Q4 2020 Apple Inc Earnings Call
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One separate at fourth quarter fiscal year 2020 earnings conference call at this time, we're still assembly today's audience.
Starting shortly we do appreciate your patience and ask that you. Please continue.
[music].
Good day, everyone and welcome to the Apple incorporated fourth 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 <unk> senior analyst corporate Finance and Investor Relations. Please go ahead Sir.
Thank you good afternoon, and thank you for joining US speaking first today is Apple CEO, Tim Cook and he'll be followed by CFO Luca My Street.
With that well open the call to questions from analysts.
Please note that some of the information you will hear during the discussion today will consist of forward looking statements, including without limitation those regarding revenue gross margin operating expenses other income expense taxes capital allocation and future business outlook, including the potential impact of coal.
Thank you on the Companys business and results of operations. These.
These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast for more information. Please refer to the risk factors discussed in Apple's Most recently filed annual report on form 10-K, and 8-K filed with the FTC today, along with the associated press release.
Apple assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.
I would like to turn the call over to Tim for introductory remarks like say, it's just a 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.
Atmosphere of uncertainty resolved a baking difficult calls we limited information that's.
That's not only come to define apples 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.
Saying that every obstacle an opportunity to do something new something creative something that are on behalf of our customers.
Today, we report a quarter and a fiscal year that reflects that effort. This.
This quarter Apple achieved revenue of $64.7 billion, a september quarter record. Despite the anticipated absence of new I phone availability during the quarter and the ongoing impact the <unk>.
The tight chain, including closures at many of our retail locations.
We also set a new all time record for Mac and services outside.
Sort of I phones, each of our product categories saw strong double digit year over year growth despite supply constraints in several product categories.
And having to periodically do just about everything in on an entirely new way.
This year, we not only launched our most powerful and compelling generation of hardware software and services. However, we did it in a way that pushes 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 rework labs and manufacturing facilities. The team rebuilt every part of the plane, while it was mid air and the results speak for themselves.
In a year that has been enormously challenging our retail teams contact centers and all those who work with our customers. Most closely have gone to creative and dedicated links to keep serving our customers.
From adapting our stores for contact was pickup to new applicants storefront to new online customer support options.
Mid store closings Reopenings and re imagining 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 havent founded answer two with passion and resolve there.
Our actions Didnt just meet the model it they will make us a better company moving forward.
The pandemic has hit home for all of Us and it 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 and work hard to adapt to remote learning.
And we have 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 isnt sourcing and donating millions of face masks designing and manufacturing millions of phase two trials and scaling the production of millions of test units.
But we have tried to live our values more broadly.
We placed a $100 million to our new racial equity and Justice initiative.
We have committed to be fully carbon neutral by 2030 across our entire supply chain and device usage.
As massive wildfires hurricanes and floods spring from the consequences of climate change for all of us.
And we deepened our enduring educational partnerships from coating education, beginning in elementary school to new efforts with dozens of historically black colleges and universities.
One of the many areas through October 19 continues to have a significant impact is in education.
As teachers students and parents alike worked hard to keep education relevant creative and effective our product set to help them meet the moment.
In a typical year the back to school season is a bustling time for us.
This years that was true and the biggest way. However, we help school districts around the world meet this moment in an unprecedented way, including starting nine of our 10 largest school district deployments. However that alone will support over 1 million students and teachers.
We have also supported these deployments and educators and learners everywhere with free tools and training, reaching over 150000 teachers and millions of parents and students around the world.
Looking forward, we feel great optimism about the road in front of US we are in the midst of our most prolific product introduction period ever.
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 is powerful health and wellness capabilities continues to grow.
Just yesterday the government of Singapore in Apple launched Leumi help a first of its kind program design.
Designed to encourage healthy activity and behaviors using Apple watch.
Created in collaboration with a team of physicians and public health experts Leumi health use this technology and behavioral insights to incurred singaporeans to keep healthy and complete wellness challenges through their Apple watch an 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 a 14 biotic our most powerful chip however.
We announced Apple fitness, plus which delivers deep personalization and integration across the fitness tools, our users love and depend on.
And Apple one launching tomorrow is the easiest way for users to enjoy Apple services like music TV, plus arcade Icloud news, plus and fitness plus 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 institution.
And and workplaces adapt to Cove at 19.
Well TV plus continues to impress from fan favorites like Ted Lasso, which has won a worldwide audience with its helpful. Tom during challenging times, two critical and award praise, including a primetime Emmy for the light crude up in the morning show.
Look we 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 Werent established.
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 loss level on the uncertainty and fear of a loss job a deep well of concern for people, we care about who we are not able to see.
A sense of opportunities missed the plans delay of time last year.
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 in state 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 along the people of goodwill driven by creativity and passion and thats certain edge of a big idea can still do things that help other people and 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 requires to operate at the very cutting edge of technology in materials products and ideas that didnt 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 wish 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 and helping our communities by and hope and resilience in this time.
With that I'll hand things over to Luka. Thank you Tim Good afternoon, everyone. We're very pleased to report today and 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.
Throughout these 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 out.
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 our September quarter record for Wearables home and accessories.
We also achieved new September quarter records in the vast majority of countries that we track, including among others the Us Canada, Brazil.
Germany, France, Italy, Spain, Turkey.
Turkey, Russia, India Korea.
Thailand, Malaysia and Vietnam.
Product 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 I pad, Mac and Apple watch throughout the quarter.
For iPhone through met mid September.
Customer demand grew double digits.
As a result of this level of sales performance and be a match lots 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, and a half billion growing 16% year over year, we established new all time record in managed services category and September quarter active in each geographic segment I will cover these 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 products.
Product 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% decreasing 30 basis points sequentially, mainly due to a difference.
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 of store operations in a significant manner demand for iPhone remained very strong in fact through mid September customer demand for our current product lineup grew double digits and was well above our expectations.
Our active installed base of iPhone reached a new all time high thanks to the exceptional loyalty of our customer base and strength of our ecosystem in fact in the US. The last survey of consumers from 451 research indicates iPhone customer satisfaction of 98% for iPhone 11 11 pro.
Oil and 11 Promacta combined.
Turning to services as I said, we set an all time revenue record of 14 and a half billion. We grew strong double digits and set all time records in App store cloud services, Newsy 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 TV glass, Apple, our K Apple news plus Apple cart I'd also contributing to overall services growth and continue to add users' content and features.
The key drivers for our services growth all continued to be moving in the right direction first our installed base continues to grow and is.
All time high across each major product category second the number of both transacting and paid accounts on our digital conference stores reached a new all time high during the September quarter, we paid accounts, increasing double digits in each of our geographic segments third base.
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 Steve 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, we love like capital, one and half of business plus.
Wearables home and accessories establish a new September quarter record with revenue of $7.9 billion up 21% year over year.
We set September quarter records in average of graphic 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 be immune to the product.
We're very excited about the future of this category, including the read recent launches of our new products.
Apple Watch series, six NSC home pardon me and the Max safe ecosystem of accessories.
Next I'd like to talk about Mac.
Revenue was by far and 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 set all time revenue record in the Americas and 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 macro and very strong demand during the back to school season.
Hi, Pat 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 include 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 measured.
Measure customer satisfaction, and 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, we knew to that product. It is no surprise that the active installed base for both products recent off a new all time high.
In the enterprise market, our products are helping companies grow their business, while achieving their sustainability goals.
One example, investors a leading producer of wind turbines best this 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 optimize on site construction operate.
Actions, having crane usage on average by one day per project.
Best This field technicians are using iPhone for work orders troubleshooting remote collaboration saving band 400000 service hours annually more recently they started piloting the augmented reality capabilities I pads 12 customers visualize wind turbine installations in the field.
Another example of our organizations are using Apple products to reduce carbon impact is digitizing paper workflows in Switzerland alone Zurich insurance as we use paper consumption by over 10000 sheets per day by equipping a thousand customer advisors with ipads.
Air Canada is reducing its carbon footprint by over 2200 metric tons annually by loading flight plans and manual arts onto I pad rather than using paper, we're 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 100.
And 92 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 in net cash neutral position over time.
We returned nearly $22 billion to shareholders during the September quarter, including 3.5 billion in dividends and equivalents and 18 billion through 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 ANSR.
Before looking ahead I want to provide just a few highlights for the amazing fiscal year, which was completed in fiscal 20, we grew revenue by 6% to 274.5 billion a 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 cant remember we set new revenue records in the Americas in Europe and in the rest of Asia Pacific.
We grew 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're seeing which includes the types of forward looking information that teachers 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 assumed at Cobiz related impacts to our business in November and December as 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're also excited to start preorders on iPhone 12, meaning and Ptwop Roadmaps next Friday.
Given the tremendously positive response, we expect iPhone revenues to grow during the December quarter. Despite shipping iPhone 12, and 12 pro four weeks into the quarter and iPhone 12, meaning and 12 Promacta seven weeks into the quarter, we expect all other products in aggregate to grow double.
Pages, and we also expect services to continue to grow double digits.
Our 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 Opex, we expect to be between 10.7, and 10.8 billion, we expect Hawaii any to be up around $50 million and the tax rate to be around 16%.
Finally today, our board of directors declared a cash dividend of 20.5 cents per share common stock payable on November 12, 2020 to shareholders of record as of November nine 2020 with that let's open the call to questions.
Thank you Luca. Thanks, we ask you that you limit yourself to two questions. Operator may we have the first question. Please.
Certainly we'll hear first today from Shannon Cross Cross research.
Thank you very much.
Can you talk a bit more about China.
Good morning, Arnie I think you'd mentioned that services in all regions where.
Got it all done by I'm not sure exactly what your comment was that you know.
Maybe give us a little idea of.
Whether you're seeing any blow back the benefits from the Wawa situation and adjusted EBIT margins trends, you're seeing in China and I have a follow up thank you.
Hey, Thanks, Shannon if.
If you look at China and look at last quarters ill talk about both last quarter and this quarter of the last quarter. What we saw was our non iPhone business was up strong double digits for the full quarter.
And then if you look at I phone and you look at it in two parts one free mid mid September which is pretty the point at which the previous year. We would have launched I phones that that period of time, which was the bulk of the quarter iPhone was growing from a customer demand point of view and.
And of course the.
Not shipping new I phones for the last two weeks of September makes that number in the aggregate or a negative but the but the net is the underlying business in China last quarter was very strong and perhaps very different than than you might think.
I think from just a quick look at the the no. 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 at iPhone 12 Pro although we don't guide to.
Two revenues lupus I.
I would tell you that we are confident that we will grow this quarter in China and so we're we're very bullish on.
What's going on there.
Yes, a little more color on last quarter, we had a.
Much.
More significant inventory drawdown 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.
Yes in terms of the market their fiveg is fairly advance their their forecasting.
600000 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 we're very confident there.
Okay, Great and then can you talk a bit about just overall in the world that the cadence that you see sort of the five key adoption launch you know what what you see will be sort of the key drivers obviously, there's a fair amount of 17 point on in the U.S. at this point. Thank you.
Yes, we are working hard to provide the best experience for iPhone users to do so we've been collaborating closely with carriers all around the world to ensure iPhone has great throughput in coverage and battery and call quality.
We've completed Fiveg testing so far on over 100 carriers in over 30 regions and so it's pretty it's pretty pervasive around the world but.
But granted Lee 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 there are obvious places in the world, where it's more ahead than than in others.
But we feel like we are are entering at a sort of exactly the right time.
Thanks Shannon.
Thank you can we have the next question. Please.
That will be from material on with Deutsche Bank.
Yeah. Thank you too much.
Yes.
I appreciate the guidance for revenues to grow by I guess my question.
If I could is relative to seasonality.
Well the last five years, the seasonality typically about 50% quarter on quarter.
Beat that even with the leader relief.
Paula.
Yeah, So as I said jail, when we're not providing a.
A range.
For the reasons that I explained during my prepared remarks.
So you needed to be made a couple of things that are unique about this quarter versus the past.
And as I mentioned again.
The launch timing of the of the phones is different from the past. So we launching the new I phones four weeks into the quarter two models for the 2012 ROE and seven weeks into the quarter for data today, the iPhone me and there for Chromadex.
So that there 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 for the rest of our products and for services.
And so we are incredibly optimistic about where we are seeing so far obviously, we started taking preorders five days ago, and and and so it's a bit early for the phone, but we think that there aren't a lot of tailwinds.
This year for it for I phones with the entire cycle.
Some of the comments that Tim has already made great. We've got the best.
Lineup of Iceland, So weve ever had we gone and installed base of iPhone that is very large continues to grow its an all time high obviously fiveg is a once in a decade opportunity and as you've seen in some markets certainly here in the United States.
Eight.
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've seen so far.
Awesome. Thank you so much for for that content and given that some of the others think about I like I like to ask a little bit more of a strategic one a little bit longer term in nature I think one thing thats interesting would be up one bundle.
Dyer to bundle in the first place I guess I'm wondering as investors have asked me. This as well is that why wouldn't you want to take that rationale cots hardware, perhaps maybe MPOG mypanera airports watch an iPhone.
Because if it makes sense to bundle services would it also makes sense to bundle hardware and if that's not the case and other benefits and services bundling, but that doesnt necessarily translate can't say hardware, but thanks.
Yeah, we don't we don't have anything to announce today, a hardware bundle but that.
Backing up a bit and.
We do view that people like to pay for their hardware are 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 Thats. The reason you see in some of the channels to selling the hardware on a on a per month kind of basis.
Good that begins to look like.
As subscription perhaps to some to some buyers because they're used to holding the phone for experience a time and then turning it over in and using the.
The residual value of that followed.
In a in a way that gives them a de facto kind of subsidy on on a new phone and and so it is there is something today in the market that that works somewhat similar on the services side, we have we had customers coming to us and ask.
King.
For an easier way to buy all 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.
Stereo can we have the next question please.
That will come from Katy Huberty with Morgan Stanley.
Thank you good afternoon, new technologies, including the chipset support five key put upward pressure on cost this year, but you managed to lead a S piece for I thought it was relatively unchanged. This product cycle, how should we think about the margin profile of iPhone twelves relative.
The past cycles.
Katie.
Obviously, we don't provide any outlook at the gross margin level four product categories with 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 here in the last quarter, because obviously I just had a very good right because we are.
Often the new falls, a price point that our essentially unchanged.
And are we taking on new technology into the phones. The I would say that the commodity environment is that is good.
For the first time in many many quarters I don't have to say that foreign exchange is a is a headwind and getting into the quarter, it's not going to be a factor during the quarter.
As we made clear in our comments we are bullish about.
Our sales performance expectation, so we should be getting some leverage and so I think that the gross margin dynamics are good then and anything good to see that we are able to offer so much more technology and still able to deliver a level gross margins that I think investors should expect.
Okay.
Okay and shifting to the services business.
This isn't dependent on on certainly any one serve asked about licensing and other historically has been a driver of growth that's where the AD base 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 segment.
Within services and do you see opportunities for other services to make up for any potential weakness.
We've got a kt as you know we've announced a number of services over the last couple of years.
And we're ramping knows between Apple TV, plus an Apple news plus an apple or K., We've got Apple card, we've got Apple fitness plus coming we've got a number of services that.
Have been launched a bit longer that are doing really well from from the app store to icloud and and so there's a.
A lot of.
Of room, there and put and potential there.
I have no idea how the.
How the D.R.J. suit will go but I think it's a long way from a conclusion on that.
Thanks, Katie Thank you and we have the next question. Please.
[laughter] Evercores scary and Arnie.
[laughter].
Thanks for taking my question I guess half two as well as your full stop all came on I phones off you talked about the iPhone installed base at one being the highest the largest ever been satisfactorily. It's obviously pretty high and you know our data would suggest replacement cycles are getting elongated and if I take all of that together along with the fact that you know if I can use the years.
So I like me with embarrassingly high we usually break up despite an aggregate give you better confidence better clarity that we could enter an extensive period of iPhone revenue growth or slip you've seen the last couple of years.
We're very bullish on the cycle I'm very bullish on it because as I sort of step back from it and look at what we've now done.
We have for the first time ever we've launched for I phones.
And when there is an iPhone for everyone there.
It is the strongest lineup we've ever had a by far we have we do have a very large loyal and growing install base and we are also reaching out to switchers.
And so I'm very optimistic.
Mystic there we've got a once in a decade opportunity with Fiveg, there's lot of excitement around five G.
And we've got some aggressive offers in the market place and so when I think about all of those I am.
Really and I look at the initial data points that we've got on the iPhone 12, and the 12 pro where we are off to a great start.
Got it.
And then I guess look I had a follow up for you on the services gross margin was to kind of continue to move higher rather nicely up infusion teaching the sea level, that's except 67% essentially are sustainable and what are the other two or three factors that are enabling these gross margin to linear as we go forward.
I mean, obviously, we're very pleased with the level of gross margin in services and he said you know they've been expanding almost 300 basis points in there on a year over year basis.
The reason for that is of course that you know we are growing or the services revenue and therefore, we're getting leverage on a lot of these services right. Some of it you know I I was explaining the path 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 have a.
No, we kind of see margin expansion, who makes as well and so but we're also launching new services or that you know where we need to invest heavily.
Hi, Billy upfront and and but we you know we think we've been able to show for example, this year that you know we launched 11, new services made all the necessary investment and still being able to expand gross margin. So we feel quite confident about their trajectory that we have a.
That we have for services and and they were very very happy to see that the customer responsive to really all of them because as we've mentioned earlier I mean, we've seen a revenue records across essentially every category and and across the entire world right. We've seen there.
You know September quarter Records in every geography around the world So all bad.
All the 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.
Thanks, Tom It can we have the next question. Please.
Well hear from Samik Chatterjee with JP Morgan.
Hi, Thanks for taking the question I just wanted to start off with the like for like an appeal, particularly as you mentioned the carrier subsidies that you're seeing makes us optimistic about I phone seems setting just I'm looking at some other factors you are getting the yields you had mentioned that I can see us we'll see you know.
Steve just checks.
[music] motors, helping him because he was spending overall yield in the U.S. So as we see dealers on that front are you seeing anything change on the consumer spending side is the macro impacting how you think about iPhone seems particularly with even with this new product.
I have a follow up.
It's a prior to mid September we were seeing double digit growth in customer demand a lifestyle. So there was a there is a lot of momentum there are and there is a lot of momentum even much more so now given the 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 I believe the answer to be yes.
But you can't run the experiment and so I don't I don't know for sure.
But I I I suspect that or just the it covered in general take take something off.
From a worldwide economic point of view.
Okay.
And if I can just follow ups and I'm just following up on that discussion we are potentially here looking at the second movie right and I think all the companies are bad for that which you discussed as well in your prepared remarks, but if you could share any kind of <unk> talks about how are you preparing in relation to build inventory levels.
We're seeing from the supply chain.
The prepared for any potential disruption like we had oh, yet this year.
Well, we're doing everything we can do but we're we're prioritizing a safety first obviously and so with our stores and as an example, we've come up with a new concept.
That puts the next essentially turns the store into an express storefront and we've implemented that in a number of places where we believe it helps from a the safety of our employees on the safety of the customers point 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 of 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 the US I think if you take some of those the channel is doing some some more things and then some different things as well and so I think everybody to that.
Best of their ability is putting in contingency plans and finding a way to adapt to the to the environment, but it is but it is difficult to call into it there's a level of uncertainty in it obviously and that's what like what was referred to earlier.
Thank you thanks to Mike can we have the next question. Please.
That will come from Krish, Sankar with Cowen and company.
Hi, Thanks for taking my question I have two of them first one for Luca I understand you don't want to give color on gross margin by product and segment. Let me tell you mentioned gross margin should be similar in December launch in September well I mean, it sounds it should go about double digit agendas, you bet on the iPhone flight.
The bomb cost to be had had been for gross margin, but there can be a subsidy would be a team in some kind of kidney function do you think about the.
All the different net like gross margin levels into December well, then my follow up for Tim.
Yeah and.
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 that for the holiday season, and we also had an improved mix between products. A degree this year as you know we've launched the new anywhere 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 launch new models of Apple watch new models. So.
I had and so clearly every time, we launch a new product that cost that actually is higher and so that is going to be the other side of the coin, yes, but you know we think that those two things. She was the balance out and again as I was saying earlier.
And we are accomplishing days, why they're leaving 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 from the past so but that goes out to the classes of mines.
Got it that's very helpful. Okay, and then a follow up for Tim Tim I'm kind of surprised you didn't see a lot about eight eco system and this is Ben Palmer I'm kind of curious to find out from your vantage point, how do you think we'll see a little payments ecosystem, including Apple caught up with the Apple guys now you dislike beginning.
I think that and bond.
Hi, Thanks for the question is there's just a limited number of things I can talk about how to scale. The reason I didn't talk about it.
We're where we continue to be very enthusiastic about the whole payment services area Apple cart is doing well and Apple pay is doing exceptionally well as you can imagine in this environment people are.
Let us want to hand over a card so does contactless contactless payment has taken on a.
A different level of adoption and that I think will never go back up.
The U.S. has been lagging a bit in contact with payment and I think that the the pandemic may they well input, but the U.S. on a different trajectory there and so we are we are very bullish about this area and views that there there are more things that Apple can do in this space.
And so it's an area of great interest to us.
Thanks, Stan Nick Thanks, Krish can we have the next question. Please.
That will come from how old mcneeley with Jefferies.
Hi, Thanks for the question.
Want to ask a little bit about the supply chain.
Given your later start for manufacturing.
Flagship smartphone lineup. This year do you think that supply will be able to meet demand through the end of the calendar. You are there any component shortages that you're seeing or is there any actions you can take it increased weekly apples versus last year.
Yeah, Hey, Oh, I don't know if you're talking about I phone in particular, but if you look at I phone we are constrained today.
Yeah and.
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 I, it's hard to predict I mean, we havent taken orders yet for.
The I phone 12, mini or the or the pro macs, either and so those where those are coming and so we shall see right, but right. Now we are supply constrained. We are also supply constrained for avoidance of any.
Confusion were supply constrained on that were supply constrained on I pad.
And we're supposed supply constrained on some apple watches as well and so a we have a fair number of areas right now.
Of a 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 when we'll be out of that.
Okay, great. Thanks, a lot and then I'm, taking a Mac and my pen or how do you think about the durability of the strength you're seeing there.
Okay and is there any potential for stronger than seasonal pullback. After a strong back to school season, and holiday CD and you know that some supply constraints make it feel like age you know you can change the continuation of the strong demand trends and any flow through that.
Yeah. When you think about the seasonality into December and March quarter, being more positive occasional or less profit in city. Thanks.
Yeah, we we placed our thoughts in the color that Luca provided when he said that all products.
Excluding I phone all products and services, excluding I phone are all products, rather excluding iPhone would grow in the double digits and so we continue to be bullish on walking back an I pad can do that the I think the moves that have taken place to remote 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 that that work well and and so I don't believe that we're going to go back to where we were and I think that means that I pads and Max or are even more important in those in those environments.
The the growth in both of these last quarter were phenomenal as you can tell from your from Datasheet, but back at 29 and I pad at 46 days are just tremendous numbers and as Lucas said the the.
September quarter was the all time high for Mac in the history of the company.
And by not by little bit by $1.6 billion and so it was a substantial difference that we did have a aggressive promotions for.
Ah College students that were going back to going back to school and so that that was an invariably part of it.
But I think the other part of it during the remote work thing, it's not something that's going to step back to the to the way it used to be anytime soon.
Great. Thanks, very much yeah.
Yep. Thank you can we have the next question. Please.
That will come from Chris Caso with Raymond James.
Yes. Thank you.
I guess first question is on iPhone pricing and there were some changes and the iPhone price stack. This year I from a price 0.5 on 12 moved up a bit and I guess to.
Ah difference the gap between 12 and 12 pro is smaller and I guess, that's after you've made some adjustments to years prior where the price points came down a bit can you talk through the thought process behind that and the potential.
Implications for you know either unit out elasticities or blended ASP as a result of the price changes.
Well I the I phone call family starts at 699.
In met many places.
Because you get into 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 other countries in the world connect to a carrier plan and of course those offers are a much more aggressive and so the the.
Probably the price that our customers are paying is probably the most important one.
The.
I phone 12 is it 790, not and so I think what you're saying is there is a 200 dollar difference there, but I I I would guess.
Yes that people are viewing it more as a 300 dollar difference between the 12 mini and the the 12 pro and so we'll see what the mix turns out.
Yeah right now we have no data other than 12 and 12 pro.
We we lack the data on the 12, many and the pro Macs, 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 are all of the the extra features that we placed into the phones, including Fiveg.
Thanks for your question.
Yeah.
As a follow up the ER. The E. I mean, you mentioned some of the carry 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, what we're a lot larger Uh huh.
<unk>. This is mark some some shift in the approach of carriers as we're moving into Fiveg.
What's the extent of the permanence of some of these incentives and then you know as Fiveg rolls out around the world each other geographies it.
Is this something we should expect that as you do they try to protect from switchers Oracle kind of promote the Fiveg networks, we'll see a higher prevalence of incentives from carriers as we go forward.
You know I don't 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 too.
The vast vast majority of carriers around the world to their.
Interest there in their interest to move customers to Fiveg and I think it's in a customer's interest to move to Fiveg and and obviously, we like that as well and so I think you have a situation where everyone's ordering in the same direction.
And that's a very different kind of.
Of situation. Then then normally we would have.
And so it is one of the things as I alluded to.
Earlier that makes me very bullish only part of the other things or are there.
Very important to the size of the installed base.
The the product line out these things are are critically important.
Important as well.
Thank you Chris.
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