Q1 2023 Apple Inc Earnings Call
Currency.
[music].
Good day, everyone and welcome to the Apple Q1 fiscal year 2023 earnings Conference call today's call is being recorded.
And now at this time for opening remarks, and introductions I would like to turn the call over to JJ Scala 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 , We've got 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 everyone that the December quarter spanned 14 weeks, while the March quarter as usual has 13 weeks.
Please note that some of the information you'll hear during our discussion today will consist of forward looking statements, including without limitation those regarding revenue gross margin operating expenses other income and expense taxes capital allocation and future business outlook, including the potential impact.
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.
<unk> assumes no obligation to update any forward looking statements or information, which speak as of their respective dates.
I'd now like to turn the call over to Tim for introductory remarks.
Thank you <unk> good afternoon, everyone and thanks for joining us.
Today, we are reporting revenue of $117 $2 billion for the December quarter.
We set all time revenue records in a number of markets, including Canada, Indonesia, Mexico, Spain, Turkey, and Vietnam, along with quarterly records in Brazil and India.
As a result of a challenging environment, our revenue was down 5% year over year.
But I am proud of the way, we have navigated circumstances seen an unforeseen over the past several years and I remain incredibly confident in our team and our mission and in the work we do every day.
Let me discuss the three factors that impacted our revenue performance during the quarter.
The first was foreign exchange headwinds, which had a nearly 800 basis point impact.
On a constant currency basis, we grew year over year and would have grown in the vast majority of the markets we track.
The second factor, which we described in our November 6th update was COVID-19 related challenges, which significantly impacted the supply of iPhone 14 Pro and iPhone 14 Pro Max and lasted through most of December.
Because of these constraints, we had significantly less iPhone 14 pro and iPhone 14 pro Max supply than we planned causing ship times to extend far beyond what we had anticipated.
As we always have every step of the way throughout the pandemic, we continue to prioritize people and worked with our suppliers to ensure the health and safety of every worker.
Production is now back where we want it to be.
The third factor was the challenging macroeconomic environment as the world continues to face unprecedented circumstances from inflation toward in eastern Europe to the enduring impacts of the pandemic and we know that Apple is not immune to it but whatever conditions, we face our approach is always.
The same we are thoughtful and deliberate we manage for the long term, we adapt quickly to circumstances outside our control, while delivering with <unk> and the things. We can we invest in innovation in people and in the positive difference we can make in the world and we do it all to provide our customers.
With technology that will enrich their lives and help unlock their full creative potential.
It's a wonderful thing to be a part of and it's so rewarding for all of us at Apple when we hear how much our customers are loving what we create.
Let me talk now about what we saw across our product categories.
Starting with iPhone revenue came in at $65 8 billion for the quarter down 8% year over year.
However, on a constant currency basis, iPhone revenue was roughly flat.
Our customers continue to rave about the astounding camera capabilities and unprecedented battery life and the groundbreaking suite of health and safety features the iPhone 14 lineup pushes the limits of what users can do with a smartphone.
During the quarter Mac revenue came in at $7 7 billion.
Which was in line with what we had expected we had a difficult compare because this time last year, we had the extremely successful launch of the redesigned <unk> Macbook pros.
We also faced a challenging macroeconomic environment and foreign exchange headwinds.
We remain confident in and focused on the long term opportunity for Mac just last month, we introduced new Macbook Pro models powered by our latest developments and Apple silicon into pro and M. Two Max these chips enable unprecedented performance and do so with less energy which is not.
Only good for the environment, but gives the newest Macbook pro the longest battery life ever in a mock.
We also introduced the <unk> powered Mac mini, which will supercharge productivity for users of all kinds and lead them stunned by just how powerful a Mac mini can be.
During the quarter iPad revenue grew 30% to a total of $9 $4 billion. The very strong growth was due in part to a favorable compared to the December quarter, a year ago, when we experienced significant supply constraints.
Customers continue to praise our new lineup for its versatility, whether it's the new iPad pro now powered by the <unk> or the newly designed iPad 10th generation with its stunning liquid retina display and beautiful colors.
Revenue for Wearables home and accessories was $13 5 billion, which was down 8% year over year, driven by foreign exchange headwinds and a challenging macroeconomic environment.
We remain excited about the long term opportunity in the category.
As an example, a few weeks ago, we announced the next generation home pod, which is an indispensable addition to the smart home.
This powerful smart speaker relies on advanced computational audio to produce an incredible listening experience.
We're also helping users make their home safer, which sound recognition. This feature arriving later this spring allows home pod to send a notification directly to a user's iPhone, if a smoke or carbon monoxide alarm sound is identified.
We continue to hear wide praise for Apple Watch series, eight and Apple Watch Ultra which has set a new standard for what's possible with a wearable.
From a whole host of health and safety features to incredible new capabilities for extreme athletes there is something for everyone. In these amazing products.
Customers are excited about some phenomenal new features we've made available across many of our products as well one of the highlights as emergency Sos via satellite.
Which launch for iPhone 14 customers in the U S and Canada in November and for customers in France, Germany, Ireland, and the U K in December .
This is a feature we hope our users will never need but it is incredibly heartening to get emails from people describing the life saving impact our new safety features have had on them.
We're always looking for new ways to empower people to create and collaborate in December we released free form a brand new app that lets users take their ideas wherever they want anywhere they are all while collaborating in real time free form has already received praise from reviewers for flex.
<unk> ability and simplicity as it works seamlessly across iPhone iPad and Mac.
Today, we are very excited to announce that we've achieved a truly incredible milestone thanks to our deep commitment to innovation incredible customer loyalty and satisfaction and a large number of switchers. We now have more than 2 billion active devices as part of our growing installed base.
Double what it was just seven years ago. This is an incredible testament to our products and services and the strength of our ecosystem.
We set an all time revenue record of $28 billion in services, which was better than what we had expected.
We achieved double digit revenue growth from App store subscriptions and set all time revenue records across a number of categories, including cloud and payment services. All told Apple now has more than 935 million paid subscriptions.
Apple has also just begun a historic 10 year partnership with major League Soccer, just yesterday, we launched MLS season pass, which will give fans in more than 100 countries access to every live MLS regular season game as well as the playoffs and MLS Cup.
All with no blackouts.
And while we're providing more content to sports fans than ever before Apple TV plus continues to showcase powerful characters and moving storytelling.
We were thrilled to celebrate the holidays alongside our Apple TV plus subscribers with the hit movie spirited and we're delighted to see how much people are enjoying new and returning series like shrinking slow horses and truth be told.
And we have some great upcoming movies and sharper in Tetris, along with Emmy Award winners Ted Lasso, returning this spring.
During the quarter, we made some great updates to fitness plus as well expanding our catalog of more than 3500 workouts and meditations to include a new kick boxing category and our new sleep theme for meditation.
Our latest artist Spotlight series features the music of the incomparable beyond say and we're excited to take a stroll would guess appearing on our fifth season of time to work.
And we continued to build on our decades long commitment to helping small businesses thrive when we announced Apple business connect.
This new tool gives business owners, even more control over how billions of people see and engage with their products and services everyday.
Businesses of all sizes can now customize key information for users across Apple maps messages wallet CRE and other apps.
Meanwhile, in retail we celebrated 25 years of the Apple online store and also opened Apple Pacific Center in Vancouver, and Apple American Dream in New Jersey, and I am grateful to all the teams who helped our customers throughout the busy holiday season.
At Apple we spend a lot of time focused on creating an unparalleled experience for our customers in every product and service that we offer.
We're also just as dedicated to leading with our values in everything we do.
As part of that work, we strengthened our deep commitment to privacy and security, giving users three new tools to protect their most sensitive data.
<unk> message content key verification security keys for Apple.
And advanced data protection for icloud.
At Apple, we feel a deep sense of responsibility to leave the world better than we found it.
We're also a year closer to 2030, and we remain ever focused on the environmental commitments, we set out for the end of the decade.
As an example, the latest Mac mini and Macbook Pro models, all use 100% recycled aluminum in the enclosure and recycled rare earth elements and all magnets.
And then a first for home pod, we're using 100% recycled gold and the plating of multiple printed circuit boards.
In honor of Black history month, we released the Black community collection, including the special edition Apple Watch Black community Sport loop, a new matching watch face an iPhone wallpaper.
Through our racial equity and Justice initiative, we're expanding our support of five organizations focused on lifting up communities of color through technology.
And we are committed as ever to building on our progress around inclusion and diversity.
During the quarter, we also announced it since the inception of our giving program 11 years ago, we have donated more than $880 million to humanitarian efforts disaster relief childhood education, and more and over the last 16 years through our partnership with Red.
<unk> supported grants have helped more than 11 million people get the care and support services they need.
As we look ahead in 2023, we are excited about the year to come.
At Apple we are always looking forward always focused on the next challenge always determined to do great things with unmatched creativity and unrivaled innovation.
And that makes me more confident about the future of Apple than I have ever been.
With that I'll turn it over to Luca.
Thank you Tim and good afternoon, everyone.
As Tim mentioned revenue for the December quarter was $117 2 billion down 5% from last year.
A number of factors had a significant impact on our results first we faced a very difficult foreign exchange environment, which affected our performance by nearly 800 basis points in other words, we grew revenue on a constant currency basis and in fact, we did so in the vast majority of markets.
Second the macroeconomic environment. This past quarter was markedly more challenging than 12 months ago.
Third we experienced significant supply shortages for iPhone 14, parole and iPhone 14 Pro Max in November and through December on.
On the other hand, we had the positive impact of the 14th week in the quarter that <unk> mentioned at the beginning of the call.
Products revenue was $96 4 billion down 8% from last year due.
Due to the factors I just called out at the same time however.
Our installed base of active devices grew double digits and achieved all time records in each geographic segment and in each major product category. We are proud to now have over 2 billion active devices in our installed base.
This continued growth in the installed base is due to extremely strong levels of customer satisfaction and loyalty and a high number of customers who are new to our products.
The installed base growth also helped our services set an all time revenue record of 28 billion up 6% over a year ago.
We achieved this new milestone despite more than 700 basis points of negative impact from foreign exchange.
We reached all time services revenue records in the Americas, Europe , and rest of Asia Pacific and a December quarter record in greater China.
We also set records in many services categories, including all time revenue Records for cloud services payment services and music and December quarter record for the App store and applecare.
Company gross margin was 43%.
70 basis points from last quarter due to leverage and favorable mix, partially offset by foreign exchange.
<unk> gross margin was 37% up 240 basis points sequentially and services gross margin was 78% up 30 basis points sequentially. Both due to the same factors that impacted total company gross margin.
Operating expenses of $14 3 billion were significantly below the guidance range, we provided at the beginning of the quarter.
And grew at a slower pace than in the past as we took actions to respond to the current macro environment.
Net income was 30 billion diluted earnings per share were $1 88.
And we generated very strong operating cash flow of 34 billion.
Let me now get into more detail for each of our revenue categories. iPhone revenue was $65 8 billion. Despite significant foreign exchange headwinds supply constraints on iPhone 14 Pro an iPhone 14 pro Max.
In a challenging macroeconomic environment in spite of the circumstances, we set all time iPhone revenue Records in Canada, Italy, and Spain and saw strong growth in several emerging markets, including all time iPhone revenue Records for India and Vietnam.
Importantly, <unk> installed base of active iphones continues to grow nicely.
And at an all time high across all geographic segments.
In emerging markets in particular, the installed base grew double digits, and we add a record levels of switchers in India and in Mexico.
Our customers continue to love their experience with our products with the latest survey of U S. Consumers from 451 research, indicating customer satisfaction of 98% for the iPhone 14 family.
Yeah.
<unk> revenue was $7 7 billion down 29% year over year and in line with our expectations.
There were three key drivers for our Mac results first we add a challenging compare against last year's launch of the completely re imagined Macbook pros, our first notebooks with M <unk> and M on Max.
Second we believe that the macro environment impacted our Mac performance and third we faced significant foreign exchange headwinds at the same time however.
Installed base of active Max reached an all time high across all geographic segments, and we continue to see very strong upgrade activity to apples silicon <unk>.
Customer satisfaction with Mac remains very strong at 96% based on the latest survey of U S consumers from 401 research.
IPad revenue was $9 4 billion up 30% year over year. Despite significant FX headwinds. This performance was driven by two key items first during the December quarter, a year ago, we experienced significant supply constraints. While this year, we had enough supply to meet demand.
Second we launched our new iPad and the iPad pro powered by the <unk> chip during the quarter.
The iPad 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 purchase ipads during the quarter when you to the product.
Wearables home and accessories revenue was $13 5 billion down 8% year over year.
The year over year decline was driven by significant FX headwinds and a challenging macroeconomic environment. However, our installed base of devices in the category set a new all time record. Thanks to the largest number of customers new to a smartwatch that we've ever had in a given quarter.
In fact, nearly two thirds of customers purchasing an Apple watch during the quarter were new to the product.
Moving to services, we generated $28 billion in revenue a new all time record in total and for many services offerings in spite of a difficult foreign exchange environment and.
And macroeconomic headwinds impacting certain categories, such as digital advertising in mobile gaming and.
In constant currency, we grew services revenue double digits on top of growing 24% during the December quarter, a year ago.
We remain focused on the large long term opportunity in this category and we continue to observe several trends that reflect the strength of our ecosystem. For example, 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.
Paid subscriptions also continued to grow nicely, we now have more than 935 million paid subscriptions across the services on our platform up more than $150 million. During the last 12 months alone and nearly four times, while we had just five years ago.
And we continue to increase the reach and improve the quality of our offerings.
For instance, Apple pay is now available to millions of merchants in nearly 70 countries and regions.
And we saw a record breaking number of purchases made using apple pay globally during the holiday shopping season.
Finally, our installed base of over 2 billion active devices represents a great foundation for future expansion of our ecosystem.
And it continues to grow even during difficult macroeconomic conditions, which speaks to the exceptionally high levels of customer loyalty and satisfaction and our ability to attract new customers to our platform.
The growth is coming from every major product category and geographic segment with strong double digit increases in emerging markets, such as Brazil, Mexico, India, Indonesia, Thailand and Vietnam.
Turning to the enterprise market, we are seeing continued adoption of our services for business.
Apple business Essentials, applecare tap to pay and Apple financial services. For example, Mars incorporated has expanded its use of Apple care for enterprise to provide timely device support and assurance for ipads deployed across their manufacturing sites means.
Meanwhile, HCA healthcare as leverage Apple financial services to manage the annual refresh of its entire fleet of iphones.
This not only assure us that their staff stay current on the latest Apple technology, but also provides them with significant annual savings in the process.
Let me now turn to our capital return program and our cash position.
We returned over 25 billion to shareholders during the December quarter as our business continues to generate very strong cash flow.
This included $3 8 billion in dividends and equivalents and $19 billion through open market repurchases of 133 million Apple shares.
We ended the quarter with 165 billion in cash and marketable securities. We repaid $1 4 billion in maturing debt and decreased commercial paper by $8 2 billion, leaving us with total debt of $111 billion. As a result, net cash was 54 billion at the end of the quarter and we maintain.
Our goal of becoming net cash neutral over time.
As we move into the March 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 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 what we're projecting today for the current quarter.
In total we expect our March quarter year over year revenue performance to be similar to the December quarter. This represents an acceleration in our underlying year over year business performance as the December quarter benefitted from an extra week.
Foreign exchange will continue to be a headwind and we expect a negative year over year impact of five percentage points.
For services, we expect revenue to grow year over year.
While continuing to face macroeconomic headwinds in areas, such as digital advertising and mobile game for.
For iPhone, we expect our March quarter year over year revenue performance to accelerate relative to the December quarter year over year revenue performance.
For Mac and iPad, we expect revenue for both product categories to decline double digits year over year because of challenging compares and macroeconomic headwinds.
We expect gross margin to be between 43, 5% and 44, 5%.
We expect opex to be between $13, seven and $13 9 billion.
We expect <unk> to be around negative $100 million, excluding any potential impact from the mark to market of minority investments.
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 February 16, 2023 to shareholders of record as of February 13, 2023.
With that let's open the call to questions.
Thank you Luca we ask that you limit yourself to two questions. Operator may we have the first question. Please.
Certainly we will go ahead and take our first question from David <unk> with UBS.
Great. Thanks, guys for taking my question.
Tim and maybe this is for Luca you talked about the supply chain returning back to normal after a very difficult October November but.
But we're still seeing some disruptions across tech products, whether it's enterprise or consumer facing.
How do you think about your supply chain and maybe the levels of inventory or sales that you might need as we go forward to sort of insulate your business from the sort of episodic disruptions have you changed your view.
And if so how does that affect ultimately margins and sort of your balance sheet and cash flow items going forward. Thanks.
This is Tim David.
Most supply point of view, we did see disruption from early November through.
Through most of December .
And.
The.
From a supplier so from a supply chain point of view.
We're now at a point where.
Production is what we need it to be and so the problem is behind us.
In terms of going forward in the supply chain, we build our products everywhere.
There are component parts coming from many different countries in the world in the final assembly coming from.
From three countries in the world and on just iPhone.
And so we continue to optimize it will continue to optimize that over time in.
And changed it to continue to improve.
I think when you sort of zoom out and back up from it.
Last three years have been.
Pretty difficult time between Covid and silicon shortages in.
And the like I think it's I think we have had a very resilient.
Supply chain and in the aggregate in terms of supply for this quarter, which I think was one of your your points.
I think we are in decent supply on most products.
For the quarter.
Currently.
Great. Thank you.
Great. Thanks can we have the next question please.
Our next question is from Shannon Cross of Credit Suisse.
Thank you very much Luca I wanted to dig a bit more into the commentary on gross margin.
The guidance, especially at 43, 5% to $44 five is obviously quite strong.
I'm wondering what what's helping you out there.
And some other things and then how should we think about.
Currency and hedging is going to do is as we look forward and then as a follow up.
Shannon, Yes, I mean, we've had good margin for the December quarter to Starwood, we reported 43%.
And obviously in December we have the benefit of leverage because of the seasonality of the business, but we also had favorable mix across across the board of.
Of course foreign exchange.
Is it an issue right now.
In the December quarter on a sequential basis foreign exchange was a negative 110 basis points for us and.
And on a year over year basis, it's 300 basis points. So obviously the FX environment has changed a lot during the last 12 months.
For March yes, we've seen margin expansion for at three 5% to $44 five we.
So we're doing a lot of work around cost of course.
Mix will continue to have both within categories and services mix.
We move away from the holiday season.
But we're doing a lot of work on the cost structure and that is paying off foreign exchange is still a negative about 50 basis points sequentially, but it's mitigating.
The last couple of weeks the dollar has weakened a bit and so hopefully as we go through the year, hopefully things will improve but for now as you correctly state we are in a good position on margins.
Thank you and then Tim can you talk a bit about China.
What youre seeing obviously, you had the issues with production, but I mean more on the demand side.
As we've gotten through Chinese and Chinese new year.
And the opening I'm just wondering are you seeing the Chinese consumer come back what are they buying and how are you thinking about your position there. Thank you.
Shannon in the last quarter, we declined by 7%.
On a reported basis, but we actually grew on a constant currency basis and that was despite.
Some significant.
The supply constraints that we talked about earlier and obviously the sort of the COVID-19 restrictions throughout China that happened in various different places throughout the country.
Also impacted the demand during the quarter.
When you look at.
The opening that started happening in December .
We saw a marked change in traffic in our stores as compared to November .
And that followed through to demand as well.
And.
I don't want to get into January we've obviously for January is included in the guidance or the color Robert.
Luca provided earlier, but.
But we did see a marked change from December compared to November .
Thank you great. Thanks, Shannon can we have the next question. Please.
Our next question is from Erik Woodring of Morgan Stanley .
Hey, guys. Thanks for taking my questions, maybe Tim first one for you.
$2 billion installed base device installed base figure Thats up I believe 200 million.
That's year over year that implies the strongest annual gain in new devices in your installed base basically as far back as you've provided those data points and so.
My two questions are one.
Can you provide the installed base for the iPhone at year end.
And then two is there anything that you see in this new cohort of users that might look different or similar to past cohorts either by demographic or regions or monetization ramp and then I have a follow up. Thanks, yes. The installed base is now over 2 billion active devices is.
You mentioned.
And we set records across each geographic segment and major product category and so it was it was a broad based change to correct. One thing you said its up over $150 million a year over year. The last report we reported to be over 185.
And so it's 150, which were which were very proud of.
We also saw strong double digit.
In several of the emerging markets, which is very important to us.
For example, India.
And Brazil is just two examples.
So so very very strong and obviously.
Bodes well for the future.
Great. Thank you for the color Tim and then.
Look obviously the December quarter was negatively impacted by the production challenges can you just may be on.
Package, where channel inventory levels are today kind of across the iPhone broadly and then.
The data that Youre seeing so far this quarter is telling you about iPhone demand deferral versus kind of iPhone demand destruction, and perhaps pushing some upgrades later into the year rather than into the March quarter and Thats. It from me Thanks, Eric I'll take that one as well.
Inventory levels on iPhone.
We obviously ended the December quarter below our target range.
Given <unk>.
Supply challenges on iPhone 14, pro an iPhone 14 pro Max.
But as you think about this keep in mind that a year ago. We also exited the December quarter below our target inventory range.
Supply challenges in the year ago quarter.
Not related not the same issue by.
Just as a point.
And so that hopefully gives you some flavor of that in terms of what we're seeing in January we've included.
And our color that Luca provided.
Our thinking is.
Very hard to estimate the recapture.
As you have to know exactly what would have happened and how many people bought down and it takes a while to get that to get those reports.
And during the quarter.
And so we've made our best guess at it in terms of the sizing of the constraint in Q1.
What we estimate although not with precision is that we would I felt we believe iPhone would've grown during the quarter had it not been for the supply shortages.
So hopefully that's a little bit of color.
Yeah, that's great. Thanks, so much.
Thanks, Eric can we have the next question please.
Our next question comes from Aaron Rakers of Wells Fargo.
Yes, thanks for taking the question I have two as well if I can.
The first question just going back on the gross margin line pretty pretty good guidance into this March quarter I'm curious, if you unpack that a little bit specific around what you're seeing as far as maybe benefits from component pricing.
<unk>.
In the guidance, if you're embedding any of that at this point.
Yes of course with our guidance, we try to capture every aspect of our cost structure and obviously a components at a big portion of that.
So definitely that's included in that and keep in mind.
Again that.
Foreign exchange had mentioned earlier I think to Shannon that the sequential negative on FX is 50 basis points versus a year ago.
270 basis points, obviously, the U S. Dollar has moved a lot over the last 12 months. So obviously, we need to find offsets and more.
To the negative FX in order to be able to provide this kind of guidance. So obviously components at a big part of that.
Okay.
Yes, and then kind of from a from a strategic perspective, given kind of the things that we're seeing out in some of your peer group I am curious how you think about the role of AI in.
In your strategy as far as particularly in the services segment, whether you not you see opportunities to excel monetization abilities within the paid subscriber base and whether or not thats something that youre implementing a bit more strategically there.
Yes, it is a major focus of ours.
Is incredible in terms of.
How it can enrich customers' lives.
You can look no further than some of the things that we announced.
In the fall with with crash detection and fall detection.
Or back a ways with ACG I mean, these things have literally save People's lives.
And so we see an enormous.
Potential in this space to affect virtually everything we do it's obviously a horizontal technology not a vertical and so it will affect every product and every service that we that we have.
Okay.
Can we have the next question please.
Certainly our next question comes from Amit <unk> of Evercore.
Thanks for taking my question I guess, the first one I have is.
Tim I think basically all your comments at iphones would have grown exit production issue that implied that maybe it's a $7 billion. So impact that you had in December quarter from the production challenges on the high end models.
It's tough to see what happens this time around but I think historically when you've had production issues or things like this happen.
What has the consumer.
Behavior being deeply do they tend to go down towards the lower end models and get the phone they want quickly or do they just before the production just from a historical perspective, I think do you typically recover whats the floored out or no.
There is it's very hard to estimate is the real answer because you have to know a lot of lot of data and it's usually only in hindsight that you have a more reasonable view of it.
And so we put our best views and.
And the color that Luca provided.
Kind of what I would say.
Alright.
Alright.
Maybe if I think about services as you go forward and you've had really good growth in service I think over the last several years, but as you go forward in services.
What do you think drives the growth more so is it the expansion of your installed base or is it more going to driven by ARPA going higher for you I'm just curious how do you think about those two buckets as you go forward.
I mean, there's a number of things and I mentioned, a few of them during the call.
The first step is always the installed base basis, the engine for services growth and the fact that the installed base is growing very nicely and it's growing.
A lot of emerging markets is growing even faster that gives us.
A larger.
Addressable pool of customers and that's incredibly important the second one is that we are seeing that the level of engagement of our customers already in our ecosystem continues to grow.
We I mentioned that both transacting accounts and paid accounts.
Grew double digits.
And so that bodes very well for the future.
And we have a lot of transacting accounts that can move to paid accounts over time.
Yes that aspect that is very important for us is to continue constantly to improve the reach and the quality of our services and I gave the example of Apple pay which is a great example, because we started off primarily in the United States now we've taken it to 70 markets.
Millions of merchants and so obviously payment services, our continued to set new highs all the time for US and then as you've seen over the last.
Few years.
We also launched new services over time and that.
Obviously contributes to the growth, we're very excited and when we look at the behavior of our installed base. We think is very promising for the continued growth of our services business.
Perfect. Thank you.
Thanks, Amit can we enter the next question please.
Our next question comes from harsh Kumar Piper Sandler.
Yes, Hey, Tim Matt a quick question on emerging markets. It seems like Youre, making a lot of strike in India.
Potentially wanted to understand the kind of share you have in China, and India and relative to that what would be your aspirational, but sort of achievable share and iphones in those territories, whether its unit revenues and I was hoping to draw on your experience what <unk> seen in other countries.
<unk> had some longer presence.
And looking at the business in India, We set a quarterly revenue record and grew very strong double digits year over year.
So we feel very good about how we performed and that was despite the headwinds that we've that we've talked about taking a step back India's here.
Hugely exciting market for us and it is a major focus.
We brought the online store there in 2020.
We will soon bring Apple retail there.
So we're putting a lot of emphasis on the market. There's been a lot done from our financing options and trade ins to make products more affordable and give people more options.
To buy and so there is a lot going on there.
We're in essence, taking what we learned in China.
Years ago.
How we scale to China in <unk>.
And bringing that.
To bear.
And.
Sure.
I don't have the exact market shares in front of me, but I think you would you would see that from a market share point of view that we.
<unk> grew around the world last quarter, despite an iPhone despite the.
The challenges that we had on the supply side.
And I wouldn't expect to have a.
Difference in those two markets.
Understood.
Follow up that out of shut ins.
Interesting theoretical question on pricing.
Assuming we get the Chip act passed and there's a whole bunch of manufacturing that happens in U S or other territories that are potentially somewhat more expensive than the ones you might be now.
Have you has the company done any studies to gauge the elasticity of demand relative to small price increases and new products.
We have experience in that.
Wouldn't necessarily draw the same conclusion.
You have in terms of the.
The cost of the product.
Aye.
We don't know at this point.
Exactly what that will be.
But.
We're all in in terms of being the largest customer.
For TSMC.
In Arizona are very proud to take part in that.
Okay.
That's what I would say about that.
Okay Fair enough. Thank you Tim.
Can we have the next question please.
Sure. Our next question comes from one from the line of Bank of America.
Hi, yes. Thank you.
Tim you've done a phenomenal job of driving consumer choice towards higher end products within your portfolio. How would you compare this cycle for iphones. If we were to segment the pro versus non pro models versus the cycles from from the past few years and do you think this move to higher asps as sustainable.
Or do you think could reverse in a tighter consumer spending environment and I have a follow up.
The pro has been.
<unk>.
2014 pro and the <unk> have done.
Extremely well up until the point, where we had a supply shortage and couldnt provide them.
Couldnt provide the total of the demand and so it's definitely a strong pro cycle.
I think theres, a number of reasons for that but the most important one is always the product.
And I think the innovations in the product speak for themselves.
And we feel.
Good about.
The product that we announced back in September and are happy to now be at a point, where we're shipping to the demand.
And Tim do you think that this move to sort of higher asps that has happened over the last few years is sustainable or could it put it sustained on this.
Tough macro environment that you've cited.
I wouldn't want to predict but what I would say that.
The the smartphone.
For us the iPhone.
Has become so integral into People's lives.
It contains there.
Their contacts and their health information in their banking information and they are smart home.
So many different parts of their lives their payment vehicle and.
For many people.
And so I think I think people are willing to two.
Really stretch to get the best they can they can afford in that category.
Okay, Great and Tim.
Clearly emphasized our focus on the importance of the installed base. If we think about the absolute rate of the installed base from 1 billion to $2 billion over seven years from a device standpoint.
How should we think about the penetration of services or the growth in paying customers on services.
Over that timeframe is that penetration rate, increasing or decreasing how fast is that growing relative to the growth of the overall installed base I want to say thank you Luca.
Yes of course, we keep track of that is really really important for us.
Over the last seven years as we double the installed base we've seen it.
A growing engagement of our customers on the platform that happens first of all by our customers transacting on the platform and then moving to paid accounts, so think to pay for some of the services.
That percentage of paid accounts tends to grow over time, we've seen it in developed markets, we see in emerging markets.
And that is due to some of the reasons that there was explaining earlier, including the fact that we've made it easier for our customers to get engaged on the platform. For example, we offer multiple payment methods.
In many countries.
And we've made it easier to explore for more services because we've added a lot of services on the platform over the last over the last seven years. So to your question of course Hyatt engagement means a.
The higher percentage of paid accounts over time.
Okay. Thank you Luca alright, thanks, <unk> can we have the next question. Please.
Our next question comes from Richard Kramer of.
Great Research LLC.
Operator, Richard can we just can we can move on to that Richard.
Okay.
Next we'll hear from Jim Suva of Citigroup.
And Jim Your line is open.
If you can release your mute function, we are unable to hear you.
Tim and Luca you both mentioned earlier on the Q&A, a little bit about India. I was wondering if we're now entering a situation of even more opportunity because we've exited COVID-19, we've exited countries with different COVID-19.
Criteria, we've also seen India build out.
Higher speed transmissions and your market share is tremendously underrepresented there and it appears with the supply chain you are looking at diversifying kind of operational risk not specific to any country, but just overall.
Now you look at potentially opening up stores and stuff I right that that's the way you look at it is it's even more prime for opportunity now than ever and once you start opening up stores. There you could just see a complete green shoots of adoptions or any additional commentary on your view on India is now we've navigated.
<unk> and supply chain and so many challenges over the past two years. Thank you gentlemen.
Jim we actually did fairly well through COVID-19.
And in India, and I'm, even more bullish now on the other side of it are hopefully on the other side of it.
And that's the reason why we are investing there with bringing retail there and bringing the online store there.
And.
Putting putting a significant amount of energy there I'm very bullish on India.
Thank you and then as my quick follow up you had mentioned that services not necessarily specific to any EBIT servicing overall were better than expected and of course supply chain was more challenging than expected. So what was the the bridge factor of services being better than expected on upside wasn't like.
Advertising, our apps or paid monthly subscriptions or what kind of things that really surprised you to the upside on services. Thank you it was <unk>.
Jimmy snooker.
Primarily this level of engagement that we saw.
Which then it reflects into the as you said the paid subscriptions.
We saw very good results in our cloud services business in payment services music was very strong.
So we had a number of categories that set new records all time records and ended it a bit better than we were expecting at the beginning of the quarter and so.
Tim mentioned it during I think his prepared remarks that we're.
When you look at it in constant currency, we grew services double digits and that was on top of that 24% increase a year ago. So it's very sustained growth that we're seeing.
Thank you so much and congratulations to you and all your teams.
Thanks, Jim can we have the next question please.
Our next question will come from Krish Shankar of Cowen <unk> Company.
Yes, hi, Thanks for taking my question for Tim or Luca you mentioned, how the macro does crofton and it had an impact and as consumers tighten their belt.
When you look across your hardware product and service businesses, where have you seen the biggest impact and then have you seen the least impact from the softening macro and then I had a quick follow up.
We think there were some impact.
Across the products and in services.
Probably the the.
Hello.
Ones that we saw the most impact on were Mac and Wearables.
You can see that in the end.
Those numbers and probably the least.
Would've been iPhone.
Got it got it very helpful. And then just a quick follow up on the mat.
Indices expecting decline in PC shipments. This year also how to think about the macro relative to kind of like the B C industry as a whole is expecting the shipments to endo is there any color you can give on that thank you very much.
The industry is.
Very challenged as you say it's.
The industry is contracting I think from from US, though is and I don't know how this year will play out so I don't want to predict the year, but over the long run we have a market that is a reasonable sized market a big market and we have low share.
<unk> <unk>.
And we have a competitive advantage with Apple silicon and so strategically.
I think we are well positioned in the market.
Albeit I think it will be a little rough in the short term.
Angela.
Thanks, Krish 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.
Number for the telephone replay is 806 65831035.
Please enter confirmation code six five for 1285, followed by the pound sign.
These replays will be available by approximately five PM Pacific time today.
Members of the press with additional questions can contact Josh Rosenstock at 40886 to 142 financial analysts can contact me with additional questions at 669 to $2 7240 to thank you again for joining us.
And once again this does conclude today's conference we do appreciate your participation.
[music].
Dan.
Can do for you today.
Yeah.
Yeah.
Yes.