Q4 2022 Apple Inc Earnings Call
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Good day and welcome to the Apple Q4 fiscal year 2022 earnings conference call.
Okay information today's call is being recorded.
This time for opening remarks, and introductions I would like turn the call over to pages Gala director of Investor Relations and corporate finance.
Please go ahead.
Speaking first today is Apple CEO , Tim Cook and he'll be followed by CFO Luca My history.
After that we'll open the call to questions from analysts before turning the call over to Tim I would like to remind you that approximately once every six years, we add a week to the December quarter to realign our fiscal periods with the December calendar.
So this December quarter will spanned 14 weeks rather than the usual 13 and will end on December 31.
Please note that some of the information you'll hear during our discussion today will consist of forward looking statements, including without limitation those regarding revenue gross margin operating expense other income and expense taxes capital allocation and future business outlook.
Including the potential impact 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 I'd like to turn the call over to Tim for introductory remarks.
Thank you <unk> good afternoon, everyone and thank you for joining the call today.
Over the past year, despite a range of challenges facing the world. Our teams have come together in incredible ways to drive unparalleled innovation and deliver again and again for our customers.
For the September quarter, we reported record revenue of $90 $1 billion, which was better than we anticipated despite stronger than expected foreign currency headwinds.
We set an all time revenue record for Mac and September quarter Records for iPhone, and Wearables home and accessories.
Services not to September quarter record as well with revenue of $19 2 billion and more than 900 million paid subscriptions. We reached another record on our installed base of active devices. Thanks to a quarterly record of upgrader and double digit growth in switchers on iPhone.
Across nearly every geographic segment, we reached a new revenue record for the quarter and we continued to perform incredibly well in emerging markets with very strong double digit growth in India, Southeast Asia and Latin America.
I'm also happy to report that during the quarter silicon related supply constraints were not significant.
I want to acknowledge that we're still living through unprecedented times from war in eastern Europe to the persistence of COVID-19 from climate disasters around the world to an increasingly difficult economic environment, a lot of people and a lot of places are struggling.
Through it all we've aimed to help our customers navigate through the challenges, while giving them the tools to drive progress for themselves and their communities.
At Apple creativity and collaboration have always been at the core of who we are that spirit of ingenuity and teamwork helped us provide our customers with incredible innovations this year and led to another yearly revenue record in fiscal 2022 Apple achieve.
Revenue of $394 billion, representing 8% annual growth, we set records for iPhone, Mac, Wearables home and accessories and services, while growing double digits in emerging markets and setting records in the vast majority of markets we track.
Customers are loving our iPhone 14 lineup loaded with camera upgrades for sharper photo's action mode for smoother videos and new safety features like crash detection and emergency Sos via satellite iPhone is even more indispensable to our daily lives.
IPhone 14, an iPhone 14, plus come with a new dual camera system industry, leading durability incredible power and amazing battery lives and.
And our iPhone 14 pro models are packed with even more groundbreaking innovations, including a new camera system as well as always on display and then dynamic island, which offers a whole new way to interact with iPhone just.
Just yesterday, our most advanced iPad and iPad pro ever landed in stores with its all screen design advanced cameras and faster wireless connectivity to 10th generation iPad looks and performs better than ever for creative iPad Pro.
Now turbocharged by the Blazingly fast into chip is the perfect device to make something amazing.
Our Mac customers have already been raving about the power of into since the arrival of our newest Macbook Air and Macbook Pro this summer.
They are incredible long battery life, stunningly rich display and lightning fast speeds are a signature part of the Mac experience and helped drive an all time record revenue for Mac during the September quarter.
In Wearables home and accessories, a wave of innovation spur, 10% year over year revenue growth during the September quarter.
New features an Apple watch series, eight including temperature sensing capabilities retrospective oblation estimates and crash detection are helping to keep customers healthier and safer.
And the updated Apple Watch SC is a great way for users to start their Apple watch journey delivering advanced features at a new low price the biggest brightest and bolus Apple watch ever made Apple watch ultra pushes the boundaries of what a smartwatch can do <unk>.
Packed with innovations like advanced navigation tools, and the new oceanic plus app, which turns it into a dive computer Apple watch ultra has something for athletes and adventures on land and sea.
The second generation of Airpods pro powered by the new H two chip are receiving rave reviews for delivering an unmatched wireless ear Bud audio experience, while cancelling up to twice as much noise over the previous model, there's no better place to discover the rich spatial audio capabilities of Airpods pro.
So then Apple music the largest music catalog anywhere now with more than 100 million songs.
And there is no other company that fuse as best in class hardware with cutting edge software and services to create a truly integrated and seamless experience.
With iOS 16, we're giving customers more ways to personalize their iphones through a customizable lock screen and focus filters.
New features and messages and mail enabled users to connect and collaborate like never before.
Stage manager, an iPad OS 16, and macos mature helps users stay more productive with smoother multitasking.
<unk> nine is empowering customers to live a healthier day through updates to the sleep App, a new FDA cleared afib history feature and the new medications out.
Across our services, we continue to see enthusiasm and strong engagement from our subscribers apt.
Apple TV plus hits like severance bad sisters, and Blackbird have taken center stage on screens around the world and baseball fans were glued to their seats. This season watching Friday night baseball means.
Meanwhile, Apple TV plus productions continue to earn accolades.
At the 74th Primetime Emmy Awards in September Apple brought home nine statues, including our second consecutive win for best comedy series for Ted Lasso.
And soon we're going to give audiences and even better entertainment experience when the all new Apple TV for K hits stores next week.
We're also bringing fitness plus to more customers than ever by making our entire library of over 3000 studio style workouts and meditations available to iPhone users in 21 countries, even those without an Apple watch. These updates are arriving just in time for a new artist spotlight series with work.
House, featuring the music of Taylor Swift and a new workout program Yoga for every runner featuring and designed with one of the worlds top Ultra marathon athletes Scott Gerard.
Ill fitness plus help subscribers stay active Apple card is designed with our customers' financial health in mind for the second year in a row Apple card has been ranked highest in customer satisfaction for mid sized credit card issuers by J D power.
And our users' favorite Apple card benefit just got even better with the upcoming addition of a new high yield savings account to help them save and grow their daily cash rewards.
Turning to retail last month, our team members welcome customers to the all new Apple Jam sale and South Korea.
And through today at Apple Creative Studios, we partnered with nonprofits in cities around the world to help young diverse creative pursue their passions and connect with local mentors.
In our retail teams have done exceptional work, helping customers explore our latest products and features.
As we approach the holiday season, with our product lineups that I'd like to share my gratitude to our retail Apple care and channel teams for the work they are doing to support customers.
At Apple we're proud of the ways, we are able to help customers be productive get healthy stay safe and unlock their creative potential. We also understand we have an important responsibilities to the communities. We serve that's why we continue to invest in education racial equity and justice.
And the environment, and we are making important progress toward a more inclusive and diverse workforce.
Through our community Education initiative, we're working alongside more than 150 partners to help students around the world learn new science and technology skills.
This summer, we joined with community partners to support coding academies across the United States from Code Academy in Nashville to one summer Chicago. So the coding five K count for girls right next door in San Jose.
We are also just expanded our racial equity and justice initiative into the UK for the first time.
Alongside the South Bank Center, we're helping aspiring creator who has developed their own voices and position themselves for long lasting careers.
Back in the U S. We welcomed a new class of Black Latino and indigenous entrepreneurs to Apple's second impact accelerator.
This group of innovators is focused on using green technology to mitigate the effects of climate change and serve communities most affected by it.
At Apple, we care deeply about protecting the planet for future generations to that end in support of our 2030 environmental goals. We have asked all of our suppliers to become carbon neutral across their entire apple related footprint by the end of the decade. We are also providing them with resource.
Based on what we learned achieving net zero carbon and our own global operations.
Across our entire product lineup. We also continue to source more materials through recycling, while taking less from the Earth. Every iPhone 14 is made with 100% recycled rare earth elements in all magnets, including those used in Max safe.
And in a first for Apple watch and iPad, we're using recycled gold in the plating of multiple printed circuit boards and our newest devices.
While we're working to reduce the footprint of our hardware, we're making changes to our software to be more environmentally friendly with the soon to be released clean energy charging feature for iPhone.
Our 2030 goal is a reflection of our relentless focus on the future at Apple.
The world continues to be unpredictable as old challenges evolve and new Windsor merge what remains constant is the ability of our teams to create great products services and experiences while being a force for good in the world.
Whatever challenges lie ahead in the new year, we're moving forward as we always have investing for the long term to deliver incredible innovations for our customers like only Apple can.
And now I'll hand, it over to Luca for more details on our performance.
Thank you Tim and good afternoon, everyone.
We are very pleased to report record financial results for the September quarter that cap and a record fiscal year for Apple, despite a challenging and volatile macroeconomic backdrop.
We reached this September quarter revenue record of 91 billion up 8% year over year. Despite over 600 basis points of negative foreign exchange impact with New September quarter Records in the Americas, Europe , Greater China, and rest of Asia Pacific imports.
In constant currency, we grew nicely in each of our geographic segments with strong double digit growth outside the U S.
Products revenue was 71 billion up 9% over last year, despite FX headwinds and a record for the September quarter and it was a September quarter revenue record for iPhone, and Wearables home and accessories and an all time revenue record for Mac.
Overall, our installed base of active devices continued to grow nicely you reached an all time high for all major product categories and geographic segments at the end of the quarter. Thanks to extremely strong customer satisfaction and loyalty and a high number of customers that are new to our products.
Our services set our September quarter revenue record of $19 2 billion up 5% over a year ago. Despite over 600 basis points of negative impact from foreign exchange.
We reached September quarter revenue records in the Americas, Europe , Greater China, and rest of Asia Pacific and also in many services categories, including all time revenue records for cloud services and payment services.
Company gross margin was the September quarter record at 42, 3%. It was down 100 basis points from last quarter.
Due to unfavorable foreign exchange and a different mix.
Partially offset by leverage.
Products gross margin was 34, 6% up 10 basis points sequentially with improved leverage and favorable mix, partially offset by foreign exchange.
Services gross margin was 75% down 100 basis points sequentially, primarily due to foreign exchange.
Net income was $20 7 billion diluted earnings per share of $1 in 2009, and operating cash flow of $24 1 billion with all September quarter Records.
Let me now get into more detail for each of our revenue categories.
IPhone revenue grew 10% year over year to a September quarter record of $42 6 billion. Despite significant foreign exchange headwinds we.
We said September quarter records in the vast majority of markets, we track and our performance was particularly impressive in several large emerging markets with India setting a new all time revenue record and Thailand, Vietnam, Indonesia, and Mexico more than doubling year over year.
Thanks to our strong iPhone lineup, we set a quarterly record for upgrades and grew switches to double digits.
This level of states' performance, along with unmatched customer loyalty drove the active installed base of iphones to a new all time high across all geographic segments and the latest survey of U S. Consumers from 451 research indicates iPhone customer satisfaction of 98%.
It was a great quarter for Mac, we achieved an all time revenue record of $11 5 billion up 25% year over year, despite significant FX headwinds.
There were three key items that helped drive this performance first we benefited from the launch of our new Macbook Air and Macbook pro powered by them to chip.
Second we were able to satisfy pent up demand that carried forward from the significant supply constraints, we faced during the June quarter.
Third as our supply position improved we were able to fill the channel importantly, our investment in the category has attracted both upgraded and customers new to Mac and helps our installed base reached an all time high in fact, we set a quarterly record for upgrade while nearly half of customers buying <unk>.
During the quarter when you to the device.
IPad revenue was $7 2 billion down 13% year over year.
Due to significant negative foreign exchange and a challenging compare due to the launch of new ipads a year ago. Despite this the <unk> installed base reached a new all time high thanks to the incredible customer loyalty and a high number of new customers in fact over half of the customers who purchased ipads during the quarter.
When you to the product.
Wearables home and accessories revenue was $9 7 billion growing 10% year over year.
Driven by the launch of Apple watch and Airpods Pro.
This level of state performance, along with very strong new to rates drove our installed base of devices in the category to a new all time record for instance, two thirds of customers purchasing an Apple watch during the quarter were new to the product.
Moving to services as I mentioned, we set a September quarter record in aggregate and in most geographic segments generating $19 2 billion in revenue in spite of very large foreign exchange headwinds. It is important to remember that we achieved double digit constant currency growth in services on top of growing 26%.
During the September quarter, a year ago, However, certain services were impacted by macroeconomic headwinds, including foreign exchange.
Digital advertising and gaming are areas, where we've seen some softness.
Throughout the quarter, we continued to observe several trends that reflect the strength of our ecosystem and our long term opportunity in the category.
First.
Our continued installed base growth across each geographic segment in each major product category represents a great foundation for future expansion of our ecosystem.
Second we saw increased customer engagement with our services during the quarter.
Both our transacting accounts and paid accounts grew double digits year over year, each setting a new all time record the percentage of accounts that pay for our services continues to increase and we still see plenty of opportunity ahead of us.
Third.
Subscriptions showed very strong growth, we now have more than 900 million paid subscriptions across the services on our platform up more than $155 million. During the last 12 months alone and double what we had just three years ago.
We continue investing in new content and features across our service offerings. For example, we added several pulp popular sports titles to Apple arcade.
We're also excited about our global partnership with major League soccer with starting next season fans can stream every single MLS match through the Apple TV App.
This momentum helped us achieve over 78 billion in services revenue during fiscal 2020 to a new record and up 14% year over year.
We continue to invest confidently and believe strongly in the long term potential of our services business, which is already the size of a fortune 50 business on its own and has nearly doubled during the last four years.
He was not only a record year for services, but also for our entire company.
During the past four quarters, we grew our business by 8% or 29 billion.
Reaching more than $394 billion of revenue.
We grew diluted earnings per share by 9% and generated over $111 billion of free cash flow up 20% year over year.
It was also a strong year for our enterprise business as we set new annual records for iPhone iPad and Mac.
During fiscal 2022 and grew strong double digits year over year as our devices and services continue to have more and more companies empower their employees and serve their customers for instance.
<unk> manufacturing employees are using iPad and iPhone.
Further improve the quality of its game changing Ford F 150 Lightning electric trucks.
Iphones powerful series chip and advanced camera systems, along with third party iOS apps are enabling <unk> to automate the visual quality inspection process in real time to help address issues before the impact customers.
And Cisco expanded its Max as a choice program and he is now offering it to all its employees to help attract and retain top talent and when given this choice employees have chosen Max twice as often as other options.
In addition, many enterprise customers have taken advantage of the high residual value of our products and simple trading process to standardize the refresh cycles for their fleets of Apple devices.
It allows employees to upgrade to the latest devices regularly while making it highly predictable and cost effective for the business.
Let me now turn to our cash position.
Our business continues to generate very strong cash flow, which enabled us to return over $29 billion to shareholders. During the September quarter. This included $3 7 billion in dividends and equivalents and $25 2 billion through open market repurchases of 160 million Apple shares.
We ended the quarter with 169 billion in cash and marketable securities will be paid $2 8 billion in maturing debt and decreased commercial paper by $1 billion, while issuing five $5 billion of new debt.
Leaving us with total debt of 120 billion as a result, net cash was 49 billion at the end of the quarter as we continue to make progress toward our goal of becoming net cash neutral over time.
As we move ahead into the December 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 insight 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 total company year over year revenue performance will decelerate during the December quarter as compared to the September quarter for a number of reasons first we expect nearly 10 percentage points of negative year over year impact from foreign exchange second a Mac in addition to increasing <unk>.
FX headwinds, we are a very challenging compare it against last year, which had the benefit of the launch and associated channel sales of our newly redesigned Macbook pro with am one therefore, we expect <unk> revenue to decline substantially year over year during the December quarter.
Specifically on services, we expect to grow but to be impacted by the macroeconomic environment increasingly affecting foreign exchange digital advertising and gaming.
We expect gross margin to be between 42, 5% and 43, 5% we.
We expect opex to be between 14, 7% and $14 9 billion.
We expect <unk> to be around negative $300 million, excluding any potential impact from the mark to market of minority investments and our tax rate to be around 16, 5%.
Finally today, our board of directors has declared a cash dividend of <unk> 23 per share of common stock payable on November 10th.
2022 to shareholders of record as of November seven 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 please have the first question.
Certainly.
Go ahead, let's take our first question from Shannon Cross colleagues from Credit Suisse. Please go ahead.
Thank you very much it's great to talk to you on the call again.
I'm wondering can you just talk a bit about how youre thinking about this iPhone generation on.
On the positive side, you raised prices it seems to be mixing up on the negative side investors are concerned about impacting demand from the higher prices.
Huawei <unk> and prior years versus what could happen now.
There are just some pressures out there so I'm curious.
You can kind of talk to what you're seeing initially and iPhone demand and how you think it will start to move through with the caveat that I understand.
Things are pretty uncertain out there and then as a follow up thank you.
And then it's Tim welcome back.
IPhone grew 10% in.
In the Q4 timeframe to $42 6 billion.
Customer demand was strong and better than we anticipated that it would be and keep in mind. This is on top of.
Our fiscal year of 'twenty, one that has iPhone revenue grow by 39% and so it's.
It's a tough compare as well and so we were happy with it in terms of the new products the 14% in 2014 pro and pro Macs.
The.
It's still very early.
But since the beginning we've been constrained on the 14th pro in the 2014 Pro Max.
And we continue to be constrained today, and so we're working very hard.
To fulfill the demand.
It's difficult to say, what the mix will be until we can satisfy the demand because we don't we don't really.
We're not able to determine the accurate mix until then and so we.
But we're working very hard to do that we were really pleased with.
The broadness of the iPhone strength last quarter, we had three of the top four.
Smartphones in the U S and the UK the top three in urban China.
The top six in Australia.
Four out of the top five in Germany in the top two in Japan and customer satisfaction for the iPhone remains very very strong at 98%.
And so we.
We feel very good about how we performed in Q4.
Certainly the start up.
Of this <unk>.
Generation was.
Suggest that we're going to be constrained for a little while on the <unk> Pro and <unk> Pro Max, but we're working very hard to try to remedy that.
Thank you and then Luca can you talk a bit about gross margin puts and takes.
Think about 10.
10 basis points of currency.
It's coming.
Coming quarter.
Don't want say unprecedented but maybe it is so I know you have hedges, but how do we think about it flowing through and then what other.
<unk> seem to be very favorable, but what else should we sort of throw into the mix as we look forward.
Well, let me start with gross margin in Q4, and then I'll get to Q1.
He wants to September quarter record for the company with its 42, 3% and that is in spite of as you mentioned very significant.
<unk> effects.
For example for Q4 on.
On a sequential basis FX was negative 70 basis points and on a year over year basis. It was negative 170 basis points essentially every currency around the world.
Weekend.
Against the dollar.
Now we have guided Q1 to 42, 5% to 43 and a half.
In spite of the fact that we have.
On a year over year basis, 330 basis points of negative exchange sequentially, It's 120 basis point some favorable so.
Obviously, the strong dollar makes it difficult in a number of areas.
Obviously.
Lee our pricing in emerging markets makes it difficult in the translation of that revenue back into dollars is affected.
But on.
On the positive side.
We are seeing commodities behave.
Fairly favorably for us.
And so.
We believe we can offset.
The foreign exchange the negative foreign exchange that we are seeing and I think that the guidance that we provided reflects that it takes into account of course FX effects.
To account some level of inflationary pressures, but I think the outcome is I think is a good one.
Great. Thank you very much thanks.
Thanks, Shannon can we can we have the next question. Please.
Yes, Sir.
Our next question is coming from Erik Woodring with Morgan Stanley . Please go ahead Sir.
Hey, guys. Thanks, very much for taking my questions I have two as well.
Maybe if we could just start you know Luca we saw quite a divergence in iPad and Mac performance this quarter.
Both were relatively constrained from a supply perspective. So maybe can you just elaborate on some of the most impacted and important factors that contributed to a kind of a divergence in performance and whether you know after we get through to the December quarter, those can reverse or normalize and then I have a follow up.
Yes, Eric It's Tim I'll take your question on if you look at the Mac.
The Mac it was the best quarter, we've ever had in the history of the company.
It was helped by.
The product launch of the Macbook air within too.
It was helped that in the previous quarter in the June quarter.
If you remember we lost.
Output from the factory for a significant portion of the quarter and so we had a backlog exiting.
Our Q3 headed into Q4, we were able to satisfy all of that demand during Q4 and fill the channel for the back and so that led to a.
The incredible Mac quarter.
If you look at iPad iPad had sort of the opposite happening from a launch point of view.
The comp from a year ago.
We've launched ipads in September we launched ipads this year in October .
The other point to remember is that the iPad Pro had just launched before the quarter started in the year ago quarter. So it was our first full quarter of iPad pro. So it was an exceptionally strong iPad quarter, a year ago and.
The launches were.
Really key to that performance.
And so thats the reason iPad contracted during this quarter.
Okay. That's helpful. Thank you Tim and then maybe Luca if I were just to ask you you know obviously you teased us at the beginning of the call I talked about the 14 week quarter. Maybe can you just elaborate a little bit on how you think that 14 week quarter impacts different line items, whether it's products or certain or a certain segment.
Within the product business or the services Standalone, just just where we should see that 14 week quarter provide a bit more of a tailwind versus maybe not have an impact at all and that's it for me. Thanks in.
In general we have a few more days in the quarter.
We got that.
I'm going to affect both our revenues and our costs.
Not every week is.
Is equal because obviously, we have certain peaks during the course of the quarter I think about.
Black Friday, or the Christmas holiday, but.
In January we adding a few days of sale in addition.
Opex as well on the on the cost front. So that's that's what happens to US every approximately six years as we need to align our weekly count in there too.
For the fiscal calendar.
Super Thanks, guys. Thanks, Eric can we have the next question. Please.
Yes, Sir the next question is coming from Ben Bolan, calling from Cleveland Research.
Good afternoon, everyone. Thank you for taking the question.
Tim I was hoping we could talk a little bit about services pieces within the portfolio. It looks like there has been some price adjustments as of late with respect to music TV plus and the one bundle.
I am curious, how you think about balancing the consumer price versus your own cost.
The associated follow through and then I have a follow up.
If you look at the the.
Price increase.
That you reference Ben.
On Monday of this week, we announced a price increase on Apple music.
And on the Apple TV, plus and then the corresponding App one that is a consolidated bundle that includes both of those.
On <unk>, there's really two different <unk>.
Situations here with music.
Cost of licensing inquiries.
And and so.
So we are paying more for music. The good thing about that is the artist will also get more.
Yes.
More money for their for their songs that are that are enjoyed on streaming.
And so there is there is some bit of good news there I suppose and then on Apple TV plus if you look at when we.
First priced it we only had a very few shows we were at the beginning we are very focused on original only and so we had.
The $4 five shows or so in the in the beginning and priced at.
Quite low we now have a lot more content and are coming out on.
More each and every month and so we increased the price to represent the value of the.
Of the service and of course, Apple one is just the consolidation.
<unk>.
Those two price changes.
Okay.
And then.
Another item.
Any preliminary thoughts around.
Capital intensity into fiscal 'twenty three last couple of years Capex has been realm.
Relatively stable.
Can you talk to your the bay constituents of the Capex figure.
And maybe any moving pieces and how we could think about that to 23. Thank you.
Yes, Ben.
So when we look at our Capex as you correctly said I mean, we've been fairly stable and I think our capital intensity is really really very good.
We have three major buckets in Capex for the company we have.
Certain dedicated tools for the manufacturing facilities.
We have some spend around data centers and we have spend around our office facilities around the world.
We.
We obviously monitor all of them.
There is nothing unusual that we see for the next.
The next 12 months.
Okay. Thanks, guys.
Thanks, Ben can we have the next question please.
Thank you Sir.
Our next question is coming from Kyle Mcnealy, calling from Jefferies. Please go ahead.
Hi, Thanks, very much just wanted to see if you could give us a sense for what drove the Wearables result, and the strength. There. This quarter was it from maybe strong iPhone attach rates or or the new products that you have available that were announced this quarter or maybe you are still getting some benefit from customers that are more willing to come into this.
Store now and try things on versus the pandemic when that was kind of shut down.
Yes, Kyle it's Tim.
Look at Wearables, we grew 10%.
We were very happy with if you look at the individual pieces of that Apple watch.
As a contributor and in particular, the new lineup was a contributor including the.
Apple watch ultra and the Apple Watch series, a and B C.
Ultra is.
Was supply constrained and continues to be supply constrained during this quarter, thus far and so we're working hard to.
To satisfy the demand there and get those products to customers.
We also announced and launched the Airpods pro.
In September and the reviews for the product has just been off the charts.
In terms of the noise cancellation features in the sound quality, we're getting great great reviews from there in terms of what played the other way the headwinds obviously FX was a headwind that affected.
Wearables home and accessories, just like it affected the rest of our products and services and we also.
<unk>.
Had effect from the business in Russia, obviously the.
Impact there.
So that's sort of the pro and the con, but the other thing I should mention is that about two thirds of the.
The Apple watches that we sold were were to customers that had not previously owned an Apple watch and so.
We're still very much selling to new customers here, which is.
<unk>.
Very very good for the for the future.
Okay, great. Thanks, and one more quick one on Mac I wanted to see if you could quantify at all how much the channel fill and how much came from satisfying back orders from the June period for Mac. We're just trying to get a sense for where the baseline is if there's any sense you can give us on that what would it have grown if not for those <unk>.
<unk> anything you can give us would be great. Thanks.
Yes, I would just say that all three of the reasons that I gave were key in achieving the 25%.
The into Macbook Air the launch of new products.
The satisfying the back orders from the previous quarter.
And then filling the channel all of those were key contributors.
Okay fair enough. Thanks.
Thank you Kyle can we have the next question. Please.
Yes, Sir next question is coming from Mr. Jim Suva, calling from Citigroup.
Thank you and it's great to see that you talked about your suppliers go on carbon neutral something a small statement I really took to heart. Thank you.
My question is on the services could it possibly be impacted more by FX than product, meaning that Jim superfamily has apple one and TV plus and all of that and we pay it typically an annual but then when we go into the store to buy new watches and ipads are prices adjusted more quickly so could it be that services growth.
Was impacted a little bit more by FX and down the road, we could see growth reaccelerate or am I, just reading too much into the FX impact it could be different from services versus product. Thank you.
Hey, Jimmy snooker.
Right, obviously the effects impact on our business depends on the geographic mix of the sales that we do in <unk>.
And so.
Yes, it can be services and products can have slightly different.
FX on.
Foreign exchange and so.
If we look at our services business in constant currency.
We would have grown double digits.
And so we're very pleased with that as I mentioned, there were some areas that we could see some softness in digital advertising.
Of course, you know that part in gaming on the App store was affected.
We were very happy with what we saw in terms of the behavior of our customers with the engagement with services I mentioned, a number of things during the prepared remarks.
The fact that obviously that installed base is growing that's a positive and it sets a great foundation for the future.
We are seeing more transacting accounts and more paid accounts.
They are both growing double digits paid accounts are growing faster and then transacting accounts. So the penetration of paid accounts is increasing.
We have a great subscription business $900 million.
Paid subs now on the on the on the platform.
And growing very fast we doubled in three years. So when we look at all of those dynamics.
Part of that is really interesting to us because we really believe that the engine for services growth is there and foreign exchange is a temporary thing and.
But the fundamentals are very good.
Thank you and congratulations to your teams.
Thanks, Jim can we have the next question please.
The next question is coming from Amit.
Yes, Danny from Evercore. Please go ahead.
Thanks for taking my question I have two as well.
The first one really is around the iPhone trajectory theres been a fair amount of focus in terms of what's going to happen to iPhone demand given the macro worries.
Really helpful to understand though given the strength you are seeing.
Where do you think channel inventory is for iPhone today versus where it would be from a historical perspective, and do you see the channel getting to an optimal level by end of December quarter because.
The Elia right now given the lead time data it looks like your revenue trajectory and iPhone is more driven by the supply you have versus demand. So any color on the channel inventory it would be helpful.
If you look at where we ended.
The September quarter.
We exited below our targeted inventory range on an iPhone.
And that's that is in and of itself is not too unusual in the quarter, we start to ramp in demand is robust.
Go for it.
So.
I wouldn't call it that abnormal from from the past.
Got it and then I guess, Tim you folks have been talking about digital advertising a fair bit over the last few quarters I think.
Any metrics any vectors you can talk about kind of to give us a sense of how big This business is on what factors are you focused on and really if you could talk about.
Do you think Apple can build our advertising business at scale without sacrificing consumer privacy.
Well, our first and foremost we focus on on privacy and so we would not do anything that.
Stepped away from that we feel that privacy is a basic fundamental human right and so that's sort of the lens that we look at it under.
Our specific advertising business.
Is.
As.
Not large.
Relative to two others.
But we don't release the exact numbers on it but it's clearly not large.
Thanks, Amit that we have the next question. Please.
Yes.
We'll now move on to Mr. Harsh Kumar, calling from Piper Sandler. Please go ahead.
Yes, Hey, Thanks, guys first of all <unk> congratulations on the stellar performance. There's a lot of large cap companies that are getting whipped around so we appreciate the steady cadence here.
Tim I wanted to ask you about inflation pressures and labor problems here in the U S and globally and maybe talk about what steps can apple take to mitigate those and maybe look on that and FX is becoming a pretty significant headwind and I was curious what if at all if there's anything that can be done to mitigate that.
I'll, let Luca talked about FX in terms of the people piece.
We're focused on taking care of our teams and offering them the best benefits thus compensation.
Two so that we can empower them to do the best work of their lives and so that's what we're focused on and in terms of our teams in terms of inflation.
Clearly wage inflation.
There is.
Inflation related to logistics as well if you compare it to pre pandemic kind of levels.
That has not returned to pre pandemic levels by any means.
And there are certain silicon components that are inflationary.
Of inflationary pressure as well and so that that's not all inclusive list of where we see that gives you some ingredients of where we see inflation pressure and we've obviously taken that into consideration.
The gross margin guidance that Luca gave that earlier in the call.
Yeah and on foreign exchange.
I mean, it's obviously.
A very significant factor affecting our results both revenue and gross margin what do we do about situations like this one where we have very strong dollar.
<unk>.
Of course, we hedge our exposures, we try to hedge them.
In as many places as possible around the World. For example, I think we've been probably the first company that sort of hedging our exposure in China several years ago.
There may be a few currencies small ones, where we don't hedge because the cost is prohibitive or the market is not there but in general we tend to hedge because it gives us.
A significant level of margin stability.
Obviously over time that protection reduces.
Cause the hedges rollover and we need to to buy new contracts, but thats the primary.
<unk> that we used to.
To offset some of the FX pressure of course, when we launched new products in particular, we look at the FX situation and in some cases for example customers in international markets had too.
They saw some price increases.
When we launched the new products, which is not something that for example, U S customers have seen.
And Thats Thats. Unfortunately, the situation that we're in right now with the strong dollar.
<unk>.
And so that's the way we try to deal with that I have to say that one of the things that we've.
Really appreciate it the most during the quarter was the was the fact that in spite of this very strong dollar and a difficult FX environment. We have seen very strong performance in many international markets, particularly some very large.
Emerging markets were.
Even in reported guidance so in U S dollars were seen.
Very strong double digit growth in places like India, Indonesia, Mexico Vietnam.
Many places will be done incredibly well and obviously in local currency those growth rates are even higher it's important for us to to look at how these markets performing local currency because it really gives us a good sense for the customer response to our products the engagement.
With our ecosystem and in general the strength of the brand and I have to say in that respect we should very very good about the progress that we're making in a lot of markets around the world.
Thanks, Tim and Luca I had a follow up.
Look on your.
Our prepared remarks for the guidance you mentioned that for the December quarter, you expect.
The performance of decelerated relative to September September was a year over year about call it 8%.
Should I think that that 8% number will go down on a year over year patients is when you look at December maybe you can provide some color on what you think and are we still looking at looking at a positive number or are we thinking.
Maybe that the growth will be negative on a year over year basis.
What we said what we said is that.
We're going to be decelerating from September . So September was 8%. So it is going to be a lower percentage than 8%, we're not providing guidance for the reasons that we've explained there is a lot of uncertainty there.
And so we see.
The quarter progresses keep.
Keep in mind, the 10 points of exchange.
Certainly yes.
And in normal times, we would be talking about very different numbers, but.
But that's where we are right now.
Thank you guys.
Can we have the next question please.
Yes, Sir.
Next question is coming from Krish Shankar, calling from Cowen and company. Please go ahead.
Yes, hi, Thanks for taking my question actual of them first one either for Tim or Luca on cash and capital allocation given the.
Collection and valuation for some of the private and public companies does it change your thought process on the timeline to get to cash neutral in other words would you be more aggressive with acquisitions auditing holding onto more cash due to interest income becomes more attractive versus your private investment both from another quick follow up.
Yes. This is Tim in terms of acquisitions, we averaged about.
One per month, I believe and across fiscal year 'twenty two.
And so we're constantly looking in the market.
At what's out there in.
What things would be synergistic and which things would provide either intellectual property or our talent.
Preferably both.
That we would need and so we're constantly looking at acquisitions of all sizes in terms of cash deployment.
Obviously, we like to look at the capital return program over the long arc of time and.
We have done since the beginning of the program we've done over $550 billion.
A buyback at an average repurchase price of $47.
The program has been incredibly successful we are still in a position where we have net cash and we said all along we want to get to cash neutral at some point our.
Our cash generation has been very very strong over the years, particularly last year I think I mentioned in the prepared remarks with either $111 billion of free cash flow, that's up 20% year over year.
And so we will put that capital to use for investors.
Got it got it very helpful, Tim and Luca and then a quick follow up for Luka on the December guidance. Thanks for the color on that I'm, just kind of curious the extra week in the quarter is that's not helping offset some of the effects of in other words, the 10 percentage point negative impact from FX will be much higher if thats, a 13 week quarter.
No I wouldn't I wouldn't say that because those are percentages. So yes, not the 10 points within that wouldnt be different in 13 or 14 weeks would be the same.
Got it got it.
Uh huh.
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Yes.
Hey, Andrew.
Sure.
Yes.
Yes.
Okay.
Thanks.
Yes.
Yes.
Matt.
Great.
Oh.
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Yes.
Thanks.