Q2 2023 Apple Inc Earnings Call
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The conference is now being recorded.
Good day and welcome to the Q2 fiscal year 'twenty earnings Conference call.
Today's call is being recorded.
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At this time for opening remarks, and introductions I would like to turn.
Or just to help me.
Turning to Raleigh director of Investor Relations.
Please go ahead.
Thank you good afternoon, and thank you for joining us.
Speaking first today is Apple CEO , Tim Cook and he'll be followed by CFO Luca My history.
After that we'll open the call to questions from analysts.
Please note that some of the information you'll hear during our discussion today will consist of forward looking statements, including without limitation those regarding revenue gross margin operating expenses other income and expense taxes capital allocation and future business outlook, including the potential.
Impact of macroeconomic conditions 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.
I'd now like to turn the call over to Tim for introductory remarks.
Thank you Sue Hassan Hey, good afternoon, everyone and thanks for joining us.
Today, we're reporting revenue of $94 $8 billion for the March quarter, which was better than our expectations.
We set an all time record for services and a March quarter record for iPhone, we were particularly pleased with the performance we saw in emerging markets and achieved all time records in Mexico, Indonesia, The Philippines, Saudi Arabia, Turkey, and the UAE as well as a null.
<unk> of March quarter records, including in Brazil, Malaysia, and India.
This result is a testament first and foremost to our teams around the world who are engaged every day and the work of bringing new innovations to life at.
It speaks to the incredible power of Apple products and services to enrich People's lives and indispensable ways.
And whether it's in the design lab in Cupertino or in one of the brand new retail stores in India I am constantly inspired by the way our people come together to make a real difference in the world.
During the March quarter, we continued to face foreign exchange headwinds, which had an impact of more than 500 basis points as well as ongoing challenges related to the macroeconomic environment.
Revenue was down 3% year over year as a result, while on a constant currency basis. We grew in total and in the vast majority of the markets we track.
Despite these challenges we continued to manage for the long term and to push the limits of what's possible always on behalf of the customers who depend on our products, whether it's students exploring new frontiers developers dreaming up their next big idea or artist taking their creativity to a whole new level.
Let me share how these results showed up across our lineup of products and services.
Let's start with iPhone, which set a new march quarter record with revenue of $51 $3 billion.
The iPhone 14, and 14, plus continue to delight users with their long lasting battery and advanced camera.
And our pro users continue to rave about the most powerful camera system ever in an iPhone.
This March we were excited to expand emergency Sos via satellite to six new countries, bringing this important safety feature to even more users.
We now offer this vital service in 12 countries and I'm Grateful for every note I receive from around the world about the life saving impact of our safety features.
Now, let's turn to Mac, which recorded $7 2 billion in revenue for the March quarter in line with our expectations as.
As we noted during our last call Mack faced a very difficult compare because of the incredibly successful rollout of our M. One chips throughout the Mac lineup last year and.
And like our other product lines Mack is facing some macroeconomic and foreign exchange headwinds as well.
That said the advancements we've made in power efficient performance continue to amaze. Our users are into Mac. Many customers are raving about the pro level powerhouse packed into an ultra compact design and users are marveling at the power and speed at the heart of every M. Two powered back.
Book Air and Macbook pro which allowed them to sustain even the most demanding workloads.
IPad revenue was $6 $7 billion, which was also in line with our expectations.
Similar to Mac iPad revenue performance was impacted by macroeconomic challenges foreign exchange headwinds and a difficult compare with last year. When we launched the <unk> powered iPad air.
Ipads versatility continues to be its greatest strength as we're helping students learn on the same family of devices are just used to create their next masterpiece.
Across Wearables home and accessories revenue was $8 $8 billion with its exceptional range of game changing health and safety features Apple watch becomes more and more indispensable everyday.
Apple watch ultra is attracting adventures athletes and everyday users with its breakthrough features built for endurance and exploration and with summer travel season. Soon heating up there is no better companion in the air or on the road then Airpods, the best and most popular headphones and the world.
Meanwhile, services set an all time record with $29 billion in revenue for the March quarter. We achieved all time revenue records across App store, Apple music Icloud and payment services and now with more than 975 million paid subscriptions, we're reaching.
Even more people with our lineup of services.
Apple TV plus continues to draw praise from customers in reviewers alike.
During the past quarter fans tuned into incredible new series like shrinking and the Big door Prize and got to welcome Ted last so back into their homes for a third season.
Movies like Tetris are captivating viewers with many more to come including Martin Scorsese's killers of the flower Moon later this year.
Three years since its launch Apple TV plus programming has been celebrated across the globe with over 1400, 50 nominations and more than 350 wins.
Recently, we were thrilled to cheer on the boy the mall, the Fox and the horse, which won an Academy award for Best animated short film.
The first season of our historic 10 year partnership with Major League soccer is well underway with MLS season pass we've created the ultimate destination for soccer fans offering subscribers the ability to watch every match with no blackouts and with baseball season in full swing Apple TV plus.
Scriber as can watch their favorite teams with a return of Friday night baseball.
This quarter, we launched Apple music classical a standalone app that gives something special to classical music lovers, Apple music classical packs the largest library of classical music on Earth into a thoughtful and intuitive design that strikes all the right notes.
Whether you are listing with Airpods or home pod the premium sound experience of Apple music classical will leave you with the feeling of being front row at the Symphony just behind the conductor.
In March we also launched Apple pay later designed with users' privacy and financial Health and mine Apple pay later allows users to split purchases into multiple payments with no interest or fees and.
And last month, we introduced Applecart savings accounts to give users even more value out of their daily cash Apple card benefit.
At Apple our customers are at the center of everything we do.
Nowhere is that more evident than retail where our teams are dedicated to sharing the best of Apple with our customers and we're constantly innovating to deliver exceptional experiences and meet our customers where they are.
In the U S. We launched shop with a specialist over video a new way for customers to learn about iPhone and find the one that's just right for them.
And as I noted earlier and a milestone for Apple. We just opened our first two apple stores in India in Mumbai and Delhi.
I was there to see it for myself and I couldnt have been more delighted by the excitement and enthusiasm of the customers developers creative and team members I got to spend time with.
I've had the chance to connect with customers and teams all around the world in recent months. So many people shared with me that they were fans of Apple not just because of the innovations we create but because of the values that guide us and that means a great deal to us.
We're constantly striving to make a positive difference in People's lives and be a force for progress.
We're investing in education to give students the skills they need to shape the future.
We're helping to create pathways of opportunity for communities of color through a racial equity and Justice initiative and everyday we're building, an even more inclusive and diverse apple rooted in our culture of belonging.
To better understand how our work intersects with our values look no further than what we're doing for the environment.
We just celebrated Earth day in April and during that month, Apple announced that its global manufacturing partners now support over 13 Gigawatts of renewable energy on nearly 30% increase in just the last year.
This translates to $17 4 million metric tons of avoided carbon emissions the equivalent of removing nearly $3 8 million cars from the road.
We're also investing up to an additional $200 million and our restore fun, which is designed to support innovative scalable nature based carbon removal projects with the goal of removing 1 million metric tons of carbon every year.
These are just the latest steps on our journey toward our 2030 goal to be carbon neutral across our supply chain and lifecycle of our devices.
At the same time, we are advancing renewable energy across our supply chain. We're also sourcing more recycled materials in our products.
Last month, we announced our plans to have all Apple designed batteries include 100% certified recycled cobalt by 2025.
And we remain committed to one day, using only recycled and renewable materials and our products.
We have a deep sense of mission here at Apple, We believe in the power of innovation to build a better world. We are determined to do our best work on behalf of our customers and to give them the tools that can enrich lives.
So we will manage for the long term just as we always have with our eyes to the horizon with limitless creativity and with a deep belief that we can achieve anything we put our minds to.
With that I'll turn it over to Luca.
Thank you Tim and good afternoon, everyone.
Revenue for the March quarter was $94 8 billion down 3% from last year and better than our expectations.
Foreign exchange had a negative impact of over five percentage points on our results in line with what we had expected.
On a constant currency basis, our revenue grew year over year in total and in the majority of the markets. We track. In addition to their records in emerging markets that Tim mentioned, we also set March quarter Records in Australia, Canada, Spain, and Switzerland, among others.
Products revenue was $73 9 billion down 5% from last year due.
Due to challenging compares on Mac and iPad.
IPhone, However reached a march quarter revenue record, thanks to very strong performance in emerging markets from South Asia, and India to Latin America, and the Middle East.
During the quarter, our installed base of active devices continue to grow at a nice pace.
So extremely high levels of customer satisfaction and loyalty and reached an all time high for all major product categories and geographic segments.
Our services set an all time revenue record of $20 9 billion up 5% year over year on top of growing 17% in the March quarter, a year ago. We.
We reached an all time services revenue records in greater China and March quarter Records in Americas, Europe , and rest of Asia Pacific.
Company gross margin was 44, 3% up 130 basis points from last quarter.
Driven by cost savings and favorable mix shift towards services.
Partially offset by leverage.
Products gross margin was 36, 7% decreasing 30 basis points sequentially due.
Due to seasonal loss of leverage and mix, partially offset by favorable costs.
Services gross margin was 71% up 20 basis points sequentially.
Operating expenses of $13 7 billion were at the low end of the guidance range. We provided at the beginning of the quarter and continued to decelerate from the December quarter. We are closely managing our spend by remained focus on long term growth with continued investment in innovation and product development.
Net income was $24 2 billion diluted earnings per share were $1.52 unchanged versus last year, and we generated very strong operating cash flow of $28 6 billion.
Let me now provide more details for each of our revenue categories.
IPhone revenue set a march quarter record of $51 3 billion up 2% year over year, despite significant foreign exchange headwinds and a challenging macroeconomic environment.
We said March quarter records in several developed and emerging markets with India, Indonesia, Turkey, and the UAE doubling on a year over year basis.
Our active installed base of iPhone grew to a new all time high and was up in all our geographic segments. We're very pleased by the results of the latest survey of U S. Consumers from 451 research, which measured customer satisfaction of 99% for the iPhone 14 family.
Mac revenue was $7 2 billion down 31% year over year and in line with our expectations. These results were driven by the challenging macroeconomic environment, coupled with a difficult compare against last year's launch of the completely re imagined M. One macbook pros.
Despite this the installed base of active Max reached an all time high across all geographic segments, and we continue to see strong upgrade that activity to apples silicon.
Also the latest survey of U S. Consumers from 451 research reported customer satisfaction of 96% for Mac.
IPad generated $6 7 billion in revenue down 13% year over year and in line with our expectations.
This performance was due to two key factors.
A tough compare against the launch of iPad air powered by the M. One chip in the year ago quarter and headwinds from the macroeconomic environment.
The iPad installed base reached a new all time high in all geographic segments.
Two exceptional customer loyalty and a high number of new customers in fact over half of the customers who purchase ipads during the quarter when you do the product.
Wearables home and accessories revenue was $8 8 billion down 1% year over year.
The category experienced the impact from the macroeconomic environment. However, we did said March quarter records, both in the U S and in greater China.
We continue to see strength in our watch installed base, which set a new all time record. Thanks for Betty high customer loyalty and Youtube rates nearly two thirds of customers purchasing an apple watch during the quarter when you do the product.
Moving to services, we reached a new all time revenue record of $20 9 billion.
In addition to the all time Records, Tim mentioned earlier, we said March quarter Records for advertising Applecare and video.
These records as we saw in recent quarters.
And services offerings, such as digital advertising and mobile gaming continued to be affected by the current macroeconomic environment.
Stepping back however, the continued growth in services is the reflection of our ecosystem strength and the positive momentum we're seeing across several key metrics.
First our growing installed base of over 2 billion active devices represents a great foundation for future expansion of our ecosystem. We continue to grow across every major product category and geographic segment, thanks to very high levels of customer loyalty and satisfaction.
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.
Third paid subscriptions showed strong growth, we now have more than 975 million paid subscriptions across the services on our platform.
$150 million during the last 12 months and nearly double the number of paid subscriptions, we had only three years ago.
And finally, we continue to improve the breadth and the quality of our current services offerings from new content on Apple TV plus two great new features available in Apple pay and Apple music, which we believe our customers will love.
Turning to the enterprise market, we see business customers continuing to invest in the Apple platform to drive higher employee productivity and satisfaction in.
In Brazil, <unk> group, the world's largest cosmetics franchisor.
Generally starting with iPhone to help employees manage operations across our network of retail stores franchisees and resellers as he continues to digitize its business, but the cardio has chosen to move all software development in house and adopted Mac as the standard device for all of their development teams.
Across the world.
In small business, we see an increasing number of customers relying on Apple hardware software and services to power their businesses forward from accepting payments on iPhone to tracking inventory on Mac or iPad to managing employee devices with Apple business Essentials as.
As we celebrate national small business week here in the U S. We are proud to continue supporting the small business community.
Let me now turn it to our cash position and capital return program.
We ended the quarter with over 166 billion in cash and marketable securities. We repaid $2 3 billion in maturing debt and increased commercial paper by about 300 million, leaving us with total debt of 110 billion. As a result, net cash was 57 billion at the end of the quarter.
During the March quarter, we returned over $23 billion to shareholders, including $3 7 billion in dividends and equivalents and $19 1 billion through open market repurchases of 129 million Apple shares.
Given the continued confidence we have in our business now and into the future today, Our board authorized an additional 90 billion for share repurchases.
As we maintain our goal of getting to a net cash neutral over time, we're also raising our dividend by 4% to <unk> 24 cents a share and we continue to plan for annual increases in the dividend going forward.
As we move ahead into the June quarter I'd like to review our outlook, which includes the types of forward looking information that's philosophy and you referred to at the beginning of the call.
We expect our June quarter year over year revenue performance to be similar to the March quarter, assuming that the macroeconomic outlook does not worsen from what we are projecting today for the current quarter.
Foreign exchange will continue to be a headwind and we expect a negative year over year impact of nearly four percentage points for services, we expect our June quarter year over year revenue growth to be similar to the March quarter, while continuing to face macroeconomic headwinds in areas such as digital advertising.
In mobile gaming.
We expect gross margin to be between 44 and 44, 5% we.
We expect opex to be between $13, six and $15 8 billion.
We expect <unk> to be around negative $250 million, excluding any potential impact from the mark to market of minority investments and our tax rate to be around 16%.
Finally, reflecting the dividend increase I mentioned earlier today, our board of directors has declared a cash dividend of <unk> 24 cents per share of common stock payable on May 18, 2023 to shareholders of record as of May 15, 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.
Secondly, there was the one take go ahead and take our first question from Eric <unk> of Morgan Stanley .
Hey, good afternoon, guys. Thank you so much for taking the questions.
Maybe if we start with you if we go back to the December quarter and shut down the production shutdowns around the time I think the question a lot of asking a lot of US were asking was how should we think about the deferral of demand versus destruction of demand March quarter was quite strong 2% year over year iPhone growth and so as we sit here.
In May how have you seen customers that werent able to purchase during the December quarter behave meaning are you seeing that they deferred purchases to March and June could they be deferring purchases to later in hopes of finding a new iPhone just how should maybe we think about the cadence of that and then I have a follow up thanks, yes.
Hi, Eric it's hard to quantify this but we do believe we did.
Recapture some amount of sales in the March quarter as.
As we did see the iPhone performance accelerate relative to December .
December quarter, the production levels for the whole quarter, where we wanted them to be so as supply was not an issue during Q2.
Okay perfect. Thank you for that color and then maybe to follow up.
In three or four quarters, now that you've mentioned emerging markets like India, and others and I imagine having yourself into new stores in the country. It is clearly in an important market for you. So maybe can you just talk about why you see India, such an important market and others. How you think about monetization trends in the country and specifically what you.
Have to do within the country to really ensure that India becomes maybe a more material mix of your business and that's it for me. Thanks, so much.
Yes, sure looking at the business in India, We did set a quarterly record and grew very strong double digits year over year. So it was quite a good quarter for us.
Taking a step back India is an incredibly exciting market.
It's a major focus for us.
I was just there.
And the dynamism in the market the vibrancy is unbelievable.
Over time, we've been expanding our operations there to serve more customers in.
Three years ago, we launched the Apple store online and then as you just mentioned we launched two stores.
A few weeks ago.
And they're off to a great start one in Mumbai and Delhi.
We've got a number of channel partners and the country as well that we are.
Partnering with and where we are.
We're very happy with how Thats going.
Overall, I couldnt be more delighted and excited by the enthusiasm I'm seeing for the brand they are.
There are a lot of people coming into the middle class and I really feel that India is at a tipping point and it's great to be there.
Other emerging markets.
Sure.
We had a stellar quarter in emerging markets overall as I had mentioned.
Record set in a number of different places.
Including Indonesia, and Mexico, the Philippines, Saudi Arabia, Turkey, UAE, and then quarterly records in Brazil, India, and Malaysia, and so it was a great quarter.
For emerging markets in general despite the headwinds of the currency.
Luca mentioned and so were putting efforts in a number of these markets and really see.
Particularly given our low share and the dynamics of the demographics et cetera.
A great opportunity for us in those markets.
Thanks, Eric can we have the next question please.
Our next question is from Mike <unk> of Goldman Sachs. Please go ahead.
Hey, good afternoon. Thank you very much for the question.
It is encouraging to hear about the record installed base across iPhone and across all devices.
It's been I think double digit growth over the last few years across the Axa devices I was just wondering.
That a good way to think about the installed base.
Growth going forward.
And then for the iPhone installed base specifically.
Was just wondering if you could provide a little bit of texture around how you think about the growth there whether regionally or by for smartphones versus switchers and then I have a quick follow up.
Yes, if you look at the installed base of active devices now overall its more than $2 billion. As you know we announced in January that we surpassed that and this quarter. Our Q2, rather we set new records across each of the geographic segments in each of the major product categories.
That's despite.
Declines in current quarter sales and in particular in Mac and iPad.
This is a huge asset for us and it's a testament to the overall customer satisfaction and engagement and loyalty of our customers.
So we view this as.
A major asset for us the iPhone base is well over 1 billion active devices.
We we see this as.
Upgrade rates in these sorts of things.
Change.
The quarter, depending upon macroeconomic but if.
If you back up and look at the installed base, we feel great about.
The size of it and the rate that its growing.
Great excellent and then it was.
Also encouraging to see the number of devices per iPhone user.
For you to grow.
Was just wondering if you could talk about the opportunity to continue to increase that.
Number of Apple devices per iPhone user and if you have any color around how the monetization per user.
May differ from those for lack of a better word super users versus those that may not be as deep into the ecosystem. Thanks.
We tried really hard to.
Designer products in such a way that they work seamlessly together.
And so whether that's the watch or the Mac and so that you can start working on one device and finish it on the other.
And so there are.
A good deal of people out there that have multiple apple devices.
This is a testament to the customer satisfaction.
And loyalty that we've been able to.
Get from the incredible design that our engineering teams do.
On our products.
Excellent. Thank you Tim.
Thanks, Michael Operator can we have the next question. Please.
Our next question is from Shannon Cross of Credit Suisse.
Okay. Thank you very much. Thank you for taking my question, Tim can you talk a bit about AI, obviously that wasn't the topic of the day it seems like the topic of the year.
Just how do you think about it through your products and services I know you use it in different ways.
But also if you can just give us any thoughts you have on generative AI.
And I don't know why you see it going not sure what you want to say on it but I'm really curious as to your take thank you. Yes. Thanks for the question Shannon.
As you know, we don't comment on product Roadmaps.
I do think it's very important to be deliberate and thoughtful in how you approach.
These things.
And there's a number of issues that needs to be sorted out.
<unk> talked about a number of different places, but the potential is certainly very interesting.
We've obviously made enormous progress integrating AI and machine learning throughout our ecosystem and weaved it into products and features for many years as you probably know.
You can see that in things like fall detection and crash detection and ECG. These things are not only great features they are saving people's lives out there and so it's it's.
Absolutely remarkable and so we are.
We view AI is huge.
And.
We will continue weaving it in our products on a on a very thoughtful basis.
Okay. Thank you and then can you talk a bit about your shift of manufacturing and diversification of manufacturing footprint.
I'm curious obviously you have a very tight network in China. So how is it going to move to some of these other regions are you seeing any impact from a margin perspective or just any any quick any thoughts you have on what you've seen as you've started to shift more and more.
Outside of China, whether it's growth or actual.
Production. Thank you.
Our supply chain is truly global.
We are investing all over the world we are investing in the U S. We're investing in a number of other other countries as well and so.
We make products everywhere, we will continue to invest everywhere.
And we will continue to look for ways to optimize the supply chain based on what we learn each and every day.
Weak and so forth.
To ensure that we can deliver the best products and services for our customers.
If you if you sort of step back and look at how.
<unk> performed over the last three years on the supply chain.
Despite this.
<unk>.
Alright, a horrible if you will between the pandemic and the chip shortages in <unk>.
Macro economic kind of factors.
The supply chain has been incredibly resilient.
And.
We feel good about what we are and what our plans are.
Thank you.
Thanks, Shannon operator can we have the next question. Please.
Our next question is from <unk> Mohan of Bank of America. Please go ahead.
Yes. Thank you Tim you had called out on December quarter earnings step Pro models were significantly constrained do you see a catch up on the pro models specifically.
In the March quarter, and was the mix better than typical and do you see that mix re normalizing here in the June quarter, and maybe you can comment on the channel inventory levels as well for iphones and I have a follow up.
Sure.
It's hard to quantify I want to see but we do believe we did recapture some amount of sales in the March quarter.
And.
Obviously, we had to set the channel at the right levels and we're very comfortable with.
With the channel inventory that we have on a forward basis.
So we do think there were some but it's difficult to quantify it.
Okay, Thanks, Tim and.
Tim as a follow up.
You've launched so many services around Apple pay most recently you mentioned buy now pay later or a high yield savings account, where do you see the expansion in the payments ecosystem over time and do you look at the payments ecosystem as a standalone revenue opportunity or is it more about making the devices, even given more inseparable from us. Thank you.
What we're trying to do with our payments work is that sort of like we've done on the watch where we're focused on helping people live a healthier day on.
Our financial products, we are helping people.
Have a better financial health.
And so things like the Apple card and the fact that it has no fees.
This is like.
Like the savings account, which has as you mentioned, it's very attractive yield.
So we're trying to help our users and.
These things, but these things have to stand on their own obviously.
But we're but we're very user focus and so we're listening to them at what things are provide them pinch points.
And orchestrate our roadmaps.
That buy now pay later.
<unk> is another one.
But we've just gotten.
Out of the chute, but on the savings account.
Specifically, we are very pleased with the initial response has.
<unk> been an incredible.
Thanks, Tim.
Thanks, Lindsay operator can we have the next question. Please.
Our next question is from David <unk> of UBS. Please go ahead.
Great. Thanks for taking my question, Tim I, just wanted to go back to maybe kind of dig into the re stocking of inventory in the channel versus what we're hearing from a demand perspective that appears to be a little bit softer in the March quarter from some of your larger carriers.
That exhibited relatively weak upgrade rates. So just wanted to kind of get a sense for where you're seeing demand signals today.
<unk>, how you were thinking about it maybe a month ago, even three months ago and is there sort of an acceleration in demand or any sort of signals that you might want to share with us at this point and then I have a follow up.
I don't want to go into to what we're seeing in Q3 other than the guidance.
Luca has given.
But for <unk>, but for Q2.
I think you're probably referencing primarily U S carriers.
And if you look at our.
Geographic.
Distribution of our performance.
It was lower in the Americas, which is primarily.
Predominantly be United States.
A part of that is I believe its macroeconomic apart.
There were.
More promotional activity in the year ago quarter.
And so I think I think thats, what youre seeing there.
The where our results.
We're really stellar during this quarter was really in the emerging markets.
And we couldnt be prouder of the results that we had there.
Great. That's helpful. And then just quickly on services are you seeing anything in terms of consumers behavior other than sort of the macro that you mentioned and tough comps on digital advertising and mobile gaming are you seeing users all the disparate services change in what they are using.
How they are using it and time spent with an Apple service now that were technically hopefully fully past COVID-19 with China almost fully reopened I'm just trying to get a sense for how user or consumer behavior has changed over the last three to six months.
Look as you said of course, we got the issue around them, the macroeconomic environment, particularly in advertising and mobile gaming, but I'd say that those areas.
The behavior of customers continues to be pretty consistent that we are doing particularly well obviously in some of the services that we've launched more recently like payments.
Where our growth rates are very strong.
The adoption of Apple pay and Apple card and now the new services that Tim mentioned.
And the adoption continues to increase cloud is an area that continues to grow very consistently.
Users want to store more photos and videos and more content on their devices and so they.
Our.
Cloud services.
And in general the model in the App store around paid subscriptions continues to grow very strongly I mentioned, we now have more than 975 million paid subscriptions on the platform.
And.
That's almost twice as much when we had only three years ago. So obviously the growth in subscriptions is very strong.
Great. Thanks, guys.
Alright, Thanks, David Operator can we have the next question. Please.
Our next question is from Sami Chatterji of Jpmorgan. Please go ahead.
Hi, Thanks for taking my questions I.
I guess, maybe if I can follow up on Davids question children's services.
Bosch deep endemic the growth rate that was more about sort of mid teens.
The growth rates to <unk>, even if I back out FX impact is more about low double digits. So one of the questions that we get often from investors and wanted to get your thoughts on it.
Even as the installed base growth seems to have accelerated.
Are these more cyclical drivers that are depressing growth at this point from returning to that level or do you see modem for rollout on the monetization that you have to need to do to get back to those growth levels and have a follow up please.
SME.
The areas, where we are seeing the impact on the macro environment as I mentioned is <unk>.
Digital advertising as you know obviously the macro environment.
It's not helping on that front.
And mobile gaming, where we've seen.
A bit of a slowdown.
Partly due to the macro environment, partly due to the fact that we had very elevated usage students during the COVID-19 yes.
But outside of those areas, we continue to see very healthy growth rates.
Okay, and maybe if I can just follow up on this is more of a macro question I don't know if Luca you didn't want to take this but.
Obviously, the macro is not.
Sort of helpful. At this point, but what are you sort of implying in terms of your guide as momentum for your products remains pretty stable youre actually guiding to modest uptake ex FX for the overall business.
What are you seeing in terms of customer spending trends.
Overall does it becomes even more sort of spin.
In terms of spending patterns.
You are sort of momentum just a function of share gains how should we think about sort of where the consumer is versus what your products are doing independent of that.
Part of it is what Tim was talking about we are having great momentum in emerging markets and those are markets, where our share is low gives us a great opportunity to.
To grow over time.
It also helps us with the growth of the installed base because you can imagine any places where.
With our market share is slow we tend to add a lot of switchers people that are new to the apple ecosystem that increases the installed base and over the.
Longer term.
It obviously improves our ability to monetize.
On services as well.
Thank you thanks for taking my questions.
Operator can we have the next question please.
Our next question is from Amit sorry anatomy of Evercore.
I have two as well I guess first off on gross margins for the June quarter, they seem to be holding up fairly well, especially given the fact that sales are going down on a sequential basis. So Luca I'm wondering if you can just touch on what's driving the strength in gross margins sequentially. It's offsetting the lack of leverage if you may and then I also noticed that the range of your gross margin.
This 50 basis points, it's typically 100.
Does that entail what does that mean.
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So.
You are right I mean, we are guiding to to add.
Stable level of gross margins at a very high level, we're very happy with the gross margins that were having.
This cycle.
<unk>.
For the first time in several quarters Foreign exchange, we expect foreign exchange to be flat on a sequential basis.
At the gross margin level.
Fortunately still a headwind at the revenue level, but at gross at <unk>.
Margin level sequentially, we expect foreign exchange to be a factor and so the seasonal loss of leverage that you you're referring to we expect to be offset by cost savings and so that should give us that level of margins.
You know you were asking about 50 basis points, we have guided to 50 basis points of a range before as well this year in particular.
Because of the 14th week in the during the December quarter.
We had a bit late in the.
In the calendar year, right and so we have a bit more visibility.
Around margins for that for the June quarter.
Got it that's helpful. And then I guess, Tim if I just think we'd go back to the India discussion a bit.
Perhaps you could just contrast, what you're seeing in India today versus what you saw in China on maybe a decade or so ago is that a reasonable ramped at the India would have or could it be different from the lessons you've seen in China.
I think each each country is different and has their own journey and.
So I hesitate to compare to March.
What I do see an IND.
As.
A lot of people entering the middle class and.
Im hopeful that we can convince some number of them.
To buy an iPhone.
And.
We will we will see how the works out but right now it's working out well.
Yes.
Thank you.
Thanks, Amit operator can we have the next question. Please.
Our next question is from Chris <unk> of Cowen.
Please go ahead, yes, hi, thanks for taking my question.
The first question is for Tim.
Tim you've probably been a consumer centric company, but it seems like the line is loading the iPhone iPad, new hardware products being useful corporate application.
The segment how much do you feel revenues today are coming from enterprises is consumer and does the Florida.
Corporate expense and factory outlet for iPhone, iPad Mac et cetera.
I had a follow up.
Internally, we have our estimates.
Or how much is enterprise versus consumer.
The enterprise business is growing.
We have been focusing a lot on B Y O D programs and there is more and more companies that are leaning into those and giving employees.
Ability to select.
Which is place to our benefit I believe because I think a lot of people want to use a market or an iPad at work.
And.
And so.
<unk>.
But we're certainly primarily a consumer company in terms of our revenues obviously.
Got it thanks for that and then just as a follow up obviously the other question on the India weekend opening I'm just kind of curious you also mentioned that you hope to convert a lot of folks.
Folks into iPhone debt.
Where do you think the biggest opportunity is it like primarily a hardware it looks like the iPhone iPad. We added both et cetera, do you think that is a.
So it was the opportune India longer term, thank you very much.
I think there is an opportunity across the board including in services.
Obviously, the <unk> are lower in India.
Or whether you're talking about <unk>.
TV movie streaming or our music <unk>.
<unk> are much lower than other regions, but if you look at it over a long.
Arc of time I think there is.
Good opportunity across the board.
Thanks, a lot.
Thanks, Chris Operator can we have the next question. Please.
Our next question is from Aaron <unk> of Wells Fargo.
Please go ahead.
Yes, thanks for taking the questions I guess my first.
Is that I'm going to go back to kind of the geographical.
Dynamics I'm curious as we all think about the reopening attributes of China, just how you would characterize the shaping of demand you.
You saw through the course of this last quarter and kind of how youre thinking about the impact of that reopening playing out over the next couple of quarters.
Yes, if you look at if you look at China our revenue.
Came in at.
Negative three for the quarter year over year, but we actually grew on a constant currency basis.
And we also accelerated as compared to the December quarter, which as you know had 14 week Senate and was.
Negative seven on a reported basis.
And.
And so we were.
Pleased with.
What we did with the acceleration that we saw with the reopening.
We'll see how we do this quarter, but if you look at the top selling smartphones in urban China.
<unk> saw a survey from Kantar are we have four out of the top five.
And I think in.
All of the third party data I've seen on the market itself in the smartphone space. We believe we gained share during Q2.
So so we feel good about it also China has a lot of.
Very good.
Metrics in terms of new buyers for example on the back about six out of 10 customers are buying the Mac for the first time same thing on iPad.
You look over at the watch it's more than three out of four customers are buying the watch for the first time and so the.
Hey.
Buyer metrics, if you will are.
We are very very good and our services business hit an all time record in China during the quarter.
Yeah very good.
Very helpful.
As a quick follow up I want to go back to Amit question on gross margin.
You talked about FX, the lessening impact there I'm just curious if when you look at your gross margin. Obviously, you got mix attributes kind of potentially continuing to drive that higher but I am curious in the current environment. How you would characterize the component pricing dynamics and what Youre thinking about in this current quarter's guidance.
Yes, the environment on the component side is favorable we're seeing component prices decline.
During the March quarter, and we expect the same.
During the June quarter.
Thank you.
Thank you Erin.
Peter can we have the next question please.
Our next question is from Sidney Ho of Deutsche Bank. Please go ahead.
Great. Thanks for taking my question.
I was hoping you can talk about the linearity of the March quarter, and perhaps the first four five weeks of the quarter. It looks like things are slowing down quite a bit elsewhere, but if my math is right your fiscal third quarter guidance imply product revenue will be little bit lower.
Seasonal aberration on a sequential basis any color would be helpful. Thanks.
Well, we said that.
We expect our performance.
During the June quarter at the revenue level to be similar.
So the one that.
We just reported for the March quarter.
Keep in mind this.
We always have differences in the launch timing across our products.
And also that especially over the last few years, we've seen I.
Certainly the amount of supply disruptions, sometimes it was COVID-19 related sometimes it was related to specific.
Component shortages just to remind you.
In the June quarter, a year ago, we had the full quarter impact of the launch for both of the iPhone SC and the iPad air which leads to a more difficult compare so I think it's important to keep those things in mind.
Okay.
Okay. That's helpful. Maybe as a quick follow up.
Talk about Apple pay later, how has the feedback been so far and how do you expect the adoption of.
Debt service over the next few quarters. Thank you.
The feedback for both Apple pay later and the savings products have both and really good and we think both of them help customers live.
Better healthier financial license.
We are very excited about the <unk>.
First days of both of them.
Okay. Thank you.
Thank you Sydney operator can we have the last question. Please.
Our next question is from harsh Kumar of Piper Sandler. Please go ahead.
Yeah, Hey, guys. Thanks for squeezing me in.
Tim yield.
Yield one of the largest chip companies youre not a component maker you actually use your own products, but.
Almost never here in any context of you guys being a beneficiary apple being a beneficiary for either the chip back money R&D or the R&D tax credit that's being proposed I was just curious if you are eligible for any of those and then I've got a follow up.
I don't see Apple participating in the chips Act directly.
We would be a beneficiary.
Indirectly because some of our partners.
We'd hopefully be recipients of it and therefore.
Put in.
Put in additional capacity and so.
On that sort of indirect basis, we would we would have a benefit.
Understood and thanks for the clarification and look I wanted to clarify your comments about June when Youre, saying June performance will be similar to March.
As you zoom on.
On a year on year basis, which would be June should be down about two something odd percent is that is that a fair way and then my question that I wanted to ask maybe another one for Tim was where do you think is the largest opportunity.
And your services offering and you're doing a great job you just set a record but surely there must be areas, where you where you think you can do better.
Yes.
To your question around the June the June performance on a year over year basis or comparable to the to the March quarter on a year over year basis.
Harsh I think we can do better on everything.
So I wouldn't I wouldn't.
Just point to one of them if you look at the.
Number of active devices.
And the growth of active devices I think our services.
Our underpenetrated.
A number of different ways and so.
The way that I look at it is there is opportunity.
And many of them.
Understood. Thanks, Tim.
Alright. Thank you harsh a replay of today's call will be available for two weeks on Apple podcast as a webcast on Apple Dot com slash investor and via telephone.
<unk> for the telephone replay is 806 65831035. Please enter confirmation code 490, 34362, 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 one one for two and financial analysts can contact me with additional questions at 408862519, Thanks again for joining us.
Yes.
Once again this does conclude today's conference we do appreciate your participation.
Okay.
The company is no longer being recorded.
<unk>.
Thank you Ginger.
Okay.
Thanks Keith.
Don.
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