Q2 2025 Apple Inc Earnings Call

Speaker Change: Good afternoon and welcome to the Apple Q2 fiscal year 2025 earnings conference call. My name is Suhasini Chandramali, director of investor relations. Today's call is being recorded.

Speaker Change: Speaking first today is Apple CEO , Tim Cook, and he'll be followed by CFO , Kevin Parekh. 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.

Speaker Change: Taxes, Capital Allocation, and Future Business Outlook including the potential impact of tariffs and other trade measures and macroeconomic conditions on the company's business and results of operations.

Speaker Change: These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast.

Speaker Change: For more information, please refer to the risk factors discussed in Apple's most recently filed reports on Form 10Q and Form 10K and the Form 8K filed with the SEC today along with the associated press release.

Speaker Change: Additional information will also be in our report on Form 10Q for the quarter-ended March 29th, 2025 to be filed tomorrow and in other reports and filings we make with the SEC.

Speaker Change: 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.

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

Tim Cook: Today we are reporting 95.4 billion in revenue, up 5% from a year ago, and at the high end of the range we provided last quarter.

Tim Cook: Diluted EPS was $1.65, up 8% year over year and a March quarter record. [inaudible]

Tim Cook: We also set a number of quarterly records in countries and regions across the world, including the UK, Spain, Finland, Brazil, Chile, Turkey, Poland, India and the Philippines.

Tim Cook: We are as dedicated as ever to the innovation and ingenuity that will enrich our customers' lives and help us leave the world better than we found it.

Tim Cook: And we are proud to increase our impact around the world, including here in the United States, where we recently announced plans to spend $500 billion over the next four years.

Tim Cook: We're going to be expanding our teams and our facilities in several states, including Michigan, Texas, California, Arizona, Nevada, Iowa, Oregon, North Carolina, and Washington, and we're going to be opening a new factory for advanced server manufacturing in Texas. [inaudible]

Tim Cook: During calendar year 2025, we expect to source more than 19 billion chips from a dozen states, including tens of billions of advanced chips being made in Arizona this year.

Tim Cook: We also source glass used an iPhone from an American company. All told, we have more than 9,000 suppliers in the U.S. across all 50 states.

Now I'll turn to products, starting with iPhone. [inaudible]

Tim Cook: iPhone Revenue was $46.8 billion, up 2% from a year ago. [inaudible]

Tim Cook: During the quarter, we introduced iPhone 16E, a great new entry-level addition to our iPhone 16 lineup.

Tim Cook: It's powered by our latest generation A18 chip and includes the all-new Apple Design C1 modem, the most energy efficient modem ever in an iPhone, allowing iPhone 16E to have the longest battery life of any 6.1 inch iPhone.

Tim Cook: and our iPhone 16 Pro models continue to be a hit with our users. They are turbocharged by the remarkable capabilities and efficiency of A18 Pro and feature larger displays and advanced camera system and a beautiful design.

Tim Cook: MacRevenue with $7.9 billion, 7% higher year-over-year, another great quarter for Mac.

Tim Cook: During the quarter we introduced significant new updates to our lineup.

Tim Cook: The world's most popular laptop just got even better. The M4-powered MacBook Air features a 12-megapixel center-stage camera and delivers a massive boost in performance.

Tim Cook: and now it comes in a beautiful new sky blue color.

Tim Cook: The new Mac Studio is the most powerful Mac we've ever shipped equipped with M4 Macs and our new M3 Ultra Chip. It's a true AI powerhouse capable of running large language models with over 600 billion parameters entirely in memory. [inaudible]

Tim Cook: Apple Intelligence brings great capabilities to the Mac with features like writing tools and notification summaries that help users stay focused and get more done.

Tim Cook: Turning to iPad, revenue for the quarter was $6.4 billion, up 15% from a year ago, another strong quarter of double digit growth.

Tim Cook: Our iPad lineup continues to help users learn, work, play, and go wherever their imaginations take them. [inaudible]

Tim Cook: The new iPad Air within three combines powerful performance and exceptional portability whether you're taking it across the street or around the world.

Tim Cook: and Apple Intelligence and Apple Pencil Pro are a perfect match with features like the cleanup tool and photos to remove distractions and image one in the Notes app to elevate simple sketches and to polish illustrations.

Tim Cook: Across wearables, home and accessories, revenue was $7.5 billion, down 5% from a year ago. From walking trails to bike paths, Apple Watch Series 10 is an essential partner wherever you are on the health and fitness journey.

Tim Cook: and AirPods 4 with Active Noise Cancellation delivers an extraordinary experience in an open-ear design. [inaudible]

Tim Cook: customers continue to tell me how important our hearing health features for AirPods Pro 2 are to them and we've been expanding their availability to reach even more users around the world.

Tim Cook: Millions have already taken hearing tests, and the stories we received about the new hearing aid feature are deeply moving, showing how these innovations are making a real difference in people's daily lives.

Tim Cook: It's a powerful reminder of the impact technology can have when it's designed with care.

Tim Cook: Meanwhile, Apple Vision Pro takes the concert experience to a whole new level with Metallica, our latest Apple immersive video which you have to see to believe.

Tim Cook: and VisionOS 2.4 unlocks the first set of Apple intelligence features for Vision Pro users while inviting them to explore a curated and regularly updated collection of spatial experiences with the spatial gallery app.

Tim Cook: In retail, in addition to the two stores we opened during the quarter, we're also looking forward to a new retail store in the UAE, the arrival of the online store in Saudi Arabia and new retail stores in India starting later this year. [inaudible]

Tim Cook: Let's now turn to services where we achieved an all-time revenue record of $26.6 billion, up 12% from a year ago, with strong performance across all of our categories.

Tim Cook: From starting their morning with their podcast of choice, to buying a coffee with Apple Pay, to spending an afternoon reading the latest bestseller on Apple Books, to using their favorite app from the App Store, or an evening workout with Fitness+. Apple services are enriching our user's lives all throughout their day.

Tim Cook: With incredible shows like the studio, your friends and neighbors, and the culture shaping severance, Apple TV+, has become a must-see destination with record viewership during the quarter.

Tim Cook: And we're excited for our upcoming movie, F1, starring Brad Pitt, which will hit theaters this summer and gives an incredible inside look at one of the most intense sports on earth.

Tim Cook: We're also reaching sports fans in more ways than ever, from watching their favorite teams go to bat on Friday night baseball, to cheering on their local team with MLS season pass, to following the results of every Grand Prix with Formula One, now on the Apple sports out.

Tim Cook: Turning to software. We just released iOS18.4 which brought Apple Intelligence to more languages. [inaudible]

Tim Cook: including French, German, Italian, Portuguese, Spanish, Japanese, Korean and simplified Chinese as well as localized English to Singapore and India. [inaudible]

Tim Cook: AI and machine learning are core to so many profound features we've rolled out over the years to help our users live a better day. It's why we designed Apple Silicon with a neural engine that powers so many AI features across our products and third-party apps.

Tim Cook: At WWDC-24, we announced Apple Intelligence and shared our vision for integrating generative AI across our ecosystem into the apps and features our users rely on every day.

Tim Cook: To achieve this goal, we built our own highly capable foundation models that are specialized for everyday tasks.

Tim Cook: We design helpful features that are right where our users need them and are easy to use.

Tim Cook: And we went to great links to build a system that protects user privacy, whether request or process on device or in the cloud with private cloud compute, an extraordinary step forward for privacy in AI.

Tim Cook: Since we launched iOS 18, we've released a number of Apple Intelligence features.

Tim Cook: from helpful writing tools to Jen Mojee, image playground, image wine, cleanup, visual intelligence and a seamless connection to chat GPT. [inaudible]

Tim Cook: We made it possible for users to create movies of their memories with a simple prompt.

and added AI-powered photo-search, smart replies. [inaudible]

Tim Cook: Priority Notifications, Summaries for Male Messages and More We've also expanded these capabilities to more languages and regions [inaudible]

Tim Cook: Turning to sustainability. We just celebrated Earth Day and we were proud to announce that we cut our emissions by 60% from our 2015 levels.

Tim Cook: We have worked with suppliers to bring 17.8 gigawatts of renewable electricity online. We're also saving billions of gallons of fresh water and redirecting millions of metric tons of waste from landfills.

Tim Cook: All of this will help us make important progress towards our goal of carbon neutrality across our supply chain and the life cycle of our products by 2030.

Tim Cook: Now let me walk you through the impacts of tariffs in the March quarter and give you some color on what we expect for the June quarter.

Tim Cook: For the March quarter, we had a limited impact from tariffs as we were able to optimize our supply chain and inventory.

Tim Cook: For the June quarter, currently we are not able to precisely estimate the impact of tariffs as we are uncertain of potential future actions prior to the end of the quarter. [inaudible]

Tim Cook: However, for some color, assuming the current global tariff rates, policies and applications do not change for the balance of the quarter and no new tariffs are added, we estimate the impact to add $900 million to our costs.

Tim Cook: This estimate should not be used to make projections for future quarters as there are certain unique factors that benefit the June quarter.

Tim Cook: For our part, we will manage the company the way we always have, with thoughtful and deliberate decisions, with a focus on investing for the long term, and with dedication to innovation and the possibilities it creates.

As we look ahead, we remain confident.

Tim Cook: Confident that we will continue to build the world's best products and services.

Tim Cook: Confident in our ability to innovate and enrich our user's lives.

Tim Cook: and confident that we can continue to run our business in a way that has always set Apple apart.

Tim Cook: Next month, we can't wait to welcome our developer community for the Worldwide Developer's Conference, and we look forward to revealing some exciting announcements.

With that, I'll turn it over to Kevin.

Tim Cook: We also grew in the majority of the markets we track.

Products revenue was $68.7 billion, up 3% year over year.

Driven by Growth in iPhone, iPad and Mac. [inaudible]

Tim Cook: And thanks to our high levels of customer satisfaction and strong loyalty, our installed base of active devices reach an all-time high across all product categories in geographic segments.

Tim Cook: Services Revenue was $26.6 billion, up 12% year-over-year, despite over 2 percentage points of foreign exchange headwinds. And as Tim mentioned, this was an all-time revenue record.

Tim Cook: We also grew in every geographic segment and saw double digit growth in both developed and emerging markets.

Tim Cook: Company gross margin is 47.1% in the middle of our guidance range and up 20 basis points sequentially, primarily driven by favorable mix.

Tim Cook: Products Gross Margin was 35.9% down 340 basis points sequentially driven by mix, fore and exchange and a seasonal loss of leverage. [inaudible]

Tim Cook: Service's gross margin was 75.7%, up 70 basis points sequentially, primarily driven by a different mix, partly offset by foreign exchange. [inaudible]

Tim Cook: Operating expenses landed at $15.3 billion, up 6% year over year.

Tim Cook: Net income was $24.8 billion in diluted earnings per share with $1.65 up 8% year-over-year and a March quarter record.

Operating cash flow was also strong at $24 billion.

Tim Cook: Now, I'm going to provide some more details for each of our revenue categories.

Tim Cook: iPhone Revenue was $46.8 billion, up 2% year over year driven by the iPhone 16 family.

Tim Cook: The iPhone Active Install Base grew to an all-time high in total and an every geographic segment, and iPhone Upgraders grew double digits year-over-year.

Tim Cook: According to a recent survey from Cantar during the March quarter, iPhone was a top selling model in the U.S., Urban China, the UK, Germany, Australia, and Japan.

Tim Cook: and we continue to see high level of the customer satisfaction in the US at 97% as measured by 451 research.

Tim Cook: MacRevenue was $7.9 billion, up 7% year over year, driven by the latest MacBook Air, MacBook Pro, and Mac Mini models.

Tim Cook: This performance was broad-based with every geographic segment growing year-over-year.

Tim Cook: The Mac install base reached an all-time high and we saw strong growth for both operators and customers new to the Mac.

Customer satisfaction is reported at 95% in the U.S.

Tim Cook: iPad revenue was $6.4 billion, a 15% year over year driven by the new M3-powered iPad Air. The iPad install base reached another all-time high, and over half the customers who purchased an iPad during the quarter, were new to the product.

Tim Cook: Based on the latest reports from 4-5-1 research, customer satisfaction was 97% in the US.

Tim Cook: Wearables home and accessories revenue was $7.5 billion down 5% year over year. Keep in mind, we did face a more difficult compare against the launch of the Apple Vision Pro in the year ago quarter, as well as the watch Ultra 2 launch last year.

Tim Cook: At the same time, the Apple Watch install base reached a new all-time high, with over half of customers purchasing an Apple Watch during the quarter being new to the product.

Tim Cook: and customer satisfaction for watching the U.S. was recently measured at 95%. Our service has revenue reached an all-time high of $26.6 billion, up 12% year-over-year.

Tim Cook: This growth rate was comparable to the December quarter year over your growth rate when we removed the negative impact from foreign exchange.

Tim Cook: We saw strong momentum in the March quarter and the growth of our install base of active devices gives us great opportunities for the future.

Tim Cook: Customer engagement across our services offerings also continued to grow, both transacting and paid accounts growing double-digit zero over year.

Page subscriptions also grew double digits.

Tim Cook: We have well over a billion paid subscriptions across the services on our platform.

Tim Cook: We continue to improve the quality and breadth of our service offerings from additional features and news plus to new games available on arcade. Apple Pay continues to help our customers with an easy, secure and private payment solution. And we are pleased to see that our active users in Apple Pay reach an all-time record of double digits year over year.

Turning to enterprise.

Tim Cook: Organizations are investing more in Apple products and services to drive productivity and employee engagement. For example, KPMG recently rolled out iPhone 16 for all US employees, reflecting their confidence in Apple security and privacy features. [inaudible]

We also continue to see strong Mac performance in enterprise.

Tim Cook: New Bank, the largest digital bank in Latin America, has selected MacBook Air as a standard computer for their thousands of employees

Tim Cook: With Vision Pro, companies are continuing to find new and innovative ways to leverage this technology. [inaudible]

Tim Cook: DASO, STEM, a leading provider for engineering and 3D design software, has natively integrated Apple Vision Pro into their next generation platform, bringing a powerful and immersive spatial experience to thousands of enterprise customers.

Tim Cook: Now, let's turn to our cash position and capital return program.

Tim Cook: We ended the quarter with $133 billion in cash and marketable securities. We had $3 billion in debt maturities and increased commercial paper by $4 billion, resulting in $98 billion in total debt. Therefore, at the end of the quarter, net cash was $35 billion.

Tim Cook: During the quarter, we return $29 billion to shareholders. This included $3.8 billion in dividends and equivalents, and $25 billion through open market repurchases of 108 million Apple shares.

Tim Cook: given the continued confidence we have in our business now and into the future. Today, our board authorized an additional $100 billion for sharey purchases as we maintain our goal of getting to net cash neutral.

Tim Cook: We're also raising our dividend by 4% to 26 cents per share of common stock and we continue to plan for annual increases in the dividend going forward as we have done for the last 13 years.

Tim Cook: This cash dividend will be payable on May 15, 2025, to shareholders of record as of May 12, 2025.

Tim Cook: Importantly, the color we are providing assumes that global tariff rates, policies and application remain in effect as of this call, and the global macroeconomic outlook doesn't worsen from today for the current quarter.

Tim Cook: Despite the overall uncertain environment, we will still be providing color at the total company level subject to these assumptions and the risk factors that we referred to at the dating of the call.

Tim Cook: We expect our June quarter total company revenue to grow low to mid-single visits year over year. We expect gross margin to be between 45.5% and 46.5%, which includes the estimated impact of the $900 million of tariff related costs that Tim referred to earlier.

Tim Cook: We expect operating expenses to be between $15.3 billion and $15.5 billion.

Tim Cook: We expect Oliany to be around negative $300 million, excluding any potential impact from the market to market of minority investments, and our tax rate to be around 16%. With that, let's open the call to questions.

Thank you.

Tim Cook: Act that you limit yourself to two questions. Operator, may we have the first question, please?

Speaker Change: Certainly, we'll go ahead and take our first question from Erik Woodring with Morgan Stanley .

Eric Woodring: Great, thanks so much guys for taking my questions. Tim, I'd love to maybe touch on the tariff point first. There were comments from you earlier on CNBC talking about 50% of iPhones for the US currently coming from India.

Eric Woodring: Where do you expect the mix of India-sourced iPhones for the US to be by the end of your fiscal year? And is it the goal to source 100% of your US-bound iPhones from India? Can you just help us understand how we should expect that to trend as we look beyond just the June quarter? And then I have a follow-up. Thank you.

Eric Hyatt's Tim,

The existing tariffs that apply to Apple,

Eric Woodring: Today are based on the products country origin as you allude to.

Eric Woodring: For the June quarter, we do expect the majority of iPhones sold in the US will have India as their country of origin.

Eric Woodring: Vietnam, to be the country of origin for almost all iPad Mac, Apple Watch and AirPods products sold in the US.

Eric Woodring: China would continue to be the country of origin for the vast majority of total product sales outside the U.S.

Eric Woodring: IEEPA-related tarot at the rate of 20%, which applies to imports to the U.S. for products that have China as their country of origin.

in addition for China.

Eric Woodring: There was an additional 125% tarot for imports of certain categories of products announced in April . And for us, that's some of our US AppleCare and accessories businesses.

Eric Woodring: and brings the total rate in China for these products to at least 145%.

Eric Woodring: The vast majority of our products, including iPhone, Mac, iPad, Apple Watch, and Vision Pro

are currently not subject. [inaudible]

Eric Woodring: to the global reciprocal tariffs that were announced in April , as the Commerce Department has initiated a section 232 investigation into imports of semiconductors, semiconductor manufacturing equipment and downstream products that contain semiconductors.

Eric Woodring: and so if you, for the June quarter, as I talked about in the...

and my opening comments.

Eric Woodring: We estimate the impact of assuming that the current global tariff rates policies and applications don't change for the balance of the quarter to be 900 million to our costs.

I wouldn't want to predict the mix of...

Eric Woodring: Act, you know, where the country of origins are, so you can... [inaudible]

and use that for your modeling.

Speaker Change: Okay, I appreciate that color. Thank you, Tim. And then maybe my follow-up is...

There were a number of reports.

Speaker Change: , you know, during the quarter that Apple had pulled forward, selling into the channel to get ahead of Terrace. So can you just help us better kind of understand or clarify?

Speaker Change: If Salon and Self-Through were aligned in the March quarter, if you're assuming that they would be aligned in the June quarter guide,

Speaker Change: and ultimately do believe that consumers are accelerating hardware purchases to get ahead of any potential pricing increases, or was behavior normal. Thank you so much Tim.

Speaker Change: Yeah, thanks, Eric, for the question. There are several questions there. One, in terms of the pull-forward in demand, if you look at the March quarter.

Speaker Change: We don't believe that we saw obvious evidence of a significant pull forward and demand in the March quarter due to tariffs.

Speaker Change: If you look at our channel inventory from the beginning of the quarter to the end of the quarter the unit channel inventory was similar not only for iPhone but for the balance of our products.

Again, for transparency, you will see...

Speaker Change: that we did build a head inventory, and that's reflected in our manufacturing purchase obligations that you'll see on the quarterly filing when it comes out. So I hope that makes the answers to all your questions.

So much, come to luck. Thanks.

Eric Woodring: Thank you, Eric, Operator. Could we have the next question, please?

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

Ben Wrightsey: Hey, thanks a lot. Hey Tim, if you had told me that...

Ben Wrightsey: In April 2nd that you're hit from tariffs is only a nickel, a quarter. [inaudible]

You know, the panic that ensued...

Ben Wrightsey: I'm surprised that it's that low but then you know you did make a comment about after the June quarter and sorry to push you on that but could it be a multiple of that figure or is it just completely unknown we're all just trying to figure out what happens after June . [inaudible]

Ben Wrightsey: and if there's just any guidance, you guys can possibly give that it's...

You know, bigger, smaller, or...

Key factor in determining the tariffs that we're paying.

Ben Wrightsey: I don't want to predict the future because I'm not sure what will happen with the tariffs and there is this section 232 investigation going on and so it's. [inaudible]

Ben Wrightsey: You know, very difficult to predict beyond June , and June has the assumptions that I had mentioned earlier.

Speaker Change: All right, well thanks Tim, and then just with regard to China, you know, down 2%, I mean,

Speaker Change: You know, you intuitively would have thought there would have been an increased nationalism there and perhaps it would have been worse than that. And, you know, the trajectory there improving even with subsidies because subsidies benefited your competitors too.

Speaker Change: Just wondering if a little more color there, can it keep improving? What are you thinking, you know, with regard to that trajectory in China, given all the geopolitical tensions? Thanks.

Speaker Change: Yeah, we were down 2% as you point out for the March quarter and to provide a little more transparency around that we were roughly flat.

Speaker Change: when you remove the headwinds from foreign exchange. And so we did see quite a bit of sequential improvement from the December quarter which was down 11.

Speaker Change: and, again, for going out of the way for transparency, the channel inventory at the end of March, the unit channel inventory was similar to where we started the quarter.

Speaker Change: You know, there wasn't a bill to channel inventory in there. I do believe that the subsidies played a favorable impact on the results.

Speaker Change: It's difficult to estimate with precision as to exactly how much, but I think it was positive.

Speaker Change: Some of our products are included, some of them are not. Generally on iPhone, if something is priced above 6000RMB, it is not eligible for the subsidy and the other products have.

Speaker Change: and different rules. But I do think it helped. And I think it's helping others as well, I'm sure. iPhone was the key driver of the improvement sequentially.

Mac of the iPad and the watch are attracting...

Speaker Change: A majority of customers knew to that product and so that continues to look quite good in China and iPhone was the top two models in urban China and iPad was the top two tablets in urban China.

So there's some positive nuggets there.

Tim Cook: Thanks a lot Tim. Yeah, thank you Ben. Thank you Ben, Operator, maybe have the next question please.

Speaker Change: Our next question is from Michael Ng with Goldman Sach. Please go ahead.

Michael Ng: Hi, good afternoon. Thank you very much for the question. I was just wondering if you could talk a little bit about your responses on some of this trade policy uncertainty. You know, I appreciated the transparency around

Michael Ng: building ahead of, with inventory, you know, will you continue to do that in this interim period until we get some clarity on the Section 232 investigation and...

Michael Ng: You talk a little bit about your philosophy on pricing, elevated costs to the extent that comes through whether that be to resellers or end consumers and other efficiency efforts that you might build or pursue. Thank you.

Michael Ng: Yeah, obviously, we're very engaged on the tariff discussions. We believe in engagement will continue to engage. On the pricing piece, we have nothing to announce today.

Michael Ng: and I'll just say that the operational team has done an incredible job around...

Free.

Speaker Change: Thanks, and just as a quick follow-up for Kevin on on product gross margins, I was just wondering if you could provide a little bit more color on some of the factors that may have impacted product gross margins in the quarter obviously. Thank you very much.

Michael Ng: Downs quenchedly on unseasonal factors, but there was a year of a year to climb as well, so any additional color would be helpful. Thank you.

Michael Ng: Yeah, Michael, thanks, this is Kevin. So on the sequential, as we mentioned the paired remarks, we had a decrease in the product growth margin by 340 basis points sequentially. That was primarily driven by mix. [inaudible]

Michael Ng: seasonal loss of leverage, foreign exchange, and that was partly offset by cost savings.

Michael Ng: And when we look at the year on your performance, we were down 70 basis points on the year on your basis.

Michael Ng: Analog Room by a different mix in foreign exchange. [inaudible]

Thank you.

Speaker Change: Thank you. Thank you, Mike. Operator, could we have the next question please?

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

Amit Daryanani: Thanks a lot, I have to start with the tariff question as well.

Amit Daryanani: Kim, I think when you talked about the 900 million impact your cost of goods sold, you saw that at a statement that, you know, there are certain unique factors that benefit you in the June quarter related to that number. Can you just talk about what all these unique factors that are benefiting you in the June quarter and what would the impact be without those benefits essentially? Thank you very much.

Amit Daryanani: I would want to go through all of them, but as an example, the build ahead, that is, I mentioned earlier [inaudible]

Speaker Change: Got it. And then, you know, is I think about the June quarter guide of, you know, low to mid-single, they did revenue growth, you know, so I mean, do you folks expect services grow to remain in the double digit range as you go into the back half of the year? I imagine FX is a bit of a benefit as you go to the back half of the love just understand, within that framework, how do you think services stacks up as you go through the June quarter?

Yamoteid, Kevin.

Speaker Change: So I think when we talk about the overall June quarter, we talked about the load amid single digits year over year, we do expect foreign exchange in the June quarter to improve sequentially. However, we are expecting it to be a slight headwind to revenue on a year on your basis.

Speaker Change: with respect to services given the uncertainty we see from several factors.

We aren't providing the category level of color today.

God, thank you.

Speaker Change: Thank you. Thanks, Amit. Operator, could we have the next question please?

Speaker Change: Our next question is from Wamsi Mohan, with Bank of America. Please go ahead.

Wamsi Moen: Yes, thank you. Tim McHavan, how should investors think about the growth margin trajectory as

Wamsi Moen: More from the US in particular or other supply chain changes that you are making including in India. How should those kind of fade into the past structure and how should we think about that? The first margin should yet be a narrow problem.

Wamsi Moen: We're excited about bringing more production to the US. As you know, we've been…

Wamsi Moen: Very key in the TSMC project in Arizona and are the largest and first customer getting product out of that.

Wamsi Moen: and that's the SSE that's coming out of there. We also have glass coming out of the US and the

And so there's some...

Wamsi Moen: that is already built into the margins that Kevin has quoted, and we don't really forecast beyond the current quarter as you know.

Speaker Change: Yeah, and maybe I'll add a couple more points as we think about just the margin going forward. You know, a couple of observations I've mentioned is, every product cycle is different.

Speaker Change: In over the years we have managed to grow smart and well, we made good decisions of balancing units revenue margins, you know when we launch new products, they tend to have a higher cost structure than the products they replace.

Speaker Change: as we introduce new features and technologies. We do have a good track record of reducing those costs and structures over the life of the product.

Speaker Change: and our products and services all have different levels of profitability and their relative success in the marketplace has an impact on the overall gross margin. [inaudible]

So I hope that's helpful coloring context for you.

Speaker Change: Yeah, no, that's super helpful, thank you. I guess, you know that you weren't going to give services, maybe growth forecast here, Lighthouse.

Tim Cook: Some of the uncertain news, but maybe, Tim, could you share any color?

Tim Cook: There has now been emergence of alternate app stores for a little more time. What have you seen anecdotally or within your data in terms of maybe develop a behavior whether it's large or small, any color you can share on what has actually happened?

It's embedded in our results that Kevan talked about earlier. [inaudible]

Tim Cook: and embedded in the overall company color that was provided. But as you know, the digital market act went into effect in...

I believe it was March. [inaudible]

Tim Cook: of last year and so the digital market sector has been...

Tim Cook: Inacted for a bit over a year and there's been all turn it up stores for some period of time of that.

Tim Cook: and so it's at this point in Europe , there's some embedded in the actuals. There may be more to come and so forth.

Tim Cook: I don't wanna predict beyond the current quarter. I don't wanna predict beyond the current quarter.

OK, thank you, Tim.

Tim Cook: Thank you, Wamsi. Operators, could we have the next question, please?

Speaker Change: Our next question is from David Vogt with UPS. Please go ahead.

David Vogt: Great, thanks guys, thanks for taking my questions, so I've got two as well.

David Vogt: And Tim, this is one of a big picture of supply gene philosophical question. Thank you very much for your time.

Speaker Change: So, can you maybe update us on your thoughts on how you're thinking about your sort of resiliency and redundancy?

Speaker Change: Bollin to change that you guys talked about earlier on the call. I guess what I'm trying to understand is how do we think of out? [inaudible]

Speaker Change: where your supply chain is two to three years from now, and is there any risk at least in the near term of maybe some export control issues. [inaudible]

Speaker Change: in your outlook for the balance of this year, and I'll give you my second one at the same time. You know, you quantified a $900 million hit from tariffs, but or Kevin, is there any impact in how you're thinking about the demand backdrop in your outlook for the June quarter on the review line? You know, holistically, thanks.

Speaker Change: In terms of the resiliency and risk, we have a complex supply chain, there's always risk in the supply chain.

Speaker Change: and so I wouldn't tell you anything different than that. What we learned some time ago was that

having everything in one location. [inaudible]

Speaker Change: Act, I had too much risk with it and so we have over time with certain parts of the supply chain not the whole thing but certain parts of it opened up new sources of supply and you could you could see that kind of thing continuing in the future.

I'll let Kevin answer the other question.

Kevan Parekh: Hi, David. On the other question, I would say that our best thinking is captured in the outlook that we provided. However, I do want to re-emphasize.

Kevan Parekh: The point that the assumptions that we made on the outlook do assume that the global tariff rates, the policy and application remain the same as they are today as of this call and that the global macroeconomic outlook doesn't worsen from today.

Kevan Parekh: OK, but no quantifiable impact on demand to date, at least from where we are in the last month. Is there a way to kind of think about that, you know, from early, April to early, then?

Kevan Parekh: I would say our best thinking is reflected in the range that we provided.

Speaker Change: OK, thanks, Kevin. Thanks, guys. Thank you. Thank you, David. Operator, could we have the next question, please?

Speaker Change: Our next question is from Samik Chatterjee with JP Morgan. Please go ahead.

Samik Chatterjee: iPhone sales in the countries where it was available. I'm just curious if you're continue to see that, play out similarly, so the more broader number of countries you roll that out, or the delays that you talked about, greater to Siri, personalized Siri features has that had an impact in terms of consumer willingness to upgrade and have a follow-up.

Thank you for the question. During the March quarter, [inaudible]

Samik Chatterjee: than those where Apple Intelligence was not available. A lot of the languages that I think you're referring to rolled out in April and so they actually rolled out in Q3.

Speaker Change: Daryf Impact, or we saw US GDP also shrink here in one queue, when you look at velocity at the stores or trade down within those sort of iPhone port full your mix, what are you seeing in terms of how the consumers are reacting to the macro at this point. Thank you.

Speaker Change: You know, I'm not an economist and so I start by saying that in terms of the as you can see from a total company point of view our results accelerated sequentially.

to the 5% level.

Speaker Change: and the U.S. is obviously the vast majority of the America's segment and you can see how the America's performed

Speaker Change: Act during the quarter and so that's all I want to say about that. I don't want to try to predict what what happens in the. [inaudible]

and the months from now.

Speaker Change: The past, I'm quite pleased with the results from Q2. The, the, the, the, the, the,

Speaker Change: Our next question is from Krish Sankar's TD Cowan. Please go ahead.

Krish Sankar: Hi, thanks for seeing my question, actual, then to Tim, thanks to that information on the financial billion U.S. investment. I'm kind of curious how to think about the composition of that. How much is CapEx? This is R&D. How much is...

Krish Sankar: The Texas Server, how much is going into maybe TSM, Paris, Arizona, any kind of color you can give you want that final billion in left-man to be helpful at an antipolar.

Krish Sankar: Well, there's lots of all of it is what I would say. We're not giving out the exact split, but as we expand facilities in the different states from Michigan to Texas to California and Arizona and Nevada and Iowa and Oregon and North Carolina and Washington,

Krish Sankar: There will be CapEx involved in that, and OpEx, and involved in it, and standing up a advanced server manufacturing in Texas. We'll do that through a partner as we do our manufacturing through a partner.

Krish Sankar: that will be putting a fair amount in a cost of good soul to do that and some OpEx as well and I'm sure some CapEx as well and so it's a bit of all of it.

Krish Sankar: iPhone Angle, Mac Angle, but I'm just kidding, look at the edge. I'm on edge.

Other current smartphone specs. [inaudible]

Krish Sankar: or include hardware and silicon specs good enough to meet future HLLM for inference or do you think you need to cover the whole year different kind of device? We are going to curious how to think about the evolution of the edge devices from here.

Speaker Change: Thank you. Yeah, as you know, we're shipping an LLM on the iPhone 16 today.

and there are…

Speaker Change: Some of the queries that are being used by our customers are on device and then others go to the private cloud.

Speaker Change: where we've essentially mimicked the security and privacy of the device into the cloud, and then others for world knowledge are...

Speaker Change: with the integration with ChatGPT. And so there's, we continue to be very excited about the opportunities here. We are very excited about the roadmap.

and we are pleased with the progress that we're making.

Thank you.

Thanks again.

Jim: Thank you, Krish, Operator, could we get the next question, please?

Jim: Our next question is from Richard Kramer with the right research. Please go ahead.

Thank you very much.

Richard Kramer: I won't ask about tariffs. Tim, given your recognition that a new serious system is taking you longer than you thought to deliver, I'd like to go back to my question from the last call and ask about what some of the learnings you had from those delays, and whether you attribute them to organizational factors, to your legacy software stack, or is it a matter of Army? [inaudible]

Speaker Change: Spending, and what are some of the key gating factors investors should look for, either at WWDC or beyond, have a sense that Apple can deliver on some of the promises of the announcements at the prior WWDC. Thanks.

Speaker Change: Yeah, if you sort of step back from what we said at WWDC, we talked about a number of different teachers.

Speaker Change: that would launch with iOS 18. And we've released a slew of those from writing tools to seamlessly connecting to chat GPD, to gemmogy, to image playground, to image one, to clean up, and visual intelligence.

Making Movies,

or movies of your memories with a simple prompt.

Speaker Change: AI, Powered Photosuit, Smart Reply, Priority Notifications, and the list goes on. And so we've delivered a lot, and we've just recently, just a few weeks ago, expanded it into several different languages, including French, German, Italian,

Portuguese, Spanish, Japanese, Korean, Simplified, Chinese, [inaudible]

Speaker Change: as well as localize English for both Singapore and India. So we've delivered a lot, however,

Speaker Change: With regard to the more personal Siri, as you mentioned, we just need more time to complete the work so they meet our high quality bar. And there's...

Speaker Change: Not a lot of other reason for it. It's just taking a bit longer than we thought, but we are making progress and we're extremely excited to get the more personal series features out there.

Speaker Change: and Kevin, one for you. I mean, it's hard to ignore some of the ongoing very high-profile legal cases that touch on Apple, be it yesterday's epic case and junction or the Google anti-trust trial touching on default search and investors are clearly concerned that these might have matured of impacts on your services business.

Speaker Change: Do you feel now that you have ample ways in which you might be able to mitigate some of the potential negative impacts on Apple Services business that might come about from what's been proposed or might come about in legal rather than commercial pressures that the business faces?

Kevan Parekh: Let me make a couple of comments on that before, Kevin. The case yesterday we strongly disagree with, we've complied with the court's order, and we're going to appeal.

Kevan Parekh: In the DOJ case that you reference with Google, that case is ongoing and I don't really have anything to add beyond that.

Speaker Change: Yeah, I think I mentioned it really well. I don't know if I'm having an ad to that.

Thank you.

Richard Kramer: All right. Thank you, Richard. Operator, we will take our last question, please.

Speaker Change: We'll go ahead and take our last question from Aaron Rakers with Wells Fargo. Please go ahead.

Aaron Rekers: Yeah, thanks for taking the question. I want to go back to the AI strategy a little bit. I know, Tim, in your prepared comments, you had mentioned, building some of your own foundational models. [inaudible]

Aaron Rekers: I'm curious of how important you think it is for Apple to have their own foundational models, and kind of dovetailed with that is that

Aaron Rekers: You know, how do you think about your data center footprint when we look at Apple spending, call it $3 billion a quarter relative to some of these other, you know, company spending, you know, multiples of that? How does the strategy play out in your opinion? [inaudible]

Aaron Rekers: Well, on the data center side we have a hybrid strategy and so we utilize third parties in addition to the

Aaron Rekers: Act, The Data Center Investments that we're making. And as I mentioned in the 500 billion, there's a number of states that we're expanding in. Some of those are data center investments.

Aaron Rekers: and so we do plan on making investments in that area and we're not gating it.

Aaron Rekers: We invest in the business first as Kevin talked about is our most important thing to do, in terms of the foundation models.

We want to-

have certain models.

Aaron Rekers: And we'll partner as well and so I don't view it as a all-of-one or all-of-the-other.

Aaron Rekers: We've been working on foundation models for quite some time and are shipping some today, obviously, with what's on device and what's in the private cloud compute.

Speaker Change: Yeah, and then as a follow-up, I'm curious with the iPhone 16E, you know, launching this quarter, you know, internalizing your C1 modem, I'm curious of how you see kind of, you know, the modem strategy playing out, or maybe just the continual deepening of that internal silicon opportunity for Apple. [inaudible]

Speaker Change: We're super excited to ship the first one and get it out there and it's gone well. We love that we can produce better products from a point of view of really focusing on

Speaker Change: Battery Life, and other things that customers want. And so we have started on a journey. This is the way I would put it.

Thank you, yeah. [inaudible]

Speaker Change: 5-8-3-1035. Please enter confirmation code 372-9688, followed by the pound sign. These replays will be available by approximately 5 p.m. Pacific time today.

Speaker Change: 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.

Thank you again for joining us today.

Speaker Change: Once again, this does conclude today's conference. We do appreciate your participation.