Q3 2020 Apple Inc Earnings Call
Good day, everyone welcome to the Apple incorporated third quarter fiscal year 2020 earnings Conference call. Today's call is being recorded at this time for opening remarks, and introductions I would like to turn things over to Mr. Kato color senior manager of corporate Finance and Investor Relations. Please go ahead Sir.
Thank you good afternoon, and thank you for doing that.
Speaking first today.
Tim Cook and he'll be followed by <unk>.
After that well open the call to questions from analysts.
No that's all the information you'll hear during our discussion today.
Forward looking statements.
Without limitation those regarding revenue gross margin operating expenses other income and expense.
Capital allocation and future business outlook, including the potential impact of covert 19 on the company's business and results of operations.
Actual results or trends could differ materially from our forecast.
Information please refer to the risk factors discussed and out was most recently filed periodic reports on form 10-K, and form 10-Q, and a form 8-K filed.
Along with the associated press release.
Apple assumes no obligation to update any forward looking statements for information, which adds in their respective.
I'd now like to turn the call over to temper introductory remarks.
Hey, just good afternoon, everyone. Thanks for joining the call today.
We began.
Joining the many millions across this country and morning Memorial lodging Congressman John Lewis.
With laid to rest earlier today.
We've lost a hero who walked them on.
A leader in the tree was set to urge this country to aim higher and be better until the very young.
I was humbled and fortunate to know him and that's 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 fourth the work and the mission that defined as life.
Throughout the call I'll speak in greater detail about Apple support for equity of Justice topics of great urgency on a number of fraud.
But first I want to pull the lens back to consider the quarter and fall.
In an uncertain environment Apple saw a quarter of historic salt demonstrating the important role our products play at our customers' lives.
We set a june quarter record with revenue of $59.7 billion up 11% from a year ago, but.
What products and services said June quarter Records and grew double digits and revenue grew in each of our geographic segment segment, reflecting the broad pace of this success.
As always and especially in times of real adversity, what makes as proud as a company is not nearly what we did that's how we get it.
As millions March for Justice in Big cities in small towns alike, we committed $100 million to launch apples racial equity and Justice initiative as well as new and renewed internal efforts to foster diversity and inclusion at all levels of the company.
It's cope at night team continues to represent great real estate 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 and others, where the virus hasn't reemerge, it's meant taking the challenging but necessary step of re 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 are covered 19, we did not provide our typical guidance when we reported our results last quarter, but.
We did provide some color on how we expect 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.
So on revenue grew 2% 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 clauses, including a strong iPhone se launch continued.
And I'm extend it was and potentially some benefit from shelter in place restrictions lifting around the world.
We we expected I tried 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 I pads and backed into customers hands as quickly as possible recognizing how integral they have become to working and learning from home, providing entertainment and staying connected but loved ones.
Wearables growth decelerated as we expected, but still grew by strong double digit and set a revenue record for a non holiday quarter.
Moving on powerful new features built tend to watch out west seven and airports Pro announced this quarter. We are very excited about the many opportunities in front of us for this product category.
These strong results helped 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, a $13.2 billion up 15% 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 results for advertising, an Apple care were impacted by the reduced level of economic activity and store closures to a degree that was in line with our expectations.
Yeah, 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 our message Siri and face time.
Customers are loving new offerings across Apple services like Apple news today, our new daily audio briefing and great count our new summer blockbuster starring Tom Hanks.
In fact, Apple TV, plus just hit a history, making 95 awards nominations and 25 wins at 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 stands in stark relief during a time of real economic adversity for business is 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.
This 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 economist at the analysis group found that the App store facilitated more than half a trillion in commerce globally in 2019 alone.
Especially at a time to covert 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 and the time of covered 19 is a priority everyone shares.
Earlier this month, we announced significant enhancements to the developed and Swift and everyone to encode curricula and we launched a new professional learning course available exclusively to educators.
And just two weeks ago, our community Education initiative added 10, more historically Black College and University regional coating centers to our roster, bringing the total to 24 locations nationwide 12 of which are HPC use and 21 of which serve majority black and brown student populations.
In apples backyard, we announced that we're allocating $400 million of our multi here 2.5 billion dollar affordable housing commitment to new housing construction homebuyer assistance programs and support for those a greatest risk of experiencing homelessness across Silicon Valley.
Apples 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 appeared exceptional service during a time, but intense demand, but great adaptability during a quarter where stores have reopened in some places and re closed and others.
A dedicated team at specialist and experts has shoulder 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 define this year's worldwide developers conference as well. This is an event where traditionally apples worldwide community developers gathers together to share celebrate and two big things together.
No we could not be together in person Apple set a new standard for what online at debts can achieve.
With our celebrated all virtual of that.
The results are speak for themselves more than 22 million viewers tune Gen across all of Apple strains for our developers we distributed more than 72 hours of video content. That's three full days of video.
The week solve more than 200 direct to 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 Iowa, 14, which boasts a radical redesigns at 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.
And calling an iPad, let's 14 to much anticipated sleep tracking new fitness and wellness features an unprecedented customization and watch our seven.
The new MCE West Big Star boasting the biggest redesign upgrades and Mcelreath since August 10.
No less important for apples innovation roadmap is our transition to Apple 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 apples future.
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.
We are justice proud of our announcement this month that Apple will be fully carbon neutral by 2030 across our entire supply chain and including the energy use up every device. We make as we are at any hardware innovation because they spring from the same instinct to leave the world better than we found it.
We're committed to standing with those marching for the large and dignity through our new hundred million dollar commitment to apples racial equity injustice initiatives.
And we are deepening our diversity and inclusion efforts internally because our future as a business is inextricably linked with the future of our communities.
There are times when things seem to move slowly.
When needed progress economic or social scenes bogged down when the instinct to turn away from the horizon in hold onto what you've got fields and excess capital.
And then there are times like this.
When people of goodwill step forward progress on Moore's itself when the assistance of hope for says something new to.
This isn't amidst the challenging moment cotai team is still devastating many places and we have work left to do to care for the health and wellbeing of the communities in which all of us live and work.
But no community of people, whether a company or 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.
Thank you Tim good afternoon, everyone.
Our June quarter was a testament to outposts ability to innovate and execute during challenging times.
Speak to the resilience of our business and the relevance of our products and services in our customers' lives.
So the revenue was 59.7 billion.
A new June quarter record up 11% from a year ago. Despite at 300 basis points 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 we growth in all geographic segments and New June quarter Records in the Americas in Europe in Japan.
And and rest of Asia Pacific.
Products revenue was 46.5 billion up 10% and at June quarter record.
IPhone returned to growth and we saw very strong double digit growth from I pad, Mac and wearables locked down and point of sale closures web widespread during April.
And impacted our performance, but we saw demand for all products improved significantly in May and June.
As always out there I was strong performance, India match long until our customers our installed base of active devices reached an all time high in all of our geographic segments and.
Major product categories.
Our services continue to grow strongly up 15% year over year and reached at June quarter record of 13.2 billion. We set all time records in managed services categories and June quarter Records in each geographic segment are covered this in more detail later.
Company gross margin was 38% these was down 40 basis points sequentially.
Due to unfavorable FX over 90 basis points and a different mix of products.
Partially offset by cost savings and services mix.
Products gross margin was 29.7% decreasing 60 basis points sequentially due to FX in a different mix.
Sorry, offset by cost savings.
Services gross margin was 67.2%.
180 basis points sequentially, mainly due to mix.
Net income was 11.3 billion and earnings per share with $2.58 up 18% ended June quarter record operating cash flow was also June quarter record at 16.3 billion and improvement of 4.6 billion over the years ago.
Let me get into more detail for each of our revenue categories.
Excellent revenue grew 2% to 26.4 billion, we customer demand improving as the quota progressed.
Be 19 was most impactful during the first three weeks of April Lockdowns and point of sale closures became more widespread in many countries.
So a marked improvement around the world in May and June, which we attribute twinning proved level of customer demand have quite a very successful launch of iPhone se and economic stimulus packages.
Our active installed base of iPhone Se again reached an all time high thirtys out the loyalty of our customer base and strength of our ecosystem. In fact into you asked the Lasik latest survey of consumers from 451 research indicates iPhone customer satisfaction of 98% for now.
On 11, 11 pro and 11 Promacta combined.
Turning to services as I said, we said at June quarter record.
15.4 billion of revenue.
We at all time record performance and strong double digit growth in the App store Apple music video and cloud services.
New services, Apple TV blast, Apple arcade, Apple news Plas and Apple Cart I'd also contributing to overall services growth and continued to add users content as features.
At the same time customer engagement in our ecosystem continues to grow at a fast space.
A number of both transacting and paid accounts. So now with digital content stores reached a new all time high during the June quarter, we paid accounts, increasing 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.
130 million from a year ago with this momentum we remain confident to reach I would increase target of 600 million paid subscriptions before the end of calendar 20 twin.
When it goes home and accessories establish a new June quarter record with revenue of 6.5 billion up 17% year over year.
Well 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 continuous to extended reach with over 75% of the customers purchasing Apple watch during the quarter new to the product.
Next I'd like to talk about being press the performance of Mac revenue was 7.1 billion up 22% over last year and at June quarter record.
We grew double digits, each geographic segment and set all time revenue records in Japan, and rest of Asia Pacific as well as June quarter Records in the Americas and Europe.
So my response to our new Mexico care and met with pro launches has been extremely strong.
I thought performance was equally impressive with revenue of 6.6 billion up 31% and our highest June quarter revenue in eight years.
And with strong around the world with double digit growth in each of our geographic segments, including on June quarter record in greater China.
The launch of our new iPad pro as being received incredibly well in every region of the world.
Both Mac anite that at extremely relevant products in the new working and learning environments and the most recent survey so consumers from four or five one research measured customer satisfaction, and 96% for Mac and 97% for iPad around half of the customers purchasing Matt.
And I, but during the quarter when new for that product and as that is out.
Active installed base for both products reached an 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 absent card monthly installments for more proud of seen our U.S stores.
Allowing customers to pay for 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 Kogan 19 in health care, we're seeing rapid acceleration of tele health to support them more flexible model of patient care many hospitals such.
Uva House.
Ross University Medical Center, and you see San Diego House are using apps on iPad and iPhone to have three ash monitoring care for patients who added on cone.
This has to free up cost reduction Pasadena 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.
A couple of business Chad has proven ending valuable tool for staying connected with customers. This quarter HSBC deployed Apple business chat any thoughts you you asked in UK contact centers.
Apple business chat provides a flexible and secure China for digital banking assistance.
Through our native Apple experience, improving 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 cash plus marketable securities. We issued 8.5 billion of a 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 115 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 to open market repurchases of 31.3 million Apple shares. We also began a 6 billion accelerated share repurchase program may resulting in the initial delivery and retirement.
15.2 million shares.
Finally, we retired an additional 4.8 million shares in the final settlement of our 15th MSR.
As we move ahead into the September quarter I'd like to provide some color on what we've seen which includes the types of forward looking information that pages 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 product categories.
On iPhone, we expect to see a recent performance continue for our current from product lineup, including this strong customer response for iPhone ASP.
In addition, as you know last year, we started sending you I phones in late September this year.
Project supply to be available a few weeks later.
We expect the rest of our products categories to have strong year over year performance for services. We expect the September quarter. Two at the same trends that we have observed during the June quarter, except for Apple care.
During the September quarter, a year ago, we expanded our distribution significantly as a consequence, we expect a difficult comp for Apple care also considering that could be the related point of sale closures. This year.
For gross margin keep in mind that we will have a different mix than in prior years of adjusts explained for Opex, we expect to be between.
9.8, and 9.9 billion.
We expect the tax rate to be about 16.5% and why you need to be 50 million.
Also today, our board of directors has declared a cash dividend of 82 cents per share common stock payable on August 15, 2022 shareholders of record as of August 10, 2020, and finally today, we're announcing a full for one split of Apple common stock to make our stock more accessible.
Two other base of investors.
Its shareholders of record at the close of business on August 24, 2020, we received three additional shares for revenue outstanding share has on the record date and trading will begin on a split adjusted basis.
On August 31, 2020 with that let's open the call two questions.
Thank you Luca we ask that you limit yourself to two questions. Operator, maybe please have the first question.
Yes that will be from Katy Huberty with Morgan Stanley.
Thank you good afternoon, Kim in light of the economic adversity that you talked about in the prepared remarks.
Can you just walk us through how apples leveraging finance and trade in programs to make technology more affordable and accessible during this period while also.
Dressing the opportunity to recycle and reuse products and maybe also extend that to how these programs might expand over time, and then I've a follow up.
Yes, as Luke I mentioned.
In June we actually rolled out to the to the.
Overwhelming balance or other products the ability to do interest rate interest free financing in our stores.
With pain Meds and Thats in addition to trade area, which is becoming a.
And more common trend now, which I think is terrific because it is great for the environment and it acts as.
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.
And then it does follow up just specifically to lives found the category returned to growth.
As you pointed out the installed bases.
Larger today, our math would suggest that replacement cycles. In some cases are long dated and then you'd have the affordability element that you. Just discussed is all of that combine to build confidence that we're entering a longer period of iPhone revenue grows faster.
It's been six quarters of decline.
The.
We're very pleased with how we did on iPhone 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 things that get me very optimistic as the size of the active installed base.
The fact that if you look in the major geographies like to US we had the top two selling smartphones in the UK. We had three of the top four in Australia, We had five as a top six and Japan, we have the top four.
Urban China, we were I thought 11 was the top selling smartphone and in the country.
And so these are.
Some very different geographies with very different competitive situations and we're we're doing fairly well the iPhone se. It's also clear that from the early data, we're seeing a higher switch or number than we did in the previous year.
Which we feel very good about entity and also seem 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 has a smaller form factor and.
An incredibly affordable price.
I phone SC very popular iPhone 11 is still the most popular.
Smartphone, but I thought FC definitely helped our results and.
As we as Lucas said in his outlook, we we do see.
That continuing into the into this quarter currently.
Thank you congrats on the quarter.
Thank you so much.
Three of the next question please.
Yes that will be from Krish Shankar with Cowen and company.
Hi, thank within the question what do you have been fortune Tim.
The services business.
Hello.
Prompting production had been movement with structures backfill Bill Clinton production, the thoughts and along the same.
Four years ago your premonition on.
$50 billion, it's nothing particularly keen.
You can expect that if you want to make any such forecast for yields out by using flows is going to be.
Although for Luca.
Im sorry, I missed that second question, because the audio didn't come through but I think I got to just to the first and that is production has been affected.
For Apple TV plus.
I think it has for most people.
We are working to get restarted I don't have the precise date, yet when we will get restarted, but there will be some impact.
Because we shut down in the in the March timeframe and are yet to really restart and a significant why particularly for those.
That are.
And.
Hello area given.
Current status of the virus emitters, and I'm, sorry, I missed your.
And part of your question.
Well, Jim I, just wanted to four years ago, you needle group for the team that services is going to be $50 billion by 2020.
One of the future of any update to the for the Q4 years down the road.
No we're not updating today, we feel good what we want to take a.
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.
We do have that objective out there.
So just squeeze in one form NEWP column with a strong Mike.
Even the sheltering.
Back to school season.
By a quarter or do you expect momentum to continue thank you very much.
As as I said, when I was talking about.
Providing some commentary for the September quarter, we expect.
All the non iPhone product categories with very strong year over year performance. So we definitely.
The back to school season is clearly this one and.
We're very excited not only for the Mac, but also for the I pad.
We got fantastic lineup of products.
And we know that these projects are incredibly rather than especially.
Given the current circumstances. So we expect that performance that we've seen for Mac in the June quarter to continue.
Thank you can we have the next question. Please.
Yes from Cross research, we'll hear from Shannon.
Yes.
Thank you very much Tim can you talk a bit about what you're seeing in China. I know the revenue was up 2% I think Luca talked about record I pad, but.
Just curious.
Given their fiveg is a bit ahead, how you're seeing now the market play out I wanted to follow up thank you.
Yes Shannon.
The growth that recent we did see growth in greater China for the quarter of 2% currency effect to China, a bit more than in other places that 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 chime in so we're we're very very proud of that.
Pad was.
Helped in the June quarter, there by though work from home and distance learning as it was.
Other geographies and the Mac also grew strong double digit.
During the.
During the quarter and services set a new June quarter record there.
We also continue to see extremely high new customer rates on Mac, an iPad there to give you.
Perspective about three out of for customers that are buying the Mac or new.
In China and about two out of three that are buying the high pattern.
And so these are numbers that were super proud of.
Great and then can you talk a little bit more about the decision to bring NAC silicon in house and the benefits that you expect to see or you've seen from fertile vertical integration.
Acquisitions like the Intel modem business.
Yes, I mean, what what we wound up we'll wind up with is a common architecture across all of our products, which.
Gives us some interesting things that we can do and products that are.
That is sort of unleashes another round of innovation and so I don't want to sell a lot about it other than we are.
Extremely excited about it.
It's something that we've worked on.
Quite a while to to get to this point and we're looking forward to shipping the first Mac with Apple Silicon later in the year.
Thank you Shannon Q3 of the next please.
Okay.
I will come from Amit Daryanani with Evercore.
Thanks for taking my question guys have one and a follow up as well so fortunate I guess.
Tim if I think about the strength, you're seeing with islands' right now.
Sense in terms of where is the strength coming from is it more replacement cycles getting shorter or we're just getting new customers into the iOS ecosystem because.
These growth rates seem fairly impressive in the context of a pandemic.
The upcoming will be for cycle that we have.
I think it's at a combination of a strong launch with iPhone se.
And.
[music].
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 store started to reopen.
So it's a combination of all of those and as you know we've been having a.
Strong cycle with the I phone 11, and the 11 trial and so when you combine the.
Hey.
Strong cycle lots on the iPhone se launch plus the reopening of the stores et cetera, I think there were lot of things that were.
Going into right direction there.
Perfect that's helpful and they get Luca if I could just follow could you.
I'd love to get your perspective on how do we think about the overall, 38% gross margins. What do you think the levers to improve this as you go forward laterally September quarter, but over the next one or two years.
In that context, do you see upon where the product gross margin start to stabilize because they have been trending somewhat lower for the last couple of quarters now.
Yeah, let me start with what we've seen viewing.
The June quarter.
We were 38%.
We were down slightly sequentially, but the same amount going that year over year basis.
And really.
The big negative impact that Weve fab four seven of quarters now as being 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 it so it was important to keep in mind.
Is that.
We have many different products.
They have different margin profiles and so sometimes have different mix can have an impact on the aggregate lab products gross margins and we're very pleased to see the performance of Mac I pad and we had a phones.
But obviously, it's a different it's a different mix going forward the.
Debatable Sonicone was the same it's.
You know the.
Foreign exchange will continue to play any impact.
The mix of products that are we going to be selling we lab.
Impact any impact as well.
The commodities market as being relatively benign.
And we'll see how that plays out over time as you know now for several years, we'd be 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 a good trade up decisions between.
Revenue and units in margins.
Thank you on that can we have the next question. Please.
I will come from element Neely with Jefferies.
Hi, Thanks, a lot of the question.
In Asia recently, we did see survey work on smartphones in China.
But theres still high proportion of the installed bases on 678 devices.
I know you talked about the training programs and promotions that you've been doing there I wonder if you can tell us when does anything else that you're doing to get these customers in your latest technology.
What maintenance customers be looking for and how should we think about when an upgrade cycle might come on more strongly there John.
[music].
Customers.
Upgrade at different at a different pace that I don't have in front on the the exact.
Installed base.
The from China, but any much like in other geographies the upgrades have extended song get extended.
Some during the.
The Deps, if you will have the pandemic and in.
China and the rest of world and probably to some degree is happening still at this point.
The key things that we can do is keep innovating deliver products that people can't.
Magic going through life without and obviously keep rolling out these programs that makes the.
Front end.
Purchase.
The much less than this is things like the financing in the trade in programs.
That you mentioned and I do feel like.
Those are going quite good at a number of geography.
Okay, great, Thanks, and one more finite.
Thats again on the strong I've had an actual results thats really interested.
The obvious question it should.
We ever think about how much of that might be pull forward and what might do to future upgrade next few years.
Anything else you can share on I think about growth from here or whether the hang over a period maybe after that.
Back to school season, or holiday season that would be helpful. Thanks.
The installed base is growing and the new customer numbers that Luca went over in the aggregate are still very high ROI.
In the close to 50% kind of range and so that to me makes the 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 mechanized.
Positively.
Probably effect Wearables and iPhone the other direction.
And but on Mac and I pad. These are productivity tools that that people are using to stay engaged with their work or or stay engaged with their their schoolwork.
And.
We we believe we're going to have a strong back to school season.
Sitting sitting here today, it certainly looks like.
Okay, great. Thanks, very much yet.
The next question please.
I will come from Cleveland Research as Ben Bollin.
Good evening, everyone. Thanks for taking the questions.
Tim I was hoping you could share a little bit about where do you think channel inventory is you talked about the tightness you saw exiting the June quarter.
From that and I pad.
He said where you think.
Thats already is across major product categories.
A follow up from Luca.
Yeah, we usually.
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 thats.
Saying that it at quarter end points. So at the end of Q3.
And obviously, I pad and Mac or constrained and so both of those are less than they were in the year ago quarter.
Okay.
Look I am interested any color you could share about the impact Kogut had on opex in the quarter. It work from home stipends, let's travel are there in place support costs and also how the company is thinking about the longer term opportunity of employees working remotely.
Maybe more permanently many considerations on how that influence future opex. Thanks.
On the Opex front that they're not being obviously set and things that have been.
Effected intensive cost reductions.
Obviously travel.
It is a perfect example, you know the number of meetings that we had internally.
Some of those costs than being mean reduced.
We've also.
Invested heavily.
In initiatives that for example, we're really trying to have.
During a very difficult circumstances for example, we embed a program for example, where we match our employee donations, we made donations directly as a company around the world too many institutions and governance.
On a net basis I would say probably the cost.
Outweighed the savings.
During the March and ended June quarter, but we think it's absolutely that I think the right thing to do.
From an employee perspective.
What we said so far is that you get into United States.
Most of 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 without retail stores I think what you've seen with retail stores is that we equity reopened.
In number off geographies around the world that we reopened yet into United States, we've had to be close some of the stores you get into United States.
The number of cases has gone up and we will continue to track out.
Hi, this is doing and.
Hopefully at some point, you're going to get to a point, where there is seeing or there is a cure.
And.
And so we will make those decisions as we get more information.
Thank you. Thank you can we have the next question. Please.
That will be from material on with Deutsche Bank.
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Hi, yes. Thank you so much that your questions law I'd like to focus on the gross margin expansion within services line, all time record for the quarter.
I'm just curious whether you think thousand scene.
Stand within services is a pretty wide range of gross margin by business and I'm wondering if that should continue to increase.
Well as.
As you've seen obviously, we've had sequential expansion in gross margin for for services.
And then was driven primarily by mix as you said that I'd, we have a very.
Crop portfolio and depending on which one of the services that's better than we havent.
And a you know any impact on.
Services gross margins, we like to services business because.
It is that you know it's encouraging.
Type of revenue and.
The margin sorry, I creep.
Two company margin.
We did over 67% this quarter.
And we we want to offer very competitive services across the board and.
The same the same.
I think you're going to make the same comments that I made on products what matters to us is to be successful with everything that we do and provide great products and services to our customers. So.
Yeah.
On the that relative success.
Our products and services in the marketplace will drive to a certain extend without margins are that's.
The margins had a byproduct from our success in the marketplace.
Got it wrong I appreciate that and I wanted to ask questions on the wearable segment.
It seems to me that.
You are categorized the wearables business as maybe being a little the impact pandemics enlarge the iPhone and that's the first time that wearables.
Hasnt materially offset it and at least a while in recent memory.
I guess, the drivers and Wearables being watch in and forgotten watching airport what are your thoughts going forward on whether it's there's little bit attentive demand, perhaps that might resume adds I'll get back to more normalized environment.
I think on the the watch in particular.
Is.
Like the I phone more.
Affected by store closures because people some people want to try on the watch and see what it looks like.
Looking at different ban choices and those sorts of things so I think as stores.
Closed it puts more pressure on that I was.
We did come out sort of the way. We told told you last quarter, we were going to come out from a 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.
With how we did.
But the store closures definitely effect.
The wearables and the iPhone.
Got it I appreciate that.
Yep.
We have the next question please.
I will come from Jim Suva with Citigroup.
Thank you very much and I have my two questions the Austin San Antonio.
Kim.
Okay.
Tim decline abolishing company has done a fantastic bats, global coming on with a hurdle so congratulations to you.
We look forward so to the Christmas holiday shopping season, they get when the economic challenges around the world at lunch formal buyers product launch that can you give me commentary, maybe how cool since you're looking.
Maybe some past cycles Christmas.
It just seems like it's a little bit different that Apple is really showing a lot more strength coming into this Christmas that maybe some a lot more past years again for me I think today ill comment Luca.
You mentioned something about two weeks later.
Like I phone iPhone ships on product launches on maybe expand upon the high move into more difficult I didn't quite commentary. He was in your prepared comments bottle few weeks later.
But just a quick little blown thank you so much gentlemen.
Yes, we've taken one quarter to time and so we'll give you.
Colour on the.
The.
December quarter in October.
Generally speaking I think.
We need to see vaccine.
Or therapeutic or or both and theres some optimism around that.
And.
That particular timeframe and so we'll see I don't have any information that is that publicly available there, but I think that would.
Those comes.
Consumer confidence quite a bit.
Began to happen.
And I think that any kind of consumer style company would benefit from that.
And Jim on the on the I phone.
I said in my remarks that we launched a year ago, we launched the new iPhone in linked in late September. So it was referring to the for the new product and I said that this year the supply of the new products will be a few weeks later than that.
Thanks, Congratulations to you in the entire organization teams. Thank you so much.
Thanks, so much.
Thank you can we have the next question. Please.
I will come from Wamsi Mohan with Bank of America.
Hi, Thank you.
Wondering if you can maybe Tom on the penetration of Apple card users in the IRS install base and have you seen any change in the buying behavior of Apple card users in terms of accelerating spend on.
Apple products and services and I will follow.
We saw changes in consumer spending.
As the.
Shutdowns occurred in the store closures occurred we can we can see that across hard.
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 cart, where we're very happy with.
The number of people that.
Havoc on Apple cart.
We believe based on what we've heard that as the fastest rollout.
The history of credit cards, and so we feel very good about.
Okay. Thanks, Tim as a follow up.
Well the Apple has apple silicon for a Max would you ever consider monetizing that will merchant silicon lender or.
Going to be travel for Apple use.
Well I don't want to make a forever comment but.
Are we are product company and we love.
Making the whole thing and because if we can on the user experience and that way and with a goal of delighting the user and that's the reason that we're doing the Apple silicon is because we can envision some.
Products that we can achieve with Apple silicon that we couldn't achieve otherwise.
So that's how we look at it.
Thanks.
Thank you on the.
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