Q3 2024 Apple Inc Earnings Call

Suhasini Chandramouli: Good afternoon, and welcome to the Apple Q3 Fiscal Year 2024 Earnings Conference Call. My name is Suhasini Chandramouli, Director of Investor Relations.

Suhasini Chandramouli: Good afternoon, and welcome to the Apple Q3 Fiscal Year 2024 Earnings Conference Call. My name is Suhasini Chandramouli, Director of Investor Relations.

Operator: Today's call is being recorded. 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 results of operations. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast.

Speaker Change: Today's call is being recorded. 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.

Speaker Change: 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 which speak only as of the date they are made. I'd now like to turn the call over to Tim for introductory remarks.

Suhasini Chandramouli: 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 are made. I'd now like to turn the call over to Tim for introductory remarks. Thank you, Suhasini.

Timothy Cook: Good afternoon, everyone, and thanks for joining the call. Today, Apple is reporting a new June quarter revenue record of $85.8 billion, up 5% from a year ago and better than we had expected. EPS grew double digits to $1.40 and achieved a record for the June quarter. We also set quarterly revenue records in more than two dozen countries and regions, including Canada, Mexico, France, Germany, the UK, India, Indonesia, the Philippines, and Thailand.

Tim: Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call.

Timothy Cook: And we set an all-time revenue record for services, which grew 14%. At our Worldwide Developers Conference, we were thrilled to unveil game-changing updates across our platforms, including Apple Intelligence. Apple Intelligence builds on years of innovation and investment in AI and machine learning. It will transform how users interact with technology, from writing tools to help you express yourself, to image playground, which gives you the ability to create fun images and communicate in new ways, to powerful tools for summarizing and prioritizing notifications.

Tim: Today, Apple is reporting a new June quarter revenue record of $85.8 billion, up 5% from a year ago, and better than we had expected.

Speaker Change: EPS grew double digits to $1.40 and achieved a record for the June quarter.

We also set quarterly revenue records in more than two dozen countries and regions, including Canada, Mexico, France, Germany, the U.K., India, Indonesia, the Philippines, and Thailand.

And we set an all-time revenue record in services, which grew 14%.

Speaker Change: At our Worldwide Developers Conference, we were thrilled to unveil game-changing updates across our platforms, including Apple Intelligence. Apple Intelligence builds on years of innovation and investment in AI and machine learning.

Timothy Cook: Siri also becomes more natural, more useful, and more personal than ever. Apple Intelligence is built on a foundation of privacy, both through on-device processing that does not collect users' data and through private cloud compute, a groundbreaking new approach to using the cloud while protecting users' information, powered by Apple Silicon.

Speaker Change: It will transform how users interact with technology, from writing tools to help you express yourself, to image playground, which gives you the ability to create fun images and communicate in new ways, to powerful tools for summarizing and prioritizing notifications.

Speaker Change: Siri also becomes more natural, more useful, and more personal than ever.

Speaker Change: Apple Intelligence is built on a foundation of privacy, both through on-device processing that does not collect users' data and through private cloud compute, a groundbreaking new approach to using the cloud while protecting users' information, powered by Apple Silicon.

Timothy Cook: We are also integrating ChatGPT into experiences within iPhone, Mac, and iPad, enabling users to draw on a broad base of world knowledge. We are very excited about Apple Intelligence, and we remain incredibly optimistic about the extraordinary possibilities of AI and its ability to enrich customers' lives. We will continue to make significant investments in this technology and dedicate ourselves to the innovation that will unlock its full potential. Recently, we've also been excited to bring Apple Vision Pro to more countries, giving customers the chance to discover the remarkable capabilities of this magical device.

Speaker Change: We are very excited about Apple Intelligence, and we remain incredibly optimistic about the extraordinary possibilities of AI and its ability to enrich customers' lives.

Speaker Change: We will continue to make significant investments in this technology and dedicate ourselves to the innovation that will unlock its full potential.

Speaker Change: Recently, we've also been excited to bring Apple Vision Pro to more countries, giving customers the chance to discover the remarkable capabilities of this magical device.

Timothy Cook: Vision Pro users are customizing their own workspaces, watching movies on 100-foot screens, and exploring entire worlds with just a pinch of their fingertips. With more than 2,500 native spatial apps and 1.5 million compatible apps for Vision OS, the developer community continues to pioneer stunning spatial experiences that are only possible with Vision Pro.

Speaker Change: Vision Pro users are customizing their own workspaces, watching movies on 100-foot screens, and exploring entire worlds with just a pinch of their fingertips.

Speaker Change: With more than 2,500 native spatial apps and one and a half million compatible apps for Vision OS, the developer community continues to pioneer stunning spatial experiences that are only possible with Vision Pro.

Timothy Cook: Last month, we announced that we're bringing some amazing new immersive content to Vision Pro, including new series, concerts, films, and more. And we've seen great interest for Vision Pro in the enterprise, where it can empower companies large and small to pursue their best ideas like never before. With each innovation, we're unlocking new ways of working, new ways of learning, and new ways of tapping into the unlimited promise of human potential. We do that across every product and every service.

Speaker Change: Last month, we announced that we're bringing some amazing new immersive content to Vision Pro, including new series, concerts, films, and more.

Speaker Change: And we've seen great interest for Vision Pro in the enterprise, where it can empower companies, large and small, to pursue their best ideas like never before.

Speaker Change: With each innovation, we're unlocking new ways of working, new ways of learning, and new ways of tapping into the unlimited promise of human potential. We're doing that across every product and every service.

Timothy Cook: Now let me share more detail on our June quarter results, beginning with iPhone. iPhone revenue was $39.3 billion, down 1% year-over-year. However, on a constant currency basis, we grew compared to last year. Customers continue to praise the iPhone 15 lineup for its incredible battery life, exceptional cameras, and unmatched power and performance.

Timothy Cook: And we are excited to bring incredible new features to the iPhone with iOS 18, making it more personal, capable, and intelligent than ever before. This update includes the biggest redesign of the Photos app, new customization options for the home screen, messages over satellite, and the introduction of Apple Intelligence. Apple Intelligence utilizes the power of our most advanced iPhones, the iPhone 15 Pro and Pro Max, offering a transformative set of capabilities. Mac revenue was $7 billion, up 2% from a year ago. Customers are loving the latest M3-powered 13- and 15-inch MacBook Air. With back-to-school season upon us, the MacBook Air is the perfect companion for students on campus.

Speaker Change: And we are excited to bring incredible new features to the iPhone with iOS 18, making it more personal, capable, and intelligent than ever before.

Speaker Change: This update includes the biggest redesign of the Photos app, new customization options for the home screen, messages over satellite, and the introduction of Apple Intelligence.

Speaker Change: Mac revenue was $7 billion, up 2% from a year ago.

Speaker Change: Customers are loving the latest M3-powered 13- and 15-inch MacBook Air.

Speaker Change: With back-to-school season upon us, MacBook Air is the perfect companion for students on campus. And small business owners, developers, and creatives of all kinds depend on Mac to do more than they ever could before.

Timothy Cook: And small business owners, developers, and creatives of all kinds depend on Macs to do more than they ever could before. Powered by Apple Silicon, with its neural engine and privacy built in at the chip level, Macs are simply the best personal computers for AI. And every Mac we've shipped with Apple Silicon since 2020 is capable of taking advantage of Apple Intelligence with macOS Sequoia. We also know the importance of security for our users and enterprises, so we continue to advance protections across our products.

Speaker Change: And every Mac we've shipped with Apple Silicon since 2020 is capable of taking advantage of Apple Intelligence with macOS Sequoia.

Speaker Change: We also know the importance of security for our users and enterprises, so we continue to advance protections across our products.

Timothy Cook: Turning to iPad, revenue was $7.2 billion, 24% higher year over year. During the quarter, we had an incredible launch where we unveiled the all-new 11- and 13-inch iPad Air, the perfect device for education, entertainment, and so much more. And with the new iPad Pro, we push the boundaries of power efficient performance with the remarkable M4 chip, the engine behind this incredibly thin device. By leveraging the latest in Apple Silicon, video editors and musicians can take advantage of the cutting-edge AI features in Final Cut Pro and Logic Pro.

Speaker Change: Turning to iPad, revenue was $7.2 billion, 24% higher year-over-year.

Timothy Cook: And we're very excited that iPad Pro and iPad Air models, powered by the M-series of Apple Silicon, will be able to utilize the powerful capabilities of Apple Intelligence. For wearables, home, and accessories, revenue was $8.1 billion, down 2% from a year ago. Apple Watch is empowering users to live a healthier day with a range of tools to take charge of their wellness journey. At the core of Apple Watch are powerful AI features that are helping users get help when they need it most, from regular heart rhythm notifications, to walking steadiness, to crash detection and fall detection.

Speaker Change: And we're very excited that iPad Pro and iPad Air models powered by the M-series of Apple Silicon will be able to utilize the powerful capabilities of Apple Intelligence.

Speaker Change: In wearables, home and accessories, revenue was $8.1 billion, down 2% from a year ago. Apple Watch is empowering users to live a healthier day with a range of tools to take charge of their wellness journeys.

Speaker Change: At the core of Apple Watch are powerful AI features that are helping users get help when they need it most, from irregular heart rhythm notifications, to walking steadiness, to crash detection and fall detection.

Timothy Cook: I've heard time and again how meaningful these features are for users and their loved ones, and their stories motivate us to keep pushing forward on this vital work. As I mentioned earlier, in services, we set an all-time revenue record of $24.2 billion, with paid subscriptions climbing to an all-time high. We achieve revenue records in the majority of the services categories, with all-time revenue records in advertising, cloud, and payment services. Apple TV Plus productions are delighting audiences on screens large and small.

Speaker Change: As I mentioned earlier, in services, we set an all-time revenue record of $24.2 billion with paid subscriptions climbing to an all-time high.

Speaker Change: We achieve revenue records in the majority of the services categories with all-time revenue records in advertising, cloud, and payment services.

Speaker Change: Apple TV Plus productions are delighting audiences on screens large and small.

Timothy Cook: We're sharing powerful works of imagination with series and movies like Presumed Innocent, the upcoming Disclaimer, and The Instigator, starring Matt Damon. And we can't wait for returning fan favorites like new seasons of The Morning Show, Slow Horses, and Severance.

Speaker Change: We're sharing powerful works of imagination with series and movies like Presumed Innocent, the upcoming Disclaimer.

Speaker Change: and The Instigator starring Matt Damon. And we can't wait for returning fan favorites with new seasons of The Morning Show, Slow Horses and Severance.

Timothy Cook: Apple TV Plus productions also continue to earn accolades, with nearly 2,300 nominations and 500 wins today. That includes 72 Emmy Award nominations across 16 programs, our best ever showing for the upcoming awards event. During the quarter, we also expanded tap-to-pay on iPhone to more markets, including Japan, Canada, Italy, and Germany, enabling more businesses to use the power of iPhone to accept contactless payment. And we announced new updates to our services coming this fall, including U.S. National Park hikes and custom walk routes and Apple Maps, the ability to pay with rewards using Apple Pay, collaborative listening with Apple Music, and a redesigned Apple Fitness Plus experience to help users make the most of our library of workouts and meditations.

Speaker Change: Apple TV Plus productions also continue to earn accolades with nearly 2,300 nominations and 500 wins today.

Speaker Change: During the quarter, we also expanded tap-to-pay on iPhone to more markets, including Japan, Canada, Italy, and Germany, enabling more businesses to use the power of iPhone to accept contactless payments.

Speaker Change: And we announce new updates to our services coming this fall, including U.S. National Park Hikes.

Speaker Change: the ability to pay with rewards using Apple Pay, collaborative listening with Apple Music, and a redesigned Apple Fitness Plus experience to help users make the most of our library of workouts and meditations.

Timothy Cook: Turning to retail, we continue to expand in emerging markets with our first ever location in Malaysia. Customers from all over the country came together with our team members to celebrate this special moment. Elsewhere in the world, our teams have been sharing the magic of Apple Vision Pro in demos that delight, inspire, and deeply move customers exploring the wonders of spatial computing for the first time.

Speaker Change: Turning to retail, we continue to expand in emerging markets with our first ever location in Malaysia. Customers from all over the country came together with our team members to celebrate this special moment.

Speaker Change: Elsewhere in the world, our teams have been sharing the magic of Apple Vision Pro in demos that delight, inspire, and deeply move customers exploring the wonders of spatial computing for the first time.

Timothy Cook: At the heart of all of our innovations are the values that guide everything we do. We fundamentally believe that the best technology is technology that works for everyone. And in honor of Global Accessibility Awareness Day, we introduced all new capabilities to give users more ways to take advantage of all our products can do. These include eye-tracking for users to control iPhone or iPad visually, music haptics to give those who are deaf or hard of hearing a tangible way to experience music, and vocal shortcuts that tie tasks to a user's voice.

Timothy Cook: And we are committed as ever to shipping products that offer the highest standards of privacy for our users. With everything we do, whether it's offering a browser like Safari that prevents third parties from tracking you across the internet or providing new features like the ability to lock and hide apps, we are determined to keep our users in control of their own data, and we are just as dedicated to ensuring the security of our users' data.

Speaker Change: And we are committed as ever to shipping products that offer the highest standards of privacy for our users.

Speaker Change: With everything we do, whether it's offering a browser like Safari that prevents third-parties from tracking you across the internet, or providing new features like the ability to lock and hide apps, we are determined to keep our users in control of their own data.

Speaker Change: and we are just as dedicated to ensuring the security of our users' data.

Timothy Cook: That's why we work to minimize the amount of data we collect and work to maximize how much is processed directly on people's devices, a foundational principle that is at the core of all we build, including Apple Intelligence. And we continue to make significant progress in the environment. We are proud to say that all of our data centers, including those that will run private cloud compute, operate on 100% renewable energy.

Speaker Change: That's why we work to minimize the amount of data we collect and work to maximize how much is processed directly on people's devices, a foundational principle that is at the core of all we build, including Apple Intelligence.

Timothy Cook: At Apple, we're constantly accelerating our pace of innovation. We are a company in relentless pursuit of big ideas. Time and again, we've seen how a spark of creativity can reach breakthrough velocity, reach across previously unexplored dimensions, and ultimately take flight in ways that can change the world.

Timothy Cook: It's why we're going to keep investing in meaningful innovation that enriches the lives of all of our customers. We have a busy time ahead of us, and I couldn't be more excited for all the amazing things yet to come. With that, I'll turn it over to Luca.

Speaker Change: It's why we're going to keep investing in the meaningful innovation that enriches the lives of all of our customers.

Speaker Change: We have a busy time ahead of us, and I couldn't be more excited for all the amazing things yet to come.

Luca Maestri: Thank you, Tim, and good afternoon, everyone. We're very pleased to report a new June quarter revenue record of $85.8 billion, up 5% year-over-year, despite 230 basis points of negative foreign exchange impact. We achieved growth in the vast majority of our markets with June quarter revenue records in the Americas, Europe, and rest of Asia Pacific. Products revenue was $61.6 billion, up 2% year-over-year, driven by the launch of the new iPad Pro and iPad Air.

Speaker Change: With that, I'll turn it over to Luca.

Luca Maestri: Thank you, Tim. And good afternoon, everyone. We're very pleased to report a new June quarter revenue record of $85.8 billion, up 5% year-over-year, despite 230 basis points of negative foreign exchange impact.

Luca Maestri: We achieved growth in the vast majority of our markets with June quarter revenue records in the Americas, Europe , and rest of Asia Pacific.

Luca Maestri: Products revenue was $61.6 billion, up 2% year-over-year, driven by the launch of the new iPad Pro and iPad Air.

Luca Maestri: Our installed base of active devices reached an all-time high across all products and geographic segments, thanks to our unmatched levels of customer satisfaction and loyalty and a large number of customers who are new to our product. Services revenue reached an all-time record of $24.2 billion, up 14% year-over-year, with an all-time record in developed markets and a June quarter record in emerging markets. Company gross margin was 46.3%, near the high end of our guidance range and down 30 basis points sequentially, driven by a different mix within products, which was partially offset by a favorable mixed shift toward services and cost savings.

Luca Maestri: Our installed base of active devices reach an all-time high across all products and geographic segments thanks to our unmatched levels of customer satisfaction and loyalty and a large number of customers who are new to our products.

Luca Maestri: Services revenue reached an all-time record of $24.2 billion, up 14% year-over-year, with an all-time record in developed markets and a June quarter record in emerging markets.

Luca Maestri: Company gross margin was 46.3% near the high end of our guidance range and down 30 basis points sequentially driven by a different mix within products which was partially offset by a favorable mix shift towards services and cost savings.

Luca Maestri: Products gross margin was 35.3%, down 130 basis points sequentially, primarily driven by mix, although partially offset by favorable costs. Services gross margin was 74%, down 60 basis points from last quarter. Operating expenses were $14.3 billion. We're at the low end of the guidance range we provided and up 7% year over year. Net income was $21.4 billion. Diluted EPS of $1.40 was up 11% year-over-year and set a June quarter record.

Luca Maestri: Products gross margin was 35.3% down 130 basis points sequentially, primarily driven by mix, partially offset by favorable costs.

Luca Maestri: Services gross margin was 74% down 60 basis points from last quarter.

Luca Maestri: Operating expenses of $14.3 billion. We are at the low end of the guidance range we provided and up 7% year-over-year.

Luca Maestri: And operating cash flow was very strong at $28.9 billion, also a June quarter record. Let me get into more detail about each of our revenue cuts. iPhone revenue was $39.3 billion, down 1% year-over-year, but it grew on a constant currency basis. We set June quarter records across several countries, including the UK, Spain, Poland, Mexico, Indonesia, and the Philippines, and the iPhone Active Install Base grew to a new all-time high in total and in every geographic segment.

Luca Maestri: Let me get into more detail for each of our revenue categories.

Speaker Change: We set June quarter records across several countries, including the UK, Spain, Poland, Mexico, Indonesia, and the Philippines.

Luca Maestri: During the June quarter, many iPhone models were among the top selling smartphones around the world. In fact, according to a survey from Kantar, iPhone was the top-selling model in the US, urban China, the UK, Germany, Australia, and Japan.

Luca Maestri: During the June quarter, many iPhone models were among the top selling smartphones around the world. In fact,

Luca Maestri: Customer satisfaction on the iPhone 15 family continues to be extremely high, with 451 Research measuring it at 98% in the US in their latest report. Mac generated $7 billion in revenue, up 2% year-over-year, driven by the MacBook Air powered by the M3 chip. We saw particularly strong performance in our emerging markets, with June quarter records for Mac in Latin America, India, and South Asia. The Mac install base reached an all-time high, with half of MacBook Air customers in the quarter being new to Mac.

Luca Maestri: Mac generated $7 billion in revenue, up 2% year-over-year, driven by the MacBook Air powered by the M3 chip.

Luca Maestri: We saw particularly strong performance in our emerging markets, with June quarter records for Mac in Latin America, India, and South Asia.

Luca Maestri: The Mac install base reached an all-time high, with half of MacBook Air customers in the quarter being new to Mac.

Luca Maestri: And customer satisfaction for Mac was recently reported at 96% in the U.S.; iPad revenue was $7.2 billion, up 24% year-over-year, driven by the launch of the new iPad Pro and iPad Air. Customers are loving the latest iPad lineup for its new design and display, unparalleled performance, AI capabilities, and much more. The iPad installed base has continued to grow and is at an all-time high, as half of the customers who purchased iPads during the quarter were new to the product.

Luca Maestri: iPad revenue was $7.2 billion, up 24% year-over-year, driven by the launch of the new iPad Pro and iPad Air. Customers are loving the latest iPad lineup for its new design and display, unparalleled performance, AI capabilities, and much more.

Luca Maestri: The iPad installed base has continued to grow and is at an all-time high.

Luca Maestri: As half of the customers who purchased iPads during the quarter were new to the product. Also customer satisfaction was recently measured at 97% in the US.

Luca Maestri: Also, customer satisfaction was recently measured at 97% in the U.S. Wearables, Home, and Accessories revenue was $8.1 billion, down 2% year-over-year, a sequential acceleration from the March quarter. Watch and AirPods continue to face a difficult comparison against prior year launches of the AirPods Pro second generation, the Watch SE, and the first Watch Out.

Luca Maestri: Wearables, Home, and Accessories revenue was $8.1 billion, dying 2% year-over-year.

Luca Maestri: a sequential acceleration from the March quarter. Watch and AirPods continue to face a difficult compare against prior year launches of the AirPods Pro 2nd generation, the Watch SE, and the first Watch Ultra.

Luca Maestri: Apple Watch continues to attract new customers, with almost two-thirds of customers purchasing an Apple Watch during the quarter being new to the product, sending the Apple Watch install base to a new all-time high. And the latest reports from 451 Research indicate a customer satisfaction of 97% for the Apple Watch in the U.S. In services, total revenue reached an all-time record of $24.2 billion, growing 14% year-over-year. We continue to have great momentum in services as the growth of our installed base of active devices sets a strong foundation for the future expansion of our ecosystem, and we see increased customer engagement with our services. Both transacting accounts and paid accounts reached new all-time highs, with paid accounts growing double digits year over year. Also, paid subscriptions showed strong double-digit growth.

Luca Maestri: Apple Watch continues to attract new customers, with almost two-thirds of customers purchasing an Apple Watch during the quarter being new to the product, sending the Apple Watch install base to a new all-time high.

Speaker Change: And the latest reports from 451 Research indicate a customer satisfaction of 97% for watch in the US.

Luca Maestri: In services, total revenue reached an all-time record of $24.2 billion, growing 14% year-over-year.

Luca Maestri: and we see increased customer engagement with our services offerings.

Luca Maestri: Both transacting accounts and paid accounts reach a new all-time high, with paid accounts growing double digits year over year.

Luca Maestri: We have well over 1 billion paid subscriptions across the services on our platform, more than double the number that we had only four years ago, and we're constantly focused on improving the breadth and quality of our service, from critically acclaimed new content on Apple TV+ to new games on Apple Arcade and the many latest features we previewed during WWDC for iCloud, Apple Pay, Apple Cash, Apple Music, and more. Turning to enterprise, we continue to see businesses leveraging our entire suite of products to drive productivity and creativity for their teams and customers.

Luca Maestri: Also, paid subscriptions showed strong double-digit growth. We have well over 1 billion paid subscriptions across the services on our platform, more than double the number that we had only four years ago.

Luca Maestri: and we're constantly focused on improving the breadth and quality of our services.

Luca Maestri: from critically acclaimed new content on Apple TV+, to new games on Apple Arcade, and the many latest features we previewed during WWDC for iCloud, Apple Pay, Apple Cash, Apple Music, and more.

Luca Maestri: USAA, a leading insurance and financial services company, recently expanded beyond their existing iPhone and iPad deployments to provide their employees with the latest MacBook Air, and American Express has continued to add to their fleet of over 10,000 Macs to enhance their employees' productivity, security, and collaboration.

Speaker Change: USAA, a leading insurance and financial services company, recently expanded beyond their existing iPhone and iPad deployments to provide their employees with the latest MacBook Air.

Luca Maestri: And American Express has continued to add to their fleet of over 10,000 Macs to enhance their employees' productivity, security, and collaboration.

Luca Maestri: We're also excited to see leading organizations, such as Boston Children's Hospital and Lufthansa, using Apple Vision Pro to build innovative spatial computing experiences to transform the training of their workforce. Now, let me turn to our cash position and capital return program. We ended the quarter with $153 billion in cash and marketable securities. We repaid $4.3 billion in maturing debt and increased commercial paper by $1 billion, leaving us with total debt of $101 billion. As a result, its net cash was $52 billion at the end of the quarter.

Speaker Change: Let me now turn to our cash position and capital return program.

Speaker Change: We ended the quarter with $153 billion in cash and marketable securities. We repaid $4.3 billion in maturing debt and increased commercial paper by $1 billion, leaving us with total debt of $101 billion.

Luca Maestri: During the quarter, we returned over $32 billion to shareholders, including $3.9 billion in dividends and equivalents and $26 billion through open market repurchases of 139 million Apple shares. As we move ahead into the September quarter, I'd like to review our outlook, which includes the types of forward-looking information that Suhasini referred to at the beginning of the call. The color we're providing today assumes that the macroeconomic outlook doesn't worsen from what we are projecting today for the current quarter. We expect foreign exchange to continue to be a headwind that has a negative impact on revenue of about 1.5 percentage points on a year-over-year basis.

Luca Maestri: We expect our September quarter total company revenue to grow year-over-year at a rate similar to the June quarter. We expect services revenue to grow double digits at a rate similar to what we reported in the first three quarters of this fiscal year. We expect gross margin to be between 45.5% and 46.5%. We expect OpEx to be between $14.2 and $14.4 billion. We expect OI&E to be around negative 50 million, excluding any potential impact from the mark-to-market of minority investments, and our tax rate to be around 16.5. Finally, today, our Board of Directors has declared a cash dividend of $0.25 per share of common stock payable on August 15, 2024 to shareholders of record as of August 12, 2024.

Speaker Change: Finally, today our Board of Directors has declared a cash dividend of $0.25 per share of common stock payable on August 15, 2024 to shareholders of record as of August 12, 2024. With that, let's open the call to questions.

Operator: 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?

Speaker Change: Thank you, Luca. We ask that you limit yourself to two questions. Operator, may we have the first question, please?

Operator: Certainly. We will go ahead and take our first question from Erik Woodring, with Morgan Stanley. Please go ahead.

Speaker Change: Certainly. We will go ahead and take our first question from Erik Woodring with Morgan Stanley . Please go ahead.

Timothy Cook: Great. Thank you very much for taking my question. Maybe, Tim, if we start with you, you know, I thought some of the color you provided before the call about iPhone 15 performing better than iPhone 14 was interesting. So, just with that context, can you maybe help us understand where you see iPhone replacement cycles today, what you think the size of the base of iPhones that are aged and likely to upgrade are, and what that translates to in potential pent-up demand as we enter a new iPhone cycle? And I have a follow-up. Thank you. Yes, hi Erik.

Eric Woodring: Great, thank you very much for taking my question. Maybe, Tim, if we start with you, you know, I thought some of the color you provided before the call about iPhone 15 performing better than the iPhone 14 was interesting. So, just with that context, can you maybe help us understand where you see

Timothy Cook: The install base hit an all-time high during the quarter, and so we were very happy about that. iPhone, in general, grew in constant currency, and the 15, as you point out, if you look at the same number of weeks of the 15 from launch and compare that to the 14, the 15, is doing better than the 14, and so that's kind of the state of where we currently are. In terms of upgrade rates, it's very difficult mid-cycle to call upgrade rates.

Tim Cook: Yes, hi, Erik. The install base hit an all-time high.

Speaker Change: during the quarter and so we were very happy about that.

Speaker Change: iPhone in general grew in constant currency and the 15 as you point out

Speaker Change: If you look at the same number of weeks of the 15 from launch and compare that to the 14,

Timothy Cook: I would just say that with Apple Intelligence, we are very excited about the level of value that we're going to provide to users, and we believe that that presents another reason for a compelling upgrade. Sales down 6% this quarter, 3% in constant currency, an improvement from last quarter on a tougher compare, you know, that came on the back of some iPhone discounting. So can you maybe just share some color on the Chinese market as a whole, how much you believe promotions helped in the quarter, how sustainable this improvement is, and if this performance really changes any of your approach to the Chinese market as we look forward? Thanks so much.

Speaker Change: We are very excited about the level of value that we're going to provide to users. And we believe that that presents another reason for a compelling upgrade.

Speaker Change: Okay, that's very helpful. Thanks, Tim.

Speaker Change: Second to that, can you maybe dig into the China dynamics a bit, sales down 6% this quarter, 3% in constant currency, an improvement from last quarter on a tougher compare, you know, that came on the back of some iPhone discounting, so can you maybe just share color on the China market as a whole, how much you believe promotions helped in the quarter, how sustainable this improvement is, and if this performance really changes.

Timothy Cook: Yeah, Erik, as you point out, we decreased by 6.5% year over year for the whole of greater China. And if you look at it on a constant currency basis, we declined by less than three. So over 50% of the decline year over year is currency related. That is an improvement from the first half of the fiscal year, and so we're happy to see the acceleration. If you look at iPhone in particular, for Greater China... The installed base set a record.

Speaker Change: Any of your approach to the China market as we look forward. Thanks so much. Yeah, Eric, as you point out, we decreased by 6.5% year-over-year for the whole of greater China.

Speaker Change: of the decline year over year is currency related. That is an improvement from the first half of the fiscal year, and so we're happy to see the acceleration. If you look at iPhone in particular for greater China,

Timothy Cook: We also in mainland China set a June quarter record for upgraders, and so that's a very strong signal. And in fact, the survey from Kantar this quarter showed that iPhones were the top three models in urban China.

Speaker Change: And so that that's a very strong signal and in in fact from Cantar, the survey from Cantar this quarter showed that iPhones were the top three models in urban China.

Timothy Cook: Also, if you look at, one of the things we look at is the 15 family compared to the 14 family for the same number of weeks, from launch. So this goes all the way back to September 23. If you look at that, the 15 is outperforming the 14. And so those are some of the color I would provide.

Speaker Change: Also, if you look at what one of the things we look at is the 15 family compared to the 14 family for the same number of weeks from launch. So this goes all the way back to the September.

Speaker Change: And so those are some of the color I would provide. In addition...

Timothy Cook: In addition, one of the things that we're very focused on is the number of new customers buying our products. And so if you look at this for Mac and iPad, in mainland China, the majority of customers are buying for the first time, buying that product for the first time, and the watch, the vast, vast majority of people are buying the product for the first time. And during the quarter, I should also say that iPad returned to growth in greater China as it did around the world. And so we continue to be confident in the long-term opportunities in China. I don't know how every chapter of the book reads, but we're very confident in the long term. Great, thanks so much.

Speaker Change: One of the things that we're very focused on is the level of new customers buying our products. And so if you look at this on the Mac and iPad,

Speaker Change: In mainland China, the majority of customers buying or buying for the first time, buying that product for the first time, and the watch

Speaker Change: The vast, vast majority of people are buying the product for the first time.

Operator: Yeah. Thank you, Erik. Operator, may we have the next question, please? Our next question is from Ben Reitzes with Mellius. Please go ahead. Hey, thanks a lot.

Speaker Change: Our next question is from Ben Reitzes with Mellius. Please go ahead.

Operator: Appreciate it. Hey, Tim, you know, now that you've launched or announced Apple Intelligence, do you have any ideas on how it may impact services? Would it?

Ben Wrightsey: Hey, thanks a lot. Appreciate it. Hey, Tim, you know, now that you've launched or announced Apple Intelligence,

Timothy Cook: Do you feel like it'll accelerate your services business, augment it? And, you know, maybe folks will need to buy more storage and some other things? How are you thinking about it as a catalyst for services in the next year? Thanks.

Ben Wrightsey: Do you have any ideas on how it may impact services? Do you feel like it'll accelerate your services business, augment it, and maybe folks will need to buy more storage and some other things? How are you thinking about it as a catalyst for services into next year? And I have a follow-up. Thanks.

Timothy Cook: You know, we started the rollout of Apple Intelligence this week with developers. So some of the features are out there as of Monday, and we couldn't be more excited about getting them out there. Obviously, this will enable developers to take their apps to the next level, and so we're taking this first step in getting the beta out there, and we can't wait to see what kind of amazing things they do with it. Okay, thanks.

Speaker Change: You know, we started the rollout of Apple Intelligence this week with developers.

Speaker Change: So, some of the features are out there as of Monday, and we couldn't be more excited about getting them out there. Obviously, this will enable developers to take their apps to the next level.

Speaker Change: And so we're taking this first step in getting the beta out there, and we can't wait to see what kind of amazing things they do with it.

Luca Maestri: And, and then, Luca, with regard to gross margin, you know, there's been some component price inflation and mix. Do you mind just giving us a little more color on how you're managing that sequentially and, and, you know, how you feel about the current component environment as an impact on margins? Thanks.

Speaker Change: Okay, thanks. And then, Luca, with regard to gross margin, you know, it's been...

Luca Maestri: There's been some component price inflation and mix. Do you mind just giving us a little more color on how you're managing that sequentially and how you feel about the current component environment as an impact on margins? Thanks.

Luca Maestri: Sure, Ben, I think I'll give you a bit of the walk for the June quarter and then get into the outlook that we provided for the September quarter. At the total company level, we've reported 46.3%. It is down 30 basis points sequentially, and it was really driven by a different mix within products. Of course, you know, we launched a very important product like the iPad during the course of the quarter, but we had an offset from a shift in mixed world services, and we got some good cost savings.

Luca Maestri: Sure, Ben. I think I'll give you a bit of the walk.

Luca Maestri: for the June quarter and then get into the outlook that we provided for the September quarter.

Speaker Change: At the total company level, we've reported 46.3%.

Luca Maestri: It is down 30 basis points sequentially, and it was really driven by a different mix within products. Of course, you know, we launched very important products like the iPad during the course of the quarter. But we had...

Speaker Change: and Offset.

Speaker Change: from a shift in mix towards services and we got some good cost savings and so when you look at it on an

Luca Maestri: And so when you look at it on a year-over-year basis, we are up significantly on the margin front. And keep in mind that foreign exchange continues to be a bit of a headwind for us as we go into the September quarter. We are guiding $45.5 to $46.5, which is kind of within the guidance that we provided last quarter. Again, similar dynamics.

Speaker Change: And keep in mind that foreign exchange continues to be a bit of a headwind for us.

Speaker Change: As we go into the September quarter...

Speaker Change: We are guiding 45.5% to 46.5% which is kind of within the guidance that we provided last quarter.

Luca Maestri: We expect a slightly different mix. We expect foreign exchange to have sort of a minimal impact sequentially, although a more significant impact on a year-over-year basis. On the commodity side, I think that's what you're referring to. Yes, we've seen some, some increases on the memory front, but the rest of the commodities, we see a continuous decline. So in general, we feel we're well positioned. And as you know, these are very high levels of gross margin for us, and we're pleased where we are. Hey, thanks a lot.

Luca Maestri: Again, similar dynamics, we expect.

Luca Maestri: a slightly different mix

Luca Maestri: We expect foreign exchange to have a minimal impact sequentially, although a more significant impact.

Luca Maestri: on a year-over-year basis. On the commodities side, I think that's what you're referring to, yes, we've seen some...

Speaker Change: Some increases on the memory front, but the rest of the commodities...

Speaker Change: we see a continuous decline so in general

Speaker Change: We feel we're well positioned and, as you know well, these are very high levels of gross margin for us and we're pleased where we are.

Operator: Thank you, Ben. Operator, may we have the next question, please? Our next question is from Mike Ng with Goldman Sachs. Please go ahead. Hi, good afternoon.

Speaker Change: Hey, thanks a lot.

Operator: I just have two questions. First, I was wondering if you could talk about whether or not you've seen a shift in demand for the iPhone 15 Pro or Pro Max models since WWDC that could potentially foreshadow consumer demand for Apple Intelligence-enabled phones. We, you know... We just announced the sort of the requirements at the system and the silicon level in June. And so we had very limited time during the quarter.

Speaker Change: Hi, good afternoon. I just have two questions.

Speaker Change: I was wondering if you could talk about whether or not you've seen a shift in demand for iPhone 15 Pro or Pro Max models since WWDC that could potentially foreshadow consumer demand for Apple Intelligence-enabled phones.

Speaker Change: We, you know...

Speaker Change: We just announced the sort of the requirements at the system and the silicon level in June and so we had very limited time during the quarter so it's really it's really too early to tell.

Timothy Cook: So it's really, it's really too early to tell. That's fair. And then, you know, with the focus on upgrade or potential over the next several years, I was just wondering if you could talk about what you're expecting from the U.S. promotional environment from your channel partners, whether that's U.S. wireless carriers, given the importance of device sales for those partners during an upgrade cycle, or any retail support on what could be a very strong smartphone upgrade period.

Timothy Cook: You know, we are very excited about Apple Intelligence and what it brings, and it's another compelling reason for an upgrade. I'd leave the promotional question for the carriers themselves to answer, but I believe it will be a very key time for and a compelling upgrade. Thank you, Tim. Thanks, Mike.

Speaker Change: Question for the carriers themselves to answer, but I believe it will be a very key time for and a compelling upgrade cycle.

Timothy Cook: Operator, can we have the next question, please? Our next question is from Amit Daryanani with Evercore. Please go ahead. Good afternoon, everyone, and to you as well.

Speaker Change: Thank you, Tim. Yeah.

Speaker Change: Our next question is from Amit Daryanani with Evercore. Please go ahead.

Timothy Cook: You know, I guess, Tim, maybe back to the Apple Intelligence dynamic: there's clearly a lot of excitement from consumers around what Apple Intelligence could mean for them. Can you just touch on, do you think the intent is to launch all the Apple Intelligence features at the same time for consumers, or do you think they end up getting staggered a bit? And if they are staggered, do you think it impacts how consumers come out and buy the next generation iPhone?

Speaker Change: Good afternoon, everyone, and to you as well.

Timothy Cook: The rollout, as we mentioned in June, We've actually started with developers this week. We started with some features of Apple Intelligence, not the complete suite. There are other features, like languages beyond U.S. English, that will happen over the course of the year. And ChatGPT will be integrated by the end of the calendar year. And so, yes, so it is a staggered law. Got it. And then you know your services growth rates have been extremely impressive for several quarters and seems like it's accelerated recently. Can you just touch on, you know, when you look at this double-digit growth, how much of that do you think is coming from the install-based growth versus, you know, better Yes, Amit, it's Luca.

Luca Maestri: It's a combination of a number of factors. The installed base growth is very important, of course, because we have a larger pool of customers that use the ecosystem and use our services. We are seeing, and we've seen this consistently for many, many quarters now, we see continued growth in the level of engagement that our customers have with our ecosystem. We have more transacting accounts every quarter, so more people are using the ecosystem, both the free elements of the ecosystem and the paid elements.

Speaker Change: We have more transacting accounts every quarter, so more people using the ecosystem both the three elements of the ecosystem and they paid elements.

Luca Maestri: We see paid accounts growing double digits, and we've seen that for many, many quarters now. We look at our paid subscriptions on our platform, and they're growing strong double digits as well. So obviously, the growing level of engagement helps us, both from an R2 standpoint and just a volume standpoint. Obviously, as you've seen over the last several years, we launch new services over time, and we've launched many new services fairly recently. Obviously, our payments business is relatively new.

Speaker Change: We see paid accounts growing double digits and we've seen that for many many quarters now we look at our paid subscriptions on our platform and they are growing strong double digits as well so obviously.

Speaker Change: The growing level of engagement helps us.

Speaker Change: Both from an IPO standpoint, and just the volume standpoint.

Speaker Change: <unk> as you've seen over the last several years.

Speaker Change: We launched new services over time.

Speaker Change: And we've launched many new services are fairly recently, obviously, our payments business is relatively new.

Speaker Change: Apple TV Plas Apple arcade.

Luca Maestri: Apple TV+, Apple Arcade, Fitness+, so many other services we've added. And so we're providing more and more opportunities for our customers to interact with the ecosystem. And we believe we're doing a very good job at improving the quality of these services and improving the amount of content that we make available. We continue to make significant investments in TV+, on Apple Arcade. We're launching new shows, new games all the time.

Speaker Change: Fitness Plas so many other services, we've added and so we provide the more and more opportunities.

Speaker Change: To put our customers to interact with the ecosystem.

Speaker Change: And and we believe we are doing also very good job at improving the quality of these services and improving the amount of content that we make available and we continue to make significant investments on the TV glass on Apple arcade, we launching new shows new games, all the time and I think you will continue to see.

Luca Maestri: And I think you will continue to see that as we go forward. We're very, very happy with the 14% growth that we had this quarter because, particularly if you look at the performance that we had in services a year ago, the comparisons for us tend to get a bit more challenging in the second half of our fiscal year. But in spite of that, we delivered a level of growth that was better than what we were expecting at the beginning of the quarter. Thanks, Amit.

Speaker Change: As we go forward with very very happy with the 14% growth that we had this quarter because particularly if you look at the performance that we had in services a year ago. The compares for us tend to get a bit more challenging in the second half of our fiscal year, but in spite of that we deliver a level of growth.

Speaker Change: It was better than what we were expecting at the beginning of the quarter.

Speaker Change: Thanks, Amit operator, we'll take the next question please.

Operator: Operator, we'll take the next question, please. Our next question is from Wamsi Mohan with Bank of America. Please go ahead. Yes, thank you so much.

Lumpy: Our next question is from lumpy.

<unk> Mellon: <unk> Mellon with Bank of America. Please go ahead.

Operator: Tim, you announced Apple Intelligence, but you also announced partnerships with OpenAI and presumably more coming down the road. How should investors think about the monetization models around these partnerships where the CapEx investments are clearly being made by these potential partners, but you're obviously, they're leveraging your distribution to your very attractive installed base? So in the long term, do you see the Apple Intelligence part, the services growth from Apple Intelligence, being the larger contributor over time, or do you see these partnerships becoming a larger contributor over time?

Speaker Change: Yes. Thank you so much.

Lumpy: Tim You announced Apple intelligence, but you also announced partnerships with open AI and presumably more coming down the road how should investors think about the monetization models around these these partnerships where the capex investments are currently being made by these potential partners, but you are at.

Lumpy: Obviously.

Speaker Change: We're leveraging your distribution to your very attractive install base. So.

Speaker Change: In the long term do you see the Apple intelligence.

Speaker Change: Part of the services growth from Apple intelligence.

Speaker Change: Being the largest contributor over time or do you see these partnerships, becoming a larger contributor over time and I will follow up.

Speaker Change: Yes.

Operator: And I will follow up. I think, you know, the way that I look at it is that Apple intelligence is the on-device processing and the private cloud compute, and a lot of that will be things with personal contact and then for world knowledge. We are integrating with ChatGPT initially, and that will be focused on world knowledge, as I said. And so the monetization model, I don't want to get into the terms of the commercial agreements because they're confidential between the parties.

Speaker Change: The way I look at it as that.

Speaker Change: Apple intelligence.

Speaker Change: As the on device processing and the private cloud compute.

Speaker Change: And.

Speaker Change: A lot of that will be things with a personal contacts.

Speaker Change: And then for World knowledge.

Speaker Change: We are integrating with chat GPT initial.

Speaker Change: Initially.

Speaker Change: And.

Speaker Change: That will be focused on.

Speaker Change: World knowledge as I said.

Speaker Change: And so the monetization model I don't want to get into the terms of the commercial agreements because they are confidential between.

Speaker Change: Between the parties, but I see.

Speaker Change: Both aspects as being.

Speaker Change: Very important to people want both.

Speaker Change: Okay.

Speaker Change: Okay. Thanks, Tim Yeah as.

Timothy Cook: But I see both aspects as being very important. People want both, discussion again. If I look at calendar 23, you had, on average, a 150 basis points increase in product gross margins on a year-on-year basis. In 2024, so far, we've been more flat year-on-year.

Luka: As a follow up maybe for Luka.

Speaker Change: Just stepping back to the gross margin discussion again, if I look at calendar 'twenty. Three you had an average of 150 basis points increase in product gross margins on a year on year basis.

Speaker Change: In 2024, so far would be more flat year on year. When we think about that is the incremental headwind that was FX headwinds throughout the last several years. So ex FX are there other incremental headwinds that are either temporary or structural in nature that are perhaps limiting further upside too.

Luca Maestri: When we think about that, are the incremental headwinds, I mean, there have been FX headwinds throughout the last several years, so XFX. Are there other incremental headwinds that are either temporary or structural in nature that are perhaps limiting further upside to what are obviously very strong gross margins? Thank you. Yeah, of course, as you said, the foreign exchange continues to be, this is incremental on a year-on-year basis, and it's one of those things that is outside of our control. We try to hedge our exposures, but it is what it is. We know that when the dollar is strong, our gross margins are affected.

Speaker Change: What are obviously very strong gross margins. Thank you.

Speaker Change: Of course as you said.

Speaker Change: Foreign exchange continues to be that this is incremental on a year over year basis, and it's one of those things that is outside of our control and we try to hedge our exposures, but it is what it is we know that when the dollar is strong.

Luca Maestri: The other element that I think it's always important to keep in mind is that [inaudible] has an impact on gross margins. And so we need to pay attention to that. Of course, we just launched an iPad, and that is one of the factors. But we want all our products to be very successful in the marketplace. And that's why we always look at gross margin dollars as a first order of priority, and gross margin percentage tends to follow from that. The other factor that obviously has an impact, a significant impact, is the state of the commodity markets, which tend to go in cycles.

Luca Maestri: Our gross margins are affected.

Speaker Change: The other element that I think it's always important to keep in mind is that.

Speaker Change: Within the products business.

Speaker Change: Our products have different margin profiles and depending on their relative success in the marketplace. Our products gross margin tends to move and so the mix of our products.

Speaker Change: Is.

Speaker Change: As an impact on gross margins right and so we need to pay attention to that of course, we just launched an iPad and that is.

Speaker Change: As one of the factors.

Speaker Change: But we want all of our products will be very successful.

Speaker Change: In the marketplace and that's why we always look at gross margin dollars as the first order of priority in gross margin percentage tends to follow.

Speaker Change: From that the other factor that obviously has an impact a significant impact is the state of the commodity markets and they tend to go in cycles.

Speaker Change: And so we'll see how that.

Luca Maestri: And so we'll see how that plays out over time. But in general, we feel good about the level of gross margins that we have for our products business. We think we're in a good position there. Thanks, Wamsi.

Speaker Change: Plays out over time.

Speaker Change: In general we feel good about the level of gross margins that we have.

Speaker Change: For our products business.

Speaker Change: And we think that in a good position there.

Luca Maestri: Thanks Luca.

Speaker Change: Operator can we have the next question please.

Luca Maestri: Our next question is from Chris Thank you.

Operator: Operator, can we have the next question, please? Our next question is from Krish Sankar with T.D. Cohen. Please go ahead. Hi, thanks for taking my question and congrats on the strong whistle. The first one for Luca or Tim. We keep hearing about this increasing silicon content for AI-edge devices. And also, I think Luca, you spoke about increasing commodity costs. So I'm curious how to think about margin for these new AI devices.

Chris: TD Cowen. Please go ahead.

Chris: Yes, hi, Thanks for taking my question and congrats on the strong list of the first one for Luca Tim.

Chris: Keep hearing about the increasing silicon content for AI edge devices.

Chris: And also I think Luke you spoke about increasing commodity costs. So I'm curious how to think about margin for these new AI devices and didn't do any of these Apple intelligence features need more <unk> than what we have to date and then I had a quick follow up.

Luca Maestri: And Tim, do any of these Apple intelligent features need more hardware updates than what we have today? And then I have a quick follow-up. Maybe I'll take the second one first and then pass it over to Luca.

Speaker Change: Maybe I'll take the second one first and then pass it over to Luca.

Timothy Cook: In terms of the requirements to run Apple Intelligence, there are system requirements, and there are silicon requirements. And so from an iPhone point of view, the iPhone 15 Pro and Pro Max will run Apple Intelligence, and the successor products, obviously. If you look at the Mac, it starts with the M series of silicon that started in 2020, and the iPad is the same. And so it starts with the N-series of silicon. And so there are system requirements and silicon requirements that go with each of those.

Speaker Change: In terms of the requirements to run Apple intelligence they are.

Speaker Change: There are system requirements and there are silicon requirements and so from an iPhone point of view.

Speaker Change: B, the iPhone 15 pro and pro Macs will run Apple intelligence.

Speaker Change: The successor products Auto story.

Speaker Change: If you look at the Mac.

Speaker Change: It starts with the M series of Silicon.

Speaker Change: That started in 2020.

Speaker Change: The iPad is the is the same and so it starts with the M series of Silicon.

Speaker Change: And so there are system requirements and.

Speaker Change: And silicon requirements.

Speaker Change: That go with each of those.

Luca Maestri: And from a cross margin standpoint, as you know, we don't provide any color past the current quarter. And we just provide guidance for the quarter from 45 and a half to 46 and a half. It is essentially broadly in line with what we reported for the June quarter. So we take it quarter by quarter, and we will report. As the time goes by... Got it.

Timothy Cook: And from a <unk>.

Speaker Change: Gross margin standpoint, as you know, we don't provide any color past the current quarter and we just provided guidance for the for the quarter of 45, 5% to $46 five it is essentially broadly in line with.

Speaker Change: We reported for the June quarter, So we take it quarter by quarter and we will we will report.

Speaker Change: At the time goes by.

Ken: Got it very helpful. And then a quick follow up with Ken.

Timothy Cook: Very helpful. And then a quick follow-up for Tim. We also see many other consumer discretionary and luxury brands talk about a weak China. And I think, Tim, you said half the weakness was effects-related. I'm curious, the other half of the weakness, was it more China macro-related, or do you think it is kind of like specific to Apple with domestic competitors? Well, certainly, the competitive environment there is the most competitive in the world.

Speaker Change: Thanks for the color on China, We also see many other consumer discretionary and luxury brands talk about India, China, and I think Jim you said of the because of the FX related I'm curious the other half of the weakness a little bit more China macro related or do you think that is kind of like specific deal Apple with domestic company does.

Speaker Change: Any other color you could give would be very helpful. Thank you very much.

Speaker Change: Certainly the competitive environment. There is the most competitive in the world I've said that before and that remains to be the case.

Timothy Cook: You know, I've said that before, and that remains to be the case. The macro-economic factors have been in the press, too, but I'm not an expert on those.

Speaker Change: There the macro.

Speaker Change: Economic factors had been in the press two and I'm not an expert on those I can only tell you what we're seeing.

Timothy Cook: I can only tell you what we're seeing, and we were pleased that the business showed improvement from the first half of the year. Thanks, Ken. Yeah. Thank you, Krish.

Speaker Change: And.

Speaker Change: We were we were pleased that the business showed improvement from the first half of the year.

Ken: Thanks, Ken.

Speaker Change: Thank you Krish operator can we have the next question. Please.

Operator: Operator, can we have the next question, please? Our next question is from David Vogt with UBS. Please go ahead. Great, two, if I may also.

Ken: Our next question is from David.

David: UBS. Please go ahead.

Operator: Tim, first one for you. I know it's early days, and you talked about developers just getting their hands on Apple IntelliJ. When you think about the categories that are currently in the App Store and kind of what you think app developers could do with this new technology, what's your instinct say in terms of, are these going to be iterative applications to currently available applications? Is there any sort of category that you think lends itself more naturally to Apple Intelligence? Is it just games?

David: Great two if I may also Tim first one for you I know, it's early days and you talked about the developers just getting their hands on Apple intelligence.

David: When you think about the categories that are currently in the App store and kind of what you think app developers could do with this new technology.

Speaker Change: Your instinct say in terms of R&D is going to be integrated applications too.

Speaker Change: Only available applications is there any sort of category that you think is lends itself more naturally to Apple intelligence as it gains is it more creative I'm, just trying to get a sense for how youre thinking about it and then I have a follow up for Luca. Thanks.

Timothy Cook: Is it more creative? I'm just trying to get a sense for how you're thinking about it. And then I have a follow-up question for Luca. Thanks. If you look at how we've deployed Apple Intelligence or are deploying Apple Intelligence, we've really thought about it in pretty much all of the apps that you use every day. And so we think about it from notes to mail to messages and all the rest. And so there's been a deep level of thinking about how it affects those apps.

Speaker Change: If you look at how we've deployed Apple intelligence are deploying Apple intelligence, we've really thought about it.

Speaker Change: Pretty much all of the apps that you use every day and so we've thought about it from notes to mail to messages and all the rest and so there has been.

David: A deep level of thinking about how it affects those apps and thats going to surface.

Timothy Cook: And that's going to surface it, expose Apple Intelligence in a way that is natural to the user and in a way that will, I think, get them very excited about it and use it. Similarly, I think developers will do that on a broad basis with their apps as well. And so I think it's profound. And, you know, we'll see what the developers do, but we're very excited to get the initial seed out there this week and see what they do. I think it will be amazing.

David: Surface Apple intelligence in a way that is natural to the to the user in a way that will I think get.

David: Getting them very excited about it and get usage. Similarly, I think the developers will do well, we'll do that on a broad basis with their apps as well and so I think it's profound.

Ken: And.

Ken: We'll we'll see what the developers do but we're very excited too.

Speaker Change: Get the initial seed out there.

Ken: This week.

Timothy Cook: See what they do.

Timothy Cook: I think it will be amazing.

Timothy Cook: Yeah, no, that's helpful. I appreciate it. And Luca, just maybe, I know you didn't give a full rundown of product categories in your prepared remarks, but if I kind of take your comments at face value, I guess what I'm trying to think about for the next quarter, it sounds like, with services being relatively strong and FX easing a little bit, you're effectively saying that product revenue in the September quarter is going to basically be flat with the September quarter of last year And so I'm just trying to get a sense for what are the puts and takes in that sort of outlook, particularly as you have Apple Intelligence hopefully stoking the fire for demand going forward. Thanks.

Ken: Yes, yes.

Speaker Change: Yes, no. That's helpful. I appreciate it and look at just maybe I know you didn't give a full rundown of product categories. In your prepared remarks, but if I kind of take your comments at face value I guess, what I'm trying to think about is for the next quarter.

Speaker Change: It sounds like it services being relatively strong in FX easing a little bit you're effectively saying that product revenue in the September quarter is going to basically be flat with the September quarter of last year ahead of a product launch and so I'm just trying to get a sense for what are the puts and takes in that sort of outlook, particularly as you have Apple intelligence hopefully Stoke the fire.

Speaker Change: For demand going forward. Thanks.

Luca Maestri: Well, we have, you know, provided, let me repeat what we provided. We think that we're going to be growing total company revenue at a rate that is similar to what we reported. So the plus 5%, right?

Speaker Change: We have provided.

Luca Maestri: So let me repeat what we provided.

Speaker Change: We think that we're going to be growing total company revenue at a rate that is similar to what we reported so that plus 5% right.

Speaker Change: In spite of the fact that we're going to have some foreign exchange headwinds when we said about 150 basis points in the December quarter.

Luca Maestri: In spite of the fact that we're going to have some foreign exchange headwinds, we said about 150 basis points in the December quarter, and we said that we would grow services double digits at a rate that is similar to what we've reported for the first three quarters of the fiscal year. We are not going into the other categories, I think. There's a lot of good math that you can do from what we've given you here. Uh, keep in mind on the Mac that we will have a challenging comparison.

Speaker Change: And we said that we will grow services double digits at a rate that is similar to what we've reported for the first three quarters of the.

Luca Maestri: Of the fiscal year, we are now going into into the other categories I think.

Speaker Change: Because there's a lot of good math that you can do from what.

Luca Maestri: We've given giving you here.

Speaker Change: Keep in mind.

Luca Maestri: On the Mac that we will have a challenging compare.

Luca Maestri: From a year ago, given the fact that we launched and we had the full quarter impact of the launch of the MacBook Air 15-inch a year ago and also on the iPad, we reported 24% growth in the June quarter. Clearly, we had the benefit from the launch in the June quarter of the new products, the iPad Air and the iPad Pro. So important to keep that in mind on a sequential basis.

Luca Maestri: A year ago.

Luca Maestri: Given the fact that we.

Luca Maestri: Launch and we had the full quarter impact of the launch of the macro Caf <unk>.

Luca Maestri: Let it go and also on the iPad, we reported 24% growth in the in the June quarter.

Ken: Clearly we had the benefit from the launch.

Ken: In the June quarter of any of the new products. They are in the IPR process and put out to keep that in mind on a sequential basis.

Speaker Change: Great. Thank you very much.

Speaker Change: Thank you David Operator May we have the next question. Please.

Luca Maestri: Great, thank you very much. Thank you, David. Operator, may we have the next question, please? Our next question is from Atif Malik with Citi. Please go ahead. Hi, thank you for taking my questions. The first one is for Tim.

Speaker Change: Our next question is from.

Speaker Change: <unk> with Citi. Please go ahead.

Speaker Change: Hi, Thank you for taking my questions. The first one is for Tim.

Timothy Cook: I know it's early days, but the feedback on Apple intelligence software features like notification summary and reduced interruption focus from developers who have tried the iOS 18.1 beta version this week has been very positive. My question is, in response to an earlier question, you talked about a staggered launch for some of these software features. So are you expecting most of the features that you announced at WWDC to be part of iOS 18, or should we be thinking that some of these features could potentially be part of iOS 19 next year?

Tim Cook: Early days the feedback on Apple intelligent software features like notification summary, and reduced introduction focus from the developers we have tried the diet with $18. One beta version. This week is very positive.

Speaker Change: My question is.

Timothy Cook: Earlier.

Speaker Change: Question, you talked about a staggered launch on some of these software features. So are you expecting most of the features that you announced at Ww DC to be part of <unk> 18, while we should be thinking that some of the features could could potentially be part of Ias 19 next year.

Speaker Change: Our objective that we said in June.

Timothy Cook: Our objective, that we said in June, is to roll out U.S. English starting in the fall, and that's for users, and then proceed with more functionality, more features, if you will, and more languages and regions coverage as we proceed across the next year. And so we sort of gave a timeframe for that, and we're tracking to that.

Speaker Change: As to rollout U S English starting in the fall and Thats to users.

Timothy Cook: And then proceed with more functionality more features if you will and more languages in regions coverage.

Timothy Cook: As we proceed across the next year.

Timothy Cook: So we sort of gave a.

Speaker Change: The time frame that and we're tracking to that.

Speaker Change: I understand it the next one for Luca look at the services growth momentum is very strong are you seeing any impact from changes made to comply with the BNA rule.

Luca Maestri: Luca, the services growth momentum seems very strong. Are you seeing any impact from changes made to comply with the DMA rule? Well, as you know, we've introduced some changes to the way we run the App Store in Europe already in March.

Luca Maestri: Well as you know we've introduced some changes to the way we around the App store in Europe already in March.

Luca Maestri: And we have seen a good level of adoption from developers of those changes. We are, on an ongoing basis, discussing with the European Commission how to ensure full compliance with the DMA. It's obviously an early stage, but in general, our results for the services business and for the app store have been pretty good so far. Again, to just provide you with a frame of reference. The percentage of revenue that we generate from the European Union on the App Store is about 7% of the total.

Speaker Change: And we have seen a good level of adoption from developers on.

Luca Maestri: On those changes.

Luca Maestri: We are on an ongoing basis this testing with the European Commission.

Luca Maestri: How to ensure full compliance.

Luca Maestri: With the DMA its obviously early stage.

Luca Maestri: But in general our results for the services business and for the App store have been pretty good until now again to just provide you a frame of reference.

Luca Maestri: The <unk>.

Luca Maestri: Percentage of revenue that we generate from the European Union.

Luca Maestri: On the App store is about 7% of the total.

Speaker Change: Very helpful. Thank you.

Speaker Change: Thank you.

Speaker Change: Operator may we have the next question please.

Luca Maestri: Okay.

Luca Maestri: Very helpful, thank you. Thank you, Atif. Operator, may we have the next question, please? Our next question is from Samik Chatterjee with JPMorgan. Please go ahead.

Stomach Chatterji: Our next question is from stomach chatterji with J P. Morgan. Please go ahead.

Operator: Yep. Hi. Thanks for taking my question. I guess, Tim, if I could just ask you about Apple Intelligence as well. There's a regulatory aspect as well in certain geographies.

Speaker Change: Yes, hi, Thanks for taking my question I guess, Tim if I can just ask you about Apple intelligence.

Operator: <unk>.

Speaker Change: There is a regulatory aspect as well.

Samik Chatterjee: Certain geographies you mentioned the staggered launch that you're aiming for and the timelines you're thinking how you're thinking about the complexity of the regulatory process in particular, like EU, and maybe China and it doesn't.

Timothy Cook: You mentioned the staggered launch that you're aiming for and the timelines you're thinking about. How are you thinking about the complexity of the regulatory process, in particular, the EU and maybe China? And in terms of your timelines for the rollout, are you sort of embedding the regulatory aspect here? And how should we think about timing then, including that, and have a follow-up? We're engaged, as you would guess, with both regulatory bodies that you mentioned, and our objective is to move as fast as we can, obviously, because our objective is always to get features out there for everyone. We have to understand the regulatory requirements before we can commit to doing that and commit a schedule to doing that, but we're very constructively engaged with both. Correct.

Speaker Change: Of your timelines of the rollout are you sort of embedding in the regulatory aspect here and how should we think about timing then including that and I have a follow up thank you.

Timothy Cook: We are engaged as you would guess.

Timothy Cook: Gas.

Timothy Cook: Both regulatory bodies.

Speaker Change: You mentioned.

Timothy Cook: And.

Timothy Cook: Our objective is to move as fast as we can obviously because our objective is always to get.

Timothy Cook: Features out there for everyone.

Timothy Cook: We have to understand the regulatory requirements.

Speaker Change: Before we can commit.

Timothy Cook: To doing that and committed schedule to doing that but we're very constructively engaged with with Bose.

Timothy Cook: Okay got it and a quick one on the Wearables category.

Timothy Cook: And a quick one on the wearables category, Luca. I know you mentioned the acceleration there on a sequential basis. Maybe you can just sort of parse that out in terms of which category is experiencing the acceleration, because that's been a category that has been lagging a bit in terms of revenue trends for the past couple of quarters. So just curious what is starting to sort of drive it to accelerate on a sequential basis. Thanks. Yeah, I'll take that one.

Timothy Cook: You mentioned the exploration date on a sequential basis, maybe you can just sort of parse that out in terms of what which categories drove the explanation because that's been a category that has been lagging a bit in terms of.

Timothy Cook: Revenue trends for the past couple of quarters. So just curious what is starting to sort of drive it to activate on a sequential basis. Thank you.

Luca Maestri: I think the important thing to remember when you look at the wearables, home, and accessory categories is that we have a difficult launch compare, and we've been running that for a few quarters, and we still have that because last year had the continued benefit of the AirPods Pro 2nd generation, the Watch SE, and the very first Watch Ultra, and so it's important to keep that in mind. If you sort of take a step back, however, and look at the business across the trailing 12 months,

Luca Maestri: Yes, I'll take that one I think the important thing to remember when you look at the the Wearables home and accessory categories.

Luca Maestri: We have a.

Luca Maestri: Difficult launch compare.

Luca Maestri: And we've been running that for a few quarters.

Luca Maestri: Still have that because last year.

Luca Maestri: Had the continued benefit from the Airpods Pro second generation, the watch us see and our very first watch ultra.

Luca Maestri: And so the.

Luca Maestri: It's important to keep that in mind, if you sort of take a step back however.

Luca Maestri: And look at the business across the.

Luca Maestri: On the trailing 12 months, it's grown the Wearables home and accessory business has grown to almost $40 billion, which is double what it was five years ago.

Luca Maestri: It's grown. The wearables, home, and accessory business has grown to almost $40 billion, which is double what it was five years ago. Thank you. Thank you, Samik. Operator, may we have the last question, please? Our last question is from Richard Kramer with Arate Research. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Thank you stomach operator may we have the last question. Please.

Speaker Change: Our last question is from Richard Kramer with Arete Research. Please go ahead.

Operator: Thanks very much. Tim, you referenced the investment in innovation, and your R&D sales ratio reached what I think was a June quarter record, even before launching Apple Intelligence. Do you see the rollout of these features requiring further increases in R&D or increases in OpEx or CapEx for cloud compute capacity? And is it even possible to forecast the service usage as they roll out, given that they're so new for consumers?

Richard Kramer: Thanks, Thanks, very much Tim you referenced the <unk>.

Operator: <unk> innovation and your R&D sales ratio reached what I think was a June quarter record, even before launching Apple intelligence do you see the rollout of these features requiring further increases in R&D or increases in opex or capex for cloud compute capacity and is it even possible to forecast the services usage as they run.

Speaker Change: All out given that there is some new for consumers.

Timothy Cook: Thanks. Clearly, we have increased R&D over time. We've been investing in AI and ML for years. And in addition to investing more, we've also redeployed certain skills into AI and ML.

Operator: Clearly.

Timothy Cook: We have increased R&D over time, we've been investing in AI and ml for years.

Timothy Cook: And.

Timothy Cook: In addition to investing more we have also redeployed certain skills on the AI and ml and so.

Timothy Cook: And so the growth that's embedded in our numbers that we've shared here is, you know, increasing year over year. On the CapEx part, it's important to remember that we employ a hybrid kind of approach where we do things internally, and we have certain partners that we do business with externally, where the CapEx would appear in their respective businesses. But yes, you can expect that we will continue to invest and increase it year on year. Okay, and maybe a quick follow-up for Luca.

Speaker Change: The growth in sort of embedded in our numbers.

Timothy Cook: That we've shared here.

Timothy Cook: It's increasing year over year on the Capex part, it's important to remember that we employ a hybrid kind of approach, where we do things internally and we have.

Timothy Cook: Certain partners that we do business with externally.

Timothy Cook: Where the Capex would appear in their respective.

Timothy Cook: Businesses.

Timothy Cook: But yes, you can expect that.

Timothy Cook: There is we will continue to invest and increase at year on year.

Timothy Cook: Okay, and maybe a quick follow up for Luca when we look at the free cash flow margins for the first nine months, they're up materially and given this year's product mix can you describe to us what exactly in the services mix or cost controls is driving what seems to be structurally higher free cash.

Luca Maestri: When we look at the free cash flow margins for the first nine months, they're up materially. And given this year's product mix, can you describe to us exactly what in the services mix or cost controls is driving what seems to be structurally higher free cash flow margins across the business? Yeah, I'm glad you noticed that we are pretty pleased with that fact. And I think you probably also noticed that we increased our return on capital to shareholders this quarter. This one was a record quarter for us. Well, it's the combination of a number of things.

Luca Maestri: Margins across the business, yes, I am glad you noticed that we are pretty pleased with the with that fact.

Luca Maestri: And I think you probably also noticed that we've increased our return of capital to shareholders. This quarter.

Luca Maestri: This one was was a record quarter for us.

Luca Maestri: While it's the combination of a number of things of course.

Luca Maestri: Of course, uh, you know an improvement in top-line health. The margin expansion that we've had over the last several years and several quarters obviously has helped. And so that is driving better operating cash flow on the CapEx front. As Tim said, we employ a hybrid model. Some of the investments show up on our balance sheet, and some other investments show up somewhere else, and we pay as we go. But in general, we try to run the company efficiently. We continue to think that capital efficiency is a good thing.

Luca Maestri: An improvement in the top line helps.

Luca Maestri: The margin expansion that we've had over the last several years and several quarters.

Speaker Change: Honestly has helped.

Luca Maestri: And so that is driving better operating cash flow on.

Luca Maestri: On the Capex front as Tim said, we we employ a hybrid model.

Luca Maestri: Some of the investments show up in our.

Luca Maestri: Our balance sheet and some other investments show up somewhere else and we pay as we go.

Luca Maestri: But in general.

Luca Maestri: We try to.

Luca Maestri: So around the company efficiently.

Luca Maestri: We continue to think that capital efficiency is a good thing.

Luca Maestri: And therefore, we're pleased with the fact that our free cash flow is doing well this year. Good, thanks. Thank you, Richard. A replay of today's call will be available for two weeks on Apple Podcasts as a webcast on apple.com slash investor and via telephone. The number for the telephone replay is 866-583-1035. Please enter confirmation code 1969407 followed by the pound sign. These replays will be available by approximately 5 p.m. Pacific time today. Members of the press with additional questions can contact Josh Rosenstock at 408-862-1142. And financial analysts can contact me, Suhasini Chandramouli, with additional questions at 408-974-3123.

Speaker Change: And therefore, we're pleased with the fact that our free cash flow is doing well this year.

Speaker Change: Okay. Thanks.

Luca Maestri: Thank you rich and a replay of today's call will be available for two weeks on Apple podcasts as a webcast on Apple Dot com slash investor and via telephone number for the telephone replay is 806 65831035.

Luca Maestri: Please enter confirmation code 190, 69407, followed by the pound sign.

Luca Maestri: These replays will be available by approximately five PM Pacific time today.

Suhasini Chandramouli: Members of the press with additional questions can contact Josh Rosenstock at 40886211, 42, and financial analysts can contact me two Hudson each vendor mally with additional questions at 408 970 43123.

Suhasini Chandramouli: Thank you again for joining us today. Once again, this does conclude today's conference. We do appreciate your participation. Microsoft Office Word Document MSWordDoc Word. Document.8, Thinking about the world around you, Caught up in feelings that you had Lost inside the world around you, When you, my love, are gone, I won't look back to see through my rear view, When all is said and done, I won't look back now, look back now, when you're gone Oh, I think I could take you on.

Luca Maestri: Thank you again for joining us today.

Suhasini Chandramouli: Once again this does conclude today's conference. Thank you appreciate your participation.

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