Q3 2023 Apple Inc Earnings Call
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Good day and welcome to the Apple Q3 fiscal year 2023 earnings conference call. Today's call is being recorded at this time for opening remarks and introductions I would like.
I turn the call over to CRE Casey Vice President of Finance. Please go ahead.
Good afternoon, and thank you for joining US speaking first today is Apple CEO , Tim Cook and he'll be followed by CFO Luca Maestri. 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 the 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, which speak only as of the date they're made.
I'd now like to turn the call over to Tim for introductory remarks.
Thank you sorry, good afternoon, everyone and thanks for joining us.
Today, Apple is reporting revenue of $81 $8 billion for the June quarter better than our expectations. We continued to see strong results in emerging markets driven by robust sales of iPhone with June quarter total revenue Records in India, Indonesia, Mexico.
The Philippines, Poland, Saudi Arabia, Turkey, and the UAE.
We set June quarter records in a number of other countries as well, including France, the Netherlands and Austria.
And we set an all time revenue record in services driven by more than 1 billion paid subscriptions.
We continue to face an uneven macroeconomic environment, including nearly four percentage points of foreign exchange headwinds on.
On a constant currency basis, we grew compared to the prior year's quarter in aggregate and in the majority of markets we track.
We continue to manage deliberately and innovate relentlessly and we are driven by the sense of possibility those efforts in spire.
To that end before I turn to the quarter in more detail I want to take a moment to acknowledge the unprecedented innovations we were proud to announce at our worldwide developers conference.
In addition to extraordinary new Max and incredible updates to our software platforms, we had the chance to introduce the world to spatial computing.
We were so pleased to share the revolutionary Apple vision pro with the world a bold new product unlike anything else created before.
Triple digit pro is a Marvel of engineering built on decades of innovation only possible at Apple. It is the most advanced personal electronic device ever created and we've been thrilled by the reaction from press analysts developers and content creators who have had the chance to try it.
We can't wait to get it into customers' hands early next year.
Now, let me share more with you on our June quarter results beginning with iPhone.
IPhone revenue came in at $39 $7 billion for the quarter down 2% from the year ago quarters record performance.
On a constant currency basis, iPhone revenue grew and we had a June quarter record for switchers, reflecting the popularity of the iPhone lineup.
IPhone 14 customers continue to praise the exceptional battery life and a central health and safety features while iPhone 14, plus users are loving the new larger screen size.
And with dynamic island always on display and the most powerful camera system ever in an iPhone. The iPhone 14 pro lineup is our best ever.
Turning to Mac, we recorded $6 8 billion in revenue down 7% year over year. We are proud to have completed the transition of our entire Mac lineup to run exclusively on Apple silicon.
We are also excited to have introduced the new 15 inch Macbook air during the quarter, the world's best 15 inch laptop and one of the best Max we've ever made.
And we launched two new powerhouses in computing, Max studio with into Max and into Ultra and Mac pro with into ultra which are the most powerful Max we've ever made.
IPad revenue was $5 $8 billion for the June quarter down 20% year over year in part due to a difficult compare because of the timing of the iPad Air launched last year.
Customers are loving ipads versatility and exceptional value there was a great deal of excitement from creators when we brought final cut pro and logic pro to iPad. This spring.
And with the back to school season in full swing iPad has the power to help students tackle the toughest assignments.
Across Wearables home and accessories revenue was $8 $3 billion up 2% year over year and in line with our expectations packed with features to empower users to live a healthier lives Apple watch and Apple Watch Ultra continue to help people take the next step on their wellness journey.
<unk>.
As I mentioned earlier last quarter, we held our biggest and most exciting Ww D. C. Yeah. We were thrilled to welcome developers from across the globe to Apple Park, both in person and virtually and to share some stunning new announcements with the world.
In addition to Apple vision pro and the new Max that we introduce we had the chance to reveal some truly remarkable new innovations to our software platforms from exciting new features like live voicemail and standby and iOS 17 to new tools for users to work play and personal.
Lives their experience in macos Sonoma, an iPad or 17 to a fresh design, a new workout capabilities in Wacho as 10 Theres. So much coming later this year to empower users to get more out of their devices and we think theyre going to instantly loved these new features.
It was also an exciting quarter for services, where revenue reached $21 $2 billion and saw a sequential acceleration to an 8% year over year increase better than we expected. We set an all time revenue record for total services and in a number of categories, including video.
Apple care cloud and payment services.
Since we introduced Apple pay almost a decade ago customers had been loving how easy it is to make purchases online in apps and in stores. We're also pleased to see Apple card build on the success of Apple pay.
Designed with our users' financial health in mind, Apple card has become one of the most successful credit card programs in the U S with award winning customer satisfaction.
And this spring we introduced a new high yield savings account for Apple card customers, which has become incredibly popular with customers already making more than $10 billion in deposits.
Meanwhile, Apple TV plus continues to provide a spectacular showcase of imaginative storytelling.
Recently fans welcome New series like hijacking silo as well as returning fan favorites like foundation and the after party.
In the few years since its launch Apple TV plus has earned more than 1500 nominations and 370 wins that includes the 54 Emmy Award nominations across 13 titles that Apple TV plus received last month.
It's also been an exciting time for sports on Apple TV, plus soccer legend Lee Enel messy made his debut with major League soccer last month and fans all over the world tuned in with MLS season pass. We are excited about our MLS partnership and we're thrilled to see Messi suiting up with <unk>.
Our Miami.
And just in time for summer concert season, Apple Music launched New discovery features celebrating live music, including venue guides and Apple maps and set lists from tours of major artists.
These new features and others join our lineup of updates coming later this year to make services more powerful more useful and more fun than ever.
Everything we do is in service of our customers and retailers, where we bring the best of Apple <unk>.
During the quarter, we opened the Apple store online in Vietnam, and we're excited to connect with more customers there.
We also redesigned our first ever Apple store located in Tysons corner, Northern Virginia, with inclusive innovative and sustainable design enhancements.
We opened a beautiful new store beneath our new London headquarters and the historic Battersea power station.
And the performance of the stores, we opened in India, the spring exceeded our initial expectations.
With every product we create every feature we develop and every interaction we share with our customers we lead with the values we stand for.
We believe in creating technology that serves all of humanity, which is why accessibility has always been a core value that we embed in everything we do on.
On global accessibility awareness day, we unveil some extraordinary new tools for cognitive vision hearing and mobile accessibility that will be available later this year, including assist of access which distills apps to their most essential features and personal voice, which allows users to create.
Synthesize voiced it sounds just like them.
Building technology and service of our customers also means protecting their privacy, which we believe is a fundamental human right.
That's why we were pleased to announce major updates to Safari private browsing communications safety and Lockdown mode to further safeguard our users and as part of our efforts to build a better world, we announced that we've more than doubled our initial commitment to our racial equity and justice initiatives to more than 200.
We will.
<unk> to do our part to support education, economic empowerment, and criminal Justice reform work and while supporting efforts to advance equity an opportunity. We continue to build a culture of belonging at Apple and a workforce that reflects the communities we serve.
Through our environmental work, we're making strides in our commitment to leave the world better than we found it.
Last month, Apple joined with global nonprofit acumen, and a new effort to improve livelihoods in India through clean energy innovation, and we are as committed as ever to our Apple 2030 goal to be carbon neutral across our entire supply chain and the lifecycle of our products.
We've long held that education is the great equalizer.
With that in mind, we're expanding Apple learning coach of free professional learning program that teaches educators, how to get more out of Apple technology in the classroom.
To date, we welcome more than 1900 educators across the U S to the program by the end of the year, we will offer Apple learning coach in 12 more countries.
As we are connecting with teachers. We're also celebrating the graduations of students at our App developer academies around the world.
From Detroit to Naples to Riyadh and more we're excited to watch these talented developers embark on careers and coding and find ways to make a positive difference in their communities.
Apple remains a champion of innovation accompany fueled by boundless creativity, driven by a deep sense of mission and guided by the unshakable belief that a great idea can change the world.
Looking ahead, we will continue to manage for the long term always pushing the limits of what's possible and always putting the customer at the center of everything we do with that I'll turn it over to Luca.
Thank you Tim and good afternoon, everyone.
Revenue for the June quarter was $81 8 billion down 1% from last year and better than our expectations. Despite nearly four percentage points of negative impact from foreign exchange.
On a constant currency basis, our revenue grew year over year in total and in the majority of the markets we track.
We set June quarter records in both Europe , and greater China and continued to see strong performance across our emerging markets driven by iPhone.
Products revenue was $60 6 billion down 4% from last year, as we faced FX headwinds and an uneven macroeconomic environment.
However, our installed base reached an all time high across all geographic segments, driven by a June quarter record for iPhone switchers and high new to rates in Mac, iPad and watch coupled with very high levels of customer satisfaction and loyalty.
Our services revenue set an all time record of $21 2 billion up 8% year over year and grew double digits in constant currency.
Our performance was strong around the world as we reach all time services revenue Records in Americas, and Europe and June quarter Records in greater China, and rest of Asia Pacific.
Company gross margin was 44, 5% a record level for the June quarter, and up 20 basis points sequentially.
Driven by cost savings and favorable mix shift towards services, partially offset by a seasonal loss of leverage.
Products gross margin was 35, 4% down 130 basis points from last quarter due.
Due to seasonal loss of leverage and mix, partially offset by favorable costs.
Services gross margin was 75% decreasing 50 basis points sequentially.
Operating expenses of $13 4 billion were below the low end of the guidance range. We provided at the beginning of the quarter and decelerated from the March quarter.
We continue to take a deliberate approach in managing our spend with strong focus on innovation and new product development.
The results of these actions delivered net income of $19 9 billion diluted earnings per share of $1.26 up 5% versus last year and very strong operating cash flow of $26 4 billion.
Let me now provide more detail for each of our revenue categories.
IPhone revenue was $39 7 billion down 2% year over year, but grew on a constant currency basis.
We set revenue records in several markets around the world, including an all time record in India.
And June quarter Records in Latin America, the Middle East and Africa, Indonesia, The Philippines, Italy, the Netherlands, and the UK.
Our iPhone active installed base grew to a new all time high. Thanks, One June quarter record and switches. This is a testament to our extremely high levels of customer satisfaction, which 451 research recently measured a 98% for the iPhone 14 family in the U S.
Mac generated $6 8 billion in revenue down 7% year over year, we continue to invest in our Mac portfolio and this past quarter. We were pleased to complete the transition to apples silicon for the entire lineup. This transition as driven both strong upgrade activity and a high number of new customers in fact.
Almost half of Mac buyers during the quarter were new to the product. We also saw reported customer satisfaction of 96% for Mac in the U S.
IPad revenue was $5 8 billion down 20% year over year and in line with our expectations. These results were driven by a difficult compare against the full quarter impact of the iPad air launch in the prior year at the same time, we continue to attract a large number of new customers to the iPad installed base with over half of the capsule.
This will purchase ipads during the quarter being new to the product and the latest reports from 451 research indicate customer satisfaction of 96% in the U S.
Wearables home and accessories revenue was $8 3 billion up 2% year over year with a June quarter record in greater China and strong performance in several emerging markets. We continue to see Apple watch expand its reach with about two thirds of customers purchasing an apple watch during the quarter being new to the product and this is <unk>.
Bind with very high levels of customer satisfaction.
Which was recently reported a 98% in the United States.
Moving on to services, we reached a new all time revenue record of $21 2 billion with year over year growth accelerating sequentially to 8% and up double digits in constant currency. In addition to the all time Records Tim mentioned earlier.
We also had June quarter records for advertising App store and music.
We're very pleased with our performance in services, which is a direct reflection of our ecosystem strength.
First our installed base of over 2 billion active devices continues to grow at a nice space.
And establishes a solid foundation for the future expansion of our ecosystem.
Second we see increased customer engagement with our services, both our transacting accounts and paid accounts grew double digits year over year, each reaching a new all time high third our paid subscriptions showed strong growth.
This past quarter, we reached an important milestone in past 1 billion paid subscriptions across the services on our platform up 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.
From 'twenty, new games on Apple arcade, two brand new content on Apple TV plus to the launch of our high yield savings account with Apple card our customers are loving these enhanced offerings.
Turning to the enterprise market, our customers are leveraging Apple products every day to help improve productivity and attract talent Blackstone our global investment management firm is expanding its apple footprint from their corporate it iPhone fleet to now offering the Macbook air powered by M. Two two.
All of their corporate employees and portfolio companies Gilead, a leading biopharmaceutical company has deployed thousands of ipads globally to their sales team.
Over the last six months. They are also doubled their Mac user base by making Mac bouquet at available to more employees with a focus on user experience and strong security.
Let me now turn to our cash position and capital return program. We ended the quarter with over 166 billion in cash and marketable securities. We repaid $7 5 billion in maturing debt, while issuing $5 2 billion of new debt.
An increase in commercial paper by 2 billion, leaving us with total debt of 109 billion. As a result, net cash was 57 billion at the end of the quarter.
During the quarter, we returned over $24 billion to shareholders, including $3 8 billion in dividends and equivalents and 18 billion through open market repurchases of 103 million Apple shares. We continue to believe there is great value in our stock and maintain our target of reaching a net cash neutral position over time.
Yeah.
As we move ahead into the September quarter I'd like to review our outlook, which includes the types of forward looking information that's already referred to at the beginning of the call.
We expect our September quarter year over year revenue performance to be similar to the June quarter, assuming that the macroeconomic outlook doesn't worsen from where we are projecting today for the current quarter.
Foreign exchange will continue to be a headwind and we expect a negative year over year revenue impact of over two percentage points.
We expect iPhone and services year over year performance to accelerate from the June quarter.
So we expect our revenue for both Mac and iPad to declined by double digits year over year due to difficult compares particularly on the Mac.
For both products, we experienced supply disruptions from factory shutdowns in the June quarter, a year ago, and we're able to fulfill a significant pent up demand in the year ago September quarter.
We expect gross margin to be between 40, and 45%, we expect opex to be between $13 five and $13 7 billion.
We expect OA knee.
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 today, our board of directors has declared a cash dividend of <unk> 24 cents per share of common stock payable on August 17, 2023 to shareholders of record as of August 14 2023.
With that.
Let's open the call to questions.
Thank you Luca we ask you limit yourself to two questions. Operator may we have the first question. Please.
Okay.
Certainly and we'll go ahead and take our first question from Shannon Cross with Credit Suisse. Please go ahead.
Thank you very much and nice to speak with you.
Tim You mentioned actually Luca you mentioned that an uneven macro environment during the quarter several times on the call I'm wondering if you can talk on a geographic basis about some of the trends you're seeing in iPhone and specifically wondering how demand is trending within reach.
Shannon I'll answer it I didn't get the the end of your question.
Okay.
Yes.
Okay.
Let me answer the question.
The part that I could follow so on a geographic basis.
We've had great performance for iPhone in emerging markets.
We set.
June quarter records in many of the emerging markets we grew in total.
Double digits and.
That performance was strong across the board in emerging markets from China.
Where our performance improved from minus 3% to plus 8% in the June quarter, and we grew double digits in constant currency to many other areas around the world from India, where again, we set a June quarter record with very strong.
Performance there.
Indonesia Southeast Asia in general.
America Middle East.
And so it's been it's been really good there.
We.
Also as you can see from our geographic segments.
We had a.
<unk>.
<unk> acceleration of performance in the Americas, primarily in the United States.
We declined there because.
The smartphone market.
Has been.
And a decline.
For the last couple of quarters in a in the United States.
Thank you very much sorry about that I'm not sure if I cut off.
In terms of gross margin you were at high end of the range.
And you described you guided to 45% at the high end, which as you know I think higher than I remember in 20 years of covering yourself.
How should we think about puts and takes that gross margin and <unk>.
It seems like there is like a perfect storm of good things. So I guess, maybe if you can talk about how youre thinking about it more holistically. Thank you I think you remember correctly Shannon because the 44, 5% for the June quarter is an all time record for us in June .
We were up 20 basis points sequentially, it was driven by cost savings.
Our mix shift towards services, which obviously have company gross margins.
Partially offset by the seasonal loss of leverage.
We have a commodity environment that is favorable to us.
Our product mix is quite strong.
At this point.
And so with the exception of foreign exchange continues to be a drag and it was a significant drag on a year over year basis.
Yeah, we adding that in a good position right now we're in a good position for the June quarter and as I mentioned, we expect similar level of gross margins for the same reasons frankly for the September quarter.
Thank you very much.
Next question please.
Our next.
<unk> comes from <unk> Mohan of Bank of America. Please go ahead.
Yes. Thank you so much Luca can you just give us a little more color around the guidance. Your overall revenue performance you called out similar obviously you absorb the higher FX impact this quarter versus your guide and you also noted services acceleration. So just wondering.
When you think about that comment on iPhone acceleration is that on a reported basis is that constant currency basis and is there something that's changing in terms of.
Seasonality, perhaps for you.
It is causing a lot as much step up in product revenue as typical on a sequential basis and I will follow up yes.
<unk>.
So all our comments are in reported currency and I think constant currency in relation to the to the outlook.
And we said.
Acceleration sequentially for iPhone and for services.
But we also pointing out and this is where I think <unk>, you're referring to some seasonality issues. We also said that for <unk>.
Mac and iPad, we expect to decline double digits and the reason for that is that we have a very difficult compare versus last year.
Remember that a year ago in the June quarter, we had factory shutdowns.
For both Mac and iPad and so we were able to fill the pent up demand from those shutdowns during the September quarter. So an unusual level of activity that we had a year ago and so now obviously the compare is difficult. So we expect both.
IPad and Mac to be down double digits.
Which offset the acceleration that I mentioned for iPhone and services.
Okay. Thank you Luca and Tim I was wondering if you could update us on what percent of iphones or sold on some type of installment basis now versus full upfront payment on a global basis and maybe some thoughts on if you expect similar promotional activity from carriers, especially in the U S.
Seem to be grappling with a lot of cash flow issues.
<unk>. Thank you so much.
Once you take it from we've done a really good job over the last few years.
Affordability programs around the world.
Directly in our direct channel and with our partners.
Around the world.
The majority of iphones at this point are sold using some kind of a program.
Trade ins installments, some kind of financing.
And that percentage, which again, it's well over 50% is very similar across developed and emerging markets. We wanted to do more of that because we think it really helps reduce the affordability threshold for our products and we think it is also one of the reasons why our product mix.
<unk> has been.
Has been very strong during the last couple of cycles. So we will continue to push.
On that front.
Yeah.
Okay. Thank you Luca.
Thank you <unk> next question please.
Our next question is from global pellet with UBS. Please go ahead.
Great. Thanks, guys for taking my questions I just wanted to follow up on two points that both you, Tim and Tim and Luca made about growth and maybe commodities.
Just to be clear I know you are talking about an acceleration in iPhone, but the comp is about two point easier from FX. So I just want to understand is that on a like for like basis, excluding the currency improvement of about two points from the June quarter to the September quarter and from a commodity perspective, I know last quarter, you talked about buying a lot of inventory.
At favorable prices, which was incredibly smart strategy, where do you sit today and what sort of the timing of the duration of that commodity.
Sort of backlog that you have as we think about next quarter in the subsequent quarters, how far does that get you out into the future from this favorable cost dynamics. Thanks.
Let me start again, I, just want to be clear about that.
The guidance the outlook guidance that we provided we are referring entirely to reported numbers. So they take into account. The fact that we have a slight improvement in foreign exchange. So when I talk about similar performance I referred to our reported performance in the June quarter and then.
The reported performance in in the September quarter and again.
We expect to report on a reported basis, our iPhone performance to accelerate our services performance to accelerate and iPad and Mac to decline double digits.
On the commodity front as I mentioned the environment is favorable we always make sure that we take.
Take advantage of the opportunities that are available in the market and we will continue to do that going forward.
Okay any sense on how long that gives you a runway today based on what you currently have give us a sense for at least a short term tailwind.
I don't and I don't want to speculate past the September quarter, because thats, the horizon, where we provide guidance and I've said that the guidance for September is 44% to 45, which you know is historically very high and so obviously that reflects.
A favorable environment for us.
Thank you David Alright, Thanks, a lot guys.
We have the next question please.
Our next question is from Erik Woodring with Morgan Stanley . Please go.
Ahead.
Hey, guys. Thank you for taking my question I have two as well maybe if we just start kind.
Kind of Big picture.
I was wondering if you could just kind of share some incremental color on how you think the consumer is behaving today versus 90 days ago, and maybe how that difference by region, meaning are there any signs of consumer is incrementally more willing to spend on things like consumer electronics or is there still relative caution in the market are there any regions, where you're seeing more strength.
And the consumer and how sustainable do you think some of that strength or weakness could be based on some of the kpis to track and then I've a follow up thanks.
Yes, Hi, David It's Tim if you.
Step around the world.
We did exceptionally well in emerging markets last quarter.
And even even better on a on a constant currency basis, and so emerging markets where was the strength if you look at China.
In China, we went from a negative 3% in Q2 to plus eight in Q3, and so and in China, We had an acceleration.
If you look at the U S, which is in the obviously in the Americas segment and is the vast majority of what's in there. There was also a slight acceleration sequentially, although the Americas is still declining.
Declining somewhat year over year as you can see on the data sheet.
The primary reason for that is that it's a.
Challenging smartphone market in the U S. Currently.
And then in Europe , Europe saw a record.
Quarter.
For the June quarter a record.
And so.
Some really good really good.
Signs.
In most places in the world.
Awesome. Thank you for that color, Tim and then.
Maybe Luca a question for you you know I think it's been about three quarters, now where we've seen opex either grow below historical seasonality or come in below your expectations. I think this is the first time, we've seen R&D grow less than 10% year over year since fiscal two Q2 thousand seven so can you maybe just talk about some of the cost.
Youre, taking and as you look forward what are the indicators that you're really evaluating that would give you greater confidence and perhaps returning back to a more seasonal cadence of opex spending or is this just a new normal that we should be expecting that's it for me. Thank you so much but obviously, obviously, we will look at the environment and we.
Now that this has been.
And uncertain period.
The last few quarters, and so we decided to be deliberate in what we do in terms of controlling our spend in as many areas.
Across the company that we working on and we've been quite effective as slowing down the spend.
We slowed down also the hiring within the company in several areas.
And we very pleased with.
With our ability to to decelerate as some of the some of the expense growth taking into account.
The overall macro situation.
We will continue to manage.
Deliberately you can see that we.
We continue to grow our R&D costs faster than the rest of the company to SG&A is actually growing at a much slower pace because obviously, our focus continues to be innovation and product development and we will continue to do that.
Thank you Eric and we have the next question. Please.
Our next question is Michael <unk> with Goldman Sachs. Please go ahead.
Hey, good afternoon, I just have two questions as well first it was encouraging to see the services outperformance in the quarter up double digits on a FX neutral basis.
More services acceleration next quarter on a reported basis I was just wondering if you could just talk a little bit more about.
The key underlying drivers for the confidence and the services acceleration next quarter understand the FX seasonal debt.
But anything to call out as it relates to.
Things in Apple search ads, that's helping you, obviously, making a lot of investments in Apple TV plus between MLS in the Canal post deal.
So any thoughts there would be great. Thank you yes.
Yes, Michael.
Correct I mean, clearly we've seen an improvement in the June quarter, and we expect further improvement in the September quarter in June the performance was across the board, Tim and I mentioned, we set records really across the board we had all time records in.
In cloud in BDO, and Applecare and payments in June quarter Records in App store advertising amusing. So we saw improvement in all our our services services categories.
We think this situation will continue to improve as we go through September and Thats very positive because.
Not only good for the financial results, but obviously chose hi.
High level of engagement of our customers in the ecosystem, which is which is very important for us and it's really the sum of all the things that I mentioned in my.
In my prepared remarks, it goes from the fact that our installed base continues to grow so we've got a larger pool of customers to the fact that our customers are more engaged as we have more transacting accounts and paid accounts on the on the ecosystem and the subscriptions.
Subscriptions business is very healthy with growth of 150 million paid subscriptions just in the last 12 months.
Almost double to what we had three years ago and of course, we are providing more and more content.
To our users and so the combination of all of these things.
It gives us good confidence for September .
Great. Thank you very much.
And just as it related follow up it's about the hardware installed base and services <unk>.
I thought I was curious when you talked about the services' strength.
You talked about the 2 billion plus installed base.
You think about the opportunity to increase the services <unk> do you really think about it internally on a per active iPhone user basis or on a per device basis.
I'm, just curious where you think about whether you think there is an incremental opportunity for <unk>.
As users that have multiple devices do you really see a big services <unk> uplift.
In that respect thank you.
Know that.
Customers that on more than one device are typically more engaged in our ecosystem and so obviously.
They tend to also spend more.
On the services front I would say the biggest opportunities that we know that there is a lot of customers that we have that are very familiar with our ecosystem. They are engaged in the ecosystem.
Today.
They are using only the portion of the ecosystem that is free and so we think that by offering better content and more content over time, we're going to be able to attract more of them.
As paid customers.
Great. Thank you Luca.
Thank you Michael next question please.
Our next question.
<unk> <unk> with Evercore. Please go ahead.
Yep.
Thanks for your time I'll ask two as well I guess.
Maybe if you can talk about wearables a bit the growth over there at the in constant currency was fairly impressive at plus 6% you just touch on maybe what's driving that and then how do we think about the variables segment heading into the September quarter. I know you talked about a bunch of other ones, but how do we think about variables into September as well.
Sorry, I didn't get the.
What are you referring to.
Yes, sorry, I was hoping you could talk a bit about the variables segment because the growth of data was fairly impressive.
And then how do you think about it in September as well.
Yes.
On the Wearables front, we had.
A really good performance in.
In greater China, and Thats again, very important for us It was a June quarter record for greater China.
Very important for us because again it shows that the engagement with the ecosystem.
In a market that is so important for us like China continues to grow it means that this more and more customers that are owning more than the iPhone.
Also we continue to grow the installed base of the category very quickly because as I mentioned.
Two thirds of every buyer of Apple watch during the course of the June quarter was new to the product and so that is all additive.
To the to the installed base.
So.
It's just it's just great to see the airports continue to be a great success in the in the marketplace for us.
And so.
Things are moving in the right direction there.
I'm, a very large business for us.
Wearables home and accessories. The last 12 months, we've done $40 billion of business, which is nearly the size of a fortune 100 companies. So it has become very important and it's allowed us to diversify both our revenues and our earnings.
That's really helpful. And then if I could just follow up the Europe growth the growth in Europe at up 5% is fairly notable as well.
You have a few emerging market that you put in Europe , as well, but would love to understand what's happening in Europe , and if there's a way to think about sort of western Europe developed world versus emerging markets over there. Thank you yeah. It's been.
Very good.
Primarily on the emerging market side of Europe will include India, and the middle East and Central and Eastern Europe into the Europe segment.
As we mentioned at the beginning of the call. We had a number of markets that did very well like France, like Italy, the Netherlands, Austria. So it was.
It was a good quarter for Europe .
Thank you Amit can we on the next question. Please.
Okay.
Our next question is from harsh Kumar with Piper Sandler. Please go ahead.
Yeah, Hey, guys. Thanks for letting me ask a question I have one for Luca and then there are our mantra Tam So Luca for some time now for many quarters, you've had a currency headwind foreign exchange currency headwind, it's conceivable that as rates start to come down hopefully next year that the dollar weakens could you take us through the mechanism of how that will work.
On your revenues and for your costs.
So we.
We can't we try to hedge our foreign exchange exposures.
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Because we think it's the right approach for the company in terms of minimizing the volatility that necessarily happens.
From from the movements of.
Of currencies.
We cannot.
Effectively hedge every single exposure around the world because in some cases it is not possible in other cases, it is prohibitively expensive, but we tend to cover all the major currency payers that we have.
About 60% of our business is outside the United States. So it's a very very large and I would say very effective.
The hedging program.
And so.
We set up these hedges and they tend to rollover.
Over.
Very regularly and then we replace them with new hedges at the new spot rate. So.
The impact that we're going to have on revenue and costs will depend on where the spot rates are at different points in time.
And therefore because of the way the program works, thanks will be a bit of a lag in both directions.
As the.
Foreign exchange moves.
Overtime.
Understood very helpful and for Tim Tim Historically for the last many years.
Carriers in at least the U S, which I think is your largest market for iPhone have had programs to help folks upgrade.
Whether they give a cash rebate or you're bringing your on something like that I'm. Just curious as you get into your peak December quarter. If you are aware of these programs are in place.
And the reason why Im asking is I think earlier, you mentioned that more than 50% of your phones are sold through some kind of program I assume the numbers even higher in the U S.
I don't want to get into revealing specifics in the different carriers.
Generally speaking.
I would.
I think that it would be quite easy to find that promotion on a phone.
Provided you're hooking up to our service.
And either either switching services.
Carriers or upgrading.
Your phone at the same carrier I think both of those cases today you can find.
Promotions out there and I would expect that you'd be able to do that in the December timeframe as well.
Very well. Thank you. Thank you harsh can we have the next question. Please.
Our next question is from Aaron Rakers with Wells Fargo. Please go ahead.
Yes. Thank you for letting me ask let me letting me ask the question I have two as well. So first of all I just want to kind of ask and strategically as we think about.
The services growth and kind of the content expansion behind that I'm curious if you could help us maybe I appreciate what you've seen from our sporting a perspective in terms of the engagement with MLS.
The engagement with major League baseball and how strategically you are thinking about expansion in sports as a key driver of services growth going forward.
We're focused on original content as you know with TV plus and so we're all about giving great storytellers.
The venue to tell great stories.
And hopefully get us all to think a little deeper.
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<unk> is the ultimate original story.
And four MLS where we could not be happier with how the partnership is going it's clearly in the early days.
But we are.
Beating our expectation in terms of subscribers.
The fact that messy went to and or Miami.
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A bit and so we're we're very excited about it.
Yes.
And then as a quick follow up I'm just curious on update on you mentioned in your prepared remarks, the continued growth that you've seen in India I'm curious.
How we think about that market opportunity looking forward is there anything that you see evolving that could accelerate the opportunity for iPhone in that in that large mobile market.
We did hit a June quarter revenue record in India, and we grew strong double digits.
We also opened our first two retail stores during the quarter and it's of course, it's early going currently but theyre currently beating our expectation in terms of how theyre doing we continue to work on building out the channel.
And putting more.
Investment in our direct.
Two consumer offers as well.
So I think if you look at it.
The second largest smartphone market in the world.
And.
It's the.
So we ought to be doing really well there and we're really pleased with our growth there.
We are still we still have a very very modest and low share in the smartphone market and so I think that the.
A huge opportunity for us.
We're putting the.
All of our energies in making that occur.
Thank you Erin can we have the next question. Please.
Our next question comes from Sidney Ho with Deutsche Bank. Please go ahead.
Okay.
Thank you for taking my question.
I just wanted to ask about the AI side of things.
Chattahoochee on AIC is quite different than many of your peers at least you don't talk too much about that how much you're investing it maybe you can elaborate a little bit on that but related that how do you see your investment in this area turning into financial performance in the future is it mainly through faster upgrade cycle may be higher ESP.
Or are you thinking about maybe additional services that you can capitalize on that and then a follow up.
Okay.
If you take a step back we view AI and machine learning as core fundamental technologies that are integral to virtually every product that we build.
And so if you think about Ww DC in June we announced some features that will be coming in iOS 17, This fall like personal voice and log voicemail.
Previously, we had announced lifesaving features like fall detection and crash detection and ECG. None of these features that.
Just mentioned and many many more would be possible without AI and machine learning.
So it's absolutely critical to us and of course.
We've been doing research across a wide range of AI technologies, including generative AI for years.
We're going to continue investing and innovating and responsibly advancing our products with these technologies with the goal of enriching People's lives and so that's what it's all about for us.
As you know we tend to announce things as they come to market.
That's our MMO and I'd like to stick to that.
Okay. That's fair. Thank you maybe as a follow up is related to you talked about Ww DC.
You actually introduce efficient troll, there clearly a very big announcement and sit there how should we think about the revenue ramp related efficient coal.
Any catalyst that we should be thinking about that will drive an inflection of the product. Thank you.
Yes, there is enormous.
Excitement around the vision pro we're excited internally everybody that's been through the demos are blown away, whether youre talking about presser analysts or developers.
We are now shipping units to the developer community.
For them to begin working on their apps.
And we're looking forward to two shipping early next year and so we could not be more excited.
With that I'm using the product daily.
Yes.
And so we're not going to forecast revenues and so forth on the on the call today.
But we're very excited about it.
Thank you Sidney can we have the next question. Please.
Certainly we will take our last question from Krish Shankar with TD Cowen. Please go ahead.
Yes, hi, Thanks for taking my question I had two of them as well number one on iPhone or Tim you mentioned about the record number of switchers in the quarter I'm kind of curious how to think about.
Given the weak macro in coatesville consumer spending.
Excellent cycle for iPhone.
Similar longer shorter versus prior year and can you talk a little bit about the demand linearity of iPhone during the June quarter.
Hello.
Switchers, we're a very key part of our.
IPhone results for the quarter, we did set a record.
We set a record in greater China in particular.
And it was at the heart of our results there.
And we continue to try to convince more and more people to switch.
Because of our experience in the ecosystem.
And that we can offer them and so I think switching is a huge opportunity for us.
In terms of the upgrade cycle and so forth.
Very difficult to.
Estimate real time, what what is going on with the upgrade cycle.
I would say if you think about the iPhone results year over year, you have to think about.
The SC announcement in the year ago quarter, the iPhone SC announcement in the year ago quarter, and so that provides a bit of a headwind on the on the call.
But as as Luca said as he talked about.
How were viewing Q for the September quarter.
We see iPhone accelerating in Q4.
Got it very helpful. And then my final question is on the retail stores you, obviously have a very large retail footprint and many of his stores seem to have been open for over a year now how is the foot traffic there and how to think about sale of the retail trends in the June quarter and implications for the back half of this year.
The novelty basis are.
I'm, sorry are you talking about our retail stores.
Yes, yes, yes.
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The if.
If you look at retail it's a.
A key part of our go to market approach.
And it will be so key in such a competitive advantage with vision pro.
It will give us the opportunity to launch a new product and demo too many people in the stores and so it has many advantages in it and we continue to roll out more stores as you know, we just opened two in India last quarter.
There's still a lot of countries out there that don't have Apple stores that we would like to go into.
So we continue to see it.
A key part of our.
How we go to market and loved the experience that we can provide customers there.
Awesome. Thanks, a lot very helpful. Yes. Thank you. Thank you Chris.
A replay of today's call will be available for two weeks on Apple podcast.
A webcast of Apple Dot com slash investor and via telephone number for the telephone replay is 86658310 35. Please enter the confirmation code 255017, followed by the pound sign these replays will be available by <unk>.
Approximately five P M Pacific time today.
Members of the press with additional questions can contact Josh Rosenstock at 486 to one <unk>.
Financial analysts can contact me salary Casey with additional questions. At 408 970 43123 also has any Sandra Lee is on her maternity leave.
Thank you again for joining us.
Once again this does conclude today's conference we do appreciate your participation.
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