and Mac. We're welcoming communities and offering learning opportunities at our retail locations through hundreds of thousands of Today at Apple sessions each quarter. We're expanding our reach into emerging markets and seeing strong double-digit growth in revenue. And we're making great progress toward our goal of significantly expanding our services business. And now for more details on the record June quarter results, I'd like to turn the call over to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon everyone.

We are very pleased to report the financial results of our best June quarter ever. As we have done in every quarter this fiscal year, we set new quarterly records for both revenue and earnings per share, with revenue up 17% year over year and EPS up 40%. We generated $53.3 billion of revenue, with year over year growth in all of our geographic segments and new June quarter records in the Americas, Europe, Japan, and the rest of Asia Pacific. We grew in each of our top 15 markets, with especially strong performance in the U.S., Hong Kong, Russia, Mexico, the Middle East, and Africa — all places where revenue was up by more than 20%. Gross margin was 38.3% — flat sequentially — as cost improvements and foreign exchange offset the seasonal loss of leverage. Net income was $11.5 billion, up $2.8 billion, or 32% over last year. And it was also a new June quarter record. Diluted earnings per share were $2.34, up 40% and also a new record for the June quarter. And cash flow from operations was very strong at 14.5 billion. iPhone revenue grew 20% year over year, with iPhone ASP increasing to $724 from $606 a year ago, driven by the strong performance of iPhone X, iPhone 8, iPhone 8 Plus across the world. During the quarter we sold 41.3 million iPhones with double-digit unit growth in several markets including the U.S., Canada, Germany, Switzerland, Mexico, Hong Kong, Russia, the Middle East, and Africa. Our performance from a customer demand standpoint was stronger than our reported results as we reduced iPhone channel inventory by 3.5 million units during the quarter. We exited the June quarter towards the lower end of our target range of 5 to 7 weeks of iPhone channel inventory. Customer satisfaction with iPhone continues to be outstanding and is the highest in the industry. The latest survey of U.S. consumers from 451 Research indicates that across all iPhone models, customer satisfaction was 96%. And combining iPhone 8, 8 Plus, and iPhone X, it was even higher at 98%. And among business buyers who plan to purchase smartphones in the September quarter, 81% plan to purchase iPhones — up three points from the last survey.

Turning to services, we had our best results ever with all-time record revenue of $9.5 billion dollars. Services revenue included a favorable 236 million one-time item in connection with the final resolution of various lawsuits. Excluding this amount, services revenue was still an all-time record and the underlying growth rate of our services business was a terrific 28% over last year. We generated double-digit services growth in all our geographic segments and the App Store, Apple Care, Apple Music, cloud services, and Apple Pay all set new June quarter records.

Our Other Product category also set a new record for the June quarter with revenue of over $3.7 billion. That's up 37% from last year, with great momentum for both Apple Watch and AirPods. Apple Watch continues to be the best-selling smart watch by a wide margin and units and revenue grew dramatically during the quarter. AirPods continue to be a runaway success and we've been selling them as fast as we can make them since their launch a year and a half ago.

Next I'd like to talk about the Mac. We were very happy to see double-digit year over year growth in our active installed base of Macs, to a new all-time high, with nearly 60% of purchases during the quarter coming from customers who are new to Mac. Our year over year sales performance was impacted by the different timing of the MacBook Pro launch, which did not occur until early Q4 this year as opposed to June last year with the subsequent channel field during the June quarter. Even with the difficult launch comparison, we saw great momentum in many emerging markets with growth well into double digits, and we established new June quarter records for Mac sales in India, Turkey, Chile, and Central and Eastern Europe.

iPad units sales grew for the fifth consecutive quarter and we gained significant share of the global tablet market, based on the latest estimates from IDC. We recorded double-digit iPad unit growth in both our Greater China and rest of Asia Pacific segments, with a new June quarter record for iPad sales in mainland China. Almost half of iPad purchases in the quarter were by customers new to iPad and our active installed base of iPads reached a new all time high. Our overall performance compared to last year was impacted by the introduction of new iPad Pro models in June of last year, which resulted in both a different mix with higher ASPs and channel field a year ago. NPD indicates that iPad has 60% share of the U.S. tablet market in the June quarter ,up from 51% share a year ago. And the most recent consumer survey from 451 Research measured iPad customer satisfaction ratings of 94%, and among business customers who plan to purchase tablets in the September quarter, 75% plan to purchase iPads.

We continue to make great strides with enterprise customers across multiple industries. For example, financial services institutions are increasingly using iPads to deploy digital signature solutions for customer consent, compliance requirements, new account openings, and services transactions. In the railway industry, businesses around the world are using iPhone and iPad to support operations, training, passenger engagement, and maintenance activities. And leading automotive companies are deploying iPads in dealerships for sales enablement and end-to-end customer service management, and are choosing iPhone as the standard mobile device for their employees around the world. More and more companies are giving their teams a choice when it comes to the devices they use at work and enterprises including Salesforce and Capital One are deploying Macs based on employee preference. In fact, at Salesforce, the majority of their 35,000 employees are using Macs. And companies tell us that Mac has been instrumental in helping them attract and retain talent while providing strong security, streamlined deployment workflow, and significantly lower total cost of ownership. We're also seeing great interest in Business Chat, our powerful new way for organizations to connect with customers. Business Chat lets customers get answers to questions, resolve issues, and complete transactions directly from within Messages by starting a conversation on their phone or iPad and even continue that conversation on their Mac or Apple Watch. Dish Network is making Business Chat available to customers across the U.S. to enhance their customer service experience for pay TV. Customers can instantly reach a live agent with their questions, make account changes, schedule an appointment, or order a Pay-Per-View movie or sporting event all without leaving the Messages conversation. And Citizens Bank Park, home of the Philadelphia Phillies, is testing Business Chat with Aramark to handle beverage orders during games. Fans simply use their iPhone camera to scan a QR code on the back of their seats, taking them directly to a Business Chat conversation in Messages. From there, they can order drinks, pay quickly and securely with Apple Pay, and have them delivered directly to their seats without missing a moment of on-field play.

Our retail and online stores had a great quarter, thanks to very strong growth from iPhone, AirPods, and Apple Watch and the expansion of HomePod to Canada, France, and Germany. Our stores hosted more than 250,000 of our very successful Today At Apple sessions. We continue to add content across all Today At Apple topics, including popular new sessions on music and photography. We opened our 50th retail store in Greater China during the quarter and we just opened a beautiful new store in Milan this month, bringing the number of stores located outside the US to 46% of the total.

Let me now turn to our cash position. We ended the quarter with $243.7 billion in cash plus marketable securities. We retired $6 billion of debt during the quarter, leaving us with $102.6 billion in term debt and $12 billion in commercial paper outstanding, for a net cash position of $129.1 billion dollars. As we explained in February, we plan to reach a net cash neutral position over time. We returned almost $25 billion to investors during the quarter, including $3.7 billion in dividends and equivalents; we repurchased $20 billion worth of Apple shares, of which $10 billion related to the completion of our previous $210 billion buyback program and $10 billion to the beginning of the new $100 billion authorization we announced three months ago for a total of $112.8 million shares repurchased through open market transactions during the quarter. As we move ahead into the September quarter, I'd like to review our outlook, which includes the types of forward-looking information that Nancy referred to at the beginning of the call. We expect revenue to be between $60 and $62 billion. As you will recall, our September quarter results last year included a one-time favorable adjustment of $640 million to our services revenue. Taking that adjustment into account, our revenue guidance implies year over year growth of about 16 to 19%. We expect gross margin to be between 38 and 38.5%. We expect OpEx to be between 7 billion 150 million and 8 billion 50 million. We expect OINE to be about $300 million. And we expect the tax rate to be about 15% before discrete items. Also today our board of directors has declared a cash dividend of 73 cents per share of common stock, payable on August 16, 2018 to shareholders of record as of August 13, 2018. With that I'd like to open the call to questions.

Analyst questions

Katy Huberty, Morgan Stanley: Thank you and congrats on the quarter. I'll ask both my questions up front. First for Tim, you're on track to hit your services revenue target even earlier than planned, so how are you thinking about the next legs of services growth as you move into the next three to five years? And then for you Luca, NAND prices are falling this year, services mix is rising, those should both positively influence gross margins, and yet we're seeing gross margin sort of hang out here at 38 percent. What are the offsetting headwinds, and is it possible that we could see the tailwinds start to overpower those headwinds and in the next couple of quarters and see gross margins drift higher? Thank you.

Tim Cook

Katie, thanks for your questions. Tim. On the services side, we're thrilled with the results. They were very broad-based. We had double-digit services growth in all of the geographic segments and the App Store, Apple Care, Apple Music, cloud services, Apple Pay all set new June quarter records. And, of course, subscriptions have now passed over 300 million, as I had mentioned before. And so we couldn't be happier with how things are going. In terms of the next leg of this, you know, we're — given the momentum that we're seeing across the board, we feel great about our current services but obviously we're also thrilled about our pipeline that have some new services in it, as well. And so with the combination of these, we feel great about hitting our objective and maybe even doing a little better.

Luca Maestri

Katy, for margins, let me tell you about the puts and takes for the June quarter and then I'll talk about the guidance for Q4 to make some general observations for the future. Same with the June quarter, typically we see a decline in gross margin going from the March quarter to the June quarter. Last year we were down 40 BPS, two years ago we were down 140 BPS. This year we were able to keep GM flat sequentially. During the quarter, we always have some loss of leverage because of our typical seasonality. This year we were able to offset that with some cost improvements and also we had some favorability in foreign exchange on a sequential basis. Unfortunately, as you know, the U.S. dollar has already appreciated again recently. So we do not expect to see that favorability to repeat during the September quarter. Those are the puts and takes for June and we were very happy to see gross margin sequentially flat for June. For September, we're also guiding about flat sequentially at the midpoint. As you know, we typically have what we call Product Transition Cost during the September quarter and this year we also have about 30 BPS of headwind from foreign exchange, again because the dollar has appreciated recently. We expect those two factors to be offset by positive leverage because we've seen the revenue guidance that we provided and the mix to services that you've actually mentioned during your question. So we feel pretty good about the guidance for the fourth quarter. Looking forward, you know we don't provide guidance beyond the current quarter, but I think you know we have a pretty good record over the last several years to make good business decisions balancing units, revenue, and margins. As you know, foreign exchange has been a very significant headwind over the last three plus years, but we've been able to manage that. On the memory front, it is true that prices have started to decline. It has been a significant headwind for the last 12 to 18 months and still in the June quarter was a negative. We believe that we're going to start seeing some improvement from here on.

Shannon Cross, Cross Research: Thank you very much for taking my question. Tim, can you talk a bit about trends within your iPhone sales? ASPs were above expectations. You know, and now that you've had — and that's clearly better than some of the comments from some of your competitors — now that you've had about nine months of experience with a full, high-end, fully featured phone, can you talk a bit about what you think customers want, what the elasticity of demand is, and, you know, how you're sort of thinking about your competitive position? And then I have a follow up.

Tim Cook

Yeah. Shannon we feel great about the results on iPhone up 20 percent. And if you look for the cycle — and by the cycle I mean Q1, Q2, and Q3 — we've had, on an average weekly basis, growth in units of sort of mid-single digit and ASP growth of double-digit. And so if you look at iPhone X in particular, it's the most innovative smartphone on the market. We priced it at a level that represented the value of it. And we could not be happier that it has been the top-selling iPhone since the launch. And so we feel terrific about iPhone X. If you look at the sort of the the top of our line together, and by that I mean the iPhone X, the 8 and the 8 Plus, they are growing very nicely as you can probably tell from from looking at the ASP, and we couldn't be happier with how that's gone. And so I think in this cycle we've learned that customers want innovative products. And we sort of already knew that in other cycles and other points and times, but it just puts an exclamation point by that, I believe, with looking at the results. At the unit level, the iPhone SE had a difficult comp to the year ago quarter and so when we change some of the configurations — of memory configurations — in the year ago quarter, if you look at it on a geographic basis, the top-three selling phones in urban China were iPhone, where iPhone X was was #1 and has been for a couple of quarters, and iPhones make up three of the top-five smartphones in the U.S., U.K., and Japan. And so, you know, it's it's difficult sometimes to get a read over exactly what's happening in the market, but given the industry numbers that we've seen, it's clear that we've picked up a global market share and picked up market share in several countries — on not only iPhone, but iPad as well.

Thank you and then can you talk a bit about China? Greater China up 19 percent year over year during the quarter I believe. You know, obviously iPhone is doing well, but there was some concern that maybe some of what's going on in the trade world might have impacted — it doesn't seem like that. So I'm just curious as to what you're seeing in China and how you're thinking about it as you look forward. Thank you.

Tim Cook

Yeah, it's a good question. Thank you. This is the fourth consecutive quarter that we've had double-digit growth in Greater China. I mentioned how iPhone X and sort of the iPhones are selling. We did pick up share in iPhone and iPad, but if you look more holistically at our complete line, we had double-digit growth from services, to iPad, to iPhone, and to our Other Product category, which the Watch did extremely well. And so there are lots of good things happening there. In terms of the the tariffs themselves, and maybe I can sort of take a step back, because I'm sure some people have questions on this. And, you know, our view on tariffs is that they show up as a tax on the consumer and wind up resulting in lower economic growth and sometimes can bring about significant risk of unintended consequences. That said, the trade relationships and agreements that the U.S. has between — between the U.S. and other major economies are very complex and it's clear that several are in need of modernizing. But we think that in the vast majority of situations, that tariffs are not the approach to doing that. And so we're sort of encouraging dialogue and so forth. In terms of the tariffs that have been imposed or have exited the comment period — I think that there's one that's exiting today — there have been three of those. And maybe I could walk through those briefly just to make sure everybody's on the same page. The first was the U.S. imposed a tariff on steel and aluminum that was many, many different countries that started, I believe, at the beginning of June. There have been two other tariffs that have totaled about $50 billion of goods from China that have either been implemented or exiting the comment period in the in this month. I think the latest one is today. If you look at those three tariffs, none of our products were directly affected by the tariffs. There is a fourth tariff which includes goods valued at $200 billion also focused on goods that are imported from China. That one is out for public comment — probably like everyone else, we're evaluating that one and we'll be sharing our views of it with the administration and so forth before the comment period for that one ends. It's actually a tedious process in going through it, because you not only have to analyze the revenue products, which are a bit more straightforward to analyze, but you also have to analyze the purchases that you're making through other companies that are not related to revenue — maybe they're related to data centers and this sort of thing. And so we're going through that now and we'll be sharing our results later on those and feeding back public comment. Of course the the risk associated with more of a macro economic issue such as an economic slowdown in one or more countries or currency fluctuations that are related to tariffs is very difficult to quantify. And so that — and we're not even trying to quantify that to be clear about it. All of this said, we're optimistic, as I've been the whole time, that this will get sorted out because there's an inescapable mutuality between the U.S. and China that sort of serves as a magnet to bring both countries together. Each country can only prosper if the other does and, of course, the world needs both U.S. and China to prosper for the world to do well. You know, that said, I can't predict the future but I am optimistic that the countries will get through this and we are hoping that calm heads prevail.

Brian White, Monness Crespi: Tim, I'm wondering if you could talk a little bit about the multi-year partnership with Oprah Winfrey and what that says about your original content strategy and also Apple Music — if you can give us a little more color or an update maybe around paid subscribers or total subscribers around Apple Music and how you feel it's rolled out.

Tim Cook

Yeah, sure Brian. Thanks for the question. We're very excited to work with Oprah. We think that her incomparable ability and talent to connect with audiences around the world that there's no match and we think that we can do some great original content together and so we could not be happier in working with Oprah. As you know, we hired two highly respected television executives last year and they have been here now for several months and have been working on a project that we're not really ready to share all the details of it yet, but I couldn't be more excited about what's going on there. And we've got great talent in the area that we've sourced from different places and feel really good about what we will eventually offer. In terms of the sort of the key catalyst in the changes, cord-cutting in our view is only going to accelerate and probably accelerate at a much faster rate than is widely thought. We're seeing the things that we have on the periphery of this like Apple TV units — and revenue grew by very strong double digits ... very, very strong double digits in Q3 — as I mentioned in my opening comments, we're seeing different providers pick up the Apple TV and use it as their box to go to market with their subscription service. There are within the 300 million plus paid subscriptions, some of these are third-party video subscriptions and we see the growth that is going on there. It's like 100% year over year. And so all the things from all the forcing functions here from the outside all point to dramatic changes speeding up in the content industry. And so we're really happy to be working on something. We're just not ready to talk about it in depth today. In terms of Apple Music, we're well over 50 million listeners now when you add our paid subscribers and the folks in the trial. And so we're moving along at a very, very good rate. It appears to us, or what we've been told, is that we took the leadership position in North America during the quarter and we had the leadership position in Japan. And so in some of the markets that we've been in for a long period of time we're doing quite well. But really the key thing in music is not the competition between companies that are providing music. The real challenge is to grow the market. Because if you add everyone up that's providing subscription music today, or streaming music, it's — you know outside of China — it's less than 200 million probably around the world. And so it does seem to me there's an extraordinary opportunity in that business to grow the market well. And I think if we put our emphasis there, which we're doing, that we will be a beneficiary of that as other people will, as well. But I like where we are — our revenues on Apple Music grew over 50%, as I had mentioned earlier, during the quarter. So some really, really strong, strong results. Thanks for the question.

Toni Sacconaghi, Bersteinh: Yes, thank you. I have one for Luca and one for Tim, please. Luca, I'm wondering as we think about modeling Q4, iPhone ASPs are typically up sequentially about 2 to 4 percent — sort of low single digits. Perhaps you can help us think through how we should be thinking about Q4. I know you've provided some commentary last quarter on how we should be thinking about Q3 ASPs.

Luca Maestri

Toni, as you know we do not provide guidance for either units or a ASPs for any product category. But, of course, you know, we provided guidance on revenue and that the guidance range implies growth of 16 to 19 percent. We expect the growth to come from strong growth from iPhone, from services, and from wearables, which has been a bit of our pattern during the course of the year. On iPhone ASP, the only thing that I would point out is that obviously we are exiting the June quarter at a significantly higher level than in the past and so that I think it's important to keep in mind — as we move into the September quarter — it's important to keep in mind the type of revenue growth that we've implied in our guidance.

Tim, I was wondering if you could just comment a little bit about the health of the smartphone market. Apple's smartphone iPhone units have been relatively flat for four years and I think you've probably been a share gainer during that period, which would suggest, at least at the high-end, a market that is, perhaps, flat to down. And I'm wondering if you can comment on A) Whether you believe that and what you think might be happening with replacement cycles, and specifically also what impact, if any, you've seen from wider availability and less-expensive replacement batteries for iPhones.

Tim Cook

I think the smartphone market is very healthy. I think it's actually the best market in the world to be in for someone that is in the business that we're in. It's an enormous sized market and whether it grows, from our point of view, whether it grows 1 or 2 percent, or 5 or 6 percent, or 10 percent, or shrinks 1 or 2 percent, it's a great market because it's just huge. And so that's kind of the way that I view that. iPhone revenues are up 20 percent for the quarter over last year. We're really pleased with that. And if you look at the, sort of, the cycle which I'll define as Q1, Q2, Q3 for ease, you'll see that we've grown like mid-single digits and on an average weekly sales point of view. And, of course, double-digit on ASP. And so I think it's really healthy. In terms of replacement cycles, as I've mentioned I think on a previous call, some replacement cycles are lengthening. I think that the major catalyst for that was probably the subsidy plans becoming a much smaller percentage of total sales around the world than they were at at one time. And so I think some are lengthening. But I think for us the the thing that we always have to do is come out with a really great, innovative product. And I think that iPhone X shows that when you deliver a great, innovative product there's enough people there that would would like that and it can be a really good business. And so that's how I look at that. In terms of our installed base, which is something very important for us, as it is one of the key drivers of services, our active installed base on iPhone grew double-digits over last year during the quarter. And so we're thrilled with that. And you can you can see that carrying through to the services line and the growth that we have there. In terms of batteries, we have never done an analysis internally about how many people decided to get a lower priced battery than buy another phone, because it was never about that for us. It was always about doing something great for the user. And I think if you treat the users and the customers well, then you have a good business over time and that's how we look at that.

Laura Martin, Needham: I'd like to focus on product roadmap and strategy. There is a war going on for the home — the connected home — over the Internet of Things. And with two products, the HomePod and Apple TV in the home, my question is, strategically, how do you feel about the importance of being in the home? And whether it threatens your dominance outside the home with your core business in the mobile devices if you sort of lose that battle. I'm just trying to figure out strategically, when you think about where the puck's going, how important is it for you to have a beachhead in the home as well as out of home?

Tim Cook

I think the home business, Laura, is bigger than the HomePod and Apple TV. They're both important products, clearly, but everybody has their iPhone at home, as well. And everybody has their Mac at home. And everyone has their iPad at home. And so in terms of the Siri Access Points, as you can tell from the hundred billion number I quoted in the script, there is an extraordinary amount of usage of these products that are used to perform home-related functions. You know, I do that every day with controlling all my home automation and so on and so forth. Part of that is on HomePod, but part of it is with the Apple Watch, and the iPhone, and the iPad. And so I think home is important. Home is important. Work is important. The movement between the two are important. Health is important. So the smartphone has become the repository that goes across the whole of your life, not something that is just meant for a portion of it. And so I think all of those are important and we're focused on all of them.

Yes, sort of. I mean, I'll watch your your product roadmap and be able to tell what the answer is. The other thing, the thing I get in fights with investors about the most is this — and I'd love your insight on this — I love the expansion of the new products. The question I have is, are they actually on-ramps into the Apple ecosystem? The Beats, the Watch, the AirPods, subscriptions — are they on-ramps into the ecosystem, or is the on-ramp to the ecosystem the iPhone and then these new products add revenue per-member once you get somebody into the ecosystem via the iPhone?

Tim Cook

A lot of people that buy Apple products buy for the whole ecosystem even though they might not currently use all the different products. And so the way that I think about those products, are they're products within the ecosystem itself. And, you know, AirPods have really gone through the roof, and the Apple Watch has hit an air pocket and has gone to a whole different level as I mentioned earlier with our overall wearables revenue. And so in my view, this is a part of the — they are a core part of the ecosystem.

Do they attract a new person to the ecosystem? Or does the person have to have an iPhone first?

Tim Cook

Well, but on your point, though, it is clear from communications I've had with users that some of them were attracted to iPhone because of the Apple Watch and so the Apple Watch led them to the iPhone. The reverse of that is also true — is that somebody got the iPhone and then decided, you know, I really want something to coach me in fitness and to curate some of the communications and so forth like the Watch does so well. And so it's not always a linear path. I see these things as being somewhat fluid and different for each user.

Apple has just announced its financial results for Q3 2018, covering the period between April 1 and June 30, 2018. The company sold 41.3M iPhones, 11.6M iPads, and 3.7M Macs. The company's quarterly revenue was $53.3 billion.

Press release:

Apple Reports Third Quarter Results

Revenue Up 17 Percent and EPS Up 40 Percent to New June Quarter Records

Services Revenue Reaches New All-Time High

Cupertino, California — July 31, 2018 — Apple today announced financial results for its fiscal 2018 third quarter ended June 30, 2018. The Company posted quarterly revenue of $53.3 billion, an increase of 17 percent from the year-ago quarter, and quarterly earnings per diluted share of $2.34, up 40 percent. International sales accounted for 60 percent of the quarter's revenue.

"We're thrilled to report Apple's best June quarter ever, and our fourth consecutive quarter of double-digit revenue growth," said Tim Cook, Apple's CEO. "Our Q3 results were driven by continued strong sales of iPhone, Services and Wearables, and we are very excited about the products and services in our pipeline."

"Our strong business performance drove revenue growth in each of our geographic segments, net income of $11.5 billion, and operating cash flow of $14.5 billion," said Luca Maestri, Apple's CFO. "We returned almost $25 billion to investors through our capital return program during the quarter, including $20 billion in share repurchases."

Apple is providing the following guidance for its fiscal 2018 fourth quarter:

• revenue between $60 billion and $62 billion
• gross margin between 38 percent and 38.5 percent
• operating expenses between $7.95 billion and $8.05 billion
• other income/(expense) of $300 million
• tax rate of approximately 15 percent before discrete items

Apple's board of directors has declared a cash dividend of $0.73 per share of the Company's common stock. The dividend is payable on August 16, 2018 to shareholders of record as of the close of business on August 13, 2018.

Apple will provide live streaming of its Q3 2018 financial results conference call beginning at 2:00 p.m. PDT on July 31, 2018 at www.apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q2 2018 earnings call. Here's our ongoing live transcript of their remarks!

If you want more info on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

We're proud to announce the results of a very successful quarter today, setting new March quarter records for both revenue and earnings. We generated $61.1 billion of revenue. that's up 16% from last year, making it our sixth consecutive quarter of accelerating revenue growth. Our performance was broad-based with iPhone revenue up 14%, services up 31%, and wearables up almost 50%. We grew in each of our geographic segments, and in greater China and Japan, revenue was up more than 20%. iPhone second quarter performance capped a tremendous fiscal first half with $100 billion in iPhone revenue, an increase of $12 billion over last year, setting a new first-half record and achieving our highest first-half growth rate in three years. iPhone gained share during the quarter based on IDC's latest estimates for the global smartphone market and customers chose iPhone X more than any other iPhone each week in the March quarter, just as they did following its launch in the December quarter. since we split the line with the launch of iPhone 6 and 6 Plus in 2014, this is the first cycle in which the top-of-the-line iPhone model has also been the most popular.

Q2 was our best quarter ever for services and momentum there continues to be incredibly strong. Revenue topped $9 billion for the first time, up more than $2 billion over last year's March quarter. We had all-time record revenue from the App Store, from Apple Music, from iCloud, from Apple Pay, and more — all of which are a powerful illustration of the importance of our huge, active installed base of devices and the loyalty and engagement of our customers. Across all our services, paid subscriptions surpassed $270 million, up over $100 million from a year ago, and up $30 million in the last 90 days alone contributing to the overall increase in services revenue.

Apple Pay continues its strong growth, with active users more than doubling and transactions tripling year over year. We believe the availability of Apple Pay at major transit systems have been a key driver of adoption among commuters, and in March we launched Express Transit with Apple Pay in Beijing and Shanghai — the second and third largest transit systems in the world. Apple Pay is already the most successful mobile transit payment system in Tokyo, which has the busiest transit system of all. With the launch of Brazil in April, Apple Pay is now available in 21 markets and we expect Norway, Poland, and Ukraine to launch in the next several months.

This was another outstanding quarter for our wearables business, which includes Apple Watch, Beats, and AirPods with combined revenue of almost 50% year over year. Looking at its revenue over the last four quarters, our wearables business is now the size of a Fortune 300 company. Apple Watch had another great quarter with revenue growing by strong double digits year over year to a new March quarter record. Millions of customers are using Apple Watch to help them stay active, healthy, and connected, and they have made it a top selling watch in the world. We launched carrier support for Series 3 with cellular in mainland China, Hong Kong, and Thailand during the quarter with more markets on the way. And now with watchOS 4.2, there are more features than ever before. For example, in addition to tracking your workouts and heart rate, skiers and snowboarders can record runs, see vertical descent and calculate speed, as well as contribute data directly to the Apple Watch Activity App. AirPods are incredibly popular and we're seeing them in more and more places — in the gym, in coffee shops, wherever people are enjoying music on their Apple devices. This product is a runaway hit and we're working hard to meet the incredible demand. We started shipping HomePod in February and it's widely recognized as having the best audio quality for its size and class. HomePod is a breakthrough speaker that delivers amazing sound and we believe it will change the way people listen to music at home. It's currently available in the United States, the United Kingdom, and Australia, and we're looking forward to adding new features to HomePod and introducing it to more markets around the world soon.

In March, we announced new products for the education community, including updating our most popular iPad with support for Apple Pencil. It empowers students to be even more creative and productive, from learning to code, to sketching ideas and jotting down handwritten notes, to marking up screenshots. And the new iPad's gorgeous Retina Display, advanced chip, and enhanced cameras and sensors are designed to support the next generation of apps for immersive augmented reality experiences in the classroom. In addition to our successful Everyone Can Code initiative, we've launched Everyone Can Create. It's a new, free curriculum that makes it fun and easy for teachers to integrate drawing, music, filmmaking, or photography into the existing lesson plans for any subject. We believe education is the great equalizer and whether it's through our coding programs, our unrivaled augmented reality platform, or the creativity both can unleash, we're proud to help students everywhere reach new frontiers of learning with Apple technology.

In March, we also released iOS 11.3, a major update offering new immersive augmented reality experiences, access to personal health records in the Health app, and more. Apps can now deliver AR experiences that use vertical walls, doors, in addition to tables and chairs, and can more accurately map irregularly shaped surfaces. The update to ARKit that made this possible came just six months after we launched the world's largest AR platform.

Also in iOS 11.3, patients in nearly 40 health systems, representing hundreds of hospitals and clinics, can now consolidate their medical records from multiple sources and view them all in one place right from their iPhone. This data is encrypted and protected with a user's iPhone passcode and it can help them better understand their health history, have informed conversations with doctors and family members, and make future health care decisions.

Consistent with our long term focus, privacy is a key element of these initiatives for education and personal health. We're relentless about making the best products and experiences in the world, while fiercely protecting our users' privacy, because we believe privacy is a fundamental human right.

Our environmental initiatives recently passed an important milestone: All of our global facilities across 43 countries are now powered with 100% clean energy. We work with communities around the world to build clean power sources. Apple now has 25 renewable energy projects operational and 15 more under construction. We're also driving our supply chain to use clean energy. As of last month, 23 of our suppliers are committed to operating on 100% renewable energy.

We're now halfway through our fiscal 2018 with nearly $150 billion in revenues and double-digit growth in all of our geographic segments. We've generated almost $34 billion in earnings in six months and we're very bullish on Apple's future. We have the best pipeline of products and services we've ever had, we have a huge installed base of active devices that is growing across all products, and we have the highest customer loyalty and satisfaction in the industry. Our services business is growing dramatically. Our balance sheet and our cash flow generation are strong and that allows us to invest significantly in our product roadmap and still return a very meaningful amount of capital to our shareholders. Recent corporate tax reform enables us to deploy our global cash more efficiently. In the United States we expect our direct investment in the economy to exceed $350 billion over the next five years, including $30 billion in capital expenditures and we expect to create over 20,000 U.S. Jobs at Apple over that time frame. We're narrowing the site selection for a new U.S. campus and we look forward to sharing more information on that later this year. Consistent with our annual cadence, today we're providing an update on our capital return program. Tax reform makes it possible for us to execute our program more efficiently both through share repurchases and payment of dividend to the tens of millions of investors who own Apple stock either directly or indirectly from large pension funds to individuals with retirement accounts. So today, given our strong confidence in Apple's future, we are announcing a significant update to our capital return program. Our Board of Directors has approved a new $100 billion share repurchase authorization as well as a 16% increase in our quarterly dividend, effective with our next dividend payable later this month. Luca will provide more details about our program, as well as a more in-depth discussion of the quarter's results. So I'll now turn the call over to him. Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. We're very pleased to report record financial results for our March quarter, with revenue growth of 16%, EPS up 30%. Starting with revenue, we generated 61.1 billion, our highest ever for a March quarter. Revenue grew in all of our geographic segments, setting new Q2 records in most countries we track. Performance was very strong in emerging markets where revenue was up 20% and we were especially pleased to see 21% year over year growth in Greater China, our strongest growth rate from that segment in ten quarters. We also set Q2 revenue records in the Americas, in Europe, and in Japan. Gross margin was 38.3%, essentially flat sequentially, as we offset the seasonal loss of leverage with cost improvements and a shifting mix towards services. Operating margin was 26% of revenue. Net income was 13.8 billion, up 2.8 billion over last year, and a March quarter record. Diluted earnings per share were $2.73, up 30% to a new record for Q2. And cash flow from operations was very strong at 15.1 billion. iPhone revenue grew 14% year over year, with iPhone ASP increasing to $728 from $655 dollars a year ago, driven primarily by the performance of iPhone X, iPhone 8, and iPhone 8 Plus. During the quarter we sold 52.2 million iPhone's, up 3% over last year, and we grew iPhone units by double digits in several markets including Japan, Canada, Switzerland, Turkey, Central and Eastern Europe, Mexico, and Vietnam.

Our performance from a customer demand standpoint was even stronger than our reported results, as we reduced iPhone channel inventory by 1.8 million units, 600 thousand units more than the March quarter reduction last year. We exited the March quarter within our target range of 5 to 7 weeks of iPhone channel inventory. Our customers are extremely happy with their iPhone's. The latest latest survey of U.S. consumers from 451 Research indicates that across all iPhone models, the customer satisfaction rating was 95%, and combining iPhone 8, 8 Plus, and iPhone X, customer satisfaction was even higher at 99%. And among business buyers who plan to purchase smartphones in the June quarter, 78% plan to purchase iPhones.

Turning to services, we had a sensational quarter with all-time record revenue of 9.2 billion and that's up more than 2 billion from last year, an increase of 31% and double the services revenue we generated in the March quarter just four years ago. Our services business is growing at a very fast pace all around the world, with revenue up more than 25% year over year in each of our five geographic segments. The App Store set a new all-time revenue record in the March quarter and Apple Music reached a new record for both revenue and paid subscribers, which have now passed 40 million. iCloud storage revenue was up by over 50% year over year to a new all time record, and Apple Care revenue grew at its highest rate in five quarters, setting a new March quarter record.

Our Other Product category also set a new record for the March quarter with revenue of almost 4 billion. We began shipping HomePod in February and unit sales of both Apple Watch and AirPods reached a new high for the March quarter. When we combine all our wearables and home products, they accounted for over 90% of the total growth in the other products category.

Next, I'd like to talk about the Mac, which set a new March quarter revenue record, including new records in both the Americas and Greater China. We saw 4.1 million Macs, generating year over year growth in many emerging markets including Latin America, the Middle East and Africa, Central and Eastern Europe, and India. We were happy to see double digit growth in our active installed base of Macs to a new all time high with almost 60% of March quarter purchases coming from customers who are new to Mac.

iPad grew both units and revenue for the fourth consecutive quarter. We sold 9.1 million iPads, and about half of purchases were by customers new to iPad. Growth was particularly strong in Japan, in Latin America, in the Middle East and Africa, and Central and Eastern Europe — all markets were iPad sales were up double digits compared to a year ago. We gained share of the global tablet market based on the latest estimates from IDC and our active installed base of iPad's reached an all-time high. NPD indicates that iPad has 53% of the U.S. tablet market in the March quarter, up from 40% share a year ago. And the most recent customer survey from 451 Research measured iPad customer satisfaction ratings of 95% and among business customers who plan to purchase tablets in the June quarter, 73% plan to purchase iPads.

We continue to make great strides in the enterprise market. In February, we announced a new cyber risk management solution for businesses with Cisco, Aon, and Allianz. This combined approach is an industry first that integrates the most secure technology from Apple and Cisco, cyber resilience evaluation services from Aon, and options for enhanced cyber insurance coverage from Allianz. Organizations will now be able to better manage and protect themselves from cyber risks associated with ransomware and other malware related threats. We are thrilled that insurance industry leaders recognize that Apple products provide superior security. In March, we announced two new services with IBM to bring more dynamic and intelligent insights into apps. IBM Watson services for CoreML and IBM Cloud Developer Console for Apple will enable developers to more easily build native iOS apps that bring together machine learning with artificial intelligence and cloud services. In healthcare, iPhone's are being used across leading health systems including Cedar Sinai, the Mayo Clinic, and HCA Healthcare with iOS apps to support clinical workflows, communications, and care delivery. In fact, HCA Healthcare recently announced they plan to deploy 100 thousand iPhone's across their hospital sites within the next three years.

We had great performance from our retail and online stores, which produced their highest March quarter revenue ever. Year over year growth was led by iPhone as well as strong performance from AirPods and the introduction of HomePod. Our store hosted more than 250 thousand of our very popular Today at Apple sessions, with a particular emphasis on coding and app design. During the quarter we opened beautiful new stores in South Korea and in Austria, our first in both countries. And three weeks ago we opened our newest store in Tokyo, bringing us to 502 stores across the world today.

Let me now turn to our cash position. We ended the quarter with 267.2 billion in cash, plus marketable securities, and we had 110 billion in term debt and 12 billion in commercial paper outstanding for a net cash position of 145 billion. We returned nearly 27 billion to investors during the quarter, we paid 3.2 billion in dividends and equivalents, and spent 23.5 billion on repurchases of 137 million Apple shares to open market transactions. We also retired 5.7 million shares upon the completion of our 13 ASR during the quarter. We have now completed over 275 billion of our current 300 billion capital return program, including 200 billion in share repurchases against our cumulative 210 billion buyback program. We will complete the 210 billion program during the June quarter — three full quarters sooner than initially planned. The biggest priorities for our cash have not changed over the years. We want to maintain the cash we need to fund our day to day operations, to invest in our future, and to provide flexibility so that we can respond effectively to the strategic opportunities we encounter along the way. As we said 90 days ago, the new tax legislation enacted in December gives us increased financial and operational flexibility from the access to our global cash. It allows us to invest for growth in the United States more efficiently and it also provides us the opportunity to work towards a more optimal capital structure. As we said in February, our goal is to become approximately net cash neutral over time. Given our strong confidence in Apple's future and the value that we see in our stock, our board has authorized a new $100 billion share repurchase program which we will start executing during the June quarter. Considering the unprecedented size of this new authorization, we want to be particularly thoughtful and flexible in our approach to repurchasing shares. Our intention is to execute our program efficiently and at a fast pace. As in the past, we will provide regular updates on our capital return activities at the end of every quarter. We're also raising our dividend for the sixth time in less than six years, as we know it is very important to our investors who value income. The quarterly dividend will grow from $0.63 to $0.73 per share, an increase of 16%. This is effective with our next dividend, which the board has declared today payable on May 17, 2018 to shareholders of record as of May 14, 2018. With over 13 billion in annual dividend payments, we are proud to be among the largest dividend payers in the world and we continue to plan for annual dividend increases going forward. We will continue to review our capital allocation regularly, taking into account the needs of our business, our investment opportunities, and our financial outlook. We will also continue to solicit input on our program from a broad base of shareholders. This approach will allow us to be flexible and thoughtful about the size, the mix, and the pace of our program. We expect to provide a new update to our capital allocation plans approximately 12 months from now. As we move ahead into the June quarter, I'd like to review our outlook which includes the types of forward-looking information that Nancy referred to at the beginning of the call. We expect revenue to be between 51.5 and 53.5 billion. We expect gross margin to be between 38% and 38.5%. We expect OpEx to be between 7.7 and 7.8 billion. We expect OINE to be about 400 million. And we expect our tax rate to be about 14.5%.

With that I'd like to open the call to questions.

Analyst questions

Shannon Cross, Cross Research: Thank you very much. I wanted to ask about your thoughts on iPhone and positioning. Now that we're a couple of quarters out from the launch of the iPhone X, you know, given the thousand-dollar price point — and it's clearly selling — but there's been a lot of questions in the market about sustainability of that price point and how you're thinking about it, you know, as you go, you know, look out sort of holistically across your lineup. So if you could talk a bit about what you're hearing from your customers on that and then I have a follow up. Thank you.

Tim Cook

Shannon, it's Tim. As Luca mentioned earlier, our revenues are up 14% year over year on iPhone and that's a combination of single digit unit growth and ASP growth that is mainly driven by iPhone X. I think that our iPhone line shows that there's a variety of different customer in a market that is as large as a smartphone market. And so we're going to continue to provide different iPhones for folks to meet their needs. On iPhone X specifically, I think it's important to maybe emphasize again one of the things I mentioned in my opening comments, that customers chose iPhone X more than any other iPhone each and every week in the March quarter just as they did following its launch in the December quarter. Also, since we split the line with the launch of iPhone 6 and 6 Plus back in 2014, this is the first cycle that we've ever had where the top of the line iPhone model has also been the most popular. And so with the customer sat that Luca referenced as well, the 99%, the iPhone X is a beloved product. And so I think, you know, it's one of those things where like a team wins the Super Bowl — maybe you want them to win by a few more points, but it's a Super Bowl winner and that's how we feel about it. I could not be prouder of the product.

OK, thank you. And then Luca, could you talk a bit about working capital, specifically inventory, which went up pretty significantly quarter over quarter? What's driving that and how are you thinking about — I mean, it's one of the uses of cash, obviously — so how are you thinking about inventory and maybe working capital in general as you're going forward?

Luca Maestri

Yeah, Shannon you know that we've already generated a significant amount of cash through working capital. We've got a negative cash conversion cycle and we plan to continue to have that. Our inventory level has gone up — it's just a temporary event. We have decided to make some purchasing decisions given current market conditions and that should unwind over time.

So that was essentially component purchases?

Luca Maestri

Correct.

Katy Huberty, Morgan Stanley: Thank you, good afternoon. The services growth acceleration is really the highlight this quarter in my mind. Can you talk about what the biggest driver is — whether it be products or regions that drove the acceleration — and do you think that we can continue to see growth north of 30%? Then I have a follow up.

Tim Cook

Hi Katy, it's Tim. The services grew 31%. We hit an all-time record at 9.2 billion — first time we cleared 9 billion. The great news about it is it's not a single geo or a single service. If you look at it, each of the geos — the minimum was at 25% — so each of the geos did extremely well. And we set records from the App Store, to Apple Music, to iCloud, to Apple Pay, and more. And underneath that, if you look at the subscriptions, the number of subscriptions — I think I mentioned this in my comments — paid subscriptions had moved up over 100 million on a year over year basis to over 270 million by the end of the quarter. And so it's very broad-based in terms of the type of service and geographic region. It's sort of exactly what we would like to see. In terms of forecasting moving forward, we've obviously made the assumption for our guidance that Luca provided earlier and in terms of longer term, we're on target to our 2020 goal of doubling the services revenue of 16 as we had talked about previously.

And it doesn't look like the threat of a trade war with China slowed down that business, in fact, growth accelerated. But anything anecdotally that you see in the business in recent weeks that would suggest that that is having an impact on demand and any actions that Apple is taking as a company to preempt any risk of tariffs going forward?

Tim Cook

Yeah, I think my own view is that China and the U.S. have this unavoidable mutuality where China only wins if the U.S. wins, and the U.S. only wins if China wins, and the world only wins if China and the U.S. win. And so I think there's a lot of things that bind the countries together and I'm actually very optimistic. I think history shows us that countries that embrace openness and diversity do a much, much better than the ones that are closed. And so I'm a big believer that the two countries together can both win and grow the pie — not just allocate it differently. And so that's our focus and I'm optimistic. I don't know every play-by-play that will happen, but over time I think that view will prevail.

Mike Olson, Piper Jaffray: Good afternoon and thank you for taking my call. Just following on the services question, I'd be curious what the next drivers of services revenue are — will it be continued penetration of music and Pay that you see as kind of the largest future categories of incremental growth or maybe when could augmented reality become a material part of services? And then I have a follow up.

Tim Cook

Well, Mike, it's Tim. Again, the great thing about services is there are several services that make up the total that are growing nicely. And I think the other good news is that because our active installed base is at such a level. You know, last quarter we said that we had exceeded 1.3 billion. This year — we're not going to release that number every quarter — but we've obviously grown again and it's growing at a double digit number on a year over year basis. And so with that kind of change in the installed base and with the services that we have now and others that we are working on, I think this is just a huge opportunity for us and feel very good about the track that we're on.

OK, and then any potential tariff issues aside, what's working for Apple in China right now? You talked about it being the strongest year over year growth in ten quarters. I guess what's driving that? Is it iPhone X specifically or something else that's behind that improvement? Thank you.

Tim Cook

It's a good question. iPhone X was the most popular smartphone in all of China last quarter. And so iPhone X has done well there. In order to hit a number like 21% on the growth that you see on your data sheet there, there has to be several things working well. And the things that have huge growth rates there are the Other Products category (which is our wearables business in China), and the Services business which you and I just spoke about, the iPhone obviously had to do extremely well to get a 21% number, and we gained share in the market for the Mac, as well. And so there's actually several vectors there that are are working well for us. We also, more broadly on the iPhone, the iPhone was the top three selling phones in China. So iPhone X was number one, but we had several in the top.

Amit Daryanani, RBC Capital Markets: Thanks a lot. Two questions from me, as well. I guess first one, just touching on the gross margin dynamics, if I look at the guidance for June on a year over year basis, I think sales are up double digit but gross margins are still [inaudible] and maybe down 20 basis points at the midpoint. Could you just talk about what's driving the lack of leverage in the gross margin basis on a year over year basis for June?

Luca Maestri

Yeah, Amit, it's Luca. We tend to look at our gross margin dynamics on a sequential basis. And essentially we got it to about flat on a sequential basis. On a year over year basis, it's less relevant for our business, but in general I would say that this year we are seeing a more difficult cost environment — particularly, we're still dealing with about 70 basis points of impact from the memory pricing environment that we're working through.

Got it. If I could just follow up, Tim you've been fairly vocal and have been talking about the need for better privacy protection and well-crafted regulation over time. [inaudible] How does Apple protect consumer data and how does this ongoing debate around data protection translate into a positive for Apple over time?

Tim Cook

We protected by encrypting it and we keep the bulk of information, or a significant amount of information, on the device so that the user is in control of it. We also collect much less overall than others do. If you look at our model, if we can convince you to buy an iPhone or an iPad, we'll make a little bit of money. You're not our product. And so that's how we look at that. In terms of benefit, we don't really view it like that. We view that privacy is a fundamental human right and that it's an extremely complex situation, if you are a user, to understand a lot of the user agreements and so forth. We've always viewed that part of our role was to sort of make things as simple as possible for the user and and provide them a level of privacy and security. And so that that's how we look at it.

Steve Milanovich, UBS: Great, thank you. Luca, could you talk a bit more about the capital allocation? The dividend increase of 16% was relatively low relative to what you could have done. So, are you really thinking the stock price is attractive here? And you said you would execute the buyback at a fast pace, can you give us any timeframe of that 100 billion and how much debt do you think about in terms of net cash zero?

Luca Maestri

Yes. Let's start with the dividend. We're increasing it by 16%. This is the largest increase that we've done since we've reintroduced the dividend back in August of 2012. So we think it's a very meaningful increase for all the investors that value income. Obviously when we come down to capital allocation decisions, we obviously also keep in mind the opportunity for us to do some M&A activities, which we do on an ongoing basis. But when it comes down between dividends and buyback, our view is that for a variety of reasons, you know we see a lot of value in the stock — we believe the stock is undervalued — and so we have a bias towards the buyback. And so the dividend is a very large component of capital return, because we're going to be returning more than $13 billion a year to investors through dividends, but we believe that, you know, given where we are with the valuation of the stock, we think that we will continue to do the buyback primarily. We are not giving an end date to the program this time because the amount is very, very large and so we will try to execute it, as you've seen from our track record during the last five years, we will do it at a very fast pace. But we also want to do it efficiently. We want to make sure that, you know, we buy back the stock at the right time. And so with that in mind, we have done $23.5 billion of repurchases during the March quarter. We will give you an update to our activities at the end of every quarter and then 12 months from now we will actually talk about an update to the entire program. So you will be able to keep track of our progress every 90 days.

Thank you. And Tim could you talk a bit about your healthcare opportunity? Is it merely selling watches over time or do you think more broadly about it — is there a services play? You're doing some things for your employees — could that potentially broaden out? How do you think about the opportunity there?

Tim Cook

We think about it very broadly and you can tell that a bit by some of the things that we've had going. With ResearchKit, and CareKit, and most recently the health records that I had referenced in my initial comments and those all came out of getting significantly engaged in the Apple Watch and sort of pulling the strings, so to speak. And we also have a heart study that is going on currently. And so I don't want to give too much away, but it's an area of great interest where we think we can make a big difference. And so it's a major strategic thrust of ours.

Brian White, Monness Crespi: Yes, Tim I think there's, you know, China numbers are actually phenomenal in the quarter and third consecutive quarter of growth. I think there's been a lot of concerns — just Apple in China and maybe misinformation out there, but what do you see as the drivers for Apple in both mainland China and Greater China over the next few years? And also if you could just give us an update on what you're seeing in India.

Tim Cook

Yeah, good question. Let me start with India and then I'll talk more about China. India, we set a new first-half record so we continue to put great energy there and try to — our objective over time is to go in there with all of our different initiatives from retail and everything else. And so we're working toward those things. It's a huge market and it's clear that many people will be moving into the middle class over time as we've seen in other countries. China, I continue to believe is a phenomenal country with lots of opportunity from a market point of view but also lots of opportunity from an app developer point of view. We have almost 2 million application developers in China that are writing apps for iOS and the App Store and they're doing unbelievably creative work and innovative work. And so we look at China holistically, not only as a market. On the market side, we've seen iPhone X, as I had mentioned before, as being the top selling smartphone during the quarter. We gained share during the quarter. And I read some notes here and there about the market itself not being good. I think on any kind of — on a 90-day clock, lots of different things can happen but my own personal view of China is that it's a great market and we are certainly looking far beyond 90 days and feel very bullish on the opportunity and the environment there. I would say that the market for us is more than iPhone, you know, the Mac gained share there as well. The Watch is getting some traction there. Services is doing extremely well. And so it has several catalysts and I'm very pleased with the results that we were able to show during the quarter.

Wamsi Mohan, Bank of America Merrill Lynch: Thank you. Good afternoon. Tim, can you comment on the price elasticity of demand at the high end for iPhones? If that was in line with your expectations, do you have a preference for unit growth versus ASP growth when it comes to maximizing gross profit dollar growth? And I have a follow up for Luca, please.

Tim Cook

We priced for the value that we're delivering and iPhone X is the most innovative product on the market and, as I've said a few times, they're sort of jam-packed with technologies that really set up the smartphone for the for the next decade. And so that's how we priced it. We were surprised, somewhat, that through all of this period of time that the iPhone X winds up at the most popular for every week of the time since the launch and so that's, I think, a powerful point. And it's number one in China, which is another powerful point. And so obviously at some point if those technologies move to lower price points and that [inaudible] probably more unit demand. But the way we think about is trying to price a reasonable price for the value that we deliver and I feel that we did that.

Thank you, Tim. And Luca, your gross margins have been very robust despite the headwinds that you absorbed on commodities, which you quantified and, frankly, also from the FX hedges that are limiting some of the FX upside that a lot of other companies are seeing. So, one when do you expect these to turn into tailwinds and when they do turn into tailwinds, would you consider reinvesting some of those enterprising or should we think about you flowing those through to the bottom line?

Luca Maestri

Let me start with where we are right now. I think you're right, I think we've been able to navigate a difficult foreign exchange environment for a number of years and now, as you know, because we have this hedging program as the dollar has weakened a bit in recent months — although during the last week it's actually started to turn the other way again — we've got the hedging program that works both ways. And also on the memory front, we feel that for NAND we're going to be turning the corner very soon. For DRAM we also think that we are near the peak, possibly at the end of this year. And so that should provide some level of stability. As I said earlier this year, I think we are experiencing, in total, a more difficult cost environment and so hopefully that can turn into a positive for us. At the same time, it's very difficult for me to give you an indication of what is going to happen in the future because every product cycle is different and as you know, we don't provide guidance past the current quarter. There are some elements that we understand quite well and we tend to manage well over the course of the cycle — for example, our cost structures — that we are able to manage throughout the year, but there are also elements that are not entirely under our control like foreign exchange, and the mix of products and services that we sell to our customers also has an impact on the overall gross margin. Our primary consideration is always around maximizing gross margin dollars and that is the approach that we take around, for example, pricing decisions.

Jim Suva, Citi: Thank you very much. I'll ask, actually, both my questions at the same time — one for Tim and one for Luca. Tim, strategically when we talk to investors they often say, "Oh iPhone market is saturated. There's not much room for growth." Yet when we do our analysis, we kind of still see emerging markets like India and all those still a growth. When you think about India and those markets, do you kind of believe that some of those markets could get to much higher or more normalized market share that you have in some of the developing countries over time? And can you talk a little about some of those efforts you may be doing? And then Luca, on the question for you it's about the gross margin. When you think about if component prices start to stabilize, seeing how Apple services have been so successful and accretive to margins, should we start to look for some potential margin upside? Again, should components stabilize. Thank you, gentlemen.

Tim Cook

Yeah, Jim thanks for the question. Let me address the smartphone market a bit and then I'll mention iPhone. In terms of the market in general, if you look at last year — it was the last data point we have in the full market — was that there were still a half a billion feature phones sold in the world. Now, many of those were sold into emerging markets. Not all of them, but many of them. And we still believe that over time, every phone sold will be a smartphone. And so it seems to us that with that many feature phones being sold, that's a pretty big opportunity. In terms of the iPhone itself, even though we sell, you know, quite a few phones across the course of a year, our sales are low compared to the full market of smartphones. And so our task is to convince people that currently have another type of phone to switch while really taking care of people that have an iPhone so that they choose, when they elect to buy another phone, that they buy another iPhone. And so we spend quite a bit of time on that as you might guess. I do think that India — India is the third largest smartphone market in the world — there is obviously huge opportunities there for us and we have extremely low share in that market overall. And so we're putting a lot of energy there and working with the carriers in that market and they're investing enormously on LTE networks then the infrastructure has come quite a ways since we began to put a lot of energy in there because of their leadership and so forth. And so I don't buy the view the market is saturated. I don't see that from a market point of view and certainly not from an iPhone point of view. I think the smartphone market is sort of like the best market for a consumer product company in the history of the world. So that's how I feel about it. It's a terrific market and we're very happy to be a part of it.

Luca Maestri

Jim on the gross margin side, I think I'll repeat what I said earlier. You're right, our services business — and I've said it in the past — is accretive to company margins and so as we are able to grow the services business, that should provide a positive tailwind. At the same time, within the Services portfolio that we have, we have services that are at different levels of profitability so we also need to take into account the mix of services that we're going to be selling. At a macro level, because about two thirds of our company is outside the United States, a weak dollar is a positive for our gross margins. A strong dollar, as it's been during the last four years, has been a bit of a headwind. For the company, we try to make it more stable through the hedging program. And in general, when we look at our process to innovate our products, typically when we launch a new product that product tends to have a higher cost structure than the product it replaces and so that is something that we need to work through every time we launch a new product and we have a pretty good track record and history of taking those cost structures down over time. So we need to balance all these different elements. I think we've done a pretty remarkable job during the last several years at managing all these different variables and coming out with the level of gross margin that we think is really good for investors and certainly it is our plan to continue to manage them that way. But it's very difficult for me to give you a prediction of where gross margins are going to be six months or 12 months from now.

According to the NASDAQ, Apple's stock price officially reached an all-time high of slightly above its previous record of $180.10 earlier today. While AAPL has been on the rise since plummeting to $150.24 on February 9 according to MacRumors, many are attributing the record high to billionaire investor Warren Buffett.

In a conversation with CNBC among talk of basketball and his annual letter to shareholders, Buffett commended Apple. He revealed that his multinational company Berkshire Hathaway has purchased more shares of Apple than any other stock in the last year, saying that Apple has an "extraordinary consumer franchise":

Berkshire Hathaway now holds 65.3 million shares of Apple, according to the U.S. Securities and Exchange commission.

MacRumors also notes that while Apple's stock price has technically traded for higher prices than the all-time high seen this morning, this new price "accounts for multiple stock splits that have occurred over the years," and that Apple now has a market capitalization of over $900 billion.

Currently, Apple's stock is hovering around (a still very impressive) $179.64.

Thoughts?

Has Warren Buffett convinced you to purchase a share of AAPL? Do you think he's the cause of the spike in Apple's stock price? Share your thoughts and any questions you have in the comments below.

Watch the video version:

Every year, at the end of the year, I go over what I consider to be the biggest problems facing Apple. Last year, just before New Year, I wrote about the challenges of scaling:

But, like most who write about Apple, I was never responsible for shipping product at scales that reach into the hundreds of millions. Steven Sinofsky, who ran Office and then Windows at Microsoft, and also worked on early versions of SkyDrive and Outlook.com, was.

Sinofsky understands developing and shipping software and services at massive scale. So, when the topic of Apple and software and services quality came up again, Sinofsky took to Twitter for what can only be described as an epic — and epically long — tweet storm and reality check. (And, unsurprisingly, the former Microsoft guy understands Apple-at-scale better than any Apple pundit or reporter.)

Excerpted from @stevesi:

It is absolutely ok — in fact, it's imperative — that we report constantly and consistently about bugs and issues that need to be fixed. But it's just as important to stop and remember all the features that we've gotten over the last few years, and what they've enabled, beyond just the bugs that need to be smoothed out.

Some years and releases are met with far-reaching excitement. Others with the equivalent of "bored now". The truth is always in between — not every whiz-bang new feature keeps being used for years and some barely noticed architectural changes reap dividends for decades. Over the course of the last twenty and ten years, though, all of the those updates all stacked together have undeniably enabled entirely new, more personal, more functional workflows and brought as all the future faster.

You can have it be fast, you can have it be good, and you can have it be cheap, but you can't have it be all of those things at the same time...

Passbook was similar. When Apple introduced it, many rolled their eyes at how limited it was. But it was clear Apple was just laying foundations, and that parts could be swapped in and layered on. And then we Passbook became Wallet, we got Apple Pay authenticated through Touch ID — and now through Face ID. Same with iCloud Keychain, Extensibility, Continuity, and so many of the technologies that started small and became fundamental parts of the architecture over time.

A system designed to support one product (Mac), scaled to the biggest product in history (iPhone), added on to with several more significant products (iPad, Apple TV, Apple Watch, AirPods, HomePod) will show stress fractures.

Smart executives will have some special projects groups go off an explore other ways of managing future projects, and allow existing systems to be tested and evolved in new ways to better support existing projects.

Just like Apple considered several candidates for a new language before unveiling Swift, and several candidates for a new file system before unveiling APFS, almost all of this happens internally, in small groups, and and only looks sudden from the outside.

I've said this before: Humans forget past pain quickly but feel present pain acutely. It's what lets us survive. There are fewer showstoppers today because Apple became really good at finding and fixing them. Kernel panics and SpringBoard crashes, which used to be frequent are few and far between now.

But "frustrators", the small things that crop up and harshen your user experience in one way or another, feel more frequent. That's a function of Apple's much, much, much wider product portfolio (the teams are doing far more than ever before), and our increased usage of the wider product portfolio (we're hitting them harder than ever before).

If you've been paying attention, change has been happening for years. Last year was different than the year before. And the year before, different than the year before that. Craig Federighi has said as much at the last couple of WWDCs, including last year's revelation that engineers were given time to work on and fix issues they felt were important beyond the release spec and schedule.

As Jason Snell, former head of Macworld, currently at Six Colors, pointed out — Sinofsky is one of the few people who could have written this.

For anyone who cares about understanding Apple at scale, it's terrific that he did.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q1 2018 earnings call. Here's our ongoing live transcript of their remarks! If you want more info on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Before we dive into the quarter, I'd like to take a moment to talk about a significant milestone we recently crossed. Apple's active installed base reached 1.3 billion devices in January and is at an-all time high for all of our major products. 1.3 billion devices represents an astonishing 30% growth in just two years. It speaks to the strength and reliability of our products in our ecosystem, as well as the loyalty, satisfaction, and engagement of our customers. It's also fueling tremendous growth in our services business, which I'll talk about a little later in the call.

Turning to the December quarter, we're thrilled to report Apple's biggest quarter ever which set new all-time records in both revenue and earnings. We generated revenue of 88.3 billion dollars which is above the high end of our guidance range, and it is up almost 10 billion dollars or 13% over the previous all-time record we set a year ago. It's also our fifth consecutive quarter of accelerating revenue growth with double-digit growth in each of our geographic segments around the world. What makes this even more remarkable is that the quarter we're reporting today was 13 weeks long, while the year ago quarter was 14 weeks. When we look at the average revenue per week and the December quarter this year compared to last year, our growth was a stunning 21%. Our growth was broad based and a key driver was iPhone which generated its highest revenue ever. iPhone X was the best-selling smartphone in the world in the December quarter according to Canalis and it has been our top-selling phone every week since it launched. iPhone 8 and iPhone 8 Plus rounded out the top three iPhones in the quarter. In fact, revenue for our newly launched iPhone's was the highest of any lineup in our history, driving total Apple revenue above our guidance range.

I want to take a moment to recognize the tremendous amount of work that went into creating iPhone X. Our teams carried out an extremely complex launch from both an engineering and operations perspective, executing an outstanding product ramp that required years of research and development. One that introduced innovative features like an edge-to-edge Super Retina Display and the True Depth camera which enables Face ID. Our customers love these new features and the new gestures, like simply swiping up from the bottom, which make using iPhone even more intuitive and enjoyable. Our team has put the technology of tomorrow in our customers hands today, set the standard for the next decade of smartphones, and we are very proud of their achievements. It was another very strong quarter for services with revenue of 8.5 billion dollars up 18% over last year and we're on pace to achieve our goal of doubling our 2016 services revenue by 2020.

The number of paid subscriptions across our services offerings passed 240 million by the end of the December quarter. That's an increase of 30 million in the last 90 days alone, which is the largest quarterly growth ever. We had an all-time record quarter for the App Store with our best holiday season ever. We're seeing great excitement around Augmented Reality with customers now enjoying over 2000 ARKit enabled apps spanning every category in the App Store. In December when Pokemon Go released its new augmented reality features built with ARKit, it jumped the top of the App Store charts. Last week on a stop in Toronto I met developers who are hard at work on creative applications using ARKit — from art appreciation to e-commerce — and I was very impressed with what I saw. Just four months after ARKit launched to the public, we've already released ARKit 1.5 in beta to developers around the world and the response has been tremendous. Augmented reality is going to revolutionize many of the experiences we have with mobile devices and with ARKit we're giving developers the most advanced tools on the market to create apps for the most advanced operating system running on the most advanced hardware. This is something only Apple can do.

In addition to the App Store, several other services had their biggest quarter ever, including Apple Music, iCloud, and Apple Pay all of which saw growth in both active users and revenue. Apple Pay has reached an important milestone in the U.S. as a result of 50% year-over-year growth in merchant adoption, it's now accepted at more than half of all American retail locations, which includes more than two-thirds of the country's top 100 retailers. Now available in 20 markets, global Apple Pay purchase volume more than tripled year-over-year, and we're delighted to be expanding to Brazil in the coming months. Today, you can use Apple Pay to take the subway in Gwangju China, see a concert at London's Wembley Stadium, or buy a souvenir in Yosemite National Park. In the U.S., we launched Apple Pay Cash in December and it's off to a terrific start. Millions of people are already using it to send and receive money with friends and family quickly, easily, and securely to split a bill, pay someone back, or send a last minute gift right from the Messages app.

It was our best quarter ever for the Apple Watch with over 50% growth in revenue and units for the fourth quarter in a row and strong double-digit growth in every geographic segment. Sales of Apple Watch Series 3 models were also more than twice the volume of Series 2 a year ago. Apple Watch is the most popular smartwatch in the world and gained market share during the quarter based on the latest estimates from IDC.

It was the third consecutive quarter of growth for iPad revenue thanks to the strength of both iPad and iPad Pro. Based on the latest data from IDC, we gained share in nearly every market we track with strong outperformance in emerging markets. Worldwide, almost half of our iPad sales were to first-time tablet buyers are those switching to Apple. And that's true in some of our most developed markets, including Japan and France. In China, new and switching users made up over 70% of all iPad sales.

For Mac, we launched the all-new iMac Pro in mid-December. It's an entirely new product line designed for our pro users who love the all-in-one design of iMac and require workstation-class performance. It's the fastest most powerful Mac ever, delivering incredible computational power for simulation and real-time 3D rendering, immersive VR, and complex photography, audio, and video projects. Worldwide, 60% of our Mac sales were to first-time buyers and switchers. And in China that number was almost 90%.

We're looking forward to getting HomePod in customers' hands beginning next week. HomePod is an innovative wireless speaker which delivers stunning audio quality wherever it's placed in the home, thanks to the advanced Apple-engineered hardware and software. Together with Apple Music, HomePod gives you instant access to one of the world's largest music catalogs. And with the intelligence of Siri, it's a powerful assistant you control through natural voice interaction. We're very happy with the initial response from reviewers who've experienced HomePod ahead of its launch and we think our customers are going to love this new product.

We believe one of the key issues of the twenty-first century is education. And because of that we've strengthened our commitment and investment into initiatives like Everyone Can Code. To find the innovators of the future, we need to nurture the students of today. Our app development with Swift curriculum, which is available free on iBooks, has been downloaded more than 1.2 million times worldwide, with almost half of those coming from here in the United States. It's also being taught in dozens of community colleges across the country, putting practical skills in the hands of today's job seekers. I was in London two weeks ago as we announced that the program was expanding to more than 70 colleges and universities in Europe. Millions of students around the world will have the opportunity to add Swift to their coding vocabulary and gain skills that are essential for today's economy.

This is an exciting time at Apple and with the best lineup of products and services we've ever had and a set of initiatives that show how business can be a force for good in the world, we could not be more excited about our future. Now, for more details on the December quarter results I'd like to turn over the call to Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Our business and financial performance in the December quarter were exceptional, as we set new all time records for revenue, operating income, net income, and earnings per share. Starting with revenue, we're recording an all-time record, 88.3 billion, up nearly 10 billion or 13% over the prior record set last year. It is our fifth consecutive quarter of accelerating revenue growth. As you know, the December quarter a year ago spanned 14 weeks compared to 13 weeks this year, which is important to consider as we assess the underlying performance of our business this year. When we look at average revenue per week our growth rate was even higher at 21% with growth across all product categories for the third consecutive quarter.

Our results were terrific all around the world with double-digit revenue growth in all our geographic segments and all-time quarterly records in the vast majority of markets we track, including the U.S., Western Europe, Japan, Canada, Australia, and Korea, as well as mainland China, Latin America, the Middle East, Central and Eastern Europe, and India. In Greater China, we were very happy to generate double-digit revenue growth for the second quarter in a row and in emerging markets outside of Greater China we saw 25% year-over-year growth. Gross margin was 38.4 percent at the high end of our guidance range. Operating margin was 29.8 percent of revenue. Our net income was 20.1 billion, an all time record, and up 2.2 billion over last year. Diluted earnings per share were $3.89, also an all-time record, and cash flow from operations was very strong at 28.3 billion.

During the quarter we sold 77.3 million iPhones, the highest number ever for a 13-week quarter. Average weekly iPhone sales were up 6%, compared to the December quarter last year, with growth in every region of the world despite the staggered launch of iPhone X. We establish all-time iPhone revenue records in nearly every market we track with double-digit growth in all of our geographic segments. iPhone ASP increased to $796 dollars from $695 a year ago, driven primarily by the launch of the iPhone X and the success of iPhone 8 and 8 Plus. We exited the December quarter towards the lower end of our target range of five to seven weeks of iPhone channel inventory, with less than 1 million more iPhones in the channel, compared to the December quarter a year ago in line with our growth in average weekly unit sales. Customer interest and satisfaction with iPhone are very, very strong for both consumers and business users. The latest data from 451 Research indicates U.S. customer satisfaction ratings of 96% or higher across iPhone models. In fact, combining iPhone 8, iPhone 8 Plus, and iPhone X, consumers reported an amazing 99% satisfaction rating. And among business customers planning to purchase smartphones in the next quarter, 77% plan to purchase iPhone. Our customers are also incredibly loyal, with Kantar's latest U.S. research reflecting a 96% iPhone loyalty rate, the highest ever measured.

Turning to services, we had a terrific quarter with revenue of 8.5 billion, up 18% year-over-year and up 27% in terms of average revenue per week. That is an acceleration to the 24% services growth run rate that we experienced in the September quarter. The App Store set a new all-time revenue record. The stores all-new design is off to a fantastic start, with quarterly store visitors, transacting accounts, and paying accounts reaching new all-time highs. During the week beginning December 24, a record number of customers made purchases or downloaded apps from the App Store, spending over 890 million in that seven-day period, followed by 300 million in purchases on New Year's Day alone. And according to App Annie's latest report, the App Store continues to be the preferred destination for customer purchases by a very wide margin, generating nearly twice the revenue of Google Play. Across all our services offerings, paid subscriptions reached 240 million, with growth of 58% over last year and they were a major contributor to the overall strong growth in services revenue.

As Tim mentioned, it was our best quarter ever for Apple Watch, and when we add the results from Beats and AirPods, our total revenue from wearables was up almost 70% year over year. In fact, wearables were the second largest contributor to revenue growth after iPhone, which is impressive for a business that started only three years ago. In total, our other products category set a new all-time record with quarterly revenue exceeding $5 billion for the first time.

Next I'd like to talk about the Mac. We sold 5.1 million Macs during the December quarter, which translates to a 2% year over year increase in average sales per week. Mac performance was particularly strong in emerging markets, with unit sales up 13% year over year and with all time records in Latin America, in India, Turkey, and Central and Eastern Europe. On a worldwide basis, the active installed base of Macs was up double-digits year over year to a new record.

It was also another growth quarter for iPad. We sold 13.2 million units, with average iPad sales per week up 8% over last year's December quarter. iPad sales grew strong double digits in many emerging markets including Latin America, the Middle East, Central and Eastern Europe, and India, as well as developed markets including Japan, Australia, and Korea. The active installed base of iPad has grown every quarter since its launch in 2010 and it reached a new all-time high in December thanks to extremely high customer loyalty and large numbers of first time iPad users. NPD indicates that iPad had 46% share of the U.S. tablet market in the December quarter, up from 36% share a year ago. And the most recent surveys from 451 Research found that among customers planning to purchase tablets within 90 days, 72% of consumers and 68% of business users plan to purchase iPads. Customer satisfaction is also very high, with businesses reporting a 99% satisfaction rating for iPad.

We're seeing great traction in enterprise as businesses across industries and around the world standardize on iOS. For example, Intesa Sanpaolo, one of Europe's leading banks has chosen iOS as the mobile standard for its entire 70,000 employee base in Italy. Choosing iOS for its security, user interface, accessibility, and reliability, Intesa Sanpaolo will deploy native apps to improve employee productivity in customer support, human resources, and marketing across the company. And LensCrafters, one of the largest optical retail brands in North America, will be using over 7,000 iPad Pros to enable digital eye exams and digital optical measurements in a personalized and interactive experience. We're also rolling out a new initiative called Apple at Work to help businesses implement employee choice programs more easily and offer Apple products company wide. Resources from both Apple and our channel partners will enable enterprise I.T. and procurement teams to buy or lease Apple products more efficiently, streamline the setup of iPhone, iPad, and Mac, and deliver a seamless onboarding experience for employees. We launched the program with CDW in the U.S. last week and we would be expanding to more channels and regions later this year.

The December quarter was extremely busy for our retail and online stores, which welcomed 538 million visitors. Traffic was particularly strong during the four weeks following the launch of iPhone X, up 46% over last year. And across the quarter, our stores conducted over 200,000 Today at Apple sessions covering topics including photography, music, gaming, and app development, and art and design. Just last weekend we opened our first store in Seoul, Korea and we're looking forward to opening our first store in Austria in a few weeks. These newest openings will mark the expansion of our retail store presence to 21 countries.

Let me now turn to our cash position. We ended the quarter with 285.1 billion in cash plus marketable securities, a sequential increase of 16.2 billion, 269 billion of this cash, or 94% of the total, was outside the United States. We issued 7 billion in debt during the quarter, bringing us to 110 billion in term debt, and 12 billion in commercial paper outstanding for a total net cash position of 163 billion at the end of the quarter. We also returned 14.5 billion to investors during the quarter, we paid 3.3 billion in dividends and equivalents, and spent 5.1 billion on repurchases of 30.2 million Apple shares through open market transactions. We launched a new 5 billion dollar ASR program, resulting in initial delivery and retirement of 23.6 million shares and will retire 3.8 million shares upon the completion of our twelfth ASR during the quarter. We've now completed over 248 billion of our 300 billion capital return program, including 176 billion in share repurchases against our announced 210 billion buyback program, with 34 billion remaining under our current authorization. Turning to taxes, due to the recently enacted legislation in the U.S., we estimate making a corporate income tax payment of approximately 38 billion dollars to the U.S. government on our cumulative past foreign earnings. This amount is very similar to what we had been accruing on those earnings in our financial results through fiscal year 2017, including the 38 billion payment, we will have paid over $110 billion of corporate income tax on our total domestic and foreign earnings during the last 10 years, for a cash tax rate of about 26%. Our tax rate of 25.8% for the December quarter was close to our guidance of 25.5% percent, as the lower U.S. rate from the new legislation was effectively offset by the remeasurement of deferred tax balances.

As we move ahead into the March quarter, I'd like to review our outlook which includes the types of forward-looking information that Nancy referred to at the beginning of the call. We expect revenue to be between 60 and 62 billion. We expect gross margin to be between 38% and 38.5%. We expect OpEx to be between 7.6 billion and 7.7 billion. We expect to be about 300 million and we expect the tax rate to be about 15%. Tax reform will allow us to pursue a more optimal capital structure for our company. Our current net cash position is 163 billion, and given the increased financial and operational flexibility from the access to our foreign cash, we are targeting to become approximately net cash neutral over time. We will provide an update to our specific capital allocation plans when we report results for our second fiscal quarter, consistent with the timing of updates that we have provided in the past. Finally, today our Board of Directors has declared a cash dividend of 63 cents per-share of common stock, payable on February 15, 2018 to shareholders of record as of February 12, 2018.

Analyst questions

Shannon Cross, Cross Research: Luca, I wanted to talk a little bit more about your comments on capital structure. I realize you don't want to give us any specifics about what you're actually going to return in the timing, but just maybe you could talk about how much cash you— I guess you think you need to have to run the business, and then in terms of ongoing cash flow, since the overseas cash will no longer be encumbered, does that change sort of your thought process in general?

Luca Maestri

Of course, you know, we've been talking about the importance of tax reform over the years because we believe it's really beneficial to the U.S. economy. What it means to us as a company, of course, is that we have additional flexibility right now from the access to the foreign cash. And in the past we've been addressing this issue by having to raise debt, as the cash was overseas— the majority of the cash was overseas. And so we are now in a position where we have 285 billion dollars of cash, we've got 122 billion dollars of debt, for a net cash of 163 billion. We have now the flexibility to deploy this capital. We will do that over time because the amount is very large, as as I said earlier we will be discussing capital allocation plans when we review our March quarter results. And when you look at our track record of what we've done over the last several years, you've seen effectively we were returning to our investors essentially about 100% of our free cash flow. And so that is the approach that we're going to be taking. We're going to be very thoughtful and deliberate about it. Obviously, we want to make the right decisions in the best interest of our long term shareholders.

Tim, maybe could you talk a little bit more about what you're hearing from customers in terms of the iPhone demand, you know, how you're thinking about the potential decay rate for lack of a better term, you know, with the high end phone — the over a thousand dollar phone — versus balancing that with now your ability to ship phones down below $400, because you've expanded the product line so much when you launched your phones in 2017.

Tim Cook

The revenue growth from iPhone across all the geographic segments was in the double digits. And I think as Luca said earlier when you change that to an average weekly sales basis, it's actually 22%. And so it was it was a stellar quarter for iPhone. The iPhone X was the most popular, and that's particularly noteworthy given that we didn't start shipping until early November and were constrained for a while. The team did a great job of getting into supply/demand balance there in December. But since the launch of iPhone X, it has been the most popular iPhone every week since — and that is even through today, actually, through January. And so we feel fantastic about the results. The most important thing for us isn't really the numbers, though. It's customer satisfaction and customer satisfaction is literally off the charts on iPhone X. If you think about the advances in technology that were a part of the iPhone X, we went from Touch ID to Face ID. Face ID has been incredibly well received. The wireless charging, the edge-to-edge Super Retina display, and totally new gestures, the user experiences is different. And so its great to get that kind of feedback. Now if you look at the sort of the overall iPhone line, which gets to the essence of the question I think, I reviewed the top — many markets — I'll talk briefly about the top four, in urban China and the U.S., the top five smartphones last quarter were all iPhone. And in Japan and the U.K. six of the top seven were iPhones. And so in a market that is as large as the smartphone market is, you know people want some level of choice and they're deciding, you know, which ones to buy. But we feel fantastic, particularly as it pertains to iPhone X.

Katy Huberty, Morgan Stanley: Growing double digits off such a large revenue base is impressive in itself, but if I look at March quarter guidance, it does assume a slower average weekly growth in total revenue as well as, I think, on my math iPhone shipments when you compare it to the December quarter. So, just how should we read into a modest slowdown in average weekly growth as it relates to the last question around the decay of demand around the higher priced products, or any impact that you might be seeing from the lower-priced battery replacements, or anything else in the market?

Luca Maestri

We are guiding to 62 billion. It's a strong double-digit growth, 13% to 17%. In context, it's 7 to 9 billion dollars above last year. So when you put things in perspective and you add the 10 billion dollars of growth that we had in the first quarter and the 7 to 9 billion that we're guiding to for the second quarter, you're talking about 17 to 19 billion dollars of growth in six months. This is at the macro level. We typically don't go into this level of detail, but I think it's important this quarter to give you additional color. And maybe the two most important messages are that we believe iPhone revenue will grow double digits as compared to last year during the March quarter and also, and importantly, that iPhone sell-through growth on a year over year basis will be actually accelerating during the March quarter as compared to the December quarter. Let me explain the factors that we took into consideration as we came up with our iPhone units and ASP that are embedded in our guidance: Historically, because of the channel fill and the holiday season, our selling volume during the December quarter is generally higher than sell-through. This year, the difference was further magnified because we shipped iPhone X in November rather than September quarter. We had a very successful product ramp. We were able to reach supply/demand balance in December, which placed the entirety of our channel field for iPhone X in Q1. This will have an effect on both units and ASP in Q2. Now, for units there is a second point to consider. We typically reduce channel inventory for our newest iPhone's in Q2, because they enjoy very large demand in the initial weeks of sales which are compounded by the holiday season in Q1. So we anticipate doing that in Q2 this year as well. For ASPs there's also another element that we need to consider. As you know, our newest products this year have a higher ASP than they had in the past. And so as a result as we reduce inventories of these newest products the overall ASPs for iPhone in Q2 will naturally decline sequentially by a higher percentage than we have experienced historically. So in summary our guidance for iPhone, we got double digit year over year growth and acceleration of sell-through growth on a year over year basis. For the balance of the company, in the aggregate, we expect to grow strong double digits year over year and particularly very strong performance in services and in wearables like we've seen during the December quarter. I hope this helps.

Yeah that's great color. Just a follow up on gross margin, guidance for flat gross margin in March is pretty seasonal, but you do have the tailwind from currency. So if you can just comment on how you think that flows into the model of the next couple of quarters, the weaker dollar, and what your outlook might be around component costs in the near future.

Luca Maestri

Yeah, let me walk you through you know the sequential first. So we're guiding about flat sequentially in spite of the loss of leverage, right, that is the largest element that we need to take into account because of our typical seasonality. We expect to offset the seasonality impact with cost improvements and with mix. FX on a sequential basis is fairly muted because, as you know, we've got a hedging program that protects us from the volatility of currencies in the short term. Certainly weaker dollar in the long term, if it holds, will be a positive but it's not something that you're going to be seeing translating to gross margin tailwind quickly. So we need to keep that in mind. We also need to keep in mind that we continue to experience a difficult memory pricing environment, which we think is going to start improving as we move into the second half of our fiscal year but it still has a negative impact in the March quarter.

Mike Olson, Piper Jaffray: I know you don't talk about future products, which is often the preface to questions about future products and I'll give it a shot. When you think, conceptually, about the path for iPhone-X-style devices going forward, is there any reason the roadmap wouldn't consist of multiple devices as we've seen with past iPhone upgrades? In other words, the X was unique amongst recent iPhone launches, because it's a singular device potentially limiting the shots on goal for upgrades given limited options. How do you think about that going forward?

Tim Cook

Mike, you did a good job of answering your question, I think, at the beginning. We don't really comment on future products, but I would tell you that we are thrilled with the reception of iPhone X. And as we said when we launched it, we were setting up the next decade. And that is how we look at it and so that's the reason it's chock full of incredible innovation. So you can bet that we're pulling that string.

How do you think about AR beyond the iPhone? You've created the world's largest AR platform and you've got developers generating a wide variety of apps. I realize it's still early days, but do you see Apple as a provider of a larger ecosystem of AR enabled devices beyond the iPhone and iPad in the coming years, or should investors focus on the opportunity within your existing device portfolio for at least the foreseeable future?

Tim Cook

I see AR as being profound. AR has the ability to amplify human performance instead of isolating humans, and so I am a huge, huge believer in AR. We put a lot of energy on AR. We're moving very fast. We've gone from ARKit 1.0 to 1.5 in just a matter of months. I couldn't be happier with the rate and pace of the developer community, how fast they're developing new things, and I don't want to say, you know, what we may do, but I could not be happier with how things are going right now.

Toni Sacconaghi, Bernstein: You commented on how your installed base over the last couple of years has grown 30% and iPhone is clearly the largest component of that. And so iPhone installed base is probably growing close to that number, perhaps less — call it 20% or 25%. Yet if we look at iPhone unit growth for fiscal '18, sort of what's implied with your guidance, fiscal '17 and fiscal '16. it's been relatively flat. So you have am installed base that's 20 plus percent higher and a unit growth that's relatively flat, which would suggest that your upgrade rate is going down or your replacement cycle is elongating. I'm wondering whether you agree with that and whether investors should be worried about that and maybe if I could just add one other wrinkle to potentially get your response on is giving consumers heightened awareness of their ability to replace batteries going forward as opposed to upgrade, isn't that also something that investors should potentially be concerned about in terms of its impact on upgrade rate going forward.

Tim Cook

I think it's up to investors as to what things they would like to focus on, so I don't want to put myself in the position of that. The way that I look at this — and the numbers you've quoted, I have a different view of them — but generally what we see with iPhone is the reliability of iPhone is fantastic. The second, or the previously owned, market has expanded in units over the years and you see, in many cases, carriers and retailers having very vibrant programs around trading an iPhone in, because iPhone has the largest residual rate on it. It acts as a buffer for the customer to buy a new one and it winds up with another customer somewhere else that is perfectly fine with having a previously owned iPhone. And so I view all of that to be incredibly positive. The more people on iPhones the better. I would like to point out that every major product hit a high on the active installed base, and so that's iPad, it's Mac. You know, those are huge numbers as well and so, as we've always said, there's a large part— or the vast majority of the services kind of are mapped to the installed base instead of the quarterly sales. And this quarter is no different on that. On the battery, Toni, we did not consider in any way, shape, or form what it would do to upgrade rates. We did it because we thought it was the right thing to do for our customers and I, sitting here today, I don't know what effect it will have. And again, it was not in our thought process of deciding to do what we've done.

And just to follow up, maybe I could clarify two little things. One, Luca, on tax rate, you talked about 15% for Q2. Is that how we should think about the tax rate on an ongoing basis.? And then just back to you on your response, Tim, I guess maybe you could just comment on whether you believe the upgrade rate has decreased over the last couple of years, because again, just sort of mechanically installed base is growing 20 and units are relatively flat over that period. Isn't that telling me ... upgrade rate is going down, or am I, you know, am I not thinking about other considerations?

Luca Maestri

Toni, on the tax rate I will make two comments. First of all, the new tax law in the United States is complex and I think we, as many other companies, are really trying to absorb what this all means. And I think we're going to be receiving, over the next few months, implementation guidance so we've taken some provisional estimates in coming up with our tax for the quarter and we will have to do that as we go forward here during the year. So it may be a bit bumpy in the short term as we understand the law in full and it actually gets explained in full. But I would say that for the current fiscal year, the guidance that we provided for Q2 should be approximately what you should be seeing. As we get into a new fiscal year, so many things change and we need to take that into account. You know, the geographic mix of our products and so on. But I would say for the remainder of the year it's what we guide to.

Tim Cook

I think on the replacement cycle, Toni, the answer probably looks different by geography. In those geographies that had, in the early days of the smartphone market, had very traditional subsidies where you pay $199 out the door or $99 or whatever, I think it's accurate to say those type of markets the replacement cycle is likely longer. Where that isn't the case, I'm not nearly as sure on that. I would point out that that happened some time ago and so it's very difficult currently to ever get a real time handle on replacement, right, because you obviously don't know the replacement rate for the product you're currently selling. You only know that in an historical sense. So it's not something that we are overly fixate on.

Laura Martin, Needham: Hi there (call cuts out) … three billion devices you gave us, updating from two years ago, and … onramp as you spread out the pricing, do you get the sense that we have more unique users in that billion-three than we had unique users back there in 2016?

Tim Cook

Laura, I'm sorry I missed the first part of that. You broke up on the phone.

O.K., so we have a billion-three … (call cuts out) … unique users of our … (call cuts out) … product, so we have a higher percent of being in the billion-three devices … (unintelligible) … are they …

Tim Cook

Laura, you're cutting in and out, but I'm going to take a swing at what I think you're asking. I think you're asking are there more active users today than there were two years ago when we had a billion active devices and the answer is absolutely. There are many, many, many more.

Yeah, I was asking of the percent, the ownership you see 1.4 devices owned per person — do you think it's now 1.2 or 1.6?

Tim Cook

Well, that 1.4, I don't know where that came from. It did not come from Apple. So that's one of those things that kind of float out there and I want to divorce Apple from that number. We're not releasing a user number because we think that the proper way to look at it is to look at active devices. It's also the one that is the most accurate for us to measure, and so that's our thinking behind that.

O.K., switchers in the quarter — you often give us switchers.

Tim Cook

It is so early on this product cycle, particularly with the iPhone X only starting in November, that we do not feel we have data at this point that would be very meaningful to share. And so I'll punt that question until next time around.

Steve Milanovich, UBS: Tim, you said you don't want to tell investors what to do, but the first point you made was talking about the size of the installed base, later you talked about the importance of customer satisfaction. Given that this doesn't look like a super-cycle in terms of unit growth, are you nudging us to focus on the size of the installed base, the annuity opportunity here, do you have confidence that you can monetize that installed base through additional hardware and services?

Tim Cook

What I said on the investor part is I think every investor has to look at their own situation and conclude the things that they think are important. What I think is important, I think the active devices are hugely important and that's the reason that we released the number two years ago and the reason that we're releasing that again today. That number speaks to the strength of the product, the loyalty of the customer, the strength of the ecosystem. And so we do put a lot of weight behind that and it obviously also fuels the services business. So I have long believed that a 90-day clock on unit sales is a very surface way to view Apple. I think that the far bigger thing is to look over a longer period of time and in customer satisfaction, and engagement, and number of active devices are all a part of that.

Could you address the positioning of HomePod? What category is it in? Is it a music speaker? Is it a home assistant since people seem to be trying to position it versus Amazon and Google's offerings? And is the target market primarily Apple Music users?

Tim Cook

HomePod is an incredible product that gives a unbelievable audio experience in a very small form factor with a super digital assistant in Siri that knows an enormous amount about music, but also can handle requests, too, like home automation to close your garage door, open your door, turn the light on, turn the fireplace on, change the thermostat — all of the things that you would like to do in home automation, but takes it further because you can do it right from the Home app and set up scenes. So you can say, you know, "Hey Siri, I'm reading," and your room will change to the things you would like happening in that particular room for when you read. Maybe it's a particular light, maybe it's a type of light, maybe it's the fireplace, so on and so forth. It also, obviously you can also do things with HomePod like use it as a speakerphone. And so if you're talking to your parents or they're talking to their grandkids, it's unbelievable audio quality for a speakerphone. You can also have Siri call for you. You can send messages. You can get an Uber car or a Lyft car. And so there's just a whole variety of things. So I think the use cases on this, much like our phones, will be broad based. Some people will use it significantly for music and others may use it significantly as a digital assistant. And I think the majority of people will likely use all of it and use all of the functionality of it.

Amit Daryanani, RBC Capital Markets: Could you just touch on what you're seeing in China in terms of underlying trends right now. I think growth was up double digits year over year, but essentially in line to what you saw in September. I would've thought that that would've accelerated a little bit with iPhone X ‚ just the puts and takes in China would be great.

Tim Cook

It's a good question. Keep in mind that this year had 13 weeks and last year had 14 weeks. And so even though we are reporting a similar year over year growth for Greater China, if you change that reporting to an average weekly sales, which is probably a much better way to look at it, there was actually a really nice acceleration. In specifically, the numbers this quarter as reported are 11% increase for Greater China year over year. But on an average weekly revenue basis, we were up 19%. Also, mainland China we had an all-time record for revenue in mainland China and of course a key part of that was iPhone. And as I mentioned before, Kantar reported that the top five selling smartphones in urban China were all iPhones. And so we could not be more pleased with how we're doing. And if you look at the other — we obviously grew share for iPhone in the quarter, but we also grew share in iPad and Mac during the quarter and wearables were extremely strong there in the quarter. And so you know everywhere I look I feel really good about how we're doing in China.

Got it. That's really helpful. Luca maybe a question for you, you know, when you talk about reducing Aapple's net cash levels to zero effectively over time, as it implies the number goes from 163 billion today to something like zero, what does "over time" mean for Apple? Is that one year, three years, 10 years, or how do you define over time? And does this change your thoughts around M&A at all and is that one reason to get that number from 163 to zero? Does it change your M&A thought process?

Luca Maestri

Let me answer, Amit, starting with M&A. Our thought process around M&A has always been the same, and really, you know, it really doesn't change. We've been acquiring companies over the years — in calendar 2017 we've acquired 19 companies. And the thought process is always to acquire something that allows us to either accelerate our product roadmaps, filling a gap in our portfolio, providing a new experience to customers. So it's always with the customer experience in mind, right, that we make acquisitions. We look at all sizes. And we will continue to do so. We have plenty of financial flexibility, of course. We had that even prior to tax reform and as I said, you know, we will talk about capital allocation plans when we report that the March quarter and that will include talking about timeframes and pace and so on and said we would try to be to be very thoughtful. As you said, 163 billion is a large amount and there are even practical considerations around it. So we'll see.

Tim Cook

And just for clarity, let me add one thing: What Luca is saying is not "cash equals zero." He's saying there's an equal amount cash and debt and that they balance to zero. Just for clarity.

Apple has just announced its financial results for Q1 2018, covering the period between October 1 and December 31, 2017. The company sold 77.3M iPhones, 13.2M iPads, and 5.1M Macs. The company's quarterly revenue was $88.3 billion.

Press release:

Apple Reports First Quarter Results

Revenue and EPS Hit New All-Time Records

Active Installed Base of Devices Reaches 1.3 Billion in January

February 01, 2018 04:30 PM Eastern Standard Time CUPERTINO, Calif.--(BUSINESS WIRE)--Apple® today announced financial results for its fiscal 2018 first quarter ended December 30, 2017. The Company posted quarterly revenue of $88.3 billion, an increase of 13 percent from the year-ago quarter and an all-time record, and quarterly earnings per diluted share of $3.89, up 16 percent, also an all-time record. International sales accounted for 65 percent of the quarter's revenue.

"We're thrilled to report the biggest quarter in Apple's history, with broad-based growth that included the highest revenue ever from a new iPhone lineup. iPhone X surpassed our expectations and has been our top-selling iPhone every week since it shipped in November," said Tim Cook, Apple's CEO. "We've also achieved a significant milestone with our active installed base of devices reaching 1.3 billion in January. That's an increase of 30 percent in just two years, which is a testament to the popularity of our products and the loyalty and satisfaction of our customers."

"Thanks to great operational and business performance, we achieved all-time record profitability during the quarter, with EPS up 16 percent," said Luca Maestri, Apple's CFO. "Cash flow from operations was very strong at $28.3 billion, and we returned $14.5 billion to investors through our capital return program."

Apple is providing the following guidance for its fiscal 2018 second quarter:

• revenue between $60 billion and $62 billion
• gross margin between 38 percent and 38.5 percent
• operating expenses between $7.6 billion and $7.7 billion
• other income/(expense) of $300 million
• tax rate of approximately 15 percent

Apple's board of directors has declared a cash dividend of $0.63 per share of the Company's common stock. The dividend is payable on February 15, 2018 to shareholders of record as of the close of business on February 12, 2018.

Apple will provide live streaming of its Q1 2018 financial results conference call beginning at 2:00 p.m. PST on February 1, 2018 at www.apple.com/investor/earnings-call/. This webcast will also be available for replay for approximately two weeks thereafter.

The tech giant announced Monday that it will become the first Laureate partner of the Malala Fund, which is led by Nobel Peace Prize laureate Malala Yousafzai and raises awareness around the right for equal opportunity in girls' education.

The tech giant said it will help the fund scale its organization to ensure every girl attends school and completes their education, as there are an estimated 130 million girls globally who are currently out of school. Cook will also be joining the fund's leadership council.

"(Malala and I) met and it was one of those rare moments in time where fairly quickly you realize how your values align. Not only the Malala Fund and Apple, but our personal values as well," Tim Cook said in an interview.

"One, equality is at the core of our belief and values and, two, that education is the great equalizer of people. If you believe both of those, it's not an extension at all to say, 'how do we help Malala achieve her vision of educating 130-million young girls around the world?'"

The Malala Fund expects to double the number of grants awarded by its Gulmakai Network and extend funding programs to India and Latin America with Apple's support.

"In particular, I love (Malala's) focus on secondary education," Cook said.

"So many girls around the world are getting to Grade 6 or Grade 7 and then stopping… This isn't right. It doesn't maximize potential and it doesn't treat people with dignity or respect."

Cook was making a surprise visit in Toronto, Ontario, Canada where he dropped in on a group of Grade 7 students taking part of an Everyone Can Code workshop where they were learning how to make robots dance in the company's programming language Swift.

Apple has been providing free curriculum for schools to use to teach coding in the classroom as it has continually said it believes coding is the language of the future and an equalizer.

The company created Swift Playgrounds to reach kids around Grades 5 or 6, Cook said, then extending to Everyone Can Code to reach all K-12 students and moving into technical colleges that reach post-high school students before employment or many adults retraining for second careers.

"I've been shocked at how receptive the schools have been and how quickly they rolled out," he said.

"We have found a lot of great educators…that are there to serve kids and make sure that their achievements and dreams are fulfilled."

Apple is one of the most successful and profitable companies in the history of companies. Despite a series of dividends and stock buy-backs, Apple still holds almost $269 billion in cash and investments. That's not just unusual, it's unprecedented. It's a sum so vast it fills financial analysts with furor and sends bloggers on back seat buying bonanzas.,

Understanding Apple's cash is as difficult and important as understanding Apple itself. That's what makes this Apple cash FAQ by Horace Dediu such a great read,

From Asymco:

There are a few sections worth pulling out as well. First is the explanation of Apple's $100 billion in debt.

Of Apple's nearly $269 billion in cash, only about $17 billion is located in the U.S. The other $252 billion is outside the U.S. If Apple were to bring it back to the U.S., even in cases where taxes had already been paid in the country where the money was earned, Apple would be taxes again in the U.S. While there have been a few "amnesty" periods where the tax rate was temporarily reduced to 10%, it was 30% up until the recent tax legislation reduced it to 15%.

At 30%, Apple believed it would lose too much of shareholders' money by bringing the cash to the U.S. So, it took out loans against the cash in order to pay dividends and buy back shares. At 15%, Apple not only believes the loss will be acceptable, it will no longer be able to avoid it.

It all comes down to the cash belonging to the shareholders. It's why Apple can't just use the money to take itself private and avoid Wall Street, which has shown historic lack of vision when it comes to Apple, its products, and its potential.

Apple also tends to spend less on R&D (research and development) than other companies in the industry because of the types of products it's thus far chosen to bring to market. Including iPhone.

Apple had to invest in multitouch and antenna technologies, to be sure, but it had existing experience and employees in everything from industrial to human interface design, hardware to software engineering. iPhone was primarily about using its existing competencies to much greater effect. Then, over time, growing them out to include things like silicon and machine learning.

R&D has increased over the years as Apple has approached technologies that require more breadth and diversity, from health sciences to autonomous systems, but it remains something that doesn't come close to even denting Apple's cash reserves.

Dediu also touches on Apple using its cash hoard to go on a shopping spree for other companies. Including the "Why Apple should by Disney/Netflix/Twitter/Nintendo/Tesla" that get posted every few months.

Microsoft buying Nokia on the hardware side and AOL buying Time Warner on the content side are good examples of major purchases that failed to add value to the purchaser.

So far, Apple hasn't needed a large-scale purchase to acquire new business models. It's managed to increase services revenue on its own, and the large-for-Apple but not for the industry Beats purchase has expanded subscription revenue. Apple has customers as well — the hundreds of millions, perhaps over a billion, that have bought or use an iPhone and other Apple products. Most of the companies Apple "should buy" have customers that, in large part, already use or have used Apple products.

And cash flow...

Beats and NeXT — which returned Steve Jobs to the company and gained Apple the core technology that became macOS and iOS — are Apple's largest acquisitions to date. Some of the smaller ones have been profound as well. PA Semi led to Apple's dominance in silicon. Authentic led to Touch ID and PrimeSense, among others, to FaceID. Also, of course, Siri.

Apple is set to report Q1 2018 financial results on Thursday, February 1. It's a holiday quarter, so it should be big. Apple has already given guidance and has also announced billions in investment in everything from a new support center to new jobs in the U.S.

But just like Apple only gets into new products when it believes there's an opportunity to create a differentiated experience that adds tremendous value in a way Apple is uniquely positioned to realize and control, Apple only spends its huge cash pile on opportunities where it believes it will gain the same kind of experience and value.

Check out Horace's complete Apple Cash FAQ at Asymco.

The Malala Fund is an advocacy group that champions every girl's right to 12 years of free, safe, and quality education. Apple is becoming the fund's first laureate partner to help significantly expand education and advocacy efforts.

From Apple:

Nobel Peace Prize Laureate Malala Yousafzai:

Apple's CEO, Tim Cook:

Apple is one of the world's most successful and wealthy companies. It will continue to make industry-leading products and record profits. Under Tim Cook, it also wants to use its power and influence to champion civll rights, at home and abroad.

The reason I spend so much time knocking down dumb Apple FUD is because all those click-bait headlines do is drown out the real issues facing the company, now and into the future.

I focus on those issues year-round in all of my reviews and editorials. Once a year, though, I try to break out what I think are the most current and most critical. Last year, that included everything from failure to ship to the horn effect. The year before, product vision and constraints.

This year, I'm focusing on something bigger. A reckoning of sorts.

Apple has grown enormously over the last decade. That's created cultural and technical debt. And, as we go into 2018, it feels like a lot of that debt is coming due.

1. Extracting signal from noise

Apple gets told it's wrong all the time. Doesn't matter if it's iPhone or AirPods. The minute Apple announces anything new or different, some percentage of coverage and customers race to tell the company how limited, expensive, and just plain stupid it is. Then, more often than not, a few or many months later, that product breaks records in sales and satisfaction, and goes on to lead the industry for years to come.

"If I had asked people what they wanted, they would have said faster horses."

It's a quote attributed to Henry Ford, the man who mainstreamed the car. It's often used in the context of Apple product development as well. It's predicated on the idea that customers don't know what they want until a company like Ford or Apple shows it to them. But, ultimately, it's also about not listening to customers. And that's a problem.

When you're told you're wrong over and over again only to be proven right over and over again, you stop paying attention. You begin to think that if you just weather the initial storm, everyone will inevitably come to see what you saw, and then you can move forward together. You can get on with making faster cars.

But even if that's true nine out of ten times — even 99 out of 100 times — there are those few times when it's not true. When it's just flat out wrong. And you never see it coming.

Take the current MacBook Pro for example. Many within Apple were tremendously proud of it. They loved everything about it from the updated butterfly key switches to the new Touch Bar dynamic input strip. They knew the Macs their increasingly mainstream customers were buying and they believed that, while there might be some initial skepticism from their traditional pro base, it would quickly fade and they could all move on and forward together.

Instead, we've ended up with what can only be described as the most divisive MacBook Pro ever.

It has a keyboard that, while enjoyed by yours truly, is hated by many. Not disliked — hated. And one that might just be suffering from an unacceptably high failure rate. It removed all the legacy ports in favor of USB-C / Thunderbolt 3 but didn't have the decency to include even a single USB-A adapter in the box. It even removed the extension cord that used to come with the power brick and made it a separate purchase.

While Apple included a lower-end model to appeal to MacBook Air customers who wanted to go Retina, the company didn't include a higher-end model to appeal to customers who really need the MacBook Pro to be "Pro" in the traditional sense of the word — in the iMac Pro sense of the word.

That's just one example. There are a few. All of them have the same root cause: Apple gets told it's wrong so goddamn always the company can no longer tell when it's really wrong. At least not in a way that prevents it from happening or course-corrects it quickly.

Hopefully, iMac Pro and the upcoming new Mac Pro are signs Apple recognizes this danger. Not just at the highest end of the lineups and not just after the fact — but across all of its products and well in advance of what's going into production next.

2. Schrödinger's products

I'll keep this one short and bitter-sweet: As a customer, I don't know the status of iPod touch or iPad mini. I don't know if Mac mini has been abandoned or not. I have no idea if there'll be a next-generation AirPort router. If Apple hadn't gotten a small group of media together last spring, I would have no idea if the last Mac Pro really was the last Mac Pro.

These products have not been significantly updated in years yet they're still being sold. Apple hasn't discontinued any of them but it also hasn't shown any sign of them being continued.

Apple typically doesn't talk about future products. It leaves the old product up, unchanged, until a new product comes along to replace it. And that works, when we're talking a year, maybe two at the outside. When we're talking multiple products over multiple years, it stops working.

Are these products not being updated because they don't sell or do they not sell because they aren't being updated? As a customer, I have no idea. And, absent a clear path forward, it makes it hard for me to consider investing in them.

Apple has limited resources. It has conflicting priorities. It has to choose between updating the Mac mini and getting the much more popular MacBook Pro out the door. It has to decide between keeping iPod touch current and shipping the make-it-or-break-it iPhone X.

But, if a product is up for sale, Apple has a responsibility to its customers to maintain the value and relevancy of that product. Otherwise, the company famous for its caring just seems like it doesn't care.

3. Foundations for the future

HomePod didn't ship. That's unusual, though not unprecedented. Apple typically doesn't pre-announce products because it knows shipping dates can change. Both the 2015 Apple TV and the 2016 MacBook Pro were rumored for summer launches before ultimately appearing in the fall. AirPods, originally announced alongside iPhone 7, were publicly delayed a few months before finally shipping in reduced quantities at the end of the year.

But HomePod is different. First, Apple pre-announced almost half a year before it was expected to ship. Second, the delay doesn't seem to have been based on any hardware production issues.

Inaccurate demand forecasting, higher component constraints, lower yield rates, last minute changes, shifting priorities, resources constraints — these are the types shipping problems that have plagued Apple in the recent past.

HomePod's delay seems more about software. SiriKit, which will let developers tie into Apple's virtual assistant, appeared in a timely enough manner. AirPlay 2, which will let accessories tie into the audio system, popped up in beta form only to disappear and, at least at the time of this writing, never make it into any of the public releases.

It's impossible for anyone outside of Apple to know or understand exactly what's going on but, as a customer, it highlights some far more general problems we've been experiencing over the last few years.

At its heart — and given how Apple has positioned it — HomePod is an audio product. Yet, Apple's audio technology has been hit-and-miss for what feels like a decade. And no, I'm not talking about the monstrosity that iTunes has become or Apple Music's troubled start.

Anyone who's worked with audio on a Mac seems to have as much hate as love for CoreAudio, and extremely powerful technology that lets you do amazing things… when it's not falling down on itself.

Even on iOS betas, it's come to be expected that audio apps just won't work for large stretches of time, starting and stopping at random, or otherwise exhibiting strange, worrisomely fragile behavior.

The original AirPlay never felt particularly robust either, which is why Apple has been working on the meant-to-be-much-better AirPlay 2. But it's hard to build on a rocky foundation.

It's been over a decade and a half since macOS (née OS X) shipped and a decade since iOS made it mobile. In that time, Apple has added some amazing new features to both operating systems but it's also left some frustrating flaws. That's not unexpected — no one and nothing can truly architect for the future and every technology brings with it technical debt.

You can get away with ignoring or working around the problems for a while, but the bill always comes due. Sometimes in the form of a high profile feature or product that hits straight up against them.

Again, it's just one currently painful example of what I think is a core problem. I'll sneak in another: We're more than seven years post-Siri and SiriKit doesn't yet support music, podcasts, or audio. We're more than three years post-Continuity and hand-off doesn't yet support media.

These are technologies where Apple had early-mover or has ecosystem advantage over the competition and which could provide differentiation and significant value to HomePod — and existing devices. Yet they're nowhere to be found.

There's an opportunity cost to everything. Assigning engineers to one project means you can't also assign those same engineers to another. And the types of engineers who can make a real difference to these projects are always the scarcest of resources.

But it's Apple's job to manage that. To know what is and what's going to be important to the company and to customers and to re-architect and pay down technical debt before it becomes an issue.

Under the old management, some features simply would never have been considered. Now, we're getting them, and they're awesome, but they're bringing a lot of baggage with them.

The new networking daemon that had to be rolled back a couple years ago and the windowing server in High Sierra right now show that there can be significant risk and pain associated with exactly these kinds of initiatives. That doesn't mean they shouldn't be done. It simply means they absolutely have to be done right.

4. Bugs and batteries

Apple's and its customers have had a bad end-of-the-year. There have been a number of security problems, including root/blank on macOS and issues with HomeKit on iOS. There have been a number of bugs, including December 2 springboard crashes on iPhone and a problem with captive Wi-Fi portals interfering with LTE access on Apple Watch.

To cap it all off, Apple's solution to preventing older iPhones with bad batteries from shutting off made it impossible for customers to tell that they had battery issues at all.

Maybe the timing is just a coincidence. More often than not, though, coincidence is simply a lack of pattern recognition.

Some of these, like root/blank are just bone-headed and never should have shipped. Others, like adding the battery controller to the existing list of things that could throttle performance are far more complicated and boil down to communication more than engineering. All of them have shaken trust in Apple's quality assurance program and, for some, in Apple itself.

It's tough to say how it will play out. Previously, any misstep by a company could cause long-lasting damage to their reputation or prospects.

Now, we live in an age of zero attention span and infinite affinity. Last year, Samsung literally had phones exploding in people's hands and, not only did some customers not want them recalled, they wanted the next version as fast as possible.

Likewise, Sony, Lenovo, and HP have been caught putting rootkits or executing person-in-the-middle attacks against their own customers in an effort to scratch out a few more licensing or ad dollars off the backs of those customers. And those customers still can't wait to buy their next laptop. So, I really don't know what we're teaching these companies about how they can treat us anymore.

It's possible some people will change their buying or usage patterns as a result of Apple's missteps. It's also possible that if iPhone X was released next month instead of last, every single one of them — and more — would flock to it just as fast if not faster.

But that's our problem. Apple's problem is figuring out not just how to fix all these issues but how to prevent itself from getting into so many of them to begin with.

5. Ultimately: Scaling

All of the issues I've outlined above are really facets of the same problem: scaling.

Once upon a time, Apple made desktop computers. Now, Apple makes computers for your desk, lap, living room, hands, pockets, wrists, and ears. And they're working on more. They're also working on everything that runs and plays on all those computers, both in terms of software and services.

Yet, through it all, Apple has maintained its functional organization and small, focused team-based approach.

Our greatest strength is often our greatest weakness. So too, Apple's culture. It's what lets the company do so much but what also causes so much to be left undone.

I'm not one of the people who thinks Apple needs to abandon its past to better serve the future. I don't think Apple needs to or should become IBM or GE. I think Apple can have its culture and scale it too. But I think it's got to do a much, much better job shoring up its foundations as it keeps building.

It shouldn't take a come-to-Jesus moment to get us to the next Mac Pro and Pro Display. It shouldn't be three or more years without Mac mini refreshes or Continuity for media. Siri still shouldn't feel like there's one server on the farm that just can't handle questions and we all hit it randomly a few times a day or week. It shouldn't take HomePod to get AV rock solid. It shouldn't take the worst possible headlines to get Apple to properly explain battery-based throttling. And it absolutely shouldn't take root/blank and other exploits being posted in public to get the security teams engaged and quality assurance overhauled.

For a company so good at fusing efficiency cores with performance cores, wide angle with telephoto lenses, local storage with online, SSD with HDD — and making sure it fills the gaps at the bottom left by profound increases at the top — it makes me wonder if a similar approach couldn't work for Apple itself. Continue to let the teams run as fast as they can and work on all the new features that Apple and customers want to see. But slide in other teams behind them that focus exclusively on maintaining and improving what's already there.

These are all growing pains. The problems that come with a company based on focus having to focus on multiple things at the same time. They're problems of scale.

But unless Apple wants to go back to only making one or two products, its the core problem Apple absolutely has to solve in 2018.

Links

• @jfpoole on Twitter
• @benbajarin on Twitter
• @cdhowe on Twitter
• @gbhil on Twitter
• Apple and iOS 10.2.1 address unexpected shutdowns on iPhone 6, iPhone 6s
• PSA: iPhone slow? Try replacing your battery!
• Why Apple slows down old iPhones to save your battery
• iPhone Performance and Battery Age
• Apple confirms CPU limitations in older devices
• [iPhone Battery: Slow Down or Die?}(https://techpinions.com/iphone-battery-slow-down-or-die/51915)
• Is Apple Evil? The Case of the Slow iPhone

Transcript

[background music]

Rene Ritchie: I'm Rene Ritchie and this is "Vector." Today, we're doing a special edition, a last-minute roundtable to talk about a headline. I don't want to call it a breaking story because it's about 11 months old, but in the last 48 hours, it's gotten a lot of attention.

That is Apple's decision to more aggressively manage power, to prioritize battery life over peak processor performance on iPhone SE, 6, 6s, and recently iPhone 7.

I wanted to bring together a bunch of really, really smart people so that we could discuss as much science and as much data, share our opinions, and help everybody to understand more about the story. Here we go.

Joining me today we have John Poole from Geekbench. How are you, John?

John Poole: I'm well, thank you.

Rene: We have Jerry Hildenbrand from Android Central. Hey, Jerry.

Jerry Hildenbrand: Hey, Rene. How are you?

Rene: I'm doing very well, thank you. We have industry analyst, Ben Bajarin.

Ben Bajarin: Hi.

Rene: How's it going, Ben?

Ben: [laughs] Good.

Rene: Carl, let me pronounce your name right. Is it Carl Howe?

Carl Howe: That's exactly right.

Rene: I have not had the privilege of speaking to you before. What's your one-line bio?

Carl: I'm a former industry analyst. Now I go by long-time Apple watcher.

Rene: Recovering industry analyst, almost? [laughs]

Carl: Exactly.

Rene: We're here to talk about the current controversy, might be the right word for it, around Apple and what they're doing with power management, battery life, and SoC performance on iPhones, primarily iPhone SE, 6, 6S, but as of iOS 11.2, also iPhone 7.

This actually started about a year ago when people were seeing battery drain and actual power downs on iPhone 6 and iPhone 6S. Apple had a series of media briefings with top-level people in product marketing.

Some people get the wrong idea about product marketing. There are product marketing people in some companies who are glorified sales people. At Apple, you're expected to be able to run the full engineering roadmap. They can, and they do, really well.

Talking to Apple marketing is a very intense experience. They went down what was happening, why it was happening, and gave a statement saying that they were going to put a system in place that would prevent these power peaks.

To make it quick, some phones that were having battery wear, for example, they'd been dropped repeatedly or they had been placed in sources of heat, they'd done something that had damaged the lithium ion and they were aging prematurely. If there was a peak power demand, they would shut down to protect themselves.

Apple put out a code that would change the way power management worked, in order to prevent that from happening. What power management means quite often is you have to balance battery life. Battery life is a currency in mobile. You pay for it with everything that you do. Everything costs you in terms of battery. One of the things that cost is the CPU and the GPU.

Apple was being much more careful with how they allow them to ramp up and for how long they allowed them to ramp up. Fast forward to a week ago or so, and someone on Reddit was having issues with their iPhone 6 running slow and went and had the battery changed. Because it was a brand new full battery, healthy battery in it, suddenly the performance kicked right back to maximum.

They were astonished and they said how great the experience was. I think John, at that point, is that where you got involved?

John: That's when we started digging into it. We've been hearing reports about this sort of behavior, users complaining their phone was slow. In past years when this has happened...especially because we see that uptick that, "My old phone is now the old and busted model so it must be slow."

We'd see an uptick in users coming to us and saying, "My phone is slow. What can I do?" Normally, there's some explanation for it, low power mode being the most popular one. It could have been maybe the phone was hot because it had been left in the sun or something like that. There's usually an obvious issue there that could...

Rene: Well also...and not to interrupt you. There's also everyone gets the new iOS update all at the same time, every region, every carrier. When you see Google trends for iPhone slow, it's always maxed out in September and it gets headlines, where with Android and other vendors the updates are intermittent and spread out throughout the year. You have tiny spikes but you never see the critical mass you see with iPhone.

John: Exactly. We're used to a certain amount of that traffic. What was different this year was that it was far more than we've seen in previous years, and far more sustained. It wasn't that brief spike around the launch. We were getting a constant ping from our users saying, "I ran Geekbench. My numbers are lower. What do I do?"

Our stock line was, "Well, we don't know. It could be an issue with your phone. Try resetting it. Take it into Apple. See if they have any feedback." That sort of thing. We were scratching our heads over it.

When I saw the Reddit post and they said, "Oh, I replaced the battery and then everything got better," I thought, "Is this the systematic effect? Is this an issue that's affecting other large numbers of phones?" That's when we dove into the database to pull up results and start doing that analysis.

Rene: Carl, could you give us a little primer on lithium-ion battery technology, and how it works?

Carl: Sure. The thing that I think a lot of people don't understand about lithium-ion batteries is that they're not your father's double A battery. Lithium is very volatile. It's very reactive. In some sense, you're carrying around a little chemical reactor in your pocket.

Actually, one of the interesting things about lithium-ion batteries is, if you don't treat them well, they self-destruct. Witness last year Samsung, etc.

We in the electrical engineering world, we spend a lot of time trying to make non-ideal things ideal. There's a processor added to most lithium-ion batteries that manages its operation. They try to keep it in the good zone where it just delivers power as you would like it to do.

But at the end of the day, it's pretty non-ideal. It does all kinds of crazy things. We don't charge it properly. It has a lot of variation in voltage and current according to temperature.

Rene: It doesn't like [inaudible 6:27] .

Carl: Yeah, there's all kind of things that go wrong. Age is another one. You've got this sort of operator sitting there watching over it. Unfortunately the chemical reactions degrade over time. It's got to do the best job it can to deliver what the processor wants. Frankly, the processor isn't that interested in your problems. It just has to make do.

With all this controversy, the analogy I always make is this is a little bit like running a power plant in the middle of the summer. You've got those days when everybody turns on the AC. If it's in excess of the power you can deliver, the guys in the control room, that little processor that's running the battery, have a choice. Do you want to have a brownout or do you want to have a blackout?

If you want to just keep ramping stuff up, yeah, we can just turn it down. The thing will turn off because I have to protect the battery. The battery is going to blow up and cause fires and things like that if I don't do the right thing. So I have a choice of either slowing things down or turning things off. I think that's the controversy.

John: That's an excellent analogy that I wish I had thought of. I want to tell you that.

Rene: Ben, I know John said that he was seeing an increase in interest on this. What I love about your work is that you always bring numbers to the game. Are you seeing anything in either sentiment analysis or satisfactional analysis that gave you any indicator?

Ben: There are two things. We've seen customer satisfaction maintain a really high number. We break that down by model as well. When we ask the question, we can look at that by model of device that they own. We don't see much change even as devices get older. People remain still high levels of satisfaction, north of 97 to 99 percent depending on the model. We haven't seen that even go down.

I think what's interesting is when we look at also the things that drive upgrade cycles for Apple, battery is actually not the top of the list. Depending on the model, like with Plus owners for example, it's fifth on the list. With non-Plus owners, it's fourth on the list.

It's interesting because then I look at that and say, "Well, whatever." I look at that stat. I'm not convinced that Apple users have a battery pain point. I wonder if this work is something where Apple is doing a good job in helping your battery last all day through all sorts of things that they're doing besides just the silicon optimization and the software side. That that's just not the same pain point.

Because to be honest with you, in Android world, we see battery a much, much higher driver of top things of interest driving new purchases.

Those are the things where it doesn't seem to me like it's something that the market has come back and really, this is your average consumer, your normal customer, is getting either angry about or feeling that pain point about because again, like I said, satisfaction remains high even amongst older devices. Battery's just not top of the list.

The thing I was pointing out too on Twitter yesterday I think really, really interesting is Apple has this unique position in that the life of their devices is longer than almost all other smartphone vendors, not just because their devices do actually last a long time which again is an argument that it's not necessarily planned obsolescence.

But that also there's a big secondary market for iPhones whether or not someone gives that to a friend or family member or sells it on the market or turns it back into their carrier who then sells it to corporate accounts.

Those things live for a really long time. Apple kind of has this problem, as Carl pointed. Lithium ion is a limited science. We also know the limitations of that science. Over time, it just simply degrades. If you have devices that are on the market for four-and-a-half to five years, Apple has to manage that.

On top of having to manage that, they still want to bring the cutting edge technology of iOS to those old devices, which, by nature, also consume quit a lot of CPU and GPU clock cycle. They're just in a different position. I think this is the strategy that they went to handle it. Everyone can knock whether that's right or wrong. I think we all agree if that's what's going to happen, they should tell people.

You'd be hard pressed, I think, to think that a consumer is going to consciously say, "I'd really rather my phone just turn off at 30 percent," thinking that they have a whole day and they actually don't, versus Apple doing what they can to make sure that if they're going to hold onto that phone for as long as they are and/or give that to someone else, that it is actually going to last a day and still have a good experience.

Like I said, they have to do something that other vendors don't, and this is the approach that they took to sort of solve this unique problem.

Rene: One of my favorite episodes of "The West Wing" was the lame duck congressman where they tried to force him to come back and vote for nuclear disarmament. They said, "This is what your constituents want."

He said, "I've been briefed on this for a decade, and I barely understand the issue. You can't tell me that 30,000 people really understand every nuance and subtlety about this nuclear arms treaty." I think that's one of the things. We like, as consumers, to feel empowered, but we're also existing in this really interesting time of social media.

I never mistake social media for reality, but it is played out on a very social stage. You saw that with Samsung last year. I think we're seeing that with Apple now. How do you react to that?

Jerry: Yes, this is a convenience thing. We don't want our phone to shut off at 30 percent. There's also a big user safety issue here. As Carl explained, a lithium-ion battery can have a spectacular fail, and nobody wants that to happen in your pocket.

A phone is kind of unique in the way they work. The CPU or the GPU, they go from what we call sleeping or idle to 100 percent almost instantly. That hits a battery hard. It needs a whole lot more energy than even a new battery can deliver to make that possible.

Once you get some age on the battery and it can no longer hold that much capacity to provide what you're used to, you have to do something lest the battery fail in some way. We know what can happen sometimes when a battery fails.

Somebody at Apple said, "We don't want this to blow up on somebody. Let's figure something out." Whether this was the right way to figure it out or not is up for debate, but there is a safety issue here.

Rene: John, it's interesting that we saw this with the A8. We saw this with the SE, the 6, and the 6 Plus. Apple hasn't implemented this on older devices, and I've seen this. I don't know if Ben has experienced this similar. I'll go out to game, and I'll see a bunch of people on iPhones and on Android phones. People on newer iPhones are OK. People on anything older, for Android mostly they're connected 24/7 to power packs. People with iPhone 5S and earlier, they do get...

It's like 60 percent, and they're like, "I'm ready to game," and then their phone shuts off, especially in the cold now. [laughs]

Carl: Yeah, I've got a point about that. I think we often look at these devices and we think that that percentage is a real measurement. The reality of this is, again, going back to my control room analogy, those guys keep records about how your battery performs. By the way, the batteries are not uniformly all the same.

They actually keep a lot of records, and they kind of create a model for what your battery capacity and your battery ability to deliver current is. That's what generates that percent number. It's not a direct reading off a battery. It's a little piece of software.

I think what we often sort of, "Oh, it went from 40 percent to 0 and it shut off." Actually what happened is that the last time I ran the model it said you had about 40 percent left. Then something happened that put the battery into a state that said, "Oh, things are going south here. Again, we're kind of getting into blackout territory. What do you want to do?"

In the older models, they didn't really have an option to tell the processor, "Hey, reduced the load," so they just would shut down. That model is actually important because it's the thing that generates the percentage. That's not a really measured number. It's a modeled number.

Ben: One of the things that's interesting too is -- I don't remember how, Rene, you would remember, how this came out -- we all have found out Apple is essentially making a power management controller now, custom designing it.

I wonder if part of this has to do with it as well. Obviously, not just the radios but just things having to do with the frequencies that's being put through based on workloads. This might be another thing that they're hoping to address, which could address the battery as well.

Rene: My understanding is they've been doing that for a lot longer than they've been talking about they've been doing it.

Carl: Absolutely.

Rene: There was this change, right, where Apple went from...As they've been making their custom CPUs and GPUs, they've changed the characteristics.

There was a really good article by Andrei -- I'm going to butcher his last name -- Andrei Frumusanu at AnandTech where he was talking about some of these architectural choices in the CPU, Jerry and how we're doing things with phones that we never were doing before.

When they first announced it, it was like, "You can surf the Web, you can check your email," and now you're downloading constantly on Instagram while you're Snapchatting, Facebooking, and running VR and AR games and all these different things. When you're trying to design SoCs for this, Apple famously went wide and slow, not thin and fast, but they're still susceptible to spikes and to other things like this.

Jerry: Yeah, on a hardware side, like you said, we want to do more with these tiny computers in our hands that they really weren't designed for in the beginning. Some things have to change. We also want them to go to sleep more so our battery lasts even longer when we're not trying to do things with them.

Rene: The race to sleep.

Jerry: Yeah, the gap between not being used and how they're being used is bigger than anybody is even thinking about here.

Rene: They try to offload. They try to have coprocessors like sensor fusion hubs and all these things so the main processor doesn't have to... [laughs] Even now they're putting arms inside of it. It's a constant battle.

Carl: I think one of the most interesting things about battery technology today, and one of Apple's unique assets here, is this ability to design their own silicon. They have control over all the pieces in the device. I actually wrote some research on this before I left the analyst community. I looked at all the different types of phones, how long they lasted, what the size of their batteries were, and I ran models on them, and all that sort of good stuff.

The most interesting thing is that Apple is in a unique position in that it can have the battery tell the phone to slow down. That is not a common function in most worlds. Mostly your battery acts as a slave to the master processor, and it just has to do whatever the processor asks for, and if it can't do that, then something happens.

The idea that the battery can actually go and say, "You know, I've got this much capacity. You might want to think about slowing things down or changing your consumption pattern so that we can continue," because otherwise, again, we're going to go to black out in about 30 seconds.

That feedback loop is actually really interesting. When I looked at the data, in fact, Apple has a huge advantage in terms of how many cycles they get out of milliwatt hour in their battery, simply because it's designed as a system. All the pieces talk to each other.

Rene: There's so much to break down in here. I have this problem that whenever I try to explain Apple, I get accused of being an apologist. I don't want to be overly sensitive to that, so that I stop explaining what's happening, but I just want to make it clear to everyone that we're trying to discuss the facts of this.

You are free to make any decision you want after that. If at the end of this, you think that Apple made absolutely the wrong choice for the wrong reasons, and just plain blew it, my only hope is that you're hating smart instead of hating dumb. That's the best result, for me, out of all of this.

Ben, there is a lot to do with sentiment here, where there is that perception that iPhones are slow. Whether it's right or wrong, there is that perception, and this plays into it.

Apple, very specifically, in their statement said that we're doing this to improve the user experience. The reaction to that was, "Apple's admitting that they're forced obsolescence." [laughs]

Ben: Again, if that's the case, then people wouldn't hold onto them for three years, like they do. People would be like, "Oh man, I can't use it."

This would be an interesting question, I don't know if you guys have benchmarked this before, but how does a iPhone -- like the ones that you guys tested -- age-wise, how does that benchmark in terms of performance against a phone of similar age? Just to say like, "It's slower, but is it still dramatically slower than the competitive product similar age-wise, or is it still actually faster than one, age-wise?"

Again, there are software updates that come along with that. There are all sorts of nuances in there that come along with that.

It's interesting to say like, "Well, how big of an impact is on the user experience?" Then, again, somebody who holds their phone for three to three-and-a-half years, how much do they do with technology? Are they really feeling the pain?

I think these are, again, interesting parts to think about when you think about how this is impacting the customer experience, but I'm not worried about this impacting sentiment.

The Note fires almost didn't even affect Samsung's sentiment around their customer.

Rene: Yeah, we have no attention span and huge brand affinity. [laughs]

Ben: Your phone can catch on fire, and your OK, then, OK, Apple is slowing down your phone a little bit once it gets over a certain age, and it's still usable. I just don't see that being the same issue.

Jerry: Agreed.

A great example is you brought up the Note 7. The fact that the storage facility that had all the recalled Note 7s actually caught fire because of those batteries. It's on the Web, you can find...somebody reported this, but it barely made a blip across all the tech blogs. I knew right then, "Well, this isn't a big deal."

Rene: [laughs] It seems like there's a few issues here to break down. One is that Apple always has to make choices.

Often, they're damned if they do, damned if they don't. I think that's fine. I think that's Apple's job is to make hard choices, and it's their job to deal with the fall out of those choices. They're worth almost a trillion dollars. They can absolutely handle this.

But the choice here was they were facing a situation where people would suffer from drain or shutdown, random or unexpected shutdown of the phones. Not random, it's really more unexpected from a user point of view. Or they could start doing things like power management. I think power management was never really well explained.

Carl, when Apple explains power management, and I did a poor job of explaining this too, people often understand it in the context of thermal. The phone can only run so fast, so hot for so long, before they have to start the processor down, or if it's outside in Arizona, it'll geek the screen, and then it'll give you that warning, for example, to protect the processor.

Apple widened that to apply to cold conditions, wear conditions, old battery conditions, spike conditions. It's not unheard of, in fact, it seems to me it's rather typical that processors are throttled in smart phones.

Carl: But the processor's usually throttled based upon other data, such as what applications are running. You might throttle based upon a sensor, as you were saying, but the idea that the batter controller has the ability to send a slow down is unique.

Is it a master/slave relationship or is it a discussion among peers, I think, is the real difference. In this case, it's more of a peer relationship. Since battery capacity is kind of the life blood of mobile, I think it was actually one of the smartest things they did early on when they sort of said, "You know, we're going to actually manage this in a way that treats it like the vital resource that it is."

I say, it turns out a little bit more like a peer, whereas in most other systems, and frankly there aren't that many other operating systems. But I used to work with the BlackBerry guys. They were paranoid about batter life, so they were one of the other companies that actually did everything possible to maximize battery life.

That was really getting through the day, as opposed to "I'm going to deal with old batteries." As my son reminded me earlier today, BlackBerry's advantage was, "Oh, just buy more batteries."

Rene: Yeah. [laughs]

Carl: That kind of went away when they started sealing the batteries inside the device.

They had to do something, and I say, I think they don't really have a peer at the moment in terms of how they manage their resource, that life blood of the mobile device.

Rene: What do you think about the decision they made here, Jerry? I think in some ways it was a decision that hurt them, because if your phone is draining or your phone is turning off, as a consumer, you'll think battery. But if your phone is ramping down to protect battery life, suddenly you're thinking performance.

Previously, and still with iPhone 5S, I would go to Apple, and I've actually done this, and say, "My battery's not working," and they test it, and they replace the battery. But it seems like people don't know that's the issue now.

Jerry: My only real problem with this gait, I hate that word, is that I used to build robots who sorted parts.

Rene: [laughs]

Jerry: The big pens, just random parts, and it was an amazing fun job, but you didn't have to be elegant. We use the word "elegant" with Apple a lot.

This is not an elegant solution and part of that is because nobody knew. Even if they could have known, they didn't remember seeing it, or they didn't ever see it when it first came to light a year ago. It's just, it feels very sketchy.

"Sketchy" and Apple get put together so often, unfairly, and I don't think it's fair in this case, but it just doesn't feel like an elegant solution, even though I can't argue with what they did. I kind of like what they did.

I stress the safety issue, because I did go through the Note 7, and it was 23 hours a day of non-stop back and forth with users and with Samsung, and trying to get everybody up to speed so they knew that their phone was or was not going to blow up on them. That was a nightmare.

Apple avoided this nightmare and I think that was really wise. It showed a lot of foresight to do it before it happened. It just feels sloppy.

Rene: Is that it, too, John? Because Apple added the disclosure. Since iOS 10.2.1, I think that was the right one, they added something to settings that would tell you your battery needs servicing.

You pointed out that on, I think it was your wife's phone, it never popped up, and a lot of other people are saying they never saw it either.

John: Right, the disclosure on my wife's phone, I've never seen, and to be fair, this is my old phone. I usually have the latest version of the iPhone and she has the previous version.

The thing that struck me with my wife's phone was that it's about two years old. It was purchased September 2015, so it's just over two years old. She had the random shut down issue back in November, December of last year. The 10.2.1 update fixed it, and we didn't realize it at the time. I just noticed she stopped complaining about it.

Then she came to me, actually after the Reddit post, and I was starting to dig into this, and she said, "My phone is really slow."

Looking at the Geekbench numbers for it, I mean it wasn't even flagship - people like to talk about how far ahead iOS is, and the iPhone compared to the Android handsets - but we're talking mid-tier, creeping into low-tier Android performance. It was noticeably sluggish. It was a really horrible experience.

Even today, I believe she's on 11.1.2, so fairly recent update. Going into settings, and looking under the battery, there's no notification that the battery's wrong, even though she's running at approximately 40 percent performance. The battery is in such a state and the processor is so limited that she's getting a fraction of the performance out of the phone that she should be.

I think if this was a discussion involving five-year-old phones and five-year-old batteries, then that would be one thing, but I think it's surprising since these issues started, just outside the year warranty period, I think that's where this discussion becomes sort of interesting and tricky because how long should we expect a phone to last?

Apple's fix, you know, as other folks have pointed out, Apple's fix is probably the best they could do, given the circumstance they're in, but should they be designing their phones differently? Should there be larger capacity batteries so they're not throttling the processor right away, relatively speaking, in terms of the lifetime of the device?

Two, the fact that Apple hasn't really been transparent about this issue. Those notifications aren't showing up in settings saying, "Hey, it's time to get your battery serviced," or something like that. People just sort of look at their phones and say, "It's slow."

It's only been since I published those charts that it's really been taking out of the tech sphere, talking about it in Reddit in anecdotal anecdotes, I guess, [laughs] is the best way of putting it, and actually being able to point to a dataset of hundreds of thousands of devices, saying, "No, this is a problem. This is what it's affecting," that it's sort of become a national conversation, and Apple has actually said, "Yeah, this is what we're doing."

I think if Apple had been a lot more transparent about it from the get go, it would have made a huge difference. Talking about the Note 7, Samsung got in front of it pretty quickly, saying, "Yes, there's a problem." They did the recalls and they seemed to have fixed that issue.

As others have mentioned, their perception has not really been changed.

For some people, it feels like Apple sat on this for a year and didn't say anything, even though they were slowing down phones. I think the reasons were good why they were doing that.

We can have a larger conversation as to pose this as a design fault with the iPhone, but I think the decision to introduce this limit was sensible. I think the decision not to talk about it at all, aside from a vague press briefing that really most iPhone users aren't going to hear about, I think that wasn't a wise move.

Rene: Ben, I want to throw it to you one more time before you have to go. To John's point, I wrote about this on December 12th, over a week ago, and nobody cared. Nobody picked it up. Nobody really commented on it. It went, I guess, just everybody's radar, and now it's this huge thing.

Apple did those briefings a year ago, and nobody seemed to notice. A lot of outlets reported it. I probably wasn't as clear. I didn't explain it as well as I could, but nobody really noticed it.

It seems like it's a confluence of cold weather coming again, which is what caused it last year, iOS 11, which added further burden to it, and the batteries being 11 months older. It's like people don't care until they feel the pain maybe.

Ben: Yeah. Again, I'm still sort of interested in what level of pain is being felt. The cold one was a unique one. They're having to manage this, like I said, in really interesting ways. Obviously there are things that they can do because they designed their own silicon and now that they'll do much more in the power management side they can be more efficient with that.

I think the reality is, especially somebody who holds onto their phone for that long, may not be your heaviest of users. While they stay at slow, again, it's not unusable. Again, I think the fact that they do last as long as they are...

That's one of the other things that I think is interesting as a solution because people are saying, "Well, just tell them you should replace your battery." At that point, if you told a grandma or your non-techy mother or mother-in-law, "Go replace your battery," they could freak out over that. They might just say, "I just need to buy a new phone."

Rene: Mine would just grab a screwdriver.

Ben: If you could. That just feels more like a forced upgrade, even though it's expensive to do so, than just letting you hold onto that phone and let your battery last. That's what you really want. It's really hard. Everybody agrees that Apple should be telling people.

The question is, when you've got a huge base of really non-techy, normal computers, how do you tell them this? What do you say? What's the right way to communicate this that they'll understand and not become anxious or worry about their phone if it's not needed?

Rene: I know you have to run. Ben Bajarin, you're @BenBajarin on Twitter?

Ben: @BenBajarin.

Rene: Where can people find your writing?

Ben: I write at Techopinions.com, which is the site that I run. Sometimes that shows there. Anyway, Twitter is the easiest way to find me. I talk about everything there.

Rene: Awesome. Thank you so much, Ben. I hope to have you back soon. Thank you for taking the time.

Ben: Yeah, my pleasure. Talk to you later.

Rene: John, you mentioned this. Jerry, I'm curious about your opinion too. I think it would have been better. Again, I don't think I did a particularly good job explaining what Apple was doing with 10.2.1. They certainly didn't give it a stage, for example.

I also think that, because people don't care about this stuff until it affects them, either nobody saw it back then or nobody remembers it. There needs to be some sort of persistent disclosure for it. Maybe it wasn't implemented the best way possible.

I know at AnandTech they mentioned that maybe it was just a dumb counter and not something that was dynamically associated with the battery. I don't know if that's true or not. The fix and the implementation are often two different things, right?

John: Before we go too far into what AnandTech is saying, I think, actually, Andrei got it wrong. I think this is actually a little more sophisticated than just a simple counter. I, unfortunately, don't have the data to go out and track down Andrei and say, "No, this is wrong." It is something worth looking into.

I think, really, when they came out with the fix for 10.2.1 they had that obviously problem. They sort of substituted an obvious problem for a non-obvious limitation. They didn't clearly, at the time, say that. As I said, my wife's phone was being affected by these sudden shutdowns.

I thought it was because of some of the apps she was running so I went out and bought her a battery pack. With the coincide of the 10.2.1 release, the problem was solved, and I didn't really think about it again. I read Apple's disclosure at the time. I thought, "Oh, OK. That's interesting." I didn't put two and two together.

I don't want to toot my own horn here, but if I'm not putting two and two together, I think it's unreasonable to assume most users are going to put two and two together.

Jerry: Absolutely. That's what I meant by it was a sloppy way of doing it and something that Apple is better at when it comes to other things.

Putting out the press release that they did and talking about the way they monitor the battery and the operating system now compensates for the lack of capacity that older batteries have, that makes somebody like me interested. I'm like, "Oh, that's great," but most people, as we've said, they...

Rene: They wouldn't even read it.

Jerry: Right. If they did read it and understand, they wouldn't care until it affected them. I think you hit that right in the head. We know Apple can do better. It just bothers me when they don't do better. As I said, I like their solution.

Until they invest the same amount of money in LG CAM that they did in the display division and find additives that make batteries safer and last longer, you have to do something through a combination of custom hardware and software.

This was step one. It was a great solution at the time, and I'm glad that they're working on something even better. Just the way that it was done and put across to users really bothers me.

Rene: Carl, one of the things that is always weighed is they could have left it the way it was, which is how previous iPhones work and which is how a lot of other phones work. That is it will drain or shut off if it has a spike. They chose to do the throttling instead.

Apple does do updates for phones going back many years, but some people really don't like that. They find that it does slow down their phone or the CPU can't support all the new features they're adding.

But if Apple didn't offer updates for as many phones going as far back as they did, they'd probably be accused of deliberately withholding features to force people to upgrade. I think there's no neat way out of that narrative. If you're going to be hit by it, all you can do, maybe, is the best choices you can make.

Carl: Yeah, it's kind of a lose/lose. They can do what they always did, and then people will criticize them for their phones shutting off. There was quite a to-do about that. Then if you throttle them, then people who run benchmarks say, "Oh, my phone is being throttled." I'm not sure most people actually care about benchmarks.

Nonetheless, you can't really win at that. This idea that, "Oh, if they were only more transparent, life would be better," I'm not quite sure what the form of that transparency would be. There's lots of disclaimers in the little safety booklet you get with your phone. Nobody ever reads those, so that's not going to work.

If I can make an analogy to some other industries, I used to own a fairly high-end luxury car. Being the geek I am, I would read the manual and find out things about the car that I think a lot of people don't realize.

One of the things I discovered is that under some conditions the onboard computer can detect a fault, which basically suggests that there's something wrong with the car or some part is aged out of lifetime or whatever, and it goes into limp home mode.

Limp home mode is one that doesn't let you go over, I think, 30 or 35 miles an hour. It's probably in kilometers. Basically, it cripples your car and puts it in the state where the only thing you can do is drive it to get it repaired.

This is kind of the same story. Not widely publicized, and only geeks who read the manuals knew about it, but I'm sure people who ran into it by accident because of a failure probably weren't terribly happy. For some reason, though, Apple gets held to the standard that, "Oh, we can't do what everyone else does. We have to have some magical unicorn fly down and fix your phone for you."

As I say, I'm not sure what I'd do. It does seem like a lose/lose. They're clearly damned if they go the blackout route. They're damned if they go the slow down route. Yes, they could design "better devices." Unfortunately, they'd be bigger devices is usually the way you end up there.

Of course, they've made a lot of their reputation and people love them because they don't make giant dinner plates that you hold to your ear.

Rene: That's one of the things that people say. "This wouldn't happen if Apple just doubled the battery size." Even if we think about a world where lithium ion is perfect, it does not affect RF and it does not affect thermal, you can just pump it in like you did frosting, for example, you would still add weight.

Ben is not here anymore for his study, sadly, but weight is a usability issue. People often talk about the thinness of a device, but the thinness is a reaction, a side effect of the lack of weight, the lightness of the device.

That absolutely plays into the appeal because, first of all, big, heavy devices traditionally don't sell as well. People go into the store. They pick up two phones. If one is super heavy, they just leave it on the counter. They won't even entertain it because, a couple Nokia fans aside, they don't want to carry huge bricks around with them. [laughs]

Also, if it's really heavy, you can't hold it up for a long period of time. People even complained about Galaxy Notes and iPhone Pluses that if they're on an airplane or at a doctor's office and they're reading books, watching movies, and playing video games that they can't hold it up for as long as they want to.

It doesn't really matter how good their battery life is because you've hit a usability road block. None of these things are easy from an engineering point of view, but again, I'm super happy that Apple is held to a ridiculously high standard. I wish every company was.

I remember on Android Central, Jerry, when we had the Galaxy Note 7 thing, the worst reaction we got was Samsung people, people who loved Samsung, telling us to shut the hell up and to give them back their phones. [laughs] It was almost the inverse of what we're seeing. [laughs]

Jerry: Yeah, I still have people that I hear have kept their Note 7 and have found ways to keep it running and have altered the software so the carriers can't identify it. I think that's insane.

Rene: John, you mentioned this earlier, some of the design choices in these current generation SoCs and how that is maybe influencing some of the choices you have to make later.

John: It could be that with Apple's obsession with single core performance. You see now with the iPhone X you're getting basically getting a laptop in a cell phone factor. With that computing performance comes a very high power draw.

You don't see this sort of performance on Android phones, which I think is part of the reason why you don't see this issue on Android phones. The iPhones tax the battery to a degree that just...With a battery this size, I'm not surprised now, in hindsight, seeing that they're having this issue where the battery is just simply not able to keep up with the processor after 16, 18, 24 months of use.

What I'm left wondering is, "There are being tradeoffs made. Are these the right tradeoffs they should be making?" That's a hard problem to solve and a hard question to ask because really only Apple knows what the sweet spot is they're targeting and how to best get about that.

Speaking from a personal perspective, I know with the phone that, going back to my wife's phone, seeing this sort of degradation within two years, it's disappointing. I understand that lithium ion isn't perfect and that batteries age, but to have a phone be at 40 percent of its performance, I don't really view that as acceptable.

I view this as really a shortcoming. I know people are saying, "Well, what can Apple do to notify users? You don't want to freak users out."

I think there's a very happy middle ground between an in-your-face alert that says, "Hey, go to the nearest Apple store immediately," and alert that, if a user notices there is a problem and they're trying to figure out that problem, then they can, just by poking around settings and having that discreet message say, "Your battery may need to be serviced."

I think there's a happy medium there that could be explored because right now, up until we published that article earlier this week, we had our users coming to us and saying, "My phone was slow, so I downloaded a benchmark just to see if basically am I being crazy. Can I get some sort of objective measure of the performance of my phone?"

Low and behold, the benchmark confirms their suspicion. Then they come to us and say, "My phone is slow. What can I do?" We have no idea because we didn't build the phone. We didn't design the phone. We just kind of have to go off of whatever is with the sudden shutdown issue or other things like that.

We can kind of lean on what we've heard and distill that down to the user, but in this case until this happened, the analysis happened and Apple made their statement, we were guessing. We basically just said, "Contact Apple."

I know some people went to Apple and said, "My phone is slow. What's going on?" Apple ran their diagnostics and said, "No, everything is fine."

Rene: I bought two iPhone 6s because I originally bought a black one and then I had to buy a gold one because, of course, I had to buy a gold one. Jerry understands.

Jerry: Yes.

Rene: I've given those away. My sister has one of them. My mother has one of them. When this broke, I went and tested both of them, and they're both fine. I used them every day for half a year each. Actually, no, I lent a friend of mine one of them. They were both used consistently since almost launch day and then the week after launch day, and they're still being used every day. They're absolutely fine.

It might be that just the battery health is much better and the system of power management hasn't kicked in. I think that's part of the problem now. We have so many millions of devices in the field. It's almost like a butterfly effect. They're so susceptible to initial conditions and to millions of little variations. People have such different experiences with them.

John: I don't know if their level of communication is right. I don't think anybody does. One of the things we do know about Apple, though, is they're not afraid to be different. They're also not afraid to say, "And if you don't like our device, you should buy a different one maybe."

The research I did on batteries, I will point out the Android folks have much bigger batteries. As was pointed out, they're not running close to the limits of those batteries. Those are designed more for peak. You pay more in weight. You pay more in size. If that's really the thing that suits your usage best, buy one of those. There's no reason why you shouldn't.

Even in Apple's own line, you can get a bigger battery. You buy a plus phone. Those have bigger batteries. They're not old enough, I think, yet to really know whether this factor shows up there, but my guess is they're not going to have nearly the incidents that we're seeing in the normal iPhone 7, iPhone 8, iPhone X. That's because they just have bigger batteries and they're not running quite so close to the edge.

Jerry: Battery life, we tend to think of as a measurement of time, and it's not. It's a measurement of capacity. Charging cycles affect it. Temperatures affect it. A lot of things, the way you use your phone affects your battery capacity.

Rene: Now quick charge, Jerry, right?

Jerry: Right.

Rene: Some of the quick charge technology.

Jerry: Oh, quick charge, I hate it. I wish it had never appeared. If you need a longer charge, leave it plugged in longer. Don't over charge it and excite the battery too much. That's a whole other podcast.

Rene: People are using quick charge over night when they're sleeping for eight hours anyway. [laughs]

Jerry: The person who plays Pokemon Go three days a week every week is going to have a very different experience with their iPhone 6S than you are, or I am, or any of us who work 40 plus hours at a desk and aren't out beating that battery up.

Rene: Or just Snapchatting all the time while they're walking around using geofilters and downloading media constantly.

Jerry: Right, that affects battery life, not the number of months.

Rene: The communication thing is always interesting to me, and I use this example, Jerry. I know you can relate to this. It's like when there was a brouhaha about iMessage, people switching to Android and not getting their messages and Apple should alert them. I had to point out what would the alert be. "Hi, have you switched away from iMessage today? Hi, have you switched away from iMessage today?"

You'd have to every day say, "No, I'm still using iMessage. No, I'm still using iMessage." Then if you ever did switch away, you would not see that message. It would have to wait like, "Oh, are you just on vacation? Is the phone in for servicing? Are you not using it for a few days? Oh, we switched off your iMessage."

Some of these things it's really easy to say how they should be handled. I made a couple of proposals. For example, I said I thought maybe Apple should let your phone shut down once and then when it boots back up give you a screen that said, "Your phone shut down unexpectedly. We can manage the power for you if you want to prevent this from happening again."

Then you press a button. You're taking to settings, and you have a toggle for it. It says, "This might affect performance." You're super aware with that, but I got a bunch of responses on Twitter of people saying, "Well, how is it going to know which way it shut down? Are people going to make informed decisions about this?

"Will they understand the performance? Will they just turn it off and then complain about the battery life or it turning off again?" These are often really, really complicated engineering problems to solve. I'm glad I don't have to make those decisions, John.

John: As an aside, I just pulled out my iPhone 6 and went to the battery thing. Actually, I hadn't known about that little thing. It does say, "Your iPhone battery may need to be serviced."

[laughter]

Jerry: I have a question. I haven't had an iPhone in a while. I have to admit that. Since I went to work for Android Central, my time is kind of wrapped around a Nexus or a Pixel phone. What does Apple charge you if you walk into an Apple store and your AppleCare is done, and you want the battery changed?

Rene: I believe it's $79 if you're out of warranty.

John: That's what I remember.

Jerry: I figured it was somewhere around $100, so it's even better than I thought. Why is this even a problem? You can spend $79 and get another two years out of the phone you like if that's what you want to do, or you can go to Google Play and play $900 and buy another Android phone. I don't see the controversy here.

John: I think one of the issues that some of our users experienced was that they went into Apple, sort of between the Reddit post and when this became a big thing, and they said, "My phone is slow." Apple simply flat out refused to change the battery, passed the in-store diagnostics, and they were basically turned away.

[crosstalk]

Rene: It varies by Genius Bar. One of those things is they have a wide discretion. If you're polite but firm, they can often do things for you. I don't know the right way to put this. It's not uniform across Apple stores. I would recommend go to a different Genius Bar or a different Apple store if you can or come back later, and you can often get those things done. [laughs]

John: Yeah, and if it's left up to the discretion, I have a feeling it's not going to be left up to discretion...

[crosstalk]

John: I think with all the attention this is attracting, they're going to have a slightly different policy. That was the issue that some of our users were saying. Simply, they knew what the fix was, and they couldn't do it.

Rene: It's 80 percent. If your battery is at 80 percent health or more, Apple, by default, they will not replace it. If it's under 80 percent, they will replace it. That's just the threshold that they've set internally.

Jerry: That's reasonable to me. I don't see a problem there unless your phone is only a month old and the battery capacity is only 80 percent.

Rene: Then they'll swap it immediately because they'll do it under AppleCare.

Jerry: That's hard for me to understand all of the uproar. I do admit that's probably because I have six phones on my desk and 15 on the shelf behind me. Grabbing another phone is not an issue, so I've forgotten what it is like to not have a phone that works well. I fully admit that, but there is a solution if this is bothering you and it's relatively cheap.

Rene: The last thing I want to address is this idea of...Because iPhone slow has been a meme for a long time, and it's multi factor. Like I said, sometimes it's just as simple as Google trends because every iPhone is updated at the same time everywhere in the world.

That's not the case with Android phones. Sometimes it's new features being added to an operating system. You'll play with those new features, like those iMessage bubbles or new Map transit directions or something, and then the screen is on longer. The radios are firing longer. You're putting more drain on the battery. But if you don't get those new features, then you think Apple is withholding them.

But if you get them, sometimes it does impact at least initially performance. When you first upgrade, there's a lot of...Spotlight is reindexing. A bunch of libraries are being moved around. There's a lot of overhead. It gets hot because all the radios are firing to update bit code for different...All sorts of things can happen.

There's a whole bunch of reasons why a person, if they don't really explore it deeply, can think Apple is slowing down my phone. But the idea of built in obsolescence, and John Gruber spoke to this well, has always seemed weird to me because Apple's one and only goal is to sell iPhones. You've already bought this iPhone. They want you to buy the next one.

Just as a company, their business is prioritized around selling you the next iPhone. They want to have as good an experience as possible. Obviously, they can't just give you a free iPhone to ensure that but as good an experience as possible that your next phone will be an iPhone.

At the engineering level, again John said this well, Apple engineers are not the highest paid in the Valley. They're there because they believe what Apple is doing is beneficial in many ways. If they were ever told to artificially slow down a phone, they would just start quitting.

Once I asked about this, I got these impassioned messages with curse words, Jerry, that you would appreciate going, "F no. We'd never do that. We'd riot. There'd be people walking down the streets." I think to an engineer it's borderline offensive to suggest that at least when engineers of that caliber that they would ever do anything harmful to their user base.

Jerry: Sure.

Rene: But we still have this narrative out there, and I think this story played into that narrative quite heavily.

Carl: I would quote that famous philosopher, Taylor Swift, who says, "Haters are going to hate."

Rene: [laughs] Go ahead, Jerry.

Jerry: I was going to say I remember the iPhone 4S, or was it the 4 in Siri?

Rene: 4S.

Jerry: 4S, it worked just great on phones that were jail broken, but all the sudden the official version was not able to get this new feature. Users rioted.

Apple has to give you more every time they update the OS, which causes this sort of thing.

Rene: This year, it was an Animoji or Portrait Lighting being withheld, when really it would just redline the processor in real-time.

Carl: One thing I will point out, that's kind of interesting to think about in the future. You are now in the era of the iPhone subscription. You can sign up to get an iPhone every year.

This may, if you want to get into conspiracy theories, you could argue that this is simply a way to avoid this problem altogether. If I can rely on you getting a new iPhone every year, I'm going to design the battery to probably...It'll last at least a year. It'll last longer than that, but they don't have as much motivation to make it last forever.

Rene: Well, they do want to resell it into the emerging markets, but still.

John: One can argue, when you trade it in, it then gets refurbished.

Rene: Yes. Oh, that's a good point.

John: It probably gets a new battery.

Jerry: I would really love to see you put that on Reddit so I could read the reactions to that theory.

Rene: [laughs]

Carl: Yes, I know, I would be roasted alive, but nonetheless, I do think one of the things we have to think about, if we analyze this market, is the concept that phones becoming a subscription has been a topic that's been bandied around for quite a while.

Apple is kind of the first company that actually did it.

Rene: Phone as a service.

Carl: Phone as a service, right.

Things may change in the future because of phone as a service. You may get different devices if you buy phone as a service. Hard to know, but interesting to speculate about how the industry could change.

Rene: Just to wrap up, I'd like to go around the room and see where you'd like Apple to go from here. From my part, I don't think I'd revert the system. I'd like to see it improve to the point where they can manage the communication between the battery and the processor well enough that people would see minimal impact, unless battery health was so degraded that there was nothing else they could do. At that point, there'd be a wicked obvious notification that you needed to take it in for servicing.

One would trip the other, so you couldn't have one without being absolutely aware of the other. I think that everything Apple is doing, they're already using machine learning, Jerry, to figure out which processes you're learning when and where to pre cache and all these things. I think we're heading there.

What about you, John?

John: It's hard for me to speculate because we very much focus on measuring performance. We don't do that much in building performance when it comes to hardware.

If I had my genie-in-a-bottle magic wish thing, I'd love to see Apple find a way to solve this, just as you said, where the impact on users was minimal. I know people like to sort of feel like, "Ah, bench marks, who runs them?"

Rene: [laughs]

John: For our users, a lot of people who came to us said, "I didn't use Geekbench until I thought I had a problem." They're not really concerned whether their phone is the fastest. They're concerned whether their phone is working well.

I think that's a very legitimate and very valid concern. If this sort of fix continues into the future, what I'd love to see is some way of minimizing the impact on the usability of the phone.

Rene: What about you, Jerry?

Jerry: I would like to see Apple solve this with hardware and not have to worry the user about it at all. They're building their own SoC completely, and they're doing a marvelous job.

Work with LG CAM, somebody, to build their own lithium-ion battery charge controller, tie that with the hardware, and control the way the CPU ramps its start, and underload and stretch the battery out as long as it can without affecting the user experience very much, and instead of an issue people are seeing with two-year-old phones, you don't see this until the phone is five or six years old. Then you can accept it.

Rene: I think they're doing a lot of that already, but I think it may not be to the point where they can manage those spikes yet. Maybe we can get there. Carl, what about you?

Carl: Yeah, I think Jerry is on the right track, but I'm not sure we're going to see huge leaps in battery performance. Batteries are chemistry. Chemistry is pretty well understood. It improves maybe a percent a year if you're lucky.

I think most of our improvements are going to come through software, through being more clever about how we manage that vital resource. I'm afraid that I think we're going to see more of this to manage the performance over time.

Jerry started, I think, with this is a safety issue. I think you have to think a little bit about if you're in a car in dark space, your tire is flat, and you're trying to call a tow truck, I think it's a lot better to have your phone run slow than to have it shut down.

Rene: Absolutely.

Carl: I think we're going to see more of this behavior of degraded performance, but I don't think we're going to see a wholesale revolution in battery life. I think probably the way out is the phone is a service and you just always use a new phone.

Rene: Thank you all so much for joining me. I know this was last minute, and I appreciate you spending the time with us. John, if people want to learn more about you, more about Geekbench, where can they go?

John: Geekbench.com. We like to keep it nice and simple. You can also follow me on Twitter at JFPoole, not that I tend to post much. A lot of it tends to be off-topic, but whenever we find something new and exciting I tend to post it there.

Rene: I've been following you for a long time, and I enjoy it thoroughly.

John: I'm glad somebody does.

Rene: [laughs] What about you, Jerry?

Jerry: You just come to my house, and we'll have a cookout.

Rene: [laughs]

Jerry: The best place to find me is Twitter. I'm on a sabbatical right now. Just too much politics. I can't stand it, so I had to take a break. It's @GBHIL. Like John, most of what I have to say is off topic, but I'm more than willing to jump back on topic with you if that's what you want.

Rene: Also you write super smart things at Android Central.

Jerry: Well, I try.

Rene: You do, you succeed. Carl, where can I find you?

Carl: I'm on Twitter @CDHowe. Again, I'm maybe going to be commenting more on big data, which is what I teach nowadays, but always happy to talk about Apple topics and certainly enjoyed my time doing that.

Rene: Awesome, instant follow. You can find me @ReneRitchie on Twitter. You can email me Rene@imore.com. Let me know what you think about this story. Please let me know your opinion. That's it. We're out.

[music]

I love Apple + (RED). I love the look of the products, from the (RED) iPhone 7 Plus to the (RED) Smart Battery Case to Beats to... the list goes on. (And can I tell you how much I'd love (RED) AirPods? But what I love more is that the profits from Apple + (RED) purchases go to help the more than 37 million people who are trying very hard to live with HIV across the globe.

This year, on World AIDS Day, Apple + (RED) is going to hit $30 million raised for the Global Fund. That's equivalent to 144 million days of ARV. It'll amount to the equivalent of 475 million days of medication over the last 11 years.

Lisa Jackon, Apple's vice president of Environment, Policy and Social Initiatives, on Apple.com:

Deb Dugan, (RED)'s CEO:

To continue raising awareness, Apple is going (RED) at both its physical Apple Stores and on the App Store:

Good on (RED). Good on Apple. Good on everyone who continues to contribute towards, support, and bring hope towards the fight against HIV and AIDS.

I originally wrote this article on January 31, 2017. Since then, Apple Watch Series 3 has shipped and the product has continued to grow. This fall, it surpassed Fossil, Rolex, and other incumbents to become not only the most popular wrist computer on earth, but the most popular watch period.

Now, following Apple's latest quarterly financial results — the best ever until the next — analyst Horace Dediu has made another, more important, observation. Wring on Asymco:

iPhone set an impossible expectational bar. Measured against it, nothing else on earth can be considered a success, including other legitimately successful Apple products, including Watch. But that's why smart analysis and savvy, contextually-sound reporting is key.

Apple Watch is strong and getting stronger. Continuing to frame it as anything else indicates failure only and completely on the part of the framer.

Original article below.

There's a strange narrative in the tech community concerning Apple Watch being a flop, a failure, or in some way, shape, or form, a disappointment. It's particularly bizarre given Apple Watch, as part of the wearable market, is doing record numbers.

From Tim Cook's opening remarks during the Apple's Q1 2017 conference call:

One of the hits on Apple Watch is that Apple doesn't break out numbers for the product the way they do for iPhone, iPad, and Mac. Many companies provide no numbers on any products, Amazon being a prime example. Yet that hasn't prevented the very same tech community from pushing a very different narrative around Echo:

Neil's estimate for Apple Watch for Q1, as published on Above Avalon, was 5.4 million units. For context, that's the same number of Macs Apple sold over the same holiday quarter. It also puts total estimated Apple Watch unit sales at over 25 million to date.

It's not the iPhone business by a long shot — nothing is — but it's big enough business that any other company would sacrifice a C-level executive or two to get it.

Yet, the narrative around Apple Watch was so lost that when Google delayed Android Wear 2, vendors like Motorola/Lenovo exited the market, and Pebble sold itself off, hot takes tripped over each other claiming the "smartwatch market" might be dead.

Fitbit, which makes a wide range of fitness-focused wearables, also didn't face the same kind of pessimism from the tech community. Indeed, they were promoted as incredibly popular and far more flexible thanks to their greater diversity of styles and price-points. Yet their last quarter painted a very different picture.

Apple Watch, meanwhile, just had its best quarter ever. Which, when you combine Apple Watch Series 2's improved hardware, Apple Watch Series 1's lower cost of entry, and watchOS 3's greater coherence, performance, and fitness focus, pretty much anyone could see coming. (Interest in Apple Watch purchases briefly peaked even higher than iPhone on iMore, based on Black Friday and holiday pageviews.)

It could be that there is no real "Smartwatch market", just an Apple Watch market. Much like there's no real "tablet market", just an iPad market. Since it's such a new product category and most of the existing products are still bound to phones, it could also simply be too soon to tell.

Either way, it's crystal clear that Apple Watch is leading the way, not just in the smartwatch category, but as Apple's bridge to wearable technology in general.

From the same conference call:

When you look at what these products do with wireless, voice interface, communication, authentication, and more, and how each one increases the overall value of the Apple experience, it makes the bizarre narrative surrounding Apple Watch seem downright... disconnected.

Today, Apple Watch is a breakthrough accessory for iPhone. Tomorrow, the sky body's the limit.

The line snaked down the street, back up the street, down again, and back up again. I was outside Apple's flagship 5th Ave. store in New York City and it was still hours before launch. These kinds of lines aren't great for customers, as Apple's retail team has said numerous times and managed to almost eliminate through preorders and pickups in recent years. But, wow, are they powerful visual indicators of the singular cultural popularity of iPhone.

And these were for iPhone X, the most exciting new iPhone since the original.

Some might be surprised by the demand. It starts at $999, after all, which makes iPhone X the most expensive iPhone in the history of the product. But that number is a distraction. Few consumers ever see it. The age of contracts might be behind us but the age of installments has just begun. And, at a buck or two a day, many people can get any iPhone they want.

This was a different launch too. Staggered a month after the release of the similarly powerful but more traditionally designed iPhone 8, Apple made it less about the feeds and speeds nerds care about and more about the features and feel that matter to the mainstream.

We live in curious times. A decade ago a product recall could kill a company and a single misstatement, sink a career. Last year we literally had phones exploding and people not only refusing to return them but eager to buy another immediately. We had companies and people lying to our faces and we rewarded them for it with success previously unimaginable.

Blame the internet, blame social networks, blame the media or whomever you like. But, as a culture, we now show almost no attention span and offer almost unquestioned brand affinity.

We don't just live lives. We broadcast them. We don't just play games. We watch them being streamed. We aren't informed by reporters seeking the truth. We're locked in a Google- and Facebook-owned echo chamber that algorithmically pelts us with increasingly extreme, almost entirely paid for, brand and agenda marketing. It never tries to challenge or expand our world view or pespectives. It just wants to fatten our brains like fois gras so we don't ask too many questions.

It's a completely different culture than it was just a few short years ago and not just for us but for the companies that have to sell to us.

The culture Apple has to sell iPhone into. Because that's Apple's most important job.

Ten years ago, the original iPhone was reviewed by the biggest tech reporters from the biggest newspapers in America. This year, it was shown off by YouTubers who spoke not just to their own audiences but to everyone YouTube wanted to market content and serve search to. And by celebrities and lifestyle outlets whose audiences aren't looking for iPhone reviews but are looking to see and hear about anything the people and lifestyles they identify with are showing off or using.

Just as newspapers gave way to the visual spectacle of television, even the interactivity and immediacy of blogging has given way to the personality and affinity of social video.

All of that was on display at the iPhone X launch. Old school reporters mingled with television cameras and hosts, website editors streamed next to web video correspondents, and a good portion of the customers who came flooding in in waves were themselves streaming live and commenting back and forth on Facebook or Instagram or Snapchat.

It's interesting watching Apple, one of the few big tech companies to remain relevant for decades, adapt to this new normal — to the age of streaming keynotes and viral videos. It's interesting watching media trying to adapt — and stressful, as quasi-media myself trying to adapt with them. And it's amazing watching customers care about none of this at all, as they wait in line watching their favorite shows and personalities, searching for whatever hot product or trend they just heard about, and then emulating them as they come in the doors.

There are going to be so many Snaps and Instas of iPhone X today and so many Facebook and YouTube videos to follow. And precious few of them will come from the traditional outlets — at least not until the buzzier and mashier of them aggregate their lists.

While I'm doing my absolute best to explain what OLED means, how Face ID works, the fastest ways to navigate the new interface, what the privacy and security implications are, where augmented reality is going, and a thousand other nerdy details I consider to be critically important for us as a culture to understand and appreciate, I know that the vast majority of people I interact with just want to say hi, get a selfie, and ask what color they should get, how long the battery lasts, and if the one or two features most important to them are still there and work the way they've come to expect.

I think we'll look back and see the iPhone X launch as not simply kicking off the next era of iPhones, but the next era of how Apple sells iPhones, how people buy iPhones, and how those of us in between remain relevant in this new and different era.

I have some ideas about all three of those things. But more on that later.

For now, congrats to all the teams at Apple that worked on iPhone X and shipped the best damn product the company has ever made, and to everyone who got a new iPhone X today. I hope you enjoy your new iPhone and, if you have any questions, you know we're here to help.

And if you haven't already, go read my big-ass iPhone X review because, long after the Snaps time out and the Instas get buried, a lot of the nerdy details in there will still be super useful to you.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q4 2017 earnings call. Here's our ongoing live transcript of their remarks! If you want more info on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon and thanks to everyone for joining us. As we close the books on a very successful fiscal 2017, I have to say I couldn't be more excited about Apple's future. This was our biggest year ever. In most parts of the world, with all time record revenue in the United States, Western Europe, Japan, Korea, the Middle East, Africa, Central and Eastern Europe, and Asia. We had a particularly strong finish this year generating our highest September quarter revenue ever as year-over-year growth accelerated for the fourth consecutive quarter. Revenue was $52.6 billion above the high end of our guidance range and up 12% over last year. We generated revenue growth across all of our product categories and showed all time record results for our services business. As we expected, we returned to growth in Greater China with unit growth and market share gains for iPhone, iPad, and Mac. In fact it was an all time record quarter for Mac sales in mainland China as well as an all time high for services revenue. And revenue from emerging markets outside of Greater China was up 40%. With great momentum in India where revenue doubled year-over-year. We also had great results in enterprise and education with double-digit growth and worldwide customer purchases of iPad and Mac in both markets. Gross margin for the September quarter was at the high end of our guidance range and thanks to exceptional work by our teams, we generated record fourth quarter earnings per share of $2.07 up 24% from a year ago.

iPhone sales exceeded our expectation. In the last week and a half of September, we began shipping iPhone 8 and iPhone 8 Plus to customers in more than 50 countries. They instantly became our two most popular iPhone models and have been every week since then. As we speak, the launch of iPhone X is now underway as stores open across Australia and Asia. iPhone X is packed with innovative new technologies that chart our path for the next decade. Technologies like the TrueDepth camera system, Super Retina display, and A11 bionic chip with neural engine, which has been in development for years, with a focus on deep machine learning. iPhone X enables totally new experiences like unlocking your iPhone with Face ID, taking photos with studio-quality lighting effects, or playing immersive augmented reality games. We can't wait for people to experience our vision of the future. Orders have already been very strong, and we're working to get iPhone X into customers hands as quickly as possible.

Turning to services, revenue reached an all time quarterly record of $8.5 billion in the September quarter. A few quarters ago we established a goal of doubling our fiscal 2016 services revenue of $24 billion by the year 2020 and we are well on our way to meeting that goal. In fiscal 2017, we reached $30 billion making our services business already the size of a Fortune 100 company.

We're also delighted to report our second consecutive quarter of double-digit unit growth for iPad. Customers have responded very positively to the new iPad lineup and with the launch of iOS 11, the iPad experience has become more powerful than ever. With great new features for getting things done like the new dock, Files app, drag and drop, multitasking, and more power than most PC notebooks.

The launch of iOS 11 also made iOS the world's largest platform for augmented reality. There are already over a thousand apps with powerful A-R features in our app store today with developers creating amazing new experiences in virtually every category of apps aimed at consumers, students, and business users alike. Put simply, we believe AR is going to change the way we use technology forever. We're already seeing things that will transform the way you work, play, connect, and learn. For example there are AR apps that let you interact with virtual models of everything you can imagine from a human body to the solar system. And of course you experience them like they're really there. Instantly education becomes much more powerful when every subject comes to light in 3D. And imagine shopping when you can place an object in your living room before you make a purchase. Or attending live sporting events when you can see the stats on the field. AR is going to change everything.

iOS 11 is also allowing developers to integrate machine learning models into their apps with CoreML. Pinterest is already using CoreML to deliver fast and powerful visual search, Padmapper uses CoreML to provide intelligent features that make it easy to find or rent your apartment. And Visual DX is even pioneering new health diagnostics with CoreML, automating scanned image analysis to assist dermatologist's with their diagnosis. These are just a few examples. There is so much more to come.

Next I'd like to talk about the Mac, which had its best year ever with the highest annual Mac revenue in Apple's history. It was also the best September quarter ever with Mac revenue growth of 25% driven by the notebook refreshes we launched in June and a strong back to school season. The Mac experience has become even better since the September launch of macOS High Sierra, with new technologies to make Mac more reliable, capable, and responsive and lay the foundation for future innovation.

Moving on now to Apple Watch. With unit growth of over 50% for the third consecutive quarter, it continues to be the best-selling and most-loved smartwatch in the world. We began shipping Apple Watch Series 3 just six weeks ago, and customers love the new freedom of cellular. The ability to go for a run with just your Apple Watch or go for a quick errand without your phone while staying connected is a game changer. Now more than ever Apple Watch is the ultimate device for a healthy life and is already making a big difference in our customers lives. We're very excited about the upcoming launch of the Apple Heart Study which will use data from Apple Watch to identify irregular heart rhythms and notify users when unusual patterns are detected. Earlier this week we introduce watchOS 4.1 bringing 40 million songs to your wrist through Apple Music. The combination of music streaming on Apple Watch and AirPods is truly a magical experience for people on the go. We're thrilled with the momentum of these products. In fact, our entire wearables business was up 75% year-over-year in the fourth quarter and in fiscal 2017 already generated the annual revenue of a Fortune 400 company.

Late in the September quarter we also launched Apple TV 4K delivering a stunning cinematic experience at home. So now users around the world can watch movies and shows in 4K HDR quality and stream live sports and news on the Apple TV app. There's already a great selection of $K HDR titles available through iTunes and other popular video services with many more movies and shows on the way.

We're also very excited about the opening of Apple Michigan Avenue two weeks ago on Chicago's riverfront. This is the first store that brings together our complete vision for the future of Apple retail, providing a welcoming place for everyone to experience our products, services, and inspiring educational programs right in the heart of their city. In addition to our very popular Today at Apple programming — which is available in all Apple stores around the world offering daily sessions in photography, music creation, art and design, coding, and entrepreneurship — Apple Michigan Avenue is partnering with local nonprofits and creative organization to make an ongoing positive impact in that community.

Also this quarter we expanded our free App Development with Swift curriculum to more than 30 community colleges across the country. We're very excited about this initiative and we're thrilled by the momentum we're seeing. The schools we've launched with this summer are just the beginning. Community colleges have a powerful reach into communities where education is the great equalizer and the colleges adopting our curriculum this academic year are providing opportunity to millions of students to build apps that will prepare them for careers in software development, information technology, and much more.

We're incredibly enthusiastic about what our teams have accomplished this year and all the amazing products in our line-up. As we approach the holiday season, we expect it to be our biggest quarter ever. I'd like to thank all of our teams, our partners, and our customers for their passion, commitment, and loyalty. You've helped us make 2017 a sensational year. Now for more details on the September quarter results I'd like to turn over the call to Luca.

Luca Maestri provides more detail on the quarter

Thank you Tim, good afternoon everyone. Revenue for the September quarter was a record 52.6 billion, up 12% over last year, and it has been great to see our growth rate accelerate in every quarter of fiscal 2017. Our terrific performance this quarter was very broad based, with revenue growth in all our product categories for the second quarter in a row and new September quarter revenue records in the Americas, in Europe, and in the rest of Asia-Pacific segments. We grew double digits in the U.S., Canada, Germany, France, Italy, Spain, Korea, and several other developed markets. We were especially happy to return to growth in Greater China where revenue was up 12% from a year ago, and with our momentum in India, where revenue doubled year over year. We grew more than 30% in Mexico, the Middle East, Turkey, and Central and Eastern Europe. These results have overall growth of over 20 percent from emerging markets. Gross margin was 37.9% at the high end of our guidance range, operating margin was 25% of revenue, and net income was 10.7 billion. Diluted earnings per share were $2.07, up 24% over last year to a new September quarter record, and cash flow from operations was strong at 15.7 billion. During the quarter we sold 46.7 million iPhones, up 3% over last year. We were very pleased to see double-digit iPhone growth in many emerging markets including mainland China, the Middle East, Central and Eastern Europe, India, and Mexico. We gained share not only in those markets but also in Canada, Germany, France, Italy, Spain, Sweden, and Singapore based on the latest estimates from IDC. iPhone channel inventory increased by 1.3 million units sequentially to support the launch of iPhone 8 and 8 Plus, significantly less than the increase in the September quarter a year ago.

Customer interest and satisfaction with iPhone are very strong, with both consumers and business users. In the U.S., the latest data from 451 Research on consumers indicates a customer satisfaction rating of 97% or higher across all iPhone models. Among consumers planning to buy a smartphone in the next 90 days, purchase intention for iPhone was 69% — more than five times the rate of the closest competitor — with a loyalty rate for current iPhone owners of 95%, compared to 53% for the next highest brand. For corporate smartphone-buyers iOS customer satisfaction was 95%, and of those planning to purchase smartphones in the December quarter, 80% plan to purchase iPhone. That is the highest score for iPhone in the history of the survey.

Turning to services, we set an all-time quarterly record of 8.5 billion, up 34% year-over-year. Our results included a favorable one-time revenue adjustment of 640 million. On a run rate basis, excluding the adjustment, services growth of 24% was terrific and the highest that we have experienced this year. The App Store set a new all-time record, and according to App Annie's latest report, it continues to be the preferred destination for customer purchases by a wide and growing margin. Generating nearly twice the revenue of Google Play. We're getting great response to the App Store's new design in iOS 11 from both customers and developers. We've seen increases in the frequency of customer visits, the amount of time they spend in the store, and the number of apps they download.

The success of Apple Music also continues to build and we're seeing our highest conversion rate from customers trying the service. Revenue grew strongly once again in the September quarter and the number of paid subscribers was up over 75% year-over-year.

We also saw great performance from our iCloud business with very strong double-digit growth in both monthly average users and revenue. Across all of our services offerings, the number of paid subscriptions reached over 210 million at the end of the September quarter, an increase of 25 million in the last 90 days.

Apple Pay expanded to Denmark, Finland, Sweden, and the UAE last month and continues to grow rapidly. Over the past year, active users have more than doubled and annual transactions are up 330%. In the US, 70% of leading grocery chains are now accepting Apple Pay with the recent launch of Safeway. And over five million U.S. merchant locations will be Apple Pay-enabled by the end of this year.

Next, I would like to talk about the Mac, which for fiscal '17 set a new all-time revenue record of $25.8 billion. We sold 5.4 million Macs during the September quarter — up 10% over last year — and gained significant market share of the global market contracted by 1%, based on IDC's latest estimates. This performance was fueled primarily by great demand for MacBook Pro and Mac revenue grew 25% to a new September quarter record. We had outstanding results all around the world, with each of our geographic segments growing Mac revenue by 20% or more. We were also very happy with the success of Mac in the education market where customer purchases grew double digits year over year.

It was also another great quarter for iPad, we sold 10.3 million units up 11% over last year, with strong demand for both iPad and iPad Pro and revenue grew 14%. It was great to see iPad unit and revenue growth in all of our geographic segments and particularly strong results in emerging markets including greater China, where iPad unit sales were up 25% year over year, and India which grew 39%. NPD indicates that iPad has 54% share of the U.S. tablet market in the September quarter, including seven of the 10 best-selling tablets. That's up from 47% share a year ago. Also the most recent surveys from 451 research measured customer satisfaction rates of 97% across iPad models, and among people planning to buy tablets purchase intent for iPad was over 70% for both consumers and businesses.

We're seeing great momentum with our enterprise initiatives. During the September quarter we announce a new partnership with Accenture who is creating a dedicated iOS practice in select locations around the world. Experts from Apple are colocating with this team and together they'll be launching new tools and services to have enterprise clients transform how they engage with customers using iPhone and iPad. Examples include services to build new customer experiences and to facilitate iOS integration with enterprise systems, to help businesses take greater advantage of data from internet of things platforms, and to enable the smooth transfer of existing legacy applications and data to modern iOS apps. And last month we announced a partnership with G.E. to reinvent the way industrial companies work by bring in G.E.'s industrial IoT platform to iOS. The SDK for iOS will enable developers to build native apps to drive industrial operations with more efficiency and speed than ever before. G.E. is also standardizing on iPhone and iPad for its global workforce of more than 330,000 employees. And working with Apple, G.E. is developing iOS apps for both its internal and external audiences to bring predictive data and analytics to workers across a broad range of industries. Beyond our iOS devices, we're also seeing great traction for Mac in the enterprise market, with all-time record customer purchases in fiscal year 2017.

The September quarter was very strong for our retail and online stores which welcomed 418 million visitors. Traffic was particularly heavy during the week of our new product announcements, up 19% over last year. Retail ran a very successful back to school promotion in the Americas, Europe, China, and Singapore. With sales of Mac and iPad Pro up strong double digits compared to last year's program. And around the world our stores conducted over 200,000 Today at Apple sessions during the quarter.

Let me now turn to our cash position. We ended the quarter with 268.9 billion in cash plus marketable securities, a sequential increase of 7.4 billion. 252.3 billion of this cash, 94% of the total, was the United States. We issued 7 billion in new Canadian- and U.S.-dollar denominated debt during the quarter, bringing us to 104 billion in term debt and 12 billion in commercial paper outstanding. We also returned 11 billion dollars to investors during the quarter. We paid 3.3 billion in dividends and equivalents and spent 4.5 billion on repurchases of 29.1 million Apple shares for open market transactions. We also launched a new $3 billion ASR program, resulting in initial delivery and retirement of 15.1 million shares and we retire 4.5 million shares upon the completion of our eleventh ASR during the quarter. We have now completed almost 234 billion of our 300 billion capital return program, including $166 billion in share repurchases.

As we move ahead into the December quarter, I'd like to review our outlook which includes the types of forward-looking information that Nancy referred to at the beginning of the call. As a reminder, the December quarter in fiscal '17 spanned 14 weeks, whereas the December quarter this year will include the usual 13 weeks. We expect revenue to be between 84 and 87 billion dollars. We expect gross margin to be between 38% and 38.5%. We expect OpEx to be between 7 billion 650 million and 7 billion 750 million. We expect OINE to be about 600 million and we expect the tax rate to be about 25.5%.

Also today our board of directors has declared a cash dividend of 63 cents per share common stock, payable on 11/16/2017 to shareholders of record as of 11/15/2017. With that, I'd like to open the call to questions.

Analyst questions

Katy Huberty, Morgan Stanley: Luca, when do you expect to catch up with iPhone X demand, and given it's likely to be not in the December quarter, should we think about March, a date better than seasonal revenue quarter, because of that iPhone X ramp? ... And then I have a follow up.

Tim Cook

I'll take that, Katie. The ramp for iPhone X is going well — especially considering that iPhone X is the most advanced iPhone we've ever created and it has lots of new technologies in it. And so we're really happy that we're able to increase week by week what we're outputting and we're going to get as many of them as possible to to the customers as soon as possible. I can't predict at this point when that balance will happen. And in terms of March, we don't give guidance beyond the current quarter.

O.K. And in China growth returned to strong double-digits — 12% up — but you've talked historically about that region being more sensitive than others to form factor changes and the new iPhone X form factor was not available in September, so should we assume that growth in that region only accelerates from here as that new product gets pushed into the market?

Tim Cook

Let me talk a little bit about Q4 in China to give you a little bit of color on the results. We increased market share for iPhone, Mac, and iPad during the quarter. We hit all-time revenue records for services — for Mac and for the PRC during the quarter. We had very strong iPad revenue growth. We had double-digit unit growth iPhone and both the upgraders and Android-switchers were both up on a year-over-year basis during the quarter. And so the results were broad day. They were pretty much across the board as I indicated. The other thing that happened is the decline that we've been experiencing in Hong Kong moderated. And so it's still down year over year, but less so than it was. And part of that is the compare is an easier compare. And then finally in terms of another headwind that is a little less than it was, currency has been affecting us more significantly last quarter in China. It affected us one percentage point. And so the sum of all that: I feel great about the results. We don't obviously provide geographic-specific guidance, but but you can see from our overall guidance we think we're going to have a really strong quarter.

Mike Olson, Piper Jaffray: Is there any information you can provide on how iPhone X preorders compared to what you saw with iPhone 8 preorders? And then I have a follow up, as well.

Tim Cook

Michael, we never go through the mix but I would share with you that the iPhone X orders are very strong for both direct customers and for our channel partners, which as you know are lots of carriers throughout the world and we couldn't be more excited to get underway. And I think as of a few minutes ago the first sales started in Australia. And I'm told we had several hundred people waiting at the store in Sydney and I'm getting similar reports from across that region.

All right thanks. And we're excited about augmented reality and from your perspective and maybe from our perspective on the outside looking in, how do we gauge the success of AR and what are some of the applications of the technology that you're most excited about today? Thanks.

Tim Cook

Yeah, it's a great question. The reason I'm so excited about AR is I view that it amplifies human performance instead of isolates humans. And so, as you know, it's the mix of the virtual and the physical world, so it should be a help for humanity not an isolation kind of thing for humanity. As I go through different countries as I've been traveling lately and looking at things, some things in the market other things that are coming, the very cool thing is they're all over the place. I see things that the consumer is going to love because it's going to change shopping. I see things that consumers will love on the gaming side and the entertainment side. I see business related AR apps as well that are going to be great for productivity — between small and large businesses. And I see apps that make me want to go back to K-12 again and repeat my schooling because I think it changes the game in the classroom a lot. And so the real beauty here is that its mainstream and, of course, Apple is the only company that could have brought this because it requires both hardware and software integration and it requires sort of ... giving the operating system update to many people at once. And the software team worked really hard to make that go back several versions of iPhones so that you we sort of have hundreds of millions of enabled devices overnight. And so there's a thousand plus in the App Store right now. I think this is very much like in 2008 when we fired the gun in the overall App Store. And so that's what it feels like to me and I think it will just get bigger from here.

Shannon Cross, Cross Research: A couple of questions — the first, Tim can you talk a bit about how you're thinking in terms of the lineup. You know, you go from — this is for iPhone — you go from 349 to above 1000. And, you know, it appears that you probably sold a fair amount of the lower and perhaps that was to some of the switchers in China and maybe drove some of the growth in China in terms of market share, but how are you sort of thinking about, you know, what went into the guidance for the December quarter — are you seeing really strong demand at the low end and obviously expected benefit from the [iPhone X] at the high end? I'm just trying to understand, because you have such a broader lineup than you've had in prior years.

Tim Cook

In terms of what we saw in Q4 you can probably tell from the ASP. We had good success, I would say, through the different iPhones. We've tried hard to have an iPhone that is as affordable as possible for people that really want an iPhone but that may have a more limited budget and we've got some iPhones that are really great for that market. And then we've got three new iPhones and people will look at these and decide which one they want. And so this is the first time we've ever been in the position that we've had three new iPhones at once like this at the top end of the line. And it's the first time we've had a staggered launch, and so we're going to see what happens. But we've put our absolutely best thinking that we have here in the guidance that Luca presented and you can tell from that that we're bullish.

Great, thank you. And then in terms of services — $8.5 billion, up 34% — can you talk about some of the portions of that that outperformed, how sustainable? You mentioned China in terms of significant growth in services, but I'm just curious — you know, that's a pretty remarkable number so I'm curious what the drivers were. Thank you.

Luca Maestri

As I mentioned in the prepared remarks, there was a 640 million adjustment and there was a one-off change. And it's important to call it out because of course it's a one-off. And so the underlying growth rate for services in the quarter was fantastic. It was 24%, the highest growth rate that we've had for services during fiscal '17. So the business is going incredibly well. I would highlight maybe three of these businesses within services: The App Store set a new all-time record. It's going incredibly well. The number of paying accounts continues to grow very strongly and that's very, very important to us for the App Store business. Apple Music was up — subscriptions were up 75% year over year. We're getting the highest conversion rates that we've had since the launch of the service and so we turned a corner in music. You remember that a few years ago we were actually declining in music — now with the streaming service in addition to the download business, the business is growing again and that really helps the growth rate for the entire services business. iCloud is a service that continues to grow very strong double digits and that's also helping. So we have already become the size of a Fortune 100 company. We set a goal for ourselves to double what we did in fiscal '16 and the trajectory is actually quite positive.

Steve Milanovich, UBS: I wanted to try to push a little bit more on the mix. Could you comment whether the 8 Plus outsold the 8 in the quarter? There seems to be some data that suggests that. And the 451 Research survey that you're alluding to also finds that over the next 90 days, those buying an iPhone 43% are planning on buying the X. Could you comment upon your expectations in terms of the mix going forward and, if you won't do that, perhaps you could comment a bit about your thinking in terms of pushing price elasticity. I think a couple of years ago no one would have imagined selling a phone at this price and obviously you're pretty confident that you can do it.

Tim Cook

Obviously I'm not going to talk about mix, it's not something that we've done in the past. If you look at the 8 and 8 Plus, when we launched them they instantly became our top two selling products. If you look at 8 Plus, in particular, to provide a little color there, 8 Plus — for the period of time that we can measure to date — has gotten off to the fastest start of any Plus model. That, for us, was a bit of a surprise and a positive surprise obviously. And so we'll see what happens next. As I mentioned before, we've never had three products and it's only today that the first customers can sort of look at all three of those and I'm sure there have been some people that wanted to do that before deciding even which one. And so we'll see what happens there. But in terms of price elasticity, I think it's important to remember that a large number of people pay for the phone by month. And so if you were to go out on just the U.S., since that tends to be more of the focus of this call, if you look at the U.S. carriers I think you would find you could buy an iPhone X for $33 dollars a month. And so if you think about that, that's a few coffees a week — it's less than a coffee a day, you know, at one of these nice coffee places. The other thing to keep in mind is that many people are now trading in their current iPhone on the next iPhone and the residual value for iPhone tends to be the highest in the industry. And many people pick up $300 to $350 or so for their iPhone, and so that even reduces the monthly payment less. And then obviously some carriers also have promotional things going on. So I do think it's important to try to place it in that context. In terms of the way we price, we price to sort of the value that we're providing. We're not trying to charge the highest price we could get or anything like that. We're just trying to price it for what we're delivering and iPhone X has a lot of great new technologies in there that are leading the industry, and it is a fabulous product and we can't wait for people to start getting it in their hands.

Now I wanted to ask — the street historically has been a little skeptical about continued innovation and you suggested there is more to go. Historically, you weren't first to large screens, you weren't first to OLED. Now, though, you're leading in AR, you're leading in Face ID, which, you know, the all-in a year ago, as some of you guys have suggested, was kind of very reminiscent of the aggressive Apple. Is it possible going forward that you could accelerate share gains from Android because you're now in a stronger competitive position?

Tim Cook

Well I think, Steve, we've been in a competitive position and so I maybe have a different view than you do or the folks that you're quoting. There's always doubting Thomases out there and I've been hearing those for the 20 years I've been here and suspect I'll hear about them until I retire. (laughs) I don't really listen to that too much. There's lots of fantastic people here and they're doing unbelievable things. And yes I view AR as profound — not today, not the apps that you'll see on the App Store today, but what it will be, what it can be. I think it's profound and I think Apple is in a really unique position to lead in this area.

Toni Sacconaghi, Bernstein: Just following up a little bit on that question, Tim, you talked a bit about providing a lot of value and that Apple sets its prices according to value, and I think, you know, given the uniqueness of the product you have with the iPhone X in particular, that makes a lot of sense. I guess the question is, given the uniqueness of the value that you have in the marketplace, should we or why shouldn't we expect gross margins to improve this cycle versus previous ones? And perhaps you can talk a little bit about how you think about pricing in the context of gross margin. And I have a follow up, please.

Luca Maestri

Toni, I'll take that one. When you said, you know, we price our products for the value that we deliver. We also said that every time we launch new products, the cost structure of the new products tend to be higher than the products that they replace. It's inevitable, we we're adding new technologies, new features, and therefore the cost structures go up. We have a very good track record of taking those cost structures and, over the lifecycle of the product, we are able to bring them down. There are a lot of elements in the gross margin line that we have good control over and there are also elements that we don't control. Take, for example, foreign exchange which has been a significant headwind for the company for the last three years now. Also the mix of products that we sell into the market tends to change over time and that also has an impact on the overall gross margin for the company. There are situations where the commodities markets are in good shape. There are situations where commodity markets can be a bit out of balance. We have a case right now around memory pricing, which is a headwind for the time being. So there's many puts and takes. The fact that our services business is growing, it should be a positive because our services margins tend to be [inaudible] to company margin, so there's many puts and takes. We tend to think about maximizing gross margin dollars, because we think that's the most important thing for investors at the end of the day. When we look at our track record over years, I think we've found a good balance between unique grow, gross margin, and revenue, and we will continue to do that as we go forward.

O.K., thank you for that. And then I wanted to revisit this notion of supply and demand and I realize it's very early and you can't make predictions. I think a common investor question is — the iPhone X was made available for sale. It quickly had pushed out availability levels to unprecedented levels versus history. And so I think the really significant question is is that initial push out really a function of uniquely strong demand versus history or is that push out in availability really a function of much weaker supply versus history? So it would be really helpful — you have in the past commented on first 24 hour orders for which there were 4 million plus for the iPhone 6 and 6 Plus. You have very often on this call talked about targeting when you think you could reach supply-demand balance, so it would be really helpful if you could provide some context in terms of what you know either about initial orders or about supplies versus history that can help investors try and better understand the little data points that they're seeing in terms of availability of the device. Thank you.

Tim Cook

The truth is we don't know. We put our best estimate into the guidance and you can see from the guidance that we were very bullish. And so we feel really great about the product line up. And we just sold the first units minutes ago, and so we'll see how things go. Until you get all of them out there where customers have the ability to demo and so forth, I think any kind of mix discussion is very much estimating and so we put our best estimates in, but we've never done this before so there's no comparison here — with either the three iPhones nor the staggered launch. So we all learned something.

Jim Suva, Citigroup: I'll ask my original question and follow up at the same time, because they're slightly different topics. You mentioned a great success in India, I believe, Tim, in your prepared comments you mentioned India doubled year over year. Based upon market analysis, it looks like capital is still just a relatively small sliver of the pie there. So, Tim, what would it take to be even more successful in India? Is it, you know, a manufacturing footprint there with your partners, is it more physical stores, is it lower price points, is it the bandwidth that has now caught up to many other countries, or how should we think about that? And then the follow up question is on the AR/VR, where will it really show up in your income statement? Are you hoping more for hardware sales, or services to the apps, or where that excitement will then monetize it within Apple? Thank you.

Tim Cook

In terms of India, many of the things that you mentioned are correct. Growing a market like India is a result of all of those things and doing them all well. And so it's analogous to the many years that we've put into China. It's building stores, it's building channels, it's building market, it's building the developer ecosystem, it's having the right product line up for the market. I feel like we're making good progress there and are gaining understanding of the market. But we still have a long way to go. Which I sort of see as an opportunity instead of a problem. And I do feel great about the growth rate. And so that's India — I think it's all of those things. As you know, we ... started manufacturing the iPhone SE there six to nine months ago or so, and the majority of the iPhone SEs that we sold in the domestic market last quarter were manufactured there. And so we also have that going and are hoping that that winds up saving some amount of money over time and avoiding some of the compounding of taxes, etc.. The bandwidth issue has also been an issue, but as you point out it, is being addressed and between the large carriers there — with Bharti and now Jio investing the way they are — the service in India is materially better than it was just 12 months ago. So there's been a sea change there in a short period of time, so I feel good about all that but we have a long way to go.

In terms of the monetization question on AR/VR, we tend to focus first and foremost on customer experience. And so we are all about making sure the experience is great and we think that if we get the experience right, that revenues and profits will be a result of getting that right. And so we're very much focused on the experience right now.

Amit Daryanani, RBC Capital Markets: I guess maybe to start with on gross margins, Luca year over year revenue is going to be up high single digits at the midpoint; gross margins will be down little. Could you just tell us what are the puts and takes on that and are yield and efficiencies broadly much more severe at this time, versus what you've seen historically?

Luca Maestri

So we're guiding 38 to 38.5, that's up 35 BPS sequentially. Obviously we're getting the leverage from the larger volumes. As I mentioned I think to Toni, we have higher cost structures every time we launch new products, so that is going to be the offset. And I mentioned particularly the impact from the memory pricing environment which is a headwind at this point. Just to size it for you, the impact of memory on our gross margin is 40 BPS sequentially and 110 BPS on a year-over-year basis, so they are meaningful impacts and I think that is what I think probably you're referring to.

Got it. That's really helpful. And I guess if I could just follow up on the services line, you guys talked about it a fair amount earlier, but even if I exclude the one-time gain it looks like the back half of '17 accelerated by 500 BPS in fiscal '17 versus the first half of '17. Qualitatively or quantitatively, is there a way to think about how much of this is from expanding of the install base, which is one of the three things you mentioned I think, versus more dollar-per-iOS-device that you see?

Luca Maestri

Yeah I think it's both. As I mentioned, particularly on the App Store, which is very important to us, the number of paying accounts has grown a lot. It's grown a lot because as you said the install base has grown but also because we have made a number of changes that made it easier for our customers around the world to participate on the App Store and be able to transact from the App Store. We are accepting, for example, more forms of payment today than we were 12 months ago or even six months ago, so that's been very important. We also see that there is typical spending curve for our customers when they start transacting on the store. They start at a certain level and they tend over time to get more familiar with the store and they start to spend more. We also know very recently made some changes, as you probably have seen, to the design of the App Store. I was mentioning during the prepared remarks that these changes are being received very favorably and so people now are spending more time on the store, they download more apps, and that over time translates into monetization. But we also have other businesses that are growing very, very fast and actually accelerating — I mentioned music, I mentioned iCloud — and so it all adds up and as you correctly point out. our growth rate is accelerating.

Brian White, Drexel: Tim, I'm wondering if we take a look at Mainland China and we think about iPhone 8 and iPhone 8 Plus — they've been on sale for awhile now — what has been the general response to those two new iPhones and also preorders around the iPhone X in Mainland China?

Tim Cook

Brian, I hate to repeat this, but we don't really disclose mix. We view it as competitive information that we want to hold tightly ourselves. In terms of the way the preorder process works in China in the channel — so not not in our direct channel but in the broader carrier channel — they generally take indications of interest versus something that I would label a preorder. So I would hesitate to even quote a number for fear it could be misconstrued. And we'll find out what the supply and demand needs are some time in the future. I don't know when yet, but we're really excited to get going to find out.

And Tim, you know, it's interesting that sales grew 16% sequentially. If you look at the past five years, sales were up 7% in the September quarter so that's an average, yet you didn't have all your iPhones in the market. So if you had to, what would you attribute that to? It's a pretty big disconnect: 16% versus an average of 7%.

Tim Cook

Our emerging market performance during the quarter was very strong. If you take China out, it's even stronger. But you can see that China rebounded and as I indicated before, the China rebound was broad-based across products. And so we just had a phenomenal quarter on iPad, on the Mac, on services, on Apple Watch, on iPhone. I mean, literally we're firing on all cylinders. And so that's what that and our new products give us great confidence headed into this holiday season that this is going to be the best holiday season yet.

Since 1975, the Disability Rights Legal Center (DRLC) has championed the civil rights of people with disabilities and those affected by cancer and other serious illnesses. The Business of the Year Award recognizes companies that share similar goals and advocacy.

Here's what Sarah Herrlinger, Apple's head of Accessibility programs, had to say:

Apple has long made accessibility a priority, including support for technologies like VoiceOver in every new product, day and date with initial launch. The company also devotes stage time to accessibility technologies and how they benefit people in the real world. Because it's not just all about shiny new machine learning and artificial intelligence, social graphs and assistant algorithms. It's not just about the technology — it's about showing how the technology can make every life better.

The Disability Rights Legal Center was honoring that, and here's hoping the entire industry takes notice.

Also honored at the event was actor Helen Hunt for her work with Sesame Workshop, the company behind Sesame Street, and Exception Minds, the digital arts school for students on the autism spectrum, for their work in helping people with disabilities break into the entertainment industry.

Congratulations and thank you to everyone involved.

Katherine Adams, formerly of Honeywell, is joining Apple as general counsel and senior vice president of Legal and Global Security. Bruce Sewell, who saw Apple through its legal battles with Samsung, among others, and its standoff with the FBI, will be retiring after 8 years with the company.

From Apple:

Adams joins Apple in the midst of ongoing lawsuits with cellular modem supplier, Qualcomm, and continued uncertain over how privacy and encryption laws will evolve and be interpreted around the globe. It's a critically important job at Apple and one that affects every customer.

On behalf of everyone here, we wish Adams the very best in her new role, and Sewell every happiness in his retirement.

It's easy to understand why Qualcomm would try to gouge every nickel and dime it could from Apple and other wireless device manufacturers. Qualcomm owns the key technologies for CDMA and LTE networking. Despite the usual agreements that come with being included in a standard — that you will charge fair, reasonable, and non-discriminatory licensing fees — short-term abuse can be so lucrative for a company that it oftens fails to consider long-term sustainability and consequences.

Bruce Sewell, Apple's senior vice president and general counsel, speaking to Bloomberg:

Qualcomm doesn't want to be paid for its chips. It wants a cut of the entire price of any device that uses its chip. It's not dissimilar to Apple or Samsung saying: If you use an iPhone or Galaxy S for your business, it won't cost you the price of the phone, it'll cost you a percentage of your business.

Not only is it ridiculous, it's untenable. Were other equally important components of a computing device licensed that way — the camera system, the display technology, the Wi-Fi, Bluetooth, and NFC radios, the location and positional sensors, and the list goes on and on — the amount could theoretically reach 80%, 100%, even 120%.

It makes the kind of sense that doesn't.

Apple feels like it no longer needs to pay the exorbitant "Qualcomm tax". In part, that's because Intel — which bought original iPhone modem-maker, Infineon — can now also supply cellular modems for iPhone and perhaps for other products going forward.

What's more, with the W1 chipset introduced in AirPods and W2 in Watch series 3, Apple is beginning to flex its own wireless muscles. This year, with the A11 Bionic system-on-a-chip in iPhone X and iPhone 8, Apple went from custom central processors to fully custom graphics processors. It's not impossible to imagine the company could go from Wi-Fi and Bluetooth to cellular one day as well.

Qualcomm might be delusional but, if so, it's preventing them from seeing the larger threat.

You're irreplaceable. Right up until you're replaced. My read is that the industry, in general, hasn't been happy with Qualcomm's tactics for a long time. Now it's coming to a head. And Apple is one of the few companies with the resources and sense of right (" 'It's not that we can't pay,' Sewell says. 'It's that we shouldn't have to pay' ") to prosecute this for the long haul. Even as it reduces its dependency on Qualcomm down to nil.

If you had to pay Apple or Samsung $2,500 for your phone because you used it to earn $50,000 at your job, even though you also used other things to earn that money, you'd likely feel the same way.

That's why Qualcomm would do better counting its lucky stars it could gouge for as long as it did, and then quickly finding a more reasonable, less discriminatory, and far more sustainable way to work with Apple and other manufacturers going forward.

Nortel, another networking giant, once had thousands of communications patents as well. Those patents are still around. Nortel is not.