Q1 2021 Apple Inc Earnings Call
On the call.
On that multiyear grade.
[music] cash.
Sure.
Yes.
Yes.
[music].
Please standby were about to begin.
Good day and welcome to the Apple Q1 fiscal year 2021 earnings Conference call.
Today's call is being recorded.
At this time for opening remarks, and introductions I would like to turn the call over to true Tejas.
Director of Investor Relations and corporate Finance. Please go ahead.
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 on my history. After that we'll open the call to questions from analysts.
Please note that some of the information you'll hear during our discussion today will consist of forward looking statements, including without limitation those regarding revenue gross margin operating expenses other income and expense taxes capital allocation and future business outlook, including the potential impact of Covid.
<unk> 19 on the company's business and results of operations. 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 the form eight.
K filed with the SEC 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 states.
Now I'd like to turn the call over to Tim for introductory remarks.
Thank you Jay good afternoon, everyone. Thanks for joining the call today.
It's with great gratitude for their 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 revenue record of 111 4 billion, we saw strong double digit growth across every product category and we achieved all time revenue records in each of our geographic segments.
It is not far from many of our minds that this result caps off the most challenging year any of us can remember.
And it is an understatement.
Say that the challenge as opposed to Apple as a business paled in comparison to the challenge posed to Apple as a community of individuals' to employees to their families and to the communities, we live in and logical at home.
While these results show the central role that our products play in helping our users respond to these challenges.
We are definitely aware that the work ahead of all of us to.
To navigate the end of this pandemic true.
Restore normal life and prosperity in our neighborhoods and local economies and the bill with a sense of justice is profound and urgent.
We will speak to these needs and apples efforts throughout today's call, but I wanted to first offer the context of a detailed look at our results this quarter, including while 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 165 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 1 billion debt.
Customer response to the new iPhone 12 models unprecedented innovation from World class cameras to the great and growing potential of five G has been enthusiastic even in light of the ongoing COVID-19 impact at retail locations.
IPad and Mac grew by 41 and 21% respectively.
<unk> the continuing growth. 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 <unk> to feature our groundbreaking in one chip.
The demand for all of these products has been very strong.
We have also continued our efforts.
The latest iPad enriching content and professional support to educators and students and parents.
Educational districts and governments worldwide are continuing major deployments, including the largest iPad deployment 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 Airpods lineup, including the new airports snacks as well as the new home pod many.
This broad strength across the categories 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, plus which pairs with Apple watch to deliver real time on screening fitness data alongside world class workout, but the world's best trainers.
There are new sessions added each week and customers are loving the flexibility challenge in front 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 the services every day, we feel very optimistic about where we're 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 stuff to help smaller developers continue to experiment innovate and scale the latest great 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 one and we are already hearing from developers about how this change represents a transformation and their potential to <unk>.
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 if these have ripple and upon 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 times 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 however, this Christmas.
As always we could not have made so many holiday special without our talented and dedicated retail teams, who helped us achieve a new all time revenue record for retail driven by very strong performance on 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 day.
Because none of us should have any illusions about the challenges we face as we began a new chapter in the American story hope.
Hope for healing for unity and for progress begins with an depends on addressing the things that continue to windows.
And our communities, we see how every burden from COVID-19 to the resulting economic challenges to the closure of in person learning for students.
Its heaviest on those who have always very structural barriers to opportunity and equality.
This month, Apple announced major new commitments through a $100 million racial equity on justice initiatives.
The propel center launched for the $25 million commitment with a supportive 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, We will be the first of its kind in the United States.
Detroit has a vibrant culture black entrepreneurship, including over 50000 black on businesses, we want to accelerate the potential of the App economy here. Knowing there is no shortage of good ideas on such a creative resilient and dedicated community.
Finally, we're committing $35 billion across two investments to investments in Heartland capital and the clear vision impacts on that support accelerate in growth minority owned businesses in areas of great potential in need.
In December we concluded an unmatched year of giving since the inception of the Apple giving program in 2011, Apple employees have donated nearly $600 million and volunteered more than $1 6 million hours to over 34000 organizations of every stripe.
Through our partnership with product Red.
We've adapted our 14 year $250 million effort to support HIV and AIDS worked globally to ensure that care continues even in the times of Covid.
That includes delivering millions of units of personal protective equipment to health care providers and Cynthia.
And here in the United States, even with Covid effects. We are ahead of schedule on our multiyear 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.
<unk> also now work to imagine what we will inherit on the other side.
When a disease receipts, we cannot simply assume that healing follows even now we see the deep scars that this period has left on our communities Trust. That's 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 had endure.
For generations has 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 the 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.
Thank you Tim good afternoon, everyone.
We started our fiscal 2021 with exceptional business on 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 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 records for iPhone.
Wearables home and accessories and services as well as at December quarter record from Eric.
We also achieved double digit growth and new all time records in each of our five geographic segments and in the vast majority of countries that we track.
Products revenue was an all 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 installed base of active devices.
$1 $65 billion during the December quarter, and reached an all time record in each of our major product categories.
Our services selling.
All time record of $15 8 billion.
Growing 24% year over year.
We established new all time records in most service categories and December quarter Records in each geographic segment.
Ill caveat, our services business in more detail later.
Company gross margin was 39, 8%.
160 basis points sequentially, thanks to leverage from higher sales and a strong mix.
Products gross margin was 35, 1% growing 530 basis points sequentially driven by leverage on mix.
Services gross margin was 68, 4% up one on a 50 basis points sequentially, mainly due to a different mix.
Net income.
Diluted earnings per share and operating cash flow were all time records net income was $28 8 billion up $6 5 billion or 29% over last year.
Diluted earnings per share were $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.
Each of our revenue categories.
IPhone revenue was a record $65 6 billion growing 17% year over year.
Demand for the iPhone <unk> 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 high.
<unk> now surpassed 1 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 to our 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, plus Apple arcade Apple news glass.
Apple card Apple <unk>.
Fitness glass as well as the up on one bundle.
I'd also contributing to overall services growth and continue to add users content and features.
The key drivers for our services growth on continue to moving the right direction first.
Our installed base growth has accelerated.
And he's an ex all time high across each major product category.
The number of both transacting and paid accounts on our digital content stores reached a new all time high during the December quarter, we paid accounts, increasing double digits in each of our geographic segments third.
Paid subscriptions continue to grow nicely and we exceeded our target of 600 million paid subscriptions before the end of calendar 2020 during.
During the December quarter, we added more than 35 million sequentially and we now have more than 620 million paid 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 on new search personal radio stations in autoplay, 90% of Apple music users on <unk> 14 have already used these new features in payment services, we continue to expand our coverage.
Nearly 90% of stores in the United States now accepting Apple pay so that customers can easily have attach list payments experience.
Wearables home and accessories grew 30% year over year to 13 billion setting new all time revenue records in every geographic segment.
As a result of this strong performance 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 customers purchasing Apple watch during the quarter being new to the products.
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.
<unk> had 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 set all 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 macro care Macbook Pro and Mcenany, all powered by our brand new <unk> chip.
IPad performance was also very impressive with revenue of $8 4 billion up 41%.
We grew strong very strong double digits in every geographic segment, including an all time record in Japan during the quarter than you. They are 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 cut on working and learning environments and we are delighted that the most recent surveys of consumers from 451 research measured customer satisfaction of 93% from Mack and 94% 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.
On the active installed base for both products continues to grow nicely and reached new all time highs.
In the enterprise market, we are seeing many businesses shifting debt technology investments in response to Covid. One example is our businesses are handled in the hundreds of millions of office desk phones.
More employees are working remotely last quarter, Mitsubishi <unk> bank, one of the largest banks in the world announced that he will be replacing 75% of its fixed France with iphones.
By doing so we would expect to realize significant cost savings, while providing a secure mobile platform to employees.
We're also pleased with the rapid adoption of the Mach employee choice program among the world's leading businesses, we're seeing improved productivity increase employee satisfaction and talent retention with the introduction of <unk> M on powered Max.
We are 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 retired 1 billion on maturing debt, leaving us with total debt of $112 billion. As a result, net cash was 84 billion at the end of the quarter.
<unk>.
We returned over $30 billion to shareholders during the December quarter, including $3 6 billion in dividends on 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 have seen 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 will not be guiding to a specific revenue range. However, we are providing some directional insights assuming that COVID-19 related impacts of 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.
From a 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.
You know we were chasing demand on airports last year as we expand the channel inventory from Q1 to Q2. This year, we plan to decrease.
Airports 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.
We expect <unk> to be around $50 million.
Our tax rate to be around 17%.
Finally today, our board of directors has declared a cash dividend of.
25 cents per share of common stock payable on February 11, 2021, two share holders of record.
So on February eight.
2021 with that let's open the call to questions.
Thank you Luca we ask that you limit yourself to two questions. Operator may we have the first question. Please.
Certainly we'll 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 Luca.
Gross margin was particularly strong versus your outlook can you talk about whether you recognize the full impact of the weaker dollar in the December quarter, given your typical currency hedges and then how are you thinking about that.
The headwinds and tailwind on gross margins as you go into the March quarter, and then I have a follow up for Tim.
Yes, Katy so yes.
Gross margin was strong was better than we had anticipated at the beginning of the quarter. The reason for debt was obviously, we had very strong leverage from higher sales.
And the mix.
<unk> was strong both the mixing day products in the mix of services.
And that was only partially offset by cost as you know we launched many new products during the fall and debt or Wisconsin suite, new cost structure. So that's selling in total was very good.
On from FX standpoint, really at the gross margin elaborate on FX didn't play a role.
Neither sequentially and on a year over year basis.
For the December quarter, partially because of the hedges that you talked about but also because of some currencies.
I still weaker against the dollar they still weaker.
Then a year ago.
Specifically to emerging markets in Latin America, 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 into the March quarter.
Current rates, we expect some level of benefit around 60% to 70 basis points.
For the March quarter.
That's great. Thank you and Tim.
Tim one of the challenges with valuing Apple is just a limited visibility that investors into the road map 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.
Thanks, Katy for the question.
Thanks for not asking me any day any specifics.
On the framework 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, it's a big enough market.
To be on unless it's an adjacency products, which we're looking at it very much from a customer experience point of view.
And so there is no there is no.
The way that we're looking at it.
No formula.
But we're taking into account all of those things and the kinds of things that we love to work on are those where there is a requirement for hardware software and services to come together, because we believe that the magic really occurs at that intersection.
So hopefully that gives you a little bit of insight into how we look at it and I think we have.
Good really good opportunities out there and I think if you look at our current.
Our portfolio of products.
We are.
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.
Good upside in the services area too that we've been working on for quite some time with.
Four of five new services, just coming online in the last.
Your applause.
Sorry.
Thank you.
That's very helpful. Thank you.
Thanks, Katy can we have the next question please.
We'll hear next from one CMO with Bank of America. Please go ahead.
Yes. Thank you Luke on the iPhone growth exceeded your expectations. Despite a late launch can you maybe share some color on on what drove that was it more on the unit side or the ASP side, you Refered to two very strong mix couple.
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 first on supply constrained and I will follow up with him.
Yes.
Yes.
Certainly the iPhone was one of the major factors why we exceeded that on internal expectations at the beginning of the quarter.
We have a fantastic product lineup and we know debt and it's been fantastic to see the customer response for the four new models, particularly the Pearl models.
Throw on the Comex.
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 throw in the formats.
As you said correctly.
We launched these products on the <unk>.
Quarter two models after four weeks, yet to modern softer selling 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 that I think you've seen that our performance is being particularly strong in China.
Yeah.
We're seeing phenomenal customer response that probably they were supposed to some level of pent up demand for fight G. Iphones given that the market is moving very quickly to <unk>.
And so as we look ahead into the March quarter.
We're very optimistic.
We believe we can.
Going to be able to be in supply demand balance for all of the models.
At some point during the quarter.
And.
It is.
The products doing very well all around the world.
Great. Thank you Luca and Tim you mentioned about the strength of the installed base performance, which continues to grow very impressively at this scale can you maybe help us take true how the switchover versus upgrade activity has been tracking in recent quarters.
Love to get your thoughts on that thank you.
Yes. Thanks for the question if you look at this past quarter.
Which.
We started selling to two of the iphones four weeks into the quarter and the other two seven weeks into the quarter. So I would caution that this is in the early going but in looking at the iPhone 12 family.
We saw both switchers and upgrade or incur.
The increase on a year over year basis.
And in fact, we saw the largest number of upgrade or that we've ever seen.
In a quarter.
So we were.
Very thrilled about that.
Thanks, <unk> Zika much.
Can we have the next question please.
Yes, we'll go ahead and take our next question from Shannon Cross with Cross research.
Alright. Thank you very much Tim can you talk a bit about what youre seeing in China, clearly significant sequential growth, which I think has a lot to do with iPhone, but I'm curious Paul from an iPhone as well as you know.
Your other product categories, what youre seeing and how much back to normal you think the Chinese market.
I'll follow up thank you.
Yes.
China was more than an iPhone story iPhone, just two very well there and so it's sort of like the world. If you look at both switches on upgrade or as we were up.
Year over year in China also had a record number of upgrades.
During the quarter the most we've ever seen in the quarter.
Probably some portion of this.
Was that people probably delayed purchasing in the previous quarter.
Rumors started appearing about on iPhone.
Keep in mind that.
<unk> in China is as the network is well established.
And.
The overwhelming majority of phones being sold or <unk>.
There was some.
Level of anticipation for us delivering on iPhone with five day in 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 all the 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 Covid.
I think there.
At least.
From last quarter they were.
These sort of beyond Covid and very much in the 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. This year.
Okay and of course those.
Alright.
But of course, those cases are much smaller than the ones in other countries.
Right.
The other thing I was curious about with regard to the services business.
If we could dig a little bit more I think this is one of the first time when you talked about Apple TV plus arcade Apple pay from the smaller services actually kind of moving the needle and then I was also curious you had a number of stores closed on.
At least later in the quarter and that typically has impacted some of your Apple care revenue and yet you outperformed so maybe if you could talk about a bit more about the drivers of the services revenue. Thank you.
Yes, I mean really it's been strong across the board. There are two businesses during COVID-19 debt have been impacted negatively and then we talked about in the past when its Apple care, obviously when the stores are closed.
It's tougher of course from customers tool to have interaction with us and and advertising, which is in line with debt.
Overall level on economic activity what happened during the December quarter is debt.
In store traffic improved and so Apple care. We grew we didn't grow as much us company average, but we grew in Apple care set an all time record there.
In spite of the fact that yes, we are running particularly in December we said closing a few stores, particularly here in the United States, but also in Western Europe.
In total we were able to surface to support more customers than in past quarters, and we also saw a sequential acceleration in advertising and so on that also have.
The overall.
Both rate clearly the strength was in digital services in.
In the App store and cloud services and music those ready to service debt really delivered very very strong performance and it's something that we've seen happen.
During during the Covid environment.
Great. Thank you.
Thanks, Shannon can we have the next question please.
We'll hear from Toni <unk> with Bernstein.
Yes. Thank you I also have one for Luca on one for Tim.
Luca.
I was wondering if we could just probe a little bit more into <unk>.
IPhone, maybe you can just you talked about a draw down.
In channel inventory last quarter, our iPhone channel inventory is sort of at normal levels now exiting <unk>.
Q1, and should we be thinking about above seasonal iPhone growth given that you are still not in supply demand balance and you got fewer selling days in fiscal Q1 should we be thinking about.
Sort of above seasonal iPhone growth looking into Q2.
So on the on the December performance as you know Toni this was a very different cycle because we launch.
On a different time than usual.
So we had an initial products of the quarter, where obviously, we didn't have the new phones and then as we launched.
Then you force with also the China that typically happens from certain expense in the September quarter at the end of the quarter on the demand has been very strong and so we've been constrained as I said on on especially in the pro models at the end of December we exited with a level of iPhone channel inventory.
<unk>, which was slightly below a year ago.
So we.
And we still had some level of supply constraints, which we.
I believe we are going to be able to solve.
The March quarter in terms of debt.
Sequential change.
<unk> talked about.
During the prepared remarks, we talked about total company average and we said debt, 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-19, but if you go back.
Fiscal 2017 18 19.
Our typical.
Seasonal progression.
We mentioned a couple of product categories services, and Wearables, where are we going to be having.
A slightly more difficult compare and so I think you can draw your conclusions around the iPhone.
Okay. Thank you for that and then Tim.
I was wondering if you could just comment more broadly around.
Growth for Apple on sources of growth. The company. This year is can be well over $300 billion in revenue historically you've issued acquisitions.
And I'm wondering if you could comment whether you still feel confident that Apple has <unk>.
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.
Keith.
Yes, Tony as you know we give.
Some color on the current quarter, but not beyond that.
In terms of growth rates on 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.
Pipeline for the future both in products and services, we have an installed base that David.
Pause that we just talked about.
Earlier on our opening comments and we are still attracting a fair number of switchers and of course upgrades.
We just set an all time services record.
And we have that installed base to compound that.
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 to the services.
Revenue stream and a.
On the wearable side.
We've brought this thing from from zero to 104 to a fortune 120 company.
Which was no small feat.
But I still think the.
We're in the early stages of those products.
If you look at our share in some of the other products, whether whether 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.
You take India as an example.
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 on another.
And other markets that are are like that as well.
And of course the.
The other thing from a market point of view is where we've been on a multiyear effort in the enterprise.
And have gained.
Quite a bit of traction there you've heard some of the things Lukas comments.
Today, and we'd comment some on it each quarter.
Sure.
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 to the company in the past.
So.
We see lots of opportunity.
Thank you for the question.
Thank you can we have the next question. Please yes, we'll hear from Amit <unk> with Evercore ISI. Please go ahead.
Perfect. Thank you.
Two questions as well I guess.
Starting with Luke I just wanted to go back to the gross margin discussion and you know, we really havent seen gross margins at this level high 39.
I think since 2016.
Could you maybe step back and talk about what has enabled this shift higher what are the key drivers to get you there and if commodity tailwind zone in sourcing some components. So the a big part of this.
Love to understand the durability of the gross margin at these levels and what are the big drivers that got us here.
Well I mean of course, when when you grow the way we've grown this this quarter, 21% obviously.
We have a certain level of fixed cost in our products fractures right and so a high level of sales helps margin expansion without a doubt and so on that has been.
Probably the biggest factor to be honest and then as I was saying earlier.
Across the board in services in every product category, we've had very strong mix of products and.
When we're talking about the iPhone and the pro on the pro Max.
And thats been pretty much the case in every product category. So it's a mix as also being.
Very good the commodity environment is fairly benign.
And the one thing that has not effect on us this time around.
Ex debt, it's true it has not been a tailwind yet for the reason I say that was explained to Katy on at the same time. It is not being a negative and the reality is that FX for us has been a negative over the last five or six years, almost almost every quarter and so that has changed and that obviously makes that day.
Defense.
Got it.
And then Tim when I look at the growth rates on Mac and iPad they've been in the 20% to 40% range for last three quarters and I suspect. Some of this is just folks contending with the pandemic, but love to understand when you look at these growth rates how much of this do you think is replacement cycle driven fulfilled trading where they are at home versus new customer.
Or is the new folks that are coming into the Apple ecosystem and do you see I guess, what sort of growth range. Do you think is more durable predictable as you go forward over here.
If you look at the switcher or the.
<unk>, if you look at the new to Mac and due to iPad. These numbers are still about at worldwide level about half of the purchases are coming from people that are new and so the installed base is still.
Spending with new customers on it and so thats true on both iPad and Mac, if you look at monarch.
And one I think gives us a new growth trajectory that we haven't had in the past.
Certainly if if Q1 is a good proxy there's lots of excitement about blood based Max as you know, we're partly through the transition we got more.
A lot more to do there.
Early days on a two year transition, but we're excited about what we see so far.
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 debt as is complementary to their to their desktop but the.
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 this learning.
But I think.
I wouldn't underestimate how much of it is the product itself.
In both the case of iPad.
And of course, our share on the Mac is quite low.
For the total personal computer market and so there's lots of lots of headroom there.
Perfect. Thank you and congrats on a great quarter.
Thank you thanks.
Thanks, Amit can we have the next question please.
Go ahead and take our next question is from Sandeep.
With J P. Morgan.
Hi, Thanks for taking my question and congrats on the card cargo from my side as well.
I guess I wanted to start off with iPhone sales I think.
The general impression we have is China, and North America have motor robust fiber infrastructure I just wanted to see kind of what are you seeing in terms of customer engagement velocity of sales for iPhone in Europe, where I think the general impression is that service providers haven't rolled out robust five G. So obviously is that something that's impacting.
Customer interest in the newest lineup in the region and I have a follow up thank you.
If you look at the <unk> rollout in Europe, it's true that.
Europe is not in the in the place of certainly not nowhere close to where China is.
Nowhere close to the U S either but there are other regions that <unk> has.
That has very good covers like Korea as an example.
And so the.
The World I would describe it right now is more of a patchwork quilt.
There are places that there is really excellent coverage there are places where.
Within a country that is very good but not not from a nation wide point of view.
And then there are places.
Really hasnt got started yet.
Latin Americas more.
Closer to the last one there is lots of opportunity ahead of US there and I think Europe is where there are.
<unk> implementations there.
I think most of that growth is probably in front of.
Is there as well.
Okay.
As a follow up if I can just toss Q I think you mentioned the momentum youre seeing from the absolute one bundle, which I think has been a couple of months now since you launched it any metrics to share in terms on what are you seeing a conversion rate of customers or even insights into which services I wanted to look on it.
It'll be the ankle services, that's driving adoption of that bundle.
It's really too early to 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 were clearly accomplishing which is making our services is very easy to subscribe to our customers clearly told us that they wanted to subscribe to several services.
Some cases all of our services.
And so we've made that there is simple and it's clear from the early going that it's working.
But we've got we've just gotten started on it.
Thank you thanks for taking my question.
Thanks, Mick can we get on the next question. Please.
Well hear from Krish Shankar with Cowen.
Yes, hi, Thanks for taking my question and congrats on the very strong as well.
My first question was with Tim Tim I wanted to talk a little bit about your search and advertising business. How do you think of the long term growth opportunities in advertising. How do you think it's how long term growth due to three times the absolute growth rate and also our debt any applications on your fundamental switch technology.
We are enthused to be adapting from other parts of the services business.
That's the first question I have another quick follow up from Bill comes back.
The search advertising businesses going well it's a.
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.
<unk>.
And are willing to try it out.
We have been growing.
Nicely in that area.
Part of the advertising area that Luca spoke of earlier.
Got it thanks, Tim and then a follow up on Newco.
And you have to give services segment in the March quarter in China.
See a bump due to gaming downloads in China.
So should we see some midterm Standalone Bill do you think will depend on making people's income neutral that kind of seasonal bump on helping in China full game downloads.
Yes.
And I think I was mentioned during the prepared remarks, we.
Clearly in China. The March quarter is typically the strongest quarter for an hour.
From a services business and from the App store because of Chinese new year as you mentioned.
And last year.
What we saw was an increased level of activity because after Chinese new year debt the whole country went into lockdown for several weeks and so that propensity for playing games continued for seven or eight weeks more than a typical cycle.
So we expect to add on.
A great quarter in China, but at the same time, we need to keep in mind that the compare is going to be particularly challenging because because of what happened a year ago.
Thanks Nicole.
Thank you can we have the next question. Please.
Go ahead, Tim take our next question from Chris Caso with Raymond.
Raymond James Please go ahead.
Yes. Thank you first question is on the iPhone.
Asps and I know you don't disclose them.
The numbers there.
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 in at a higher price point pro established a new price point can you speak to how that.
The level of benefit that you saw there.
And going forward are you confident that you can continue to improve the mix and iPhone going forward.
So as I said earlier, we grew iPhone revenue was 17%.
And that growth.
Came from both unit sales and Asps.
Asps.
Because because of the strong mix that I mentioned bill.
Before so.
I think that answers your question for the for the December quarter, what we've seen so far it's very early because we launched the <unk>.
The new products only a few weeks a few weeks ago, what we've seen so far is that.
A very high level of interest for the promo on as the pro on the pro Max.
Worked very hard to.
On a 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 during the March quarter.
But so far the mix has been very very strong on iPhone.
Okay.
As a follow 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 trade ins during the quarter.
Did that provide a benefit in your view on units or next or perhaps both.
And what would be the level of permanent debt you would see on some of those actions such debt.
It does.
Subsidies were removed stable potentially being a headwind going forward.
I think Chris it's Tim I think subsidies always help.
On the.
Anything that reduces.
To the to the customers is good for the customer.
Obviously, good for the carrier Thats doing it and good for us as well.
To win across the board.
I believe.
I believe that.
At least based on what I see right now is that there will be probably continuing to have quite a bit of competition in the.
In the market, if youre talking about the U S market.
For customers as carriers work to get more customers to move to <unk>.
And outside of.
On the U S.
Subsidies are not.
Used in all geographies and so.
Really.
Varies greatly by country some of them are separate completely the handset and the <unk>.
Service in those areas, we don't have subsidies.
Thanks can we have the next question please.
Thank you we'll go ahead.
I didn't hear from Jim Suva with Citigroup.
Thank you very much.
Amazing how your company is.
David and progressed through this uncertain, China Society, a lot of the pushback, we get on our view on Apple is that everyone around them or did they know in developed countries has an iPhone or apple products in the market is coming on.
Saturated, but when I look at other countries like India I believe statistically you on.
Materially below that in market share so you're doing active efforts there. It seems that there has been some new reported moving.
Supply chain, they're all using opened up on an Apple stores, how should we think about that because it just seems like.
Really not.
<unk> market share around the world.
Yes.
There are several markets as I alluded to before India is one of those where.
Our share is quite low.
It did improve from the year ago quarter on our business roughly doubled.
Over that period of time, and so we feel very good about the trajectory. We are doing a number of things in the area. We've put the online store. There for example in last quarter was the first full quarter of the online store and debt has it gotten a.
Great reaction to it.
It helped us achieve the results that we that we got to last quarter. We are also going in there with retail stores.
Net.
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 is there is 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.
Again, I would also say even in even as the developed markets.
When you look at our share definitely everybody doesn't have an iPhone.
Not even close.
We.
We really don't have a significant share in any market.
We are.
So there's a headroom headroom left EBIT on those developed markets, where you might hear that.
Thank you so much and congratulations to you.
Bill.
Thank you Jeff I appreciate that thank.
Thank you our reported.
A replay of today's call will be available for two weeks on Apple podcasts as a webcast on Apple Dot com slash investor and via telephone and the numbers for the telephone replay are 808, 2031112 or 719 $45 7082 zero. Please enter confirmation.
<unk> code 108 to 830, these replays will be available.
Approximately five PM Pacific time today members of the price with additional questions can contact Kristin Huguet at 408 974 to four one for financial analysts can contact me with additional questions. At 669 227 240 to thank you again for joining us.
Once again that does conclude today's conference we do appreciate your participation.
Okay.
If any.
Yes.
Sure.
David.
Okay.
Thanks.
No.
Cash flow.
Sure.
E Commerce.
Sure.
Okay.
Okay.
Yes.
Okay.
Yes.
Okay.
Thank you Steve.
Okay.
Excellent.
Bill.
Okay.
Peter.
Okay.
Sure.
Okay.
Peter.
Okay.
Net sales.
Peter.
On the weekend.
Yes.
Yes.
Yes.
Okay.
Okay.
On that.
Sure.
Okay.
But on top.
Okay.
Bill.
Okay.
David.
Sure.
Yeah.
Yes.
Okay.