Q2 2022 Apple Inc Earnings Call
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Good day and welcome to the Apple Q2, FY 2022 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 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 history. After that we'll open the call to questions from analysts. Please.
Please note that some of the information you'll hear during today's discussion 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.
<unk> of COVID-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 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.
Now like to turn the call over to Tim for introductory remarks.
Thank you <unk> good.
Good afternoon, everyone and thank you for joining us today Apple its proud to report another record quarter with a March quarter revenue record of 97, 3 billion up 9% from a year ago and better than we anticipated.
IPhone, Mac and Wearables home and accessories had their best ever March quarter and services set an all time record on the strength of subscription growth over the past year.
Before I get into details I want to take a moment to acknowledge the humanitarian tragedy unfolding in Ukraine.
We're continuing to do everything we can to support our teams in the region and we are donating to humanitarian efforts on the ground. We've also committed to donating products to support refugees, arriving here in the United States.
I also want to speak to the unpredictable nature of the pandemic. We are excited to be welcoming employees back to the offices in the U S and Europe .
At the same time, we are monitoring COVID-19 related disruptions in China, our thoughts are with all those in the path of the virus and we remain as committed as ever to doing our part to help protect people and their communities.
These times remind us that we cannot know what the future may hold.
But they remind us to the technology infused with humanity makes a real difference in the world and that's where our focus has remained on driving the innovations that can enrich people's lives.
Throughout the quarter Apple continued its streak of unparalleled innovation at an unmatched pace with Apple Silicon. Our teams are pushing the limits of what we once thought possible and we are seeing leaps and bounds and performance and efficiency last month, we announced another breakthrough with <unk> ultra the world's most.
Powerful chip for a personal computer.
The incredible customer response to our in one powered Max helped propel a 15% year over year increase in revenue. Despite supply constraints. We now have our most powerful Mac lineup ever with the addition of the entirely new Max studio.
Paired with a new studio display a five K resolution display equipped with its own a 13 bionic chip this new desktop and display transform any workspace into a creative powerhouse.
As we released the groundbreaking M. One ultra we also expanded our iPhone offerings, adding two beautiful green finishes to the iPhone 13 lineup and introducing the new <unk> enabled iPhone SC which is great for our existing users who want a smaller iPhone and a great value for people buying an iPhone.
One for the first time.
They love how much power and performance, we've injected into such an affordable device and rave about its incredible camera and it's lightning fast speeds.
In the March quarter, iPhone revenue grew 5% over the previous year. Despite a challenging compare as we saw strong demand from our customers for the iPhone 13 family.
And with the all new iPad air supercharged by M. One iPad brings more power and more versatility across the entire iPad lineup for.
For customers around the World iPad continues to be essential for education creativity and entertainment. That's why we're continuing to see such a strong demand for iPad, even while navigating the significant supply constraint we predicted at the start of the quarter.
Turning to Wearables home and accessories. We are pleased to see these products continue to delight, our users growing 12% year over year.
Customers are enthusiastically taking charge of their health with Apple Watch series, seven and Apple Watch SC the rich sound beautiful colors and compact design of home pod. Many continue to make it a hit with customers and there is still no better companion to Apple music, then Airpods with spatial audio the transfer.
The way, we listen putting our customers right in the center of the music.
The seamless integration of hardware software and services is at the center of our work and philosophy at Apple <unk>.
<unk> services are designed to be easy to use with expert curation that brings our users compelling content from talented developers creators storytellers and artists.
These principles are reflected in all of the services, we've developed which continue to generate incredible enthusiasm from our customers services revenue rose to $19 $8 billion in the March quarter, reflecting a 17% increase from a year ago.
We were especially excited to cheer on coda as it won the Academy Award for Best Picture, making Apple TV plus the first streaming service to win in this category.
We were honored to be stewards of this incredibly powerful deeply moving film.
And a little over two years, Apple TV plus shows and movies have earned over 240 awards and more than 960 nominations.
From severance to week crash to pachinko, new Apple originals are connecting with audiences and earning praise from critics were also winning over sports fans with Friday Night Baseball, which debuted earlier this month and they call me Magic a four part documentary that premiered last.
Weak tracing the life of the iconic Magic Johnson.
<unk> plus is helping users channel there in rapidly with a range of workout routines for any fitness level. We recently introduced the postpartum routine designed by mothers for mothers and with our apples heart and movement study, we are helping researchers glean new insights into cardiovascular.
Fitness.
As our products and services entertain customers and help them stay healthy. We're also working to make their lives easier.
Arizona for example is the first state to enable its citizens to securely add their driver's license and state Ids to Apple wallet.
More states in the territory of Puerto Rico will soon follow we've also announced plans to introduce tap to pay on iPhone, a simple and secure way for businesses to accept contactless payments launching across the U S. Later this year.
To meet the needs of customers wherever they are or Apple retail teams are constantly adapting to better serve them. We opened a new store in the United Arab Emirates. This quarter at a unique waterfront location with panoramic views of the Abu Dhabi Skyline and earlier. This month, we opened a new store in Korea.
Our third and largest store in the hardest soul and across the U S. We marked the return of in person today at Apple sessions with a special program featuring music from pop icon Lady Gaga.
I'd like to thank our team members working in Apple stores customer care centers channel partner stores, and our applecare teams for bringing customers the best of Apple.
As we look to the environment, we are making good progress on our commitment to achieve carbon neutrality across our products and supply chain by 2033.
Through our Green bonds program, we're investing in breakthrough technologies like low carbon aluminum, which we will be integrating into the new iPhone SC.
And we were pleased to announce recently that we've nearly doubled the number of our top suppliers, who have committed to accelerating the transition to clean energy.
We are also investing in renewable energy projects and communities most impacted by climate change around the world.
As we do our part to protect our planet. We're also prioritizing people as part of our long standing commitment to inclusion and diversity, we're continuing to build a better stronger apple rooted in our culture, where everyone belongs.
Last month, we published an update on the progress we've made with inclusion and diversity is Apple we've hired more women than ever into leadership roles and in the U S. Nearly 60% of all leadership openings were filled by people from underrepresented communities in 2021.
We also recently announced a $50 million supplier employee development fund that will help workers in our supply chain discover additional educational opportunities and build new skills and through our racial equity and justice initiatives, we're continuing to advance our work to support underrepresented communities.
And help build a more just and equitable world.
Before I hand, it over to Luca I want to acknowledge the challenges we are seeing from supply chain disruptions driven by both COVID-19 and silicon shortages to the devastation from the war in Ukraine.
We are not immune to these challenges, but we have great confidence in our teams and our products and services and in our strategy.
Fundamentally our work is about making technology that enriches People's lives and unlocks the full creative potential of humanity, and though the twists and turns of the future may be uncertain. What is certain is that we will never stop striving to be a force for good in the world in everything we do in <unk>.
The thing we are with that I'll turn it over to Luca.
Thank you Tim and good afternoon, everyone.
We are pleased to report very strong financial results for the March quarter during which we set a revenue record of 97 3 billion up.
Up 9% year over year.
We also set a new March quarter records in the Americas in Europe and in greater China.
On the product side revenue was $77 5 billion up 7% over a year ago and a march quarter record.
We grew in each of our product categories, except iPad, which remains significantly supply constrained throughout the quarter.
And we said March quarter records for iPhone, Mac, and Wearables home and accessories.
This level of states' performance combined with unmatched customer satisfaction and loyalty.
Our installed base of active devices.
An all time high for all major product categories as well as geographic segments.
Our services set an all time revenue record of $19 8 billion up 17% over a year ago with March quarter Records in every geographic segment and services category.
Company gross margin was 43, 7% down 10 basis points from last quarter.
Seasonal loss of leverage and unfavorable foreign exchange were partially offset by favorable mix.
Products gross margin was 36, 4% down.
Down 200 basis points sequentially, mainly driven by seasonal loss of leverage and FX.
Services gross margin was 72, 6% up 20 basis points sequentially due to a different mix.
Operating cash flow of $28 2 billion net income of 25 billion and diluted earnings per share of $1.52.
<unk> March quarter Records.
The strong March quarter results capped a record first half of the fiscal year in the midst of a challenging macroeconomic environment, we generated over $220 billion in revenue growing 10% year over year and.
And set all time records for iPhone, Mac, Wearables home and accessories and services. These record sales results.
Strong double digit growth in operating income and earnings per share.
Let me now get into more details for each of our revenue categories. During the March quarter.
IPhone revenue grew 5% year over year to a march quarter record of 56 billion despite supply constraints.
So a continued strong customer response to our iPhone 13 family and the launch of our new iPhone SC.
We said in March quarter Records in both developed and emerging markets and the latest survey of U S. Consumers from 451 research indicates iPhone customer satisfaction of 99% for the iPhone <unk> family.
As a result of this level of states' performance combined with an matched customer loyalty. The iPhone active installed base reached a new all time high across all geographies.
For Mac revenue of $10 4 billion was a march quarter record, despite supply constraints with 15% year over year growth.
Given by strong demand for our <unk> powered Macbook pro.
As Tim mentioned earlier, our continued innovation and investment in apples Silicon is clearly shown in our Mac results as the last seven quarters have been the best seven quarter ever for Mac.
Our investment focus on Mac has also helped to drive significant activity in our growing installed base. In fact, we had a march quarter record for upgrade us while at the same time nearly half of the customers purchasing a Mac, we're new to the product.
IPad revenue was $7 6 billion down 2% year over year.
Two continued supply constraints.
Customer response to our iPad lineup, including our new and more empowered iPad air.
It remains very strong and our installed base of ipads reached a new all time high during the quarter with over half of the customers purchasing an iPad during the quarter being new to the product.
Wearables home and accessories set a march quarter record of $8 8 billion up 12% year over year.
And we said March quarter revenue records in both developed and emerging markets in particular, our Wearables business has doubled in three years and it's really the size of a fortune 100 business as we continue to attract many customers who are new to Wearables for instance, Apple watch continues to with <unk>.
Extend its reach with over two thirds of customers purchasing an apple watch during the quarter being new to the product.
Turning to services as I mentioned, we reached an all time revenue record of $19 8 billion up 17% with all time records for the App store music cloud services and Applecare and.
In March quarter Records for video advertising and payments services.
These impressive results reflect the impact of our continued investment in improving and expanding our services portfolio and the positive momentum that were seeing on many fronts.
First our installed base has continued to grow.
An all time high across each geographic segment of major product category.
Next we continue to see increased customer engagement with our services, our transacting accounts paid accounts and accounts with paid subscriptions all reach all time highs during the March quarter in every geographic segment.
Also paid subscriptions continued to show very strong growth.
We now have more than 825 million paid subscriptions across the services on our platform, which is up more than $165 million during the last 12 months alone.
And finally as Tim highlighted before we continue to improve the breadth and the quality of our current service offerings, while launching new services.
In the enterprise market in many businesses and government organizations continue to turn to Apple for the latest technologies to deliver innovative services to customers and employees.
In March Alaska Airlines began to replace the conventional airports self service kiosks.
With iPad pros for faster passenger check in and self bag drop.
Also last month the.
The Western Australia Police force completed the world's first commercial deployment of car play across their entire fleet of vehicles to complement the iPhone <unk> issue to each officer. This allows officers to access critical information faster on the road.
And enhance public safety for the community.
We also unveiled the general availability of Apple business Essentials in the U S. Adding a new subscription service is designed to have small businesses manage every aspect of their apple device lifecycle.
Let me now turn to our cash position as we continue to generate very strong cash flow. We ended the quarter with 193 billion in cash and marketable securities.
We paid $3 8 billion in maturing debt, while increasing commercial paper by 2 billion, leaving us with total debt of 120 billion. As a result, net cash was 73 billion at the end of the quarter.
We returned nearly $27 billion to shareholders. During the March quarter. This included $3 6 billion in dividends and equivalents.
And $22 9 billion through open market repurchases of 137 million Apple shares.
We also retired an additional 5 million shares in the final settlement of our 18th ASR.
Given the continued confidence we have in our business now and into the future today. Our board has authorized an additional $90 billion for share repurchases as we maintain our goal of getting to net cash neutral over time.
We're also raising our dividend by 5% to <unk> 23, a share.
And we continue to plan for annual increases in the dividend going forward.
As we move ahead into the June quarter I'd like to review our outlook, which includes the types of forward looking information that tejas referred to at the beginning of the call.
Given the continued uncertainty around the world in the near term, we're not providing revenue guidance, but we are shedding some directional insights based on the assumption that the COVID-19 related impacts to our business do not worsen from what we are projecting today for the current quarter.
We believe our year over year revenue performance during the June quarter will be impacted by a number of factors.
Supply constraints caused by Covid related disruptions and industrywide silicon shortages are impacting our ability to meet customer demand for our products.
We expect these constraints to be in the range of $4 billion to $8 billion, which is substantially larger than what we experienced during the March quarter.
Covid related disruptions are also having some impact on customer demand in China.
With respect to foreign exchange, we expect it to be and nearly 300 basis point headwind to our year over year growth rate. Additionally, we paused all safe in Russia. During the March quarter. This will impact our year over year growth rate by approximately 150 basis points.
Specifically related to services, we expect to continue to grow double digits, but decelerate from our March quarter performance due to some of the factors I just described.
We expect gross margin to be between 42 and 43%.
We expect opex to be between 12, seven and $12 9 billion.
We expect <unk> to be around negative 100 million, excluding any potential impact from the mark to market of minority investments and our tax rate to be around 16%.
Finally, reflecting the dividend increase I mentioned earlier today, our board of directors has declared a cash dividend of <unk> 23 per share of common stock.
Payable on May 12, 2022 to shareholders of record as of May nine 2022.
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.
Absolutely, we'll take our first question from Katy Huberty with Morgan Stanley .
Yes. Thank you congrats on the quarter a couple of macro related questions just given everything that's going on in the market. The first is on how youre thinking about consumer.
Pending as we see more stock market volatility.
Rising interest rates inflation, what metrics are you watching either internal to your business or or external at the macro level to understand.
Whether you'll ultimately start to see some demand impact, particularly on the product side of your business and then I have a follow up.
Katy Hi, it's Tim.
We're obviously monitoring.
Daily sales very closely.
From an inflation point of view, we are seeing inflation is or was.
Evident in our gross margin last quarter and in our Opex last quarter and it is assumed.
The guidance that Luca gave.
For this quarter as well so we're.
Definitely seeing some level of inflation that I think everybody is seeing.
And how are we how are you just as a follow up to that how are you thinking about how that might impact either.
Consumers in your business and whether it influences their ability to purchase at the same level.
Well, we're monitoring that closely and we've sort of.
Alright.
Right now our main focus frankly speaking is so on the supply side.
Okay and is it as it relates to that in China, how should we think about locked down from an impact on supply and then impact on on demand and what products in your portfolio should we expect to be most impacted thank you.
Yes. Good question for Q2, so the quarter that we just finished.
The restrictions in China had not started yet.
And so Q2, we did have supply constraints.
Were significantly.
Lower than what we had experienced during the December quarter.
They were driven by industry wide silicon shortages and specifically the issues that I've talked about on.
Previous calls.
With the legacy nodes.
But looking ahead, we see two causes of supply constraints.
One is the COVID-19 related disruptions and there is the industry wide silicon shortages that will continue.
We've estimated the constraints to be in the range of $4 8 billion.
And if you. These these constraints are primarily centered around the Shanghai corridor.
And.
On a positive.
Rod.
Almost all of the affected final assembly factories have now restarted.
And so the range of four to eight range reflects various ramps getting back up and running.
We're also encouraged the Covid case count that's been reported in Shanghai has decreased over the last few days and so there's there's some reason for optimism there.
Thank you pretty amazing how the team has navigated all the all the cross currents congrats again on the quarter. Thanks.
Thanks, so much.
Thank you Katy can we have the next question. Please.
Thank you we'll take our next question from Amit <unk> with Evercore.
Good.
Good afternoon, and thanks for taking my questions I guess I have two as well first.
So I was hoping you could just touch a little bit on the geographic growth vectors that you saw it and I think Americas grew really well 19, 20%.
But Europe and China had much more muted growth. If you may I know your compares are fairly difficult, but I'm curious if any of you would call out in terms of.
Spillover effect on the macro side from Russia, Ukraine in Europe , that's seeing some impact to consumer spend or even in China just helpful to understand what happened geographically there.
Okay.
Okay.
Uh huh.
In as you said in the Americas, we had a very strong quarter up 19% very very happy.
Across across the board there.
Europe .
Again it was.
Really good quarter for US we grew 5% despite of the fact that of course as you know during the month of March we paused our sales in Russia. So we add an impact to our phase III there for a month of the quarter, but a number of European countries, particularly in Western Europe .
It really really well.
For us and so.
<unk>.
It was it wasn't very good quarter for that is pretty much in line with our expectations Americas was better than our expectations.
China.
It was again a march quarter record for us.
Keep in mind and this affected every geographic segment for us the different that launch timing for the iPhone this year versus a year ago.
And an impact on the March quarter results, because we launched.
The product later, a year ago than we did this year. So some of the China fail for the new products happened during the March quarter, a year ago.
Japan and Asia Pacific were affected by foreign exchange, Japan would have grown in line with company average.
Constant currency terms.
Asia Pacific as well was affected by foreign exchange with the dollar appreciating against most currencies.
And then again this difference in the launch timing for the iPhone.
<unk> made a difference keep in mind again, the supply constraints that we add.
During the quarter our results would have been obviously better without the supply constraints overall, we felt very good about the performance around the world.
Got it if I could just follow up on the supply chain the $4 billion to $8 billion impact did you folks talked about.
Do you think this is demand that's deferred out of demand that's essentially destroyed because you have a product cycle, that's going to come out and you know at some point soon this year.
Do you think about demand deferred wishes demand destroyed on that front.
And then yeah.
Is there a sense of which product categories are most impacted by this versus not.
It will affect.
Most of the product categories.
And in terms of whether it's whether we can recapture or not.
We believe that there is a percentage of it that is recapture ball and a percentage of it that is likely not where somebody needs something quickly.
And that.
That ratio or that percentage.
It is very difficult to estimate.
We obviously try to do that internally.
In order to to demand plan, but it's not something that we.
Sure.
Got it thank you.
Thanks, Amit can we have the next question please.
We'll take our next question from Chris Caso with Raymond James.
Okay.
Yes. Thank you good evening.
Also just wanted to dig in on the supply constraints a bit.
And I guess one of the things you said is that the $48 billion range reflects some reopening our facilities during the quarter.
I know obviously its tough to predict as you can.
Go forward into the second half of launch of new products, but at that point would you expect the constraints to still be mainly on the components side and then hopefully if things don't get worse in China.
The facilities are open and.
The constraints are only.
The component constraints as you go into the second half altogether.
Yes, Chris it's hard to answer a question about unannounced products.
I'll try to not do that well.
For all problems.
The four to eight as simply as.
As I had mentioned that if you look at the.
The Shanghai corridor.
We have some final assembly plants in this area and almost all of them have restarted as the good news of it working with local officials.
But we've planned various ramps for these in that.
The range of four to eight that we've estimated.
Okay got it thank you.
Because it is difficult to predict.
For sure for sure.
As a follow up I wanted to also follow on some of your comments regarding inflation and how Apple is dealing with that obviously components cost of them going up in many different areas and then specifically in the semiconductor side.
Costs have been going up but perhaps for some different reasons because of the additional cost of going up.
The new process nodes.
It's higher than it has been in the past.
Apple planning to deal with that.
Is it possible for you.
To get through that without either raising prices on your product or affecting gross margins.
Well.
Some of what you've said is in the results for the last quarter that.
We've announced and obviously.
Uh huh.
But our current thinking and the current quarter guidance that Luca list.
Listed earlier.
There are component costs that are falling.
And ones that are rising and so not all of them are moving in the same direction.
So we really try to manage to the net.
And.
I think we're doing it.
Reasonable drive currently navigating.
What is.
The challenging environment.
Thanks, Chris can we have the next question please.
Thank you we'll take our next question from David <unk> with UBS.
Alright. Thank you guys for taking my question I, just wanted to dig in a little bit on the product disruption before the $8 billion and the <unk>.
So you kind of gave us a sense for how it would affect each of different product lines and should we expect it to have similar pro rata impact and is there an opportunity to maybe reallocate resources to limit maybe some of the impact on the I phone line and then maybe versus the iPad line and then I have a quick follow up.
It'll affect most of the product categories.
And.
We obviously.
We will look to do any kind of optimization that we can do to minimize the.
The effect on the user.
Great and then maybe just as a follow up you talked about potential COVID-19 related demand issues in China, and taking out 150 basis points from Russia.
When you look at the other geographies. There is anything that you can share with us whether it changed western Europe or the U S that youre seeing from a demand perspective that may be sort of out of the ordinary or outside of sort of the disruptions and the lack of product.
Demand seems to be sort of where you would think it would be at this point in the cycle. Thank you.
We were happy with the iPhone growth last quarter.
Particularly when you think about the call that it was going against because we had very different timing on the launches in the year ago quarter, where we launched in Q1, and therefore naturally Q2 is at a different place on the on the new product car. So it was a very difficult comp and so we were.
We're pleased with it.
As Lucas said.
Americas geography did quite well.
Last quarter and the U S of course is the <unk>.
Major.
Geography within there and so the U S was quite strong last quarter.
Thank you.
Thanks, David can we have the next question please.
Take our next question from Jim Suva with Citigroup.
Thank you Tim and your entire company has done a great job at navigating through all the issues in the past several years, whether it be COVID-19 power outages trade wars shipping challenges and all that when we hopefully someday get past all of these and the supply constraint.
And society in turmoil hopefully across the World do you start to reconsider the way you do the supply chain, albeit just in time ordering and outsourcing so much of your chips or do you actually consider like holding more buffer inventory internally because right now you know letting $4 8 billion.
<unk> go away it would be nice to have that to be able to sell so do you consider holding more buffer inventory or maybe even doing your own chips, but by outsourcing your own chip chips to control them or how should we think about strategically when hopefully the world is in a better place from today.
Well I'm looking forward to that day as I know all of you are.
Our supply chain is truly global and the <unk>.
Products are made everywhere.
And.
We do a lot in the U S.
We will probably be doing.
Even more here as more chips are produced here.
And we continue to look at optimizing we learn something every ever.
Every day and make changes, but when you when you back up and kind of zoom out and look to see how the.
The supply chain has done within the.
Environment that you eloquently talked about I think it's been very resilient.
With the top issue we've had clearly is the silicon shortage.
I think everybody is struggling with.
And I think we've done.
Really good job of managing through the Covid piece of it.
And so but we are learning and we are making making.
Some changes as we go we don't have a China air and so to the degree that we learned something that we should change you can you can bet that we're doing that.
In this business you don't want to hold.
A ton of inventory.
And so you want to work on cycle times, and so forth to do things very quickly and take strategic.
Inventory in places, where you need to.
Two buffer for interruptions and so forth and so we're constantly thinking about where those places are.
In today's world.
Not really possible for us to to have buffer on silicon and so today silicon rolls off.
The fab and it's into a final assembly plant very very quickly.
And we tried to make that as a shorter time as possible.
And then my quick follow up we've been talking about supply chain issues for multiple quarters now or are you kind of hearing from your suppliers that maybe later half of this year or actually going to go into kind of 2013 for some closer equilibrium time period.
Yes, I Wouldnt youre talking about for the silicon shortage in particular I assume.
I don't want to I don't want to predict that because the that entails knowing.
How worldwide demand and supply are for the whole for industries outside of even the industry. We're in.
I don't proclaim to be an expert.
In that.
<unk> also heavily is in.
<unk> by how strong the economies are in the.
The different markets.
And so I think there are varying levels of outcomes.
And.
What what we're focused on is doing.
Tried to do very well regardless.
How that question is answered.
Thank you and congratulations to you and your entire team.
Thanks, so much.
Jim can we have the next question please.
Thank you we'll take our next question from Savi <unk> with J P. Morgan.
Hi, Thanks for taking my question and congrats on the results as well I'll stick to two more micro level questions here.
Firstly, you talked about the iPhone C III demand.
Product that you just launch I was hoping you could compare what are you seeing in terms of momentum to previous iPhone I see cycles, particularly I think in Boston North America has been the largest region in terms of demand what are you seeing with the current product in terms of demand by geography, and I have a quick follow up for Luca.
Yeah, we don't get to that level of granularity because we view it to be.
Sensitive data that our competitors would love to have and so I'm going to punt on answering that question I would just say that when you zoom out and look at iPhone as a total.
We could not be happier with the iPhone <unk> family of products.
The strength, we've seen for this cycle.
And really those products that have that have power demand and given us.
Overall results that we've had on iPhone, which for the first half the revenues were 120 billion.
And we feel.
Very very good about those results.
And my follow up for Luca, we are seeing sort of a settling in terms of growth rate for the services business.
On the tough comps that you have but you're also seeing the gross margins. They are settling in at on this sort of 72% range.
And there are a lot of moving pieces beneath that but is this sort of a good range for services longer term or are they just sort of moving pieces there as they scale. They can take the data is an opportunity for more upside.
Well, we feel really great about the momentum for our services business.
I was looking at the absolute numbers here.
This run rate of almost 20 billion is essentially double what we had just four years ago. So we've done really really well with services. We have a lot of momentum for a variety of reasons. The first one is the fact that our installed base of active devices continues to grow very nicely.
So that is obviously a big engine for our services business. The second thing is that the level of engagement that we see on our platform.
Teams to grow.
We have more transacting accounts more paying accounts.
More accounts with subscriptions the absolute amount of paid subscriptions on our platform.
It's pretty impressive $825 million, an increase of 165 million in the last 12 months alone. So you can have the disease.
Great growth and of course as you've seen over the last few years. We've added a lot of new services and we plan to add new services and new features that we believe that our customers will love and so we think thats great absolute great momentum.
The growth rates can change a bit, especially during COVID-19 , because we've gone through some cycles of Lockdowns, and then reopening central and so sometimes that comps can be a bit deceiving.
We are looking at it from the launch of <unk>.
Continuing to satisfy our customers, adding to the portfolio improving the quality of the services.
And that has served us very well because in the last 12 months, we've generated $75 billion.
Services revenue and you've seen the margins are obviously accretive to company margin. So we feel good we feel good about the services business I mentioned in my prepared remarks that.
The growth rate for the June quarter, we expect it to be less than the 17% that we reported.
In.
In March.
For some of the reasons that I described of course foreign exchange is an issue with the dollar being strong at this point and of course, we pause.
Our sales in Russia, so we need to take that into account, but in China. When we look across the board.
We set all time records in quarterly records for each one of our categories.
Thank you.
Thanks, <unk> can we have the next question please.
We'll take our next question from Krish, <unk> with Cowen and company.
Yeah, Hi, Thanks for taking my question and congrats on the really strong rich. So I have two questions too and I do apologize. The first one is on supply constraints.
Luca if I try to read the tea leaves based on June quarter guidance revenues being impacted kind of implies year over year down revenue and you also spoke about the $4 billion to $8 billion supply constrained, which is a lot of demand compared to the revenue and I understand you have the supply constraints and the China shutdowns I'm just kind of curious do you think.
The last three quarters, Apple supply chain had a better buffer inventory of semi.
That kind of got used up and now you are kind of more.
<unk> tight to whatever the true.
So play concerns of legacy <unk> or is there something else going on and then I had a follow up.
What what has happened obviously during COVID-19 has changed over the quarters.
Recently.
For example, during the March quarter.
Constraints that we had were limited to silicon shortages.
When we are giving now this the range of four to wait.
It's not only silicon bodies.
The restrictions in China that we're seeing it right now.
So they are different.
This additional constraints.
At this point that we are seeing because of the COVID-19 situation.
So.
That is the fundamental difference there.
Got it got it very helpful. And then and then as a quick follow up you know with the shutdowns, especially in places like China have you seen actually stools or your services business is actually inflect positively.
Or is it.
To ensure the timeframe to make a judgment call them that.
Yes, I think it's early to tell.
The restrictions in China started at the very end of March So it's very very early to tell.
Got it got it. Thank you Luca thank you very much.
Thanks, Chris can we go to the next question. Please.
Take our next question from <unk> Mohan with Bank of America.
Yes. Thank you.
Luca Thanks for the color on the impacts to the to.
So the revenue guidance, but I was wondering if you could share a if you expect to grow overall revenue in the June quarter on a year on year basis, and just to be clear on these impacts that you gave those are on a year on year basis can you also tell us how much F.
FX is a headwind if any on a quarter on quarter basis, and incremental Russia impact quarter on quarter basis, and incremental supply chain impact also in that one quarter basis, and I have a follow up.
Well.
As we said, we're not guiding to a specific revenue number but just to repeat what I said during the prepared remarks.
We having supply constraints that are caused by the COVID-19 related disruptions.
And by the silicone shortages.
And that is that is what is creating the constraints.
Expect them to be in the range of $4 billion to $8 billion.
This is substantially larger than when we've had during the March quarter again, let me repeat the COVID-19 related disruptions did not affect.
The March quarter, So you need to keep that in mind.
With respect to foreign exchange.
We expect it to be nearly 300 basis points headwind. It was about 200 basis points headwind during the March quarter.
For Russia, we said that the impact on a year over year basis is approximately 150 basis points that reflects the three months of the quarter.
We saved in Russia at the beginning of March so it was a partial impact.
On the March quarter, so obviously.
On a sequential basis.
It's an incremental.
Factor to keep in mind I would say on the positive side here you said the demand for both our products and services is solid.
<unk> mentioned, a number of times, the iPhone 13 families, having a really strong year.
When we look at top selling smartphones around the world We've had pretty incredible results during the March quarter. The top six models in the United States at iphones.
The top 40 in Japan to top five in Australia five of the top six in urban China, and so on and so forth. So the iPhone 13, as being a truly global success and as you know and as you can tell from our web site most of the iPad and Mac models.
Our constraint today that being constrained for several quarters because the demand is very good for those products and the services business. As you know is growing double digits. So that's.
That's what gives us confidence.
For the for the June quarter and going forward.
Okay. Thank you Luca and if I could follow up Tim you are in a really enviable place of being pretty far from your net cash neutral objective at the same time, we are generating a significant amount of cash flow every year.
So your capital return strategy has been extremely successful program in the past, but but $90 billion is just 3% of your market cap.
And on the other hand, there just a lot of assets that arguably have a lot of synergies with Apple in the health care space, while the fitness area like Teladoc, our peloton or Netflix and content area.
Why is this not the right time for Apple to perhaps look at such assets instead of buying back stock or maybe do boat.
We're always looking and we continue to look in that.
But we would only.
Acquire something that were strategic.
We acquire a lot of smaller companies.
Today, and we will continue to do that or IP for great talent.
And but we don't discount doing.
Something larger either if the opportunity presents itself and so but I don't want to go through my list with you on the phone.
We're always looking.
Thanks, Tim.
Alright, Thanks, a lot.
We have the next question please.
We'll take our next question from Kyle Mcnealy with Jefferies.
Hi, Thanks very much for the question this one's regarding match great quarter with results by the way some exciting products coming out for sure.
We're noticing that the lead times are longer for Max now ordered today with some available now but.
Many not shipping until June just wanted to get your insight on how much of that you think is driven by the strong March results, but the product launch and likely sellout conditions versus just real tightness in the supply chain and the obvious follow on to that is when do you expect you might catch up and get back lead times back within a week.
Well, we're working working hard we've got.
Lots of customers that we want to get the new Max too.
So we're working hard on them. They are a result of the combination.
Because of the Covid disruptions and the silicon shortage that we've talked about before.
And.
When we might.
That I don't we're not really forecasting when we can be out of the silicon shortage, so that would be a difficult.
Answer I think the Covid piece of it I hope is.
<unk>.
As is.
Transitory kind of issue.
And so I.
We would hope that it would get better over time.
Great. Thanks, a lot.
Yes.
Thanks, Kyle can we have the next question please.
Thank you we'll take our next question from Ben Bolan with Cleveland Research.
Good afternoon, everyone. Thanks for taking the question.
The first one is on services.
Luke I was hoping you could share a little bit of perspective on maybe how much of the services contribution is.
Purely consumer versus enterprise and how you think about the longer term opportunity to monetize the enterprise community and then.
Tim for you as a follow up.
I think Jim Suva I'd ask the question earlier about some of your strategy I was curious how strategy might have evolved.
Since everything that's been going on what changes you might have seen as of late.
With respect to freight and.
And some of that geographic production footprint any evolution that has happened as of late thank you.
So Ben the on the on the services side of course, the vast majority of what we do in services is to final consumers. We do understand and appreciate the fact that the enterprise is a great opportunity for us.
Very recently for example, we launched this in.
New subscription service here in the United States, which we call.
Apple business Essentials, where essentially we provide support to small and medium sized businesses in terms of two.
<unk> 24, seven support device management.
For small business owners, which we think.
Small companies with value and appreciate.
Obviously, we sell applecare to enterprises are ready today, but we know in that enterprise in general as a market is a very interesting market for us and we're putting a lot of effort and focus on it and we believe we have really good opportunities to grow.
Then you brought up.
<unk> freight is.
Huge.
Challenge.
Today, both from a inflationary point of view.
And from a availability point of view and so.
Right now the focus is on moving the freight to customers anyway that we can can do that over time.
We'll do that much more efficiently and I would hope that the.
<unk>.
The fundamental rates.
Our reset saw both both and I'm talking about both ocean and air.
And so both of them have come under.
Some significant inflationary pressure.
Partly partly due to COVID-19 .
And in some other reasons as well I would guess.
And in terms of Geo production, we are constantly making tweaks here and there.
And I don't want to go into the details of those as we view it as to be sensitive kind.
Kind of information, but where we're constantly making moves to optimize in the current environment.
Thank you Bob.
Thank you thank you Ben.
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This concludes today's conference we appreciate your participation.
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