Q2 2021 Apple Inc Earnings Call
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Please standby were about to begin.
Good day and welcome to the Apple Q2, FY 2020, One and earnings conference call today's call is being recorded.
At this time for opening remarks, and introductions I would like.
I'll turn the call over to Tejas Gala 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 Street 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-19.
On the company's business results of operation.
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 apples and most recently filed annual report on form 10-K, and the form 8-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 dates I would now like to turn over the call to Tim for introductory remarks.
Thanks pages and good afternoon, everyone and thanks for joining the call today.
Apple is proud to report another strong quarter.
One where we set new March quarter records for both revenue and earnings besting our year ago revenue performance.
54%.
Reflecting both the enduring ways our products have helped our users meet this moment and their own lives.
As well as the optimism consumers seem to feel about better days ahead, we set new March quarter Records in every geographic segment.
And success was broadly distributed across our product categories Mac and services delivered all time record results and we set new March quarter of records for iPhone.
And Wearables home and accessories.
And to provide some color on our results, let's turn to our product categories.
We saw very strong performance for iPhone, which grew 66% year over year driven by the strong popularity of the iPhone and 12 family.
With unmatched <unk> capability, the best camera system ever and and iPhone and advanced durability from ceramic shield. This family of devices is popular with both upgrades and new customers alike, and just last week, we unveiled and all new purpose finish for iPhone 12, and 12 minute.
As has been the case throughout the pandemic iPad and Mac continued to be critically important tools for our customers over the past year tens of millions of ipads and Macs have been deployed to help students learn creators create and to enhance remote work and all of its forms.
And this has helped iPad growth very strong double digits to its highest march quarter revenue and nearly a decade.
On Mac fueled by the M. One we set an all time revenue record continuing the momentum for the product category. In fact, the last three quarters for Mac had been its three best quarters ever.
Last week, both iPad and Mac took a big step forward, we debuted a radically redesign brand new imac designed around and one's unmatched capabilities and we've brought in one to iPad for the first time.
And our new iPad pro with <unk> capability and of liquid retina xdr display.
It was a quarter of sustained strength for Wearables home and accessories, which grew by 25% year over year and.
And for watches of global success story, and the category set March quarter Records and each geographic segment. Thanks to strong performance from both Apple Watch series, six and Apple watch and see.
It's an exciting and busy period ahead for Wearables home and accessories were the launch of the next generation and Apple TV <unk> and our newest accessories are tag.
Aerotech Bill on the powerful and incredibly useful find my experience, helping users privately and securely keep track of the items that matter most of them.
Third party accessories and products can also make use of the find my net worth guaranteeing a great experience no matter what products you choose to use.
Turning to services, we achieved growth of 27% year over year and set new records for services in each of our geographic segments.
We continue to enhance and improve our current service offerings from Apple music to Apple news, while continuing to launch new services that enhance our customers' lives.
Just last week, we introduced Applecart family, which Reinvents, how you can share credit cards and bill credit together.
We also announced Apple podcast subscriptions, a global marketplace for listeners to discover premium content from their favorite creators and storytellers.
While we're on the topic of services and many ways. This quarter showed the unique value to customers created by apples belief and the deep integration of hardware software and services.
Across our products and throughout our software ecosystem, we continue to deploy industry, leading new tools to protect users fundamental right to privacy.
In addition to the App store privacy and nutrition labels that we discussed on last quarter's call. We're proud to have launched the full implementation of App tracking transparency.
This powerful yet simple idea gives users a choice over how their data is used and shared across the apps that they love and use every day.
No matter what device you enjoy it from it as a milestone period for Apple TV, plus racking up many new award nominations and wins, including its first Oscar nominations.
<unk> in particular has been recognized with a multitude of awards and nominations, including most recently and AFI program of the year recognition writers Guild of America Awards and of clean sweep and the Critic's Choice Awards.
Apple TV plus also continues to be a place where we can tell stories that matter and lift up important voices and experiences like our new upcoming content partnership with Malala. Our latest original documentary special the year of the Earth change narrated by the legendary David Attenborough and released to commit.
Alright Earth day.
This is of course, just one example of how Apple lives its values and operationalize the idea of that too much is given much is expected.
To begin with our environmental efforts just last week, we marked a milestone and Earth day on multiple fronts.
In addition to the progress we've made and our own efforts to achieve our pledge of of net zero carbon footprint by 2030 across our entire supply chain and use of our products. We're proud to play a role and the growing ripple of change taking place across the private sector.
As of this month of 110 of our suppliers have joined us and a renewable energy commitment and we will bring online nearly eight gigawatts of new clean energy the equivalent of taking $3 4 million gas powered vehicles off the road each year.
Through Apple $4 $7 billion, and green bonds and related efforts, we've supported transformative environmental projects around the world from clean energy initiatives and China to two of the world's largest onshore wind turbines and Denmark to 180 acre solar project outside Reno, Nevada.
And many more.
We're also keenly focused on how this wave of green innovation and can lead to equitably shared prosperity.
Through our new $200 million restore fine, we're helping local and rural communities around the world Bill sustainable industries around working for us, creating opportunities and removing up to 1 million metric tons of carbon from the atmosphere every year.
And here in the United States, we started of Green impact accelerator and investing and supporting minority on businesses at the forefront of environmental field.
As we look forward to Ww DC, we're taking new steps to foster to support and foster the unmatched community of developers, we work with here in the United States and around the World I'm, particularly excited about our inaugural entrepreneur count for black the founders and developers.
Building on the success of our entrepreneur cap program, which we began in 2019. This program gives this profoundly innovative community of developers the chance to develop next level of technical skills through hands on technology labs, and with our partners at Harlem capital. It also shares insights and mentor ship on building and Sky.
Selling and App business.
We were proud to announce that we've expanded and accelerated our commitment to the U S economy.
For the next five years, we will invest $430 billion trading 20000 jobs and the process.
The investments will support of American innovation and drive economic benefits and every state, including our new North Carolina campus and job trading investments and innovative feels like Silicon engineering and five day technology.
Looking forward.
And whether youre running a business or just hoping to see family again after more than a year. It's tempting at this moment, so let hope about the and of the COVID-19 pandemic outstrip clear eyed realism about the challenges we still face.
And in many places around the world new waves of infections, driven by even more infectious variance of the virus are driving new lockdowns.
Instead of simply assuming that the and this insight we added Apple are doing our part to make it a reality.
Beginning with and enduring and uncompromising commitment to the health and safety of our teams and extending well beyond our wallets and to the communities, where we work we.
We also want to do everything we can to connect users to lifesaving vaccinations veteran and ever greater supply.
Through Apple maps for example, we now showcase vaccine site locations here in the United States building on our maps of testing locations and many countries around the world.
It's worth remembering for much more than financial reasons, our year ago compares just how we felt at this time last year when everything we do has to change.
<unk> set grounded and tire business districts were empty and silent people left groceries are care packages sitting in the garage or in the hall overnight and recognition of all of that we didn't know and therefore hard to imagine.
Thanks to researchers and scientists doctors and nurses everyone's you can put a shot and and arm and even just check of name off of list. We have reached new days of hopeful resolve.
Our works not done, but as I said, a year ago, while we can't say for sure. How many chapters are in this book, we can have confidence that the ending will be a good one with that ill hand things over to Luca.
Thank you Tim and good afternoon, everyone. We are extremely pleased to reported record results for our March quarter. Despite continued uncertainty in the macro environment, we've been operating and new ways for over a year and we could not be more proud of the way our team continues to execute and innovate unprecedented led.
<unk>.
Our revenue reached a march quarter record of $89 6 billion and increase of over 31 billion of 54% from a year ago.
We grew very strong double digits in each of our proud of categories with all time records for Mac and for services and March quarter record for iPhone and for Wearables home and accessories. We also set of new March quarter Records in every geographic segment with growth of at least.
35% in each one of them.
Products revenue was of March quarter record of $72 7 billion up 62% over a year ago.
As a result of this level of sales performance and the unmatched loyalty of our customers. Our installed base of active devices reached a new all time record in each of our major proud of categories.
Our services set an all time record of $16 9 billion growing 27% over a year ago with.
We established new records in each geographic segment and most service categories I will provide more details about the performance of our services business later.
Company gross margin was 42, 5% up 200, and saved 70 basis points from last quarter, driven by cost savings as strong mix and favorable foreign exchange.
Product gross margin was 36, 1% growing 100 basis points sequentially also thanks to cost savings and effects, partially offset by seasonal loss of leverage.
Services gross margin was 71%.
170 basis points sequentially, mainly due to a different mix.
Net income of $23 6 billion diluted earnings per share of $1 40.
And operating cash flow of $24 billion, where all of March quarter records by a wide margin.
Let me get into more detail for each of our revenue categories.
IPhone revenue set of March quarter record of $47 9 billion growing 66% year over year as the iPhone <unk> family continued to be in high demand.
Performance was consistently strong across the world as we grew strong double digits in each geographic segment and said March quarter Records in most markets we track.
Thanks to the exceptional loyalty of our customer base and strength of our ecosystem. Our active installed base of iphones reach and new all time high and the U S. The latest survey of consumers from four of five one research indicates customer satisfaction of over 99% for the iPhone and <unk>.
Family.
Turning to services, we reached an all time revenue record of $16 9 billion with all time records for the App store cloud services music video advertising and payment services.
Our new service offerings, Apple TV, plus Apple arcade Apple.
Newsflash Apple card Apple of fitness glass as well as the Apple one bundle continue to scale across users content and features and are contributing to overall services growth.
The key drivers for our services business all continued to moving the right direction first our installed base growth has accelerated and reached an all time high across each major product category second.
The number of both transacting and paid accounts on our digital content stores.
Each of new all time high during the March quarter with paid accounts, increasing double digits in each of our geographic segments.
Third paid subscriptions continued to show strong growth during the March quarter, we added more than 40 million paid subs sequentially and we have now reached more than 660 million paid subscriptions across the services on our platform. This is up $145 million from just a year.
And twice the number of paid subscriptions, we had only two and half years ago.
Finally, we are adding new services that we think of our customers will love.
While also continuing to improve the breadth and quality of our current service offerings for example.
Apple arcade launched its biggest expansion yet, adding incredibly fun games of the catalog, including new and exclusive Arcata regionals, along with two entirely new categories App store grades and timeless classics.
Apple pay continues to expand geographically launching in Mexico, and in South Africa, bringing our payment service to six continents.
Wearables home and accessories grew 25% year over year to $7 8 billion.
Set a new March quarter revenue records in every geographic segment.
Apple watch continues to extend its reach with.
With nearly 75% of the customers purchasing Apple watch during the quarter being new to the product. We are very excited about the future of this category and believe that our integration of hardware software and services <unk>.
Uniquely positions us to provide great customer experiences and this category.
Next I'd like to talk about Mac, we set an all time revenue record of $9 1 billion.
Up 70% over last year and grew very strongly in each geographic segment with all time record revenue records in Europe, and rest of Asia Pacific and.
And March quarter Records, and the Americas, Greater China and Japan.
This amazing performance was driven by the very enthusiastic customer response to our new Max powered by the M. One chip.
IPad performance was also outstanding with revenue of $7 8 billion up 79%. We grew very strongly in every geographic segment with an all time record in Japan, and a march quarter record and the rest of Asia Pacific.
Both Mac and iPad and incredibly relevant products for our customers and the current working and learning environments and we are delighted that the most recent survey of U S. Consumers from 451 research measured customer satisfaction of 91% from Mac 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. The active installed base for both products continues to grow nicely and reach new all time highs.
And the enterprise market customers across many industries at accelerating their adoption of iPhone <unk> and <unk>.
As a key platform for the future of their business.
Desktop Airlines for example is putting iPhone <unk> and <unk> connectivity into the hands of flight attendants. So they can provide the best passengers served as possible as air travel rebounds.
And reaching the U K has started equipping tens of thousands of field engineers with iPhone and 12 to speed up their deployment of broadband services to homes around the country.
And you see out of large health care provider and Colorado was able to reduce per patient vaccination time from three minutes 2030 seconds largely by moving from PC stations through iphones.
This has allowed their staff to rapidly scan and register new patients and vastly increased their daily vaccination on capacity.
Let me now turn to our cash position, we ended the quarter with over 204 billion and cash plus marketable securities. We issued 14 billion of new term debt and retired $3 5 billion of term debt, leaving leaving us with total debt of almost 122 billion.
As a result, net cash was 83 billion at the end of the quarter.
This strong position allows us to continue to invest confidently in our future. While also returning value to our shareholders. We are on innovating and investing at an unprecedented pace, including accelerating our investment in the United States with our new commitment to contribute more than 430 billion and <unk>.
1000 jobs to the country over the next five years.
As we continue to execute on it and extremely high level. We were also able to return nearly $23 billion to shareholders.
This quarter. These include of $3 4 billion and dividends and equivalents and $19 billion through open market repurchases of 147 million Apple shares.
We continue to believe there is great value on our stock and maintain our target of reaching and net cash neutral position over time given.
Given the confidence we have in our business today and into the future. Our board has authorized an additional 90 billion for share repurchases. We're also raising our dividend by 7% to <unk> 22 cents per share and we continue to plan for annual increases and the dividend going.
Forward.
As we move ahead into the June quarter I'd like to review our outlook, which includes the types of forward looking information that tejas referred to at the beginning of the call.
Given the continued uncertainty around the world and the near term, we are not providing revenue guidance.
We are sharing some directional insights.
Assuming that the COVID-19 related impacts to our business do not worsen from what we are seeing today for the current quarter.
We expect our June quarter revenue to grow strong double digits year over year.
However, we believe that the sequential revenue decline from the March quarter to the June quarter will be greater than in prior years for two reasons first keep in mind that due to the later launch timing and strong demand.
IPhone only achieved supply demand balance during the March quarter. This will cause a steeper sequential decline than usual.
Second we believe supply constraints will have a revenue impact of $3 billion to $4 billion in the June quarter.
We expect gross margin to be between 41, and a half and 42 and 5%.
We expect opex to be between $11, one and $11 3 billion.
We expect <unk> to be of around $50 million and our tax rate to be around 14.5%.
And finally, reflecting the approved 7% dividend increase I just mentioned.
Our board of Directors has declared a cash dividend of 22 per share of common stock payable on May 13, 2021 to shareholders of record as of May 10, two.
<unk> 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.
Thank you.
And once again, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
And if youre using a speakerphone. Please make sure that your mute function is turned out to lay of signal to reach our equipment.
And we'd like to ask you once again and if you to please limit yourself to one question and one follow up before reentering the queue.
We'll take our first question from Shannon Cross with Cross Research. Please go ahead.
Thank you very much Tim I had sort of a big picture question on iPhone and just curious theres, so many different things happening.
Cycle five day pandemic, how are you thinking about the opportunity for.
Refreshing the installed base and attracting new customers and.
Are you seen lives shorten given some of the.
You know the programs that are being put out there by the carriers and by yourself just kind of maybe big picture. If you can talk about what youre seeing in terms of iPhone.
Out there on the market. Thank you.
Yeah.
Sure Shannon, we saw double digit increases on a year over year basis on both.
The new to iPhone and upgrades, so and in fact and the March quarter.
And there was actually a record number of of upgrade of <unk> four for a march quarter and.
So we like what we see it's obviously the early days of <unk>.
Different countries are and different.
And.
Points penetration is still on a global level is still low at this point and so a lot of the <unk>.
And.
Upgrades will be in front of us.
Behind us.
And you see and.
China things have moved quickly to <unk>.
They are moving quickly and the United States.
But a lot of the other regions are slower to adopt and slower to gain and coverage and <unk>.
Okay. Thank you and then low.
Can you talk about gross margin I mean, 42 percentage is higher than it's been than I can kind of remember actually at this point.
So maybe if you could talk about the drivers of of gross margin and maybe if there were any offsets from higher component costs or the logistics cost debt.
They were overshadowed by currency and other things. Thank you.
Yes, Shannon and yes, we did 42, 5%.
During March and we've guided tools similar or slightly lower levels for for June.
For March we went up 270 basis points sequentially really driven by three major factors cost savings, which have been good for us during.
During this cycle, a really strong mix of strong mix on iPhone, but in general across all product categories and that obviously was helpful and foreign exchange.
<unk> actually again from December to March whilst favorable 90 basis points, so that helped us.
Well.
And so those are the.
Three major factors there as we transition into June.
As you know that.
We would expect some level of deleverage.
That would be offset by cost savings and.
Foreign exchange doesn't have much of an impact as we go from March to June.
Thank you.
Thanks, Shannon and we have the next question. Please.
Absolutely we will now take our next question from Amit <unk> with Evercore.
Thank you for taking my question and I have two as well.
And just on services.
90 days ago of the expectation was that line item would decelerate a little bit into the March quarter. It turned out it actually accelerated for us.
I'd love to just understand yet what do you think drove that exploration specifically and is.
As of mid 20% sort of the growth norm as you go forward for services.
So.
And our services business did better than what we were expecting when we had the last call in January.
It was stronger across the board of one of the things that we've noticed is that throughout COVID-19 was that obviously digital services have done very well and then we've had a couple of categories like Apple care, because many of the points of sale and stores were closed and advertising because.
Of the reduced economic activity, but were negatively affected during COVID-19.
During the March quarter, we have seen a return to growth on Apple care and and obviously, we have reopened a lot of of the store. So during the course of the quarter and.
And advertising, obviously consumer sentiment has improved and advertising is coming back and.
So the combination of these factors really.
And delivered is very very strong performance during.
During the March quarter as we look ahead as you know we don't provide.
Specific guidance for our product categories, but in general I talked during our prepared remarks, I mean, there are a number of things that we always look at.
And the services business and how many new paid accounts that we have what number of new subscriptions that we get debt above all is our installed base continuing to grow.
Adding new services that we're improving the quality of the existing services and so when we look at all of these fundamental factors of our services business. Obviously, we feel very good very good about it.
Got it that's helpful and then Tim if I could follow up with you. It seems like engagement with iPhone and Apple devices generally has gone up materially over the last 12 months and.
I don't think replacement cycles of at least on the data we see has shrunk of changed how much of the end of the day.
I'm wondering does that combination of increased usage of replacement cycles haven't changed and.
And up in iPhone potentially growing on a multiyear basis because.
And they usually I would imagine if I'm using something more of to replace it more often and so love your perspective on it.
Yes, we're clearly seeing.
Strong performance and both the new to iPhone or the switcher component and upgrades as I had mentioned before and in fact, the upgrader was the.
And best March quarter that we've ever had and and and.
That speaks to what you are seeing I think a lot it's difficult with just this far into the cycle to make a statement about the cycle in general because keep in mind that we just launched midway through the <unk>.
Q1 period, and so we've only been operating four four and I have months or so.
But clearly we like what we see right now a lot. If you look at how the iPhone did around the world.
We had the top five models of smartphone and the U S. The top selling.
The top two and urban China.
Four out of the top five and Japan.
On the top four and the UK and the top six and Australia and so it was a.
Sort of across the board and some of <unk>.
Key countries, we did we did really really well.
I do think the <unk> cycle.
As.
As important and.
And.
We're in the early days of it frankly.
Thanks, Amit can we have the next question please.
Absolutely we'll take our next question from Katy Huberty from Morgan Stanley. Please.
Please go ahead.
Thank you this was a pretty unbelievable quarter and investors are going to.
Ask you about the sustainability of of current demand trends, especially as you lap some of the benefits from kind of it and areas like services and Max later this year. So I know you don't guide beyond debt or provide an outlook beyond the next quarter, but can you talk from a high level.
Over the next year, which segment do you see the opportunity to maintain strong revenue growth versus where is it reasonable to assume there will be some digestion as consumers shifted their spending priorities and then of a follow up for Luca.
If you sort of look at the different products.
IPhone and I've already mentioned some of the great momentum that we had there.
Keep in mind that the compare that we're running to.
Would be the quarter of Q2 of last year.
<unk> of that China would have entered a shut down first and then the rest of the world.
And the shutdown and middle part of March and so part of the growth is compare is the comparison point.
But that said the results were fabulous across the board.
And the shortages that Lucas Pope spoke about and the color that you've provided on the on the future.
Affects primarily the iPad and the Mac and so we will have some challenges and there.
And of challenges meeting the demand that we've got.
The demand feels very strong right now both on the Mac side, you have the combination of M. One and work from home and remote learning and and iPad, you've got remote learning and work from home as well and the <unk>.
Product that we just announced is really tailor the iPad pro with the M one and it.
And so theres a lot of a lot of great things of the strength of the product cycle.
In addition to the trends that we're seeing and the marketplace.
And where this pandemic will and.
And.
It seems like many companies will be operating in a hybrid kind of mode and so.
It would seem that work from home and the productivity of working from home will remain.
Very critical.
And if you look at Wearables and the watch had a fabulous quarter.
And I still think we are and the early innings on the watch.
The number of new people that are new to the watch is almost three out of four and so this is.
On a long way from from being a mature market and so and then the services.
By itself is.
Really accelerated and so all in all we feel very very good.
And then Luca if I look at inventory plus vendor non trade receivables that grew only about 8% this quarter, which is a big deceleration from last quarter should we read into that as a leading indicator for how we should think about the revenue growth deceleration.
And the business as the world normalizes or where there is some supply disruptions during the quarter that caused you to train inventory and create that tightness that you were talking about for June.
Now on as.
And as you think about.
The June quarter.
Katy I would point you to what we said in our prepared remarks around the two factors that will influence our normal seasonality right. One is the fact that iPhone, we launched iPhone.
Later than usual during this cycle and so we reached supply demand balance.
Only during the March quarter, which makes obviously the sequential decline steeper than usual and then these three of $4 billion of supply constraints that Tim just said primarily on an iPad and Mac. So as you look at your model and you obviously kind of look at our numbers that we've done and the path I think you can you could try.
To gauge to gauge debt from a channel inventory standpoint.
We did what we normally do during during our March quarter. So we reduced the inventory as it is typical on.
And on iPhone.
We exited with Dane our target range, So I would say that on the inventory side.
It was pretty straightforward, obviously given that the supply constraints that are on the island and the Mac. We wish we had more inventory of iPad and Mac, but.
This is a function of function of high demand for all of our products.
Thank you.
Thanks, Katy can we and the next question please.
Thank you we'll take our next question from <unk> Mohan with Bank of America.
Yes. Thank you Tim your content offerings are still at very compelling price points and you.
Do you see and other content providers, whether it would be Spotify, Hulu and Netflix all announce price increases recently I'm, just wondering how you're thinking about pricing as it pertains to your offering here and if you could share of any stats or on the uptake of TV plus paid subs that'd be great and that of a follow up for Luca.
TV plot, let me start with TV, plus TV pluses going.
Well as you know.
And the objective and the philosophy that we've had on television pluses to create high quality of original content.
And to be one of the most desired platforms for storytellers and.
And I see that happening day by day, as we saw and more shows and more storytellers and including the law as I had mentioned in my opening comments.
To date, we've received the Apple original and have received 352 award nominations and had 98 wins and.
And this is from Oscar nominations, two Emmy Awards to critic Choice Awards, and and all the rest and we've got some shows that are.
And have gotten significant.
Buzz like Ted lots of in the morning show and defending Jacob and me.
Many others and so we feel really good about where we are we're not releasing subscriber numbers.
But we feel good about where we are.
In terms of other services and pricing.
Have anything to announce today, we try to give the customer of great value and.
And we feel that we're doing that and the.
And with the prices that we've got and we will we will see where we go from here.
Okay. Thanks, Tim as my follow up Luca on the June quarter Guide when you talk about the sequential decline being a little bit above.
About perhaps the 13% or low teens percent that we've seen historically.
Or are the supply constraints of the three 4 billion impact included in that or is that in addition to.
So all of that more of an average sequential decline that you're referring to and any color on what specifically is driving the supply constraints of the sub component level. Thank you.
The.
So when you look at our normal seasonality and you mentioned the percentage there and it is really on an average of several years. What we're saying is that we believe that the sequential decline this year is going to be.
Higher than that and it's a combination of the two factors right. One is the timing of the launch and then the very high demand for iPhone during the March quarter and.
The $3 4 billion supply constraints that we mentioned.
And.
And yeah and.
The of constraints come from the semiconductor shortages that are affecting.
And many many industries and and and it's a combination of.
And the shortages as well as the very very high level of demand that we're seeing for both iPad and Mac for Mac. For example, if you just just to keep it into context.
Last three quarters of Mac of being the best three quarters ever and the history of the profit right. So we are experiencing and incredible level of demand, which.
Certainly is favored by working from home and learning from home environment, but also by the incredible amount of new products and innovation that we put into the products that we launched during the last.
A couple of quarters.
Thank you Luca.
Thanks, a lot and can we have the next question. Please.
Absolutely we'll take our next question from Aaron Rakers with Wells Fargo.
Yes, thanks for taking the question and congratulations on great quarter, and I wanted to go back to the iPhone as we think about the iPhone 12 cycle appreciating that you guys don't give actual shipment numbers. It would appear though that the mix has been quite healthy. So I'm wondering if you could give us any context of what in this.
Cycle, you're seeing in terms of the mix relative to past cycles.
And as that mix sustainable I'm, just trying to understand kind of the <unk>.
Mix of within the iphones and how that's driving I guess, particularly gross margin and I have a follow up.
Erinn, let me give you a little color on that the iPhone 12 of the iPhone 12 family or.
More broadly affect all iPhone. The iPhone 12 is the most popular.
But we did see very strong sales of the of the pro portion of the family as well the probe plus of the pro Max and.
And so the revenue.
And that you are seeing is a function of unit growth and.
Revenue our revenue per unit growth.
Does that help.
Yes, I can.
You give any context on how that might have changed this cycle relative to the prior cycles that we've seen kind of a structural change to the higher band of the product category that you believe can be sustained going forward.
We don't predict going forward other than four are on.
Internal use.
But we're really happy with the results.
Okay, and then as a quick follow up back to the supply constraints I guess, it's hard to kind of see.
Again looking forward beyond this quarter, but what's your best assessment of when maybe the supply constraints could ease do you have any views of.
Just the industry and general overcoming some of the supply constraint dynamics.
Most of our issuers on legacy nodes.
And so on legacy nodes.
There are many different people not only and the same industry, but across other industries that are using legacy nodes.
And so in order to really answer that question on it.
Accurately we would need to know the.
The true demand from each of these players and how thats going to change over the next few months and so it's.
It's very very difficult.
To give you a good answer I think we have a good handle on our demand.
But.
What what everybody else is doing I don't know and so we will we will do our best and that's what I can tell you.
Fair enough. Thank you.
Thank you Erin and we have our next question. Please.
Thank you we'll take our next question from harsh Kumar with Piper Sandler.
Yeah, Hey, guys. Congratulations on a very nice quarter question on on semi suppliers well you just beat by a substantial margin on the top line and the March quarter, I'm curious, what when and in your favor to be able to secure that kind of supply that you were able to beat by.
I think it was $11 million or so and then of how to follow up.
We did not have of material supply shortage in Q2.
And and so how are we able to do that you wind up collapsing all of your.
Buffers and offsets.
And.
That that happens all the way through the supply chain and so that enables you to go a bit higher than that.
And what we were expecting to sell when we went into the quarter 90 days ago.
That's very helpful. And then for my follow up I know Theres, a lot of moving parts of Tim but.
With the economy sort of reopening here on the U S and you mentioned about supply can change, possibly on the Mac and the iPad of its.
Curious if I could get your thoughts maybe just color wise on what you would expect for those two categories, Max and the ipads and the second half of this year.
Well, we don't we don't predict.
Guide too.
Two product level of detail, we're not even guiding to the top level at this point because of COVID-19 and.
And so I'll sidestep debt that question, but.
And would point to that Lucas point earlier about.
Shortages and those shortages, primarily affect iPad and Mac.
So we expect to be supplied gated.
Not demand gated.
Thank you harsh and we of the next question. Please.
Thank you we'll take our next question from Krish <unk> with Cowen and company. Please go ahead.
Yes, hi, Thanks for taking my question and congrats on a fantastic quarter first question for Tim or Luca the greatest China sales of very strong and the March quarter can you give some color on what drove the strength, which hardware products and services enable who followed outperformance in China and then out of a follow up.
And we were very pleased with our performance in China.
A march quarter revenue record.
And grew strong double digits across each of the product categories and so.
Revenue growth was broad.
We've been especially pleased by the customer response, and China to the iPhone 12 family.
And as I had mentioned earlier you have to remember that China entered the shutdown phase earlier and Q2 of last year than the other.
Countries and so they were relatively more effected in that quarter.
And that has to be taken into account as you look at the results.
As I had mentioned earlier, we have the top two selling smartphones and urban China. So we're very proud of that and.
And iPad Mac both had enormously.
Positive quarters with great strength across the board and we are seeing.
A strong reception to the new iPad pro as well.
We just announced sort of a lot of.
A lot of.
Great comments.
And about two thirds of people buying Mac and iPad.
Buying them for the first time and so we are attracting some new customers in China, which is really important to us.
Clearly, it's not and very helpful. Tim and then maybe as a follow up and kind of home.
Big picture philosophical question and to the extent of you can answer this one of the comes on as many investors have is about the overhang of introducing.
Risks and I'm just kind of.
Very hard to handicap and I'm kind of curious do you think is giving more public disclosure on and focusing the business like up still would help alleviate some of this confirms and do you think that we're getting a lot of companies of detail with kind of curious to know what do you think on.
So this is a disclosure.
I think with the regulatory questions and scrutiny and we have to make sure that we're telling our story and why we do what we do and we're very focused on on.
Doing that if we feel that more disclosure would help we would obviously moving in that direction.
The App store and other parts of Apple or not cast and.
Concrete and so we can.
Move and our flexible with the times for example on the App store as you know.
Just a couple of quarters ago.
Sure.
<unk>.
The.
Commission rate for small developers to 15%. So that was an example of moving with the times and and we've gotten a great great reception to that and.
So.
Yeah.
We continue to learn and I think it's very important that we.
Debt, we're very clear about why we do what we do.
The the.
Idea of behind Curating.
The App store and order to get the privacy and security that our customers want I think is very important and we have to convey that and.
Very straightforward manner.
Very helpful. Thanks, Tim.
Thank you can we of the next question. Please.
Absolutely will take our next question from Kyle Mcnealy with Jefferies.
Hi, Thanks, a lot for the question.
One of the things we've been positive about is how growing iPhone sales can pull on watch and Airpods sales as well as customer shop, the whole store, but you mentioned through COVID-19 and accessories do much better on a physical store environment and thats been hard due to the shutdowns of obviously so my question is have you seen any improvement.
And the attach rate for watch and Airpods with iPhone and can I get a lot better from here as the environment gets closer to normalization.
I think we get a lot of benefit from our stores.
And when they are open and are fully operational and.
And we.
We're in better shape.
Four.
Parts of Q2 than we were previously.
But we're still operating with limited operational model and and <unk>.
Many stores and there is still some stores today that are close stores, and Michigan and stores in France, and and so forth and so I think it will take some amount of time, but my mom.
Our view would be.
As the stores get back up to speed fully up to speed.
We should be able to increase some of the accessories sales, although I think we're doing fairly well at the moment. So it's not something that we are that we're not that we're not doing well online has been much more.
Beneficial and much more productive than we would've guessed going into this.
Okay, great. Thanks, a lot.
Thanks, and congrats on the next question quick question.
Absolutely we'll take our next question from David void from UBS.
Great. Thanks, guys and congratulations on a linked quarter and maybe if I could just ask a question and I know, it's early days, but any commentary on any color on from maybe the developer community.
ATT and kind of what the initial feedback and data might look like that you can share with us. Thanks.
Yes.
<unk> focus is really on the user.
And giving the user the ability to make a decision about whether they.
Want to be tracked or not and so it's putting the user and the.
Control not not Apple lot of another company, but the user of where it should be and so that's really the focus of it and the feedback that we've gotten from users both before.
And went live and when it was in the planning stages, and so forth and after has been tremendous and.
So we're really standing up on behalf of the consumer here.
Maybe just as a quick follow up Tim can you kind of discuss any sort of.
With the downloads of look like I know, we just rolled out earlier this week and sort of the acceptance by the consumer at this point and you sort of metrics that you can share with us whether it's sort of an opco and our op lots of our <unk> from the consumer perspective.
I don't even know the answer to that it's not something that we would have predicted beforehand.
And frankly, even if its very low of people that don't want to be tracked it's worth doing because of the those people should have should make their own mind up whether they would like to be tracked or not.
Great. Thanks.
Thanks can we of the next question please.
Absolutely we'll take our next question from Sami <unk> from JP Morgan.
Hi, Thanks, Paul on the question I have a couple.
And then just wanted to get into the jobs performance by geography here of a bit and Europe really exceptional results, particularly for this time of the yield David.
You mentioned and some of the <unk> iPhone upgrades are in front of you and I would assume Europe, just kind of and that got degree but Tim.
<unk>.
Or maybe if you can double click on what's driving the exceptional growth here and in Europe and Lake and we are kind of thing was moving to five coupons, even though some of the service provider of plants on hot rolled out or are we still expecting that to be much more in front of us.
<unk>.
And I'll I'll take that one and Youre right I mean, we had a.
Great performance in Europe, we grew 56%.
During the quarter and it was probably one of the Geos, where we actually saw.
I would say, we're better than even our own expectations. We grew very strong double digits across the board every product category, particularly I would say iPad and Mac.
They they really.
Very very strong.
And again, obviously Europe has been affected by Lockdowns.
More than most parts of the world.
And the Lockdowns of last that long ago.
And here in the United States. For example, Tim was mentioning that are places in Europe is today, where our stores are closed and Fortunately we have a very strong on.
Online business and Thats really helped us on working from home.
Learning from home.
<unk> limited and entertainment options.
Data sort of played and our favorite keep in mind that our Europe segment is a very broad version of Europe, because it includes and in Western Europe, which has done very very well and then.
Eastern Europe, and it goes into the Middle East, even India is part of Europe, and those emerging markets of done incredibly well significantly better than company average so very very pleased with that.
Some of the results and India for example, Russia and.
Middle East and channel so it's been very broad both across product categories and across countries.
And in Europe.
Got it and.
Just a quick follow up for you and Luca I think overall just wanted to understand the implication of the investment plans that you plan that you announced recently for the U S. The $430 billion of word of multiyear period, and just getting some questions from investors of how to think about the implications on the run rate of operating expenses for the company.
If you remember we announced back in 2018 that we were making a very sizable commitment to the United States, who at the time, we announced $350 billion of investment of.
The following five years and.
During these three years since Dan we've over achieved on those commitments and we felt it was the right time to update.
These type of investments and they span from obviously the investment that we make directly.
And at Apple for example, we've talked about the creation of 20000, new jobs at Apple over the next five years and the United States and of course, our business has grown and so our commitment for example, two of U S suppliers growth over time and debt.
Shows in there and the higher numbers in the meantime, we've got into new businesses. For example, Apple TV plus a lot of the content that we develop for our TV service is produced here in the United States and so thats additional.
Additional investments here and in the United States from an Opex standpoint, I think as you've seen this year, we're getting a lot of leverage. This is one of those years, we said many times, sometimes our opex grows faster than revenue and there are some of the cycles, where the opposite happens and we are growing revenue of this.
And much faster than our Opex increased by we want to continue to make all of the necessary investments into.
Into the business, we will never end and invest in our business and so you will continue to see the fact that we will continue to grow.
Our operating expenses, particularly on the R&D side, which continues to be the core of the company.
Okay. Thank you.
Thank you <unk> 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 880, 82031112 or 70 194 of five.
70820, please enter confirmation code 570, 99138. These replays will be available by approximately five PM Pacific time today members of the press with additional questions can contact Kristin Huguet at 408, 97 and 4241.
For financial analysts and contact me with additional questions at $6 69 to $2 7240 to thank you again for joining us.
Yeah.
Thank you that does conclude today's Apple Q2, FY 2021 and earnings conference call.
You for your participation and you may now disconnect.
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