Q3 2022 Apple Inc Earnings Call
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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 risk.
<unk> dates.
I'd now like to turn the call over to Tim for introductory remarks.
Thank you <unk> good afternoon, everyone and thank you for joining us.
Today, Apple is reporting another record June quarter with revenue of 83 billion, which.
Which was better than we expected despite supply constraints strong foreign exchange headwinds and the impact of our business in Russia. We.
We set June quarter records in the Americas in Europe , and in the rest of Asia Pacific region.
We also saw June quarter revenue records in both developed and emerging markets with very strong double digit growth in Brazil, Indonesia, and Vietnam, and a near doubling of revenue in India.
We saw great enthusiasm for our products and services, resulting in an all time record for our installed base of active devices.
Our supply constraints were less than we anticipated at the beginning of the quarter coming in slightly below the range, we discussed during our last call.
We know that this is a time of significant challenge around the world for all of US confronting new variance of COVID-19 to those experiencing a prolonged humanitarian crisis in Ukraine, and everyone dealing with the consequences of an uncertain economic environment.
We know that much of the world is living through uneasy times and it is all the more reason why we are working hard to help our customers navigate the world as it is while empowering them to create the world as it can be.
Turning to iPhone, we set a June quarter record for both revenue and switchers to iPhone.
With its advanced performance capability and ease of use customers continue to find that iPhone remains the gold standard for smartphones.
And they've been raving about the iPhone 13, lineups extraordinary camera quality with features like cinematic mode in macro photography to create eyecatching content.
We were also proud to celebrate the 15th anniversary of iPhone device that continues to change the world in profound ways with each new innovation.
Last month, Apple unleashed, a wave of innovation, including the completely redesigned Macbook air and a new 13 inch Macbook Pro both of these systems are powered by into our next generation of Apple Silicon for Mac.
Into delivers a faster CPU GPU and neural engine, along with higher memory bandwidth and new capabilities like pro rata acceleration.
And it continues the tremendous pace of innovation and Apple Silicon for the Mac. We continued to have supply constraints with Mac, but we're encouraged by the strong response from customers to our incredible lineup.
Pad like Mac continued to see strong demand during the June quarter, despite ongoing supply constraints come.
Customers and developers have been especially excited about the new features we are bringing to iPad with iPad OS 16.
This update was one of the many announcements we made at a truly extraordinary Ww DC, where we shared a range of new features that give customers more control of their experience than ever before.
This includes the ability to edit or delete sent messages on new way of organizing apps on iPad and Mac and an all new customizable lock screen on iPhone and so much more.
Today, iOS 16, iPad OS 16, Mac OS Ventura and watch OS nine are all in public data and we couldnt be more excited to see what our community of developers creates with them.
We unveiled new innovations and accessibility such as door detection and live captions that support users with disabilities with navigation health communication and more.
We also announced Apple pay later, which gives customers more flexibility to make purchases with their apple devices.
And with our next generation of car play, we're improving the driving experience with deeper integration into vehicle hardware, allowing drivers to control their music change the temperature and monitor their fuel levels all from a single integrated platform.
In the Wearables home and accessories category, the innovation infused across our products continues to win over new customers.
Apple watch remains a great way for health conscious customers to track their overall wellness and fitness and we're bringing them even more data about their workouts sleep cycles and medications with updates soon to arrive on <unk> nine.
We were also pleased to get FDA approval for a new feature that will let users with irregular heart rhythms track the time they spend in afib.
Turning to services customers continue to engage enthusiastically with our content across news fitness music gaming and more services revenue rose to $19 6 billion at.
A June quarter record and a 12% increase year over year, which was in line with our expectations.
We're proud of how Apple TV plus productions like severance and Blackbird have captured the popular imagination, and we're looking forward to more exceptional content developed by extraordinary creators throughout the year.
In two and a half years since launch Apple TV plus has now earned 250 wins and over 1100 award nominations and counting.
Just this month, we learned that Apple TV plus earned 52 Emmy Award nominations across 13 titles.
In our last call I mentioned Friday night baseball on Apple TV, plus which is already delighting baseball fans and last month, we announced a 10 year deal to present major league soccer matches around the world, giving global soccer fans, a whole new way of viewing their favorite sport.
One of the best parts of WWE DC was welcoming developers to Apple Park, while continuing to connect with developers all over the world.
This year, we had an incredible group of developers and more opportunities to learn from one another than ever before.
It was a truly special experience and a reminder of the economic Miracle the App store represents.
We are proud of the fact that the iOS app economy supports more than $2 2 million jobs here in the United States and many more around the world. It's been wonderful to see earnings by small developers more than double over the past two years and as we're supporting developers. We're also doing our part to.
<unk> customers in 2021, we prevented nearly one $5 billion in fraudulent transactions by stopping over $1 6 million risky and vulnerable apps and app updates.
Now I want to turn to retail.
This quarter, we opened the doors to Apple's first store in the <unk> province in China welcoming the community to a beautiful new space.
And earlier today, we opened Apple Brompton Road, our fifth store in Central London. We also expanded today at Apple Creative studios to reach even more young creative from underrepresented communities to help them realize their potential and bring their best ideas to life.
I'd like to take this opportunity to express my appreciation to our team members working in Apple stores customer care centers and channel partner stores and to our Apple care teams for their incredible work supporting customers wherever they are.
Creating innovative products and services that enrich People's lives is our mission.
Leading with our values in everything we do gives that mission purpose.
That includes a commitment to the environment, where we continue our aggressive pursuit of our 2030 goals. It includes our focus on diversity and inclusion where we're committed as ever to making progress.
And it includes our work to promote racial equity and Justice, we recently announced that the global equity innovation hub in partnership with Cal State Northridge will provide new community grants to Hispanic serving institutions to help the next generation of creators and innovators bill skills and pursue.
High demand careers and stem.
We also celebrated the graduation of the inaugural class of our developer Academy in Detroit from a program designed to give students the skills they need to pursue jobs in the thriving iOS app economy.
Leading with our values also means leading with a steadfast commitment to privacy and security.
Last month, we announced the introduction of pass key on next generation credential. That's intended to replace passwords are patzke can't be fished, nor can it be stolen by hackers and a data breach because the information is stored on your device and your device alone.
And as part of our effort to combat targeted attacks against the highest risk targets like journalists and human rights Actavis, We introduced lockdown mode, which is designed to protect those most at risk of sophisticated digital attacks.
And we're committed to doing our part to address the housing crisis across California to date, we have deployed more than one $3 billion to a number of initiatives, including ones that provide financial assistance to low and moderate income first time homebuyers develop new affordable.
Housing and help support vulnerable populations.
This quarter has ultimately been a reflection of our resilience and our optimism.
As we look forward, we are clear eyed about the uncertainty in the macro environment yet.
Yet we remain ever focused on the same vision that has guided us from the beginning we strive everyday to be a place where imagination ignites innovation like nowhere else. We're good people come together to achieve great things where customers are the center of everything we do and we will continue to X.
Acute on that vision as we always have led by our focus on excellence and a desire to leave the world better than we found it.
And with that I'll turn it over to Luca.
Thank you Tim and good afternoon, everyone.
We are very pleased to report June quarter financial results that continue to demonstrate our ability to innovate across hardware software and services, while operating our business effectively during very challenging economic circumstances, we set June quarter revenue record of 83 billion up two.
<unk> year over year, despite supply constraints over 300 basis points of foreign exchange headwinds and the impact of our business in Russia around the world. We set a new June quarter records in the Americas in Europe , and rest of Asia Pacific.
On the product side revenue was $63 4 billion with a June quarter revenue records for iPhone.
During the quarter, our installed base of active devices continued to grow well, thanks to our unmatched levels of customer satisfaction and loyalty and reached an all time high for all major product categories and geographic segments.
Our services set a June quarter revenue record of $19 6 billion up 12% over a year ago with all time revenue records in the Americas and the rest of Asia Pacific and June quarter Records in Europe, and greater China.
We also achieved June quarter revenue records in each major services category, including all time revenue Records for music cloud services Applecare and payment services.
Company gross margin was 43, 3% down 40 basis points from last quarter as seasonal loss of leverage and unfavorable foreign exchange were partially offset by favorable mix.
<unk> gross margin was 34, 5% down 190 basis points sequentially, mainly driven by seasonal loss of leverage mix and FX.
Services gross margin was 71, 5%.
110 basis points sequentially due to a different mix and foreign exchange.
Net income was $19 4 billion.
And diluted earnings per share were $1 20.
While operating cash flow of $22 9 billion was a June quarter record.
Let me now get into more detail for each of our revenue categories.
IPhone revenue grew 3% year over year to a June quarter record of $40 7 billion. Despite foreign exchange headwinds as customer response to our iPhone 13 family continued to be strong.
We set June quarter records in both developed and emerging markets and the iPhone active installed base reached a new all time high across all geographies as a result of this level of states performance combined with unmatched customer loyalty in fact, the latest survey of U S. Consumers from 451 research Indy.
Kate's iPhone customer satisfaction of 98%.
We also attracted a record number of switches for the June quarter with strong double digit year over year growth.
For Mac, we generated revenue of $7 4 billion, despite supply constraints and negative effects.
We continue to be excited about our long term opportunity with Mac and redefining the PC experience with our relentless innovation our investment focus on Mac has helped drive significant growth in our installed base, which reached an all time high during the June quarter as nearly half of the customers purchasing and Mac wedding you to.
Product.
IPad revenue was $7 2 billion down 2% year over year due to supply constraints and negative foreign exchange customer response to our iPad lineup continued to be strong across consumer education and enterprise markets around the world and the iPad installed base reached a new all time high with over half.
The customers during the quarter being new to the product.
Wearables home and accessories revenue was $8 1 billion down 8% year over year as we faced foreign exchange headwinds different launch timing for home and accessories products and supply constraints as well as the overall macro economic environment. Despite this.
Our installed base of devices into category hit a new all time record thanks to very strong customer loyalty and high new tool rates. For example, Apple watch continues to extend its reach with over two thirds of customers purchasing an apple watch during the quarter being new to the project.
Services had a June quarter revenue record of $19 6 billion.
Up 12%, despite almost 500 basis points of FX headwinds as well as impacts from our business in Russia, and the macroeconomic environment.
We set June quarter revenue records in both developed and emerging markets and set all time records in many countries around the world, including the U S, Mexico, Brazil, Korea and India.
The record level of performance of our services portfolio. During the June quarter reflects the strength of our ecosystem on many fronts first our installed base has continued to grow reaching an all time high across each geographic segment that major product category. We also saw increased customer engagement.
With our services during the quarter, our transacting accounts paid accounts and accounts with paid subscriptions all grew double digits year over year.
And paid subscriptions showed very strong growth, we now have more than 860 million paid subscriptions across the services on our platform, which is up more than $160 million during the last 12 months alone.
And finally, we continue to improve the breadth and the quality of our current services offerings from a constant flow of new content on Apple TV <unk> and Apple arcade two great. New features we recently announce four icloud and Apple music, which we believe our customers will love.
In the enterprise market, our customers are increasingly investing in apple products as our strategy to attract and retain talent Banc of America, providing iphones to all of its Mario financial advisors.
So they can instantly access client information and provide timely wealth management advice from anywhere.
Wipro and at a large global enterprise customer is investing in Macbook air with <unk> as a competitive advantage when recruiting new graduates globally. Thanks to its superior performance and lower total cost of ownership.
And with the new M. Two chip powering Macbook air and the 13 inch Macbook Pro.
We expect more customers to make <unk> available to their entire workforce.
Let me now turn to our cash position.
We ended the quarter with $179 billion in cash and marketable securities. We paid 3 billion a maturing debt, while increasing commercial paper by 4 billion, leaving us with total debt of 120 billion. As a result, net cash was nearly $60 billion at the end of the quarter.
We returned over $28 billion to shareholders. During the June quarter. This included $3 8 billion in dividends and equivalents and $21 7 billion through open market repurchases of 143 million Apple shares. We continue to believe there is great value in our stock and maintain our target of reaching a net cash need.
So our position over time.
As we move ahead into the September quarter I'd like to review our outlook, which includes the types of forward looking information that pages referred to at the beginning of the call.
Given the continued uncertainty around the world in the near term, we are not providing revenue guidance, but we are sharing some directional insights based on the assumption that the macroeconomic outlook and COVID-19 related impacts to our business do not worsen from where we are projecting today for the current quarter.
Overall, we believe our year over year revenue growth will accelerate during the September quarter compared to the June quarter. Despite approximately 600 basis points of negative year over year impact from foreign exchange.
On the product side, we expect supply constraints to be lower than what we experienced during the June quarter, specifically related to services, we expect revenue to grow but decelerate from the June quarter due to macroeconomic factors and foreign exchange.
We expect gross margin to be between 41, 5% and 42, 5% we.
We expect opex to be between 12, nine and $13 1 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 today, our board of directors has declared a cash dividend of <unk> 23 per share of common stock payable on August 11, 2022 to shareholders of record as of August eight 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 Amit <unk> with Evercore.
Perfect. Thanks, a lot for taking my question I guess.
Two from my side, maybe just start off on the gross margin discussion Luca.
<unk> gross margin will be down I think 130, 140 basis points sequentially and down a bit year over year as well in September maybe just walk, but what are the puts and takes.
And then very specifically you actually just follow what the FX headwinds embedded in the September quarter gross margin that would be helpful.
Yes, Amit.
We're guiding 41, 5% to 42 and a half.
On a sequential basis.
The decline is expected to be driven by as you mentioned foreign exchange, but also mix, which will be partially offset by better leverage we expect.
The foreign exchange impact on a sequential basis to be 50 basis points.
If you look at it from a year over year standpoint.
We are in the <unk>.
Ballpark of a year ago in spite of the fact that foreign exchange is going to be 130 basis points negative to a year ago. So clearly foreign exchange is something that is affecting us, but we think we're navigating that fairly well.
Fair enough and then if I could.
As Tim the question.
There's a lot of macro worries.
Inflation impacting consumer demand fully doesn't seem to be very visible and the outperformance in your expectation. So I'm wondering if you're talking about are you seeing any implications from recession fears are inflation fears to year end demand.
And maybe just related to that variable decline was notable is that what you would typically see initial signs of consumers Hoffman perhaps.
Thanks for the question, Yes, if few I'm not an economist and so.
I'll start.
<unk> narrowed my comments to what we saw in the business.
You look at the June quarter.
We do believe.
That we saw macroeconomic headwinds that impacted our business on our results and so one of those is clearly the FX, which Lucas mentioned that was over 300 base basis points on year over year growth rates.
When you look at the product categories.
On iPhone there was no obvious evidence of macroeconomic impact during the June quarter.
Besides FX obviously.
Mac and iPad, where so gated by supply.
That we didn't have enough product to test the demand.
And Wearables home and accessories as.
As you mentioned and as Luca mentioned we.
Did see some impact there that we would attribute to the macroeconomic environment.
And.
When you then look at services.
There were some services that were impacted for example, like digital advertising.
It was clearly impacted by the macroeconomic environment and so it's.
It's a mixed bag in terms of what we.
Believe that we saw.
Overall.
We are very happy with the results and when you think about the number of challenges in the quarter, we feel really good about that.
Growth that we put up for the portfolio put up for the quarter.
Perfect. Thank you very much.
Yes. Thank you. Thanks, Amit can we have the next question. Please.
We'll take our next question from harsh Kumar with Piper Sandler.
Yeah, Hey.
First of all congratulations this should even in tough times you guys are putting up.
And tremendous results. So we appreciate that as investors.
My question is.
When I look at your services business I see a $20 billion business on a quarterly basis.
And you keep adding as a company, we keep adding very interesting and transformative features such as payments something like that every year. So I'm struggling to find a good way to think about how to model. The growth of this business considering that you add innovative features so now that it's fairly matured as a business.
What would be a good place for us to think about it as investors to model the finishes business and I do have a follow up.
Well.
As you know, we don't provide guidance past the current quarter, but I think the way to think about is certainly the way. We think about it is that there is a number of levers in our services business to take into account.
The first one is installed base installed base is the engine for our company and it continues to grow as I mentioned it has reached an all time high across every geographic segment.
Across every product category and so that's very important and then the second lever is the customer engagements and we know that our customers are getting more and more engaged over time.
Transacting accounts paid accounts paid subscriptions are growing so the level of engagement continues to grow and then as you mentioned the breadth and the quality of the.
The services that we offer thanks to grow over time. So these are all things that tend to help us over the long term. It should go back and you look at our growth rates over a number of quarters now.
They've always been very good of course.
The macro environment environment can add an impact on this business Tim has mentioned.
An example of digital advertising can be.
Affected at times during Covid. Some of the compares are being a bit lumpy because there have been lockdowns are reopening and so on so it's very difficult to talk about.
A steady state.
Growth rates for our services business by when we look at the entirety of what we are doing in the services space.
Feel very good about the future of the business.
Okay very helpful. Thank you and for my follow up valuations have come down in the last 18 months or so far.
And companies and targets that you might look at I guess, particularly in the services area would there be an appetite on behalf of Apple to accelerate the growth of our services business by looking at external products to acquire.
We always look and we ask ourselves.
How strategic it is.
We never buy just a buyer or by just for revenue purposes.
But we buy we would buy something that is strategic for us.
To date, we have concentrated on smaller.
IP and people acquisitions.
But I wouldn't rule anything out for the future and obviously, we are constantly surveilling the market.
I appreciate it. Thank you yeah. Thanks harsh can we have the next question. Please.
We'll take our next question from Erik Woodring with Morgan Stanley .
Hey, good afternoon, guys. Thanks for taking my questions here I have two as well maybe Tim if I start with you I think there's a debate in the market that if you look back over time, there has been a three year cadence to iPhone cycles. We're two years into your five Gi front evolution, you're on track to grow units in 'twenty, one and 'twenty two.
That implies there could be some pressure next year its upgrade rates slow, but your comments really suggest no slowdown youre seeing double digit growth in customers new to iPhone. So can you just walk us through some of the various factors. You believe are driving this continued iPhone strength and then I have a follow up thanks.
At the end of the day, it's the product and the innovation within the product that is driving it and the of course. The other key variables are some things that Luca mentioned earlier, where the size of the installed base has been growing significantly.
Also just in this quarter the June quarter.
Set a June quarter record for switchers with strong double digit growth and so this is fueling the additional install base even more.
And.
We continue to.
Execute across some significant geographies, where there is a very low penetration.
Of iPhone and some of those were called out.
In the opening remarks between Indonesia, and Vietnam, and India, where we did quite well at iPhone tends to be the engine for for those markets, particularly.
Particularly at the beginning of.
<unk>.
Creating the market there for Apple products and so we're really looking at all of these things from the installed base to the number of switchers to geographic distribution.
Of course the <unk>.
Most important thing for us is to maintain an incredible customer satisfaction.
And loyalty from our customers and we're really pleased that it's currently at 98% for the latest <unk>.
So those are the things that underpin it five G hasnt been an accelerated and the fiber penetration.
But particularly if you look at it globally is still quite low.
In some geographies, it's obviously higher but around the world <unk> penetration is still low and so I think there is.
Reason to be optimistic.
Okay. That's helpful. Thank you, Tim and then maybe Luca for you.
As we move from the June to the September quarter, maybe can you dig a level deeper and kind of help us understand some of the moving pieces in the services business, meaning.
Where do you think we could see an acceleration or maybe a deceleration in should we still expect double digit growth. If you could just frame that for us that'd be great. Thank you so much.
Yes, Eric.
I mentioned in my prepared remarks that that we expect some deceleration from the 12%.
That we've had in the in the June quarter keep in mind.
We are going to see on a year over year basis 600 basis, 0.6%.
The impact from foreign exchange so that is.
Big element for us.
Also keep in mind that we're still lapping.
Impact of our business in Russia in these numbers.
And Tim mentioned there are there are some pockets of weakness primarily in digital advertising that we would need to.
To work through.
But at the same time.
Our services business a year ago grew a lot and so the compare is a bit challenging so.
We don't have a specific number to give out today.
Of course, we expect to grow we will see how the quarter develops.
Awesome. Thank you Luca.
Thanks can we have the next question please.
And we'll take our next question from Richard Kramer with.
Search.
Well, thank you very much.
And you cited growth in op loss per ads in the past and clearly the privacy policy taken when.
When we reshaped with mobile ad market.
Can you give us some comfort.
Apple's role as an AD network, and perhaps helping developers to monetize not just <unk>.
Sales, but also growing AD monetization over time thanks.
Yes, Richard we view privacy is a fundamental human right.
So.
What we tried to do.
With all of our features on privacy is put the.
Decision back at the user where we believe it belongs as to whether they want to share their data or not.
And so that was what was behind application tracking transparency and a number of other other features we're trying to empower the user to own their data and make their own their own choices in terms of us.
Selling ads, we have a search AD business across the.
The App store that that we believe represents a great way.
For discovery for small and large developers.
And so I see that we play a role in that.
Thanks, and then maybe my follow up for Luca can you give us a sense, especially now that you are launching pay later.
You might be taking to improve affordability of Apple products.
No.
It's going to be tight.
Tight time economically for people around the world and how do you see.
The evolution of our various payment plans out of the you see in the U S now into other markets, especially emerging markets.
Yes, I mean, obviously affordability is a very important topic for us it has been for many years.
Now pay later is the latest that we are doing on this front fundamentally.
We are working on two major.
Initiatives for affordability, one is installment plan and installment plans have become more widespread around the world not only here in the United States, but.
Most markets, particularly in emerging markets incredibly important in terms of reducing the affordability threshold and trading programs training programs are available in a number of markets.
To do better in other markets.
Incredibly important because.
The residual value of our products is a huge differentiator for our users.
After they use our devices they can bring them back and they retain much more value than other platforms and therefore, it's important for us to raise that awareness. So we will continue to expand those programs around the world So installments and tradings.
Very very important on affordability.
Okay. Thank you.
Richard can we have the next question please.
And we'll take our next question from David <unk> with UBS.
Great. Thanks, guys for taking my question I, just wanted to circle back on sort of the macro and sort of the demand signals that you're seeing versus sort of the supply chain that you're facing I know that there's been a couple of U S carriers have talked about some of your customers, having some difficulty paying bills and you've mentioned in your prepared remarks that you saw us under the record number of switchers in the quarter.
So I just wanted to kind of get a sense for what youre seeing in that particular channel without naming a specific customer and are you seeing any sort of issues from a spend down effect, maybe because customers are having some difficulty because of inflation and then I have a follow up on Max.
On the aggregate point of view looking at it worldwide.
Looking at the data on iPhone for the June quarter.
There's not there's not obvious evidence in there that there isn't a macroeconomic headwind.
I'm not saying that there is not what I'm, saying that the data does not.
Show, It where we can clearly see that in the Wearables home and accessories area.
And so I would differentiate those those two.
Great and then on the Mac business I know that you are severely supply chain constrained.
Is there a way to kind of think about the.
Impact of the market overall on the Mac business versus the supply chain. It sounds like I guess, it sounds like it's almost effectively 100% supply chain constraints.
Obviously hearing like I'm sure you guys are seeing anecdotal evidence of some quantifiable evidence at the broader PC market is slowing and I think about 90 days ago, you were pretty confident with the new AUM two chips that you can continue to grow.
Out a potential drawdown in that particular market do you still feel that way and if you can kind of share how youre thinking about the different sort of components of your growth versus the market.
Yes, I wouldn't want to project into the into this quarter, but for last quarter. What we saw was when the COVID-19.
Covid restrictions head and the Shanghai corridor.
We lost a.
Our primary source of supply for for Mac units.
And that was either running at a reduced rate or down completely for the majority of the quarter and so it was it was.
A.
Very big impact to the Mac business.
We felt good frankly.
That we were able to by the end of the quarter gets us back to where we were down 10 points.
And.
But the but the negative 10, I would classify as being driven by supply and of course FX feeds into this as well because of the translation.
Issues around the world.
There is also some impact because of the business in Russia, but.
Are the those are the three.
Kind of reasons.
That I would tell you in terms of testing the demand.
You can't really test the demand unless you have the supply.
And we were so far from the last quarter of the.
Yeah.
We have an estimate of a very very strong offering for the back to school season, and we'll see how we.
We will see how we did this quarter, we will report back in October .
Great. Thanks, Tim.
Thank you can we have the next question. Please.
We'll take our next question from Ben Bolan with Cleveland Research. Please go ahead.
Good afternoon, everyone. Thanks for taking the question.
Tim I was hoping you could share a little bit more about how youre thinking about the supply headwinds he said.
Less less severe or less worst supply challenges into September I'm interested when you think you find balance across products.
And.
Also any thoughts on how or when that might influence replenishment of supply in tier retail channels.
Mhm.
Give you a little more color on what we saw.
In the June quarter.
We came in slightly.
Below from a constraint point of view the $4 billion number that we had put at the.
Florida, eight or the low end of that range.
And the majority of that constraint last quarter.
Was coming out of the Covid restrictions that occurred.
That resulted in plant closures and plants running at less than full utilization for.
Some amount of the quarter in some cases, the majority of the quarter.
And.
And then the other component that is.
Minority part of it is the silicon shortage that has.
Affected our results for several quarters now.
If you look into the future.
The silicon <unk>.
<unk>, we're not forecasting when that will land.
We think that in the aggregate our constraint numbers for the September quarter will be less than that.
We're in the June quarter.
And but.
Of the two there are these two components.
Courseware.
We're optimistic about the Covid restriction piece of this.
Okay.
The other item, Tim any thoughts on how youre thinking.
Our strategy is evolving.
With respect to progress in AR VR in your existing products anything you're learning about content or how youre thinking about that opportunity.
We're we're thrilled right now to have over 14000, AAR kit apps in the App store.
And they are providing incredible experiences for millions of people.
And thats utilizing iPhone and iPad.
And of course, we are in the business of innovation. So we're always exploring new and emerging technologies, but I wouldn't want to say anything beyond that.
Thank you.
Thanks, Ben can we have the next question please.
Thank you we'll take our next question from <unk> Mohan with Bank of America.
Yes. Thank you so much.
Luke you mentioned revenues to accelerate year over year overall in September versus June growth rate would you say that it would be reasonable to assume.
Normal quarter on quarter.
Seasonality of about $7 billion, so or would you say there are additional puts and takes this time around that could drive upside and downside to that I know you noted 600 bps year over year on an FX is potentially one of those but maybe.
Help us think too.
Sequential basis, how how much of a normal or abnormal seasonality we should expect.
So that's what I'm, saying.
No.
As we said earlier with and are providing guidance because of all the uncertainty out there.
But.
We have given a few data points, so one of them, which you've mentioned.
Approximately 600 basis points of negative foreign exchange I mean, you do a rough math.
Around $5 billion.
That's a big number right there that is going to affect this.
That we are having some impact from the situation in Russia and that is obviously, if financial enormous enormous seasonality as well.
Our supply constraints.
As Tim just said, they're going to be lower than what we've seen in the June quarter.
Still going to be there. So when you look at those three.
III headwinds and you combine them with.
The acceleration that we talked about.
We feel that that is pretty good.
Pretty remarkable.
Okay. Thank you Luca and Tim I wanted to follow up on your comment about the macro impact that you've seen on variables.
Yeah, Wearables portfolio is probably at the lowest ASP range across your product portfolio.
As you are giving this guidance are.
<unk> guidance here.
How much of an impact are you, assuming and potentially any macro related slowdowns across the rest of the portfolio, while why would investors thought that it would be prudent to assume some sort of creep up off.
Some of some of these some of the hesitation maybe that the macro environment is.
Driving particularly as it pertains to your higher ASP products.
Now let me <unk>.
Expand a little bit on Wearables home and accessories.
So that clearly communicate what we saw.
We saw sort of a.
Cocktail of headwinds on Wearables home and accessories.
Saw FX, which we've talked about.
We saw supply constraints, which we've talked about.
Of course, the there was an impact from the business in Russia.
And but in addition to those things which of those things affected all the products to some degree.
We also had a different launch timing for certain home and accessory products.
Like in the year ago quarter, I think had airtime again. It is just that's just one example of something that.
Announced last year that didn't announced that we didn't have a comparable announcement this year.
So in addition.
Listen to those four items, we believe based on the data that there was also a macroeconomic.
Environment yet.
And.
Whether or not that is because they're there lower asps versus the higher asps have a phone I can't tell you that.
I can just tell you that looking at the numbers there does appear to be headwinds. In addition to the four items that we can articulate and we believe those to be macroeconomic headwinds.
Okay. Thank you Tim Thanks.
Thanks, <unk> can we have the next question please.
Thank you we'll take our next question from <unk> <unk> with Jpmorgan.
Great. Thank you thanks for taking my questions and congrats on the results in this tough macro I guess I wanted to start with China smartphone market showed a bit and Tim I thought you said in response to your question that you haven't really seen no material impact from the macro on iPhone.
Yes, but.
Wondering did you see any impact of the Covid lockdowns that on demand itself or was there a snap back following that if you can comment about the sort of exit run rate that you saw in that market.
Following the Covid shutdowns and Mcmahon.
Thank you kind of have a follow up thank you.
Yes, both things are true we did see a.
Lower demand based on the Covid lockdowns in the cities.
As lockdowns affected.
And we did see a rebound.
In those same cities towards the end of the quarter in the June timeframe and in particular in the run up to June 18th which as you know is a major shopping holiday in China.
We think that the net of that was still.
Negative.
But some of it did rebound by the.
By June timeframe.
The restrictions begin to come off towards the beginning of June if my Memory's correct.
And for my follow up I know you said, you don't want to sort of predict the macro Helios b and economics, but if I go back and look at the Opex for the last few years <unk> been increasing that by your.
Double digit Boston D. Then just given the uncertainty that you've talked about and the macro flow on this call in on how you're thinking about sort of that investment base going forward or are you trying to look at areas that where you can sort of pull back.
Back I mean, just in terms of how you're preparing for the.
On certain entity as Scott just a question.
We believe in investing through the downturn and so we will continue to.
Hire people and invest in areas, but we are being more deliberate and doing so in recognition of the realities of the environment.
Thank you yes. Thank you.
Can we have the next question please.
We'll take our next question from Jim Suva with Citigroup.
Thank you Tim.
While I am calling me on my iPhone 14, Max problem loving. It I just wanted to ask you, though with replacement cycles have you noticed any change now that we've been through like two five years of Covid people upgrading at a different rate and kind of post COVID-19 hopefully upgrade cycles of replacement cycle is how we should kind of think about that obviously.
When I drop and break my fault I replace it immediately but a normal replacement have they changed at all any insights from that would be great.
You know, it's challenging to measure the replacement cycle at any point in time with exact precision and so I'm going to punt on the question of the.
However, our hour.
Key task is to make a product that everybody logs.
And that they want to trade in their current phone to get so we.
That's what we're focused on is.
Is innovating like Crazy and giving somebody is something that they really want and see themselves using.
Okay that makes sense well then maybe I can ask Luca a question more on the gross margins as you look ahead, the supply chain issues expedited shipping and all of that do you think probably the September quarter is kind of the worst of FX and all those headwinds and things.
Or is there a little bit of timing delays due to the contractual purchase equipment that you do that maybe youre <unk>.
Suppliers are looking at higher costs, and you're benefiting from some lower contracts well maybe that has already caught up if you could give us some insights on what kind of a longer term nature.
The directions and the gross margin impact Jim I would say, we provide guidance for the current quarter.
But if we look ahead, there's always a couple of elements in gross margin that are a bit outside of our control and we need to be mindful of that one of them is that foreign exchange environment that is having an impact already.
For the September quarter had an impact on June and obviously, a strong dollar tends to be a headwind for us as you as you know we have a hedging program and so we mitigate that impact but over time.
Those hedges roll off and so it becomes more challenging for us, we'll see what happens with foreign exchange rates over time that is going to be a variable that we need to track.
The other one.
That has an impact on the aggregate gross margin is our mix.
Mix of products and services.
As you know they have different margin profiles for very different reasons.
Different businesses.
Even different accounting treatment that at times and so that is also something that we.
We will need to track over time, what matters to us I think it goes back to Tim was saying earlier, we wanted to make sure that people love our products and services and we want all of them to be equally successful in the marketplace.
Certainly as <unk> seen over the last year, we've added a significant expansion in gross margins in spite of very difficult economic circumstances from Covid too.
Inflation interest rates going up and our margins have expanded from a commodity standpoint, I think you were asking a question around around components commodities are behaving okay. We're seeing some.
Price pressure on some silicon components by the other than that we have.
Actually commodities are behaving well.
Okay.
Thank you, Tim and Luca program color and congratulations to you and all your team members.
<unk>.
Can we and the next question please.
Take our next question from Krish <unk> with Cowen <unk> Company.
Yes, hi, Thanks for taking my question and Tim I apologize, it's also a macro related.
You mentioned that it impacted digital advertising within services I'm, just kind of curious if the macro does loosen.
Do you worry about subscriber growth absorb purchases et cetera, and Conversely are there any parts of the service business have you considered a recession proof.
Maybe a buy now pay later or something else and then I had a quick follow up for Luca.
We.
<unk> incorporated all of our thoughts in the guidance that Luca gave which which says that.
We think in the aggregate, we're going to accelerate revenues and.
In the September quarter, as compared to the June quarter, and we will decelerate on those on the services side.
And so we see the digital advertising.
Cloud if you will.
<unk>.
And.
In the current quarter.
Got it got it very helpful. And then a quick follow up on the Lockdown in China. During the June quarter did you actually see any noticeable negative effects on the App store revenue for the region or any positive effects like maybe more gaming downloads.
China had very good results on services.
Last quarter.
And so they grew strong double digits better than the company average and they set a new June quarter revenue record during the quarter.
Okay.
Got it. Thanks. Good luck. Thank you. Thank you 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.
<unk> for the telephone replay are 8882031112 or 7194570820. Please enter confirmation code 820355. These replays will be available by approximately five PM Pacific time today members.
The press with additional questions can contact Josh Rosenstock at 4086 to one or two financial analysts can contact me with additional questions at 669 to $2 7240 too.
You again for joining us.
This concludes today's conference we appreciate your participation.
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