Q3 2019 Earnings Call
If you read them they might be down slowly.
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Please standby were about to begin.
Good day and welcome to the Apple incorporated third quarter fiscal year 2019 earnings Conference call. Today's call is being recorded at this time for opening remarks, and introductions I would like to turn the call over to Nancy Paxton Senior director of Investor Relations. Please go ahead.
Thank you good afternoon, and thanks to everyone for joining us today.
Speaking first is Apple CEO , Tim Cook and he'll be followed by CFO Luca My Eye Street and after that we'll open the call to questions from analysts.
Please note that some of the information you will 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 actual results or trends could differ materially from our forecast for more information. Please refer to the risk factors discussed in Apple's most recently filed periodic reports on Form 10-K , and Form 10-Q , and form 8-K filed with the FCC today, along with the associated press release.
Apple assumes no obligation to update any forward looking statements or information, which speak as of their respective date.
I'd now like to turn the call over to Tim for introductory remarks.
Thank you Nancy good afternoon, and thanks to all of you for joining us today.
We're thrilled to report a return to growth.
Got a new June quarter revenue record of 53.8 billion.
We saw significant improvement in year over year, iPhone performance compared to last quarter very strong performances for both Mark and I pad.
Absolutely blow out quarter for Wearables, where we had accelerating our growth and well over 50% and a new high watermark for services, where we set an all time revenue record of 11 and a half billion dollars.
When you step back and consider Wearables and services together two areas, where we have strategically invested in the last several years. They now approach the size of a fortune 50 company.
Geographically, we are happy with our performance across the board, including a return to growth in mainland China.
We accomplished these results despite strong headwinds from foreign exchange, which impacted our top line growth rate by 300 basis points compared to a year ago.
Thats equivalent to about one and a half billion dollars of revenue.
Importantly in constant currency, our revenue grew in all five of our geographic segments.
For iPhone, we generated $26 billion in revenue.
While this is down 12% from last year's June quarter. It is a significant improvement to the 17% year over year decline in Q2.
We're encouraged by the results we're seeing from the initiatives that we spoke about in January including strong customer response to our in store trade in at financing programs in fact, iPhone in our retail and online stores returned to growth on a year over year basis in the month of June .
Our active installed base of iPhone reached a new all time high and was up year over year in each of our top 20 markets underscoring the quality of our products and the satisfaction and loyalty of iPhone customers around the world.
Revenue, excluding iPhone was up 17% from last year with growth across all categories.
Starting with services, we generated all time record revenue of $11.5 billion.
Thats up 13% year over year, and if we exclude the $236 million favorable one time item from the June quarter last year services growth was 15%.
Or 18% in constant currency.
Which is consistent with our Q2 performance.
Our strong services performance was broad based.
We set new all time records for Applecare music cloud services, and our App store search AD business, and we achieved a new third quarter revenue record for the App store.
What's more we had double digit services revenue growth in all five of our geographic segments.
We surpassed 420 million paid subscriptions to services across our platform and we remain on track to double our fiscal year 16 services revenue in 2020.
In May we launched our all new Apple TV App in over 100 countries, bringing together all the ways to watch TV in a single app across iPhone, iPad, Apple TV and select Smart Tvs.
Monthly viewers in the Apple TV App in the United States are up over 40% year over year.
We've seen our success being driven here by several factors.
First the fact that we have been able to integrate content from over 150, leading content providers all in one place.
Second the same ease of use an unmatched user interface that sets Apple apart in other categories sets us apart in TV as well and third we're benefiting from a broader secular move to over the top services.
We're engaging with the third trend and five ways.
Our Apple TV hardware, Apple TV channels, where customers can choose to pay only for the channels they want.
Our massive library of over 100000 itunes movies and TV shows.
The App store, where users can find their favorite streaming services and later this year, our original programming service Apple TV plus.
Apple pay is now completing nearly 1 billion transactions per month more than twice the volume of a year ago.
Apple pay launched in 17 countries in the June quarter, completing our coverage in the European Union and bringing us to a total.
A 47 markets currently.
Based on June quarter performance, Apple pay is now, adding more new users than pay Pal and monthly transaction volume is growing four times as fast.
In the United States. In addition to a successful integration into Portland's transit system in May we're beginning the rollout of New York City Transit and will launch in Chicago later this year.
In China Applepay launch the payment card for DD, the world's largest ride hailing provider.
As I've said before transit integration is a major driver of a broader digital wallet adoption and we're going to keep up this push to help users leave their wallet at home in more and more instances.
On a related note.
Thousands of Apple employees are using Apple cards every day in our beta test and we plan to begin the rollout of Apple cart in August .
As I mentioned at the outset.
It was another sensational quarter for wearables with growth accelerating to well over 50%.
We had great results for Apple watch, which set a new June quarter revenue record and is reaching millions of new users over 75% of customers buying Apple watch in the June quarter, we're buying their first Apple watch.
We continue to see phenomenal demand for air pods, and when you tally up the last four quarters. Our Wearables business is now bigger than 60% of the companies in the Fortune 500.
We had great performance from my pad with revenue of over $5 billion and growth driven by iPad pro and by strong customer response to the new iPad mini and iPad Air.
This was our third consecutive quarter of growth and with revenue up 15% year to date, we feel great about where we're headed with I pad.
With our current lineup of iPad iPad mini iPad Air and iPad Pro we've got the perfect device for everyone from young learners to professionals.
We were also very happy with double digit revenue growth from Mac fueled by a strong performance of Mac with air and met Pro looking forward. There is an enormous amount to be excited about for Mac on the heels of our Mac. Many an imac updates earlier in the fiscal year, we brought significant updates to the bulk of our notebook line up in the last couple of months.
We now have a $999 Max air that is killer for college students and for our pro users who push the limits of what a Mac can do we were thrilled to unveil the most powerful Mac. However, the new macro and the all new pro display xdr, which will be available this fall.
They are designed for maximum performance expansion and Configurability and at break through pricing and they are the most powerful tools Apple has ever put in the hands of pro customers.
What's more the Mac ecosystem as a whole is about to get a big boost at a recent worldwide developers conference, we announced a game changing tool to help developers easily adapt their iOS and iPad apps for the Matt I'll have a bit more to say on that in a moment.
I'd like to provide some color on our performance in greater China, where we saw significant improvement compared to the first half of fiscal 2018 and returned to growth in constant currency.
We experienced noticeably better year over year comparisons for our iPhone business there than we saw in the last two quarters and we had sequential improvement in the performance of every category.
The combined effects of government stimulus consumer response to trade in programs financing offers and other sales initiatives and growing engagement with a broader apple ecosystem had a positive effect.
We were especially pleased with a double digit increase in services driven by strong growth from the App store in China.
Turning to the future.
Last week, we announced an agreement with Intel to acquire the majority of its smartphone modem business.
This is our second largest acquisition by dollars and our largest ever in terms of staff.
We're looking forward to welcoming all of them to Apple.
We see this as a great opportunity to work with some of the leading talents in this field to grow our portfolio of wireless technology patents.
To over 17000 to expedite our development of our future products.
And to further our long term strategy of owning and controlling the primary technologies behind the products that we may.
We also had our best WWDC ever last month packed with announcements of great. New features coming this fall across our four software platforms, making them more powerful more personal and more private.
For iPhone users iOS 13 will take on a dramatic new look with dark mode.
While delivering major updates to the app to use every day, including photos camera and math.
Hi, It was 13 offers great new ways to help you manage your privacy and security, including sign on with Apple, which uses space I'd or touch I'd to quickly sign into absent websites without sharing your personal.
Information.
And improvements across the entire system will make iPhone, even faster and more delightful to use than ever before.
For the first time.
I pad is getting its own version of iOS called IPO as a strategic step forward that takes the I pad experience to a whole new level.
The redesigned home screen powerful new multitasking tools and deeper integration with Apple pencil take productivity and creativity further including using your I pad.
As an extended an interactive set monitor for your math.
For Apple TV.
Tvs 13 will make the big screen experience even more personal.
With a redesigned home screen and multi users for everyone in the family can get a more engaging and tailored experience with their favorite TV shows movies sports and news.
Along with Apple music photos, and videos and icloud and an app store with thousands of great games and apps.
What's your with six is a major step forward in helping Apple watch users stay healthy active and connected.
Apple Watch now has a dedicated app store that users can access directly from the device and new watch faces Siri enhancements and music and audio features make Apple watch more useful than ever.
And of course, we continue to innovate on Apple watch its promise to be an intelligent Guardian for your help.
Watch it was six includes powerful new features like notifications that warned about high decibel noise to protect your hearing.
At cycle tracking to aid in women's health care decisions.
In the June quarter, we expanded the availability of the SCG App and a regular rhythm notifications to five additional European countries.
And added Canada in Singapore, just last week, making them available in 31 countries and regions around the world with more to come later this year.
We're very proud of the muscle we built in bringing regulated products like these to market.
This is an important competency that creates exciting opportunities for us moving forward.
As I noted earlier, we believe MCE west Catalina will be a breakthrough in the Mac ecosystem.
A new tool included in macro as Catalina called Mack catalyst gives developers a major headstart and bringing their iOS apps to the Mac.
Thousands of developers are already using it to bring their apps to the Mac ecosystem.
And we expect to see a wave of popular apps, arriving for the Mac as early as this fall.
Again, it's worth taking a step back and digesting the bigger picture here.
These updates of the latest steps in a broader strategic effort to make the user experience across iOS Mako as I pad allows us.
Watch out west and Tivo as more effortless and more intuitive.
Apple is alone in offering this kind of value and ecosystem to its customers.
And these devices and their platforms are unmatched in their ease of use their seamlessness and their privacy and security.
And while providing these things.
We've created a dynamic environment or a developers benefit greatly from creating four and distributing on these platforms.
And our customers of course benefit greatly from access to all this creativity and innovation.
We also unveiled other exciting technologies to make it easier and faster for developers.
To create powerful new apps.
So with you why provides an intuitive new framework for building sophisticated user interfaces across our software platforms.
Using simple easy to use.
Code core in mill three supports the acceleration of more types of advanced real time machine learning models.
And create and now lets developers built machine learning models without writing code.
We have the world's largest augmented reality enabled platform and thousands of they are kit enabled applications in the App store.
Building on this strategy and our momentum in this area, we introduced three new HR based technologies.
They are kit three uses on device real time machine learning to recognize the human form and integrates people seamlessly into our experiences.
Reality kit is a new developer framework built from the ground up to provide all the tools and technologies required to make a our objects virtually lifelock.
In reality composer brings a our content creation to tens of millions of developers who have no treaty experience.
Our developers are already running with these new technologies and we think our customers are going to love some of the apps that these creators have in store in the months ahead.
On so many fronts.
There is an enormous amount to look forward to over the next few months, including the launch of new services.
Like Apple arcade, Apple TV, plus an Apple card.
And without giving too much away, we have several new products that we can't wait to share with you.
Until then thanks for joining us today and for more details on the June quarter results I'll turn the call over to Luka.
Thank you Tim good afternoon, everyone.
We are happy to report that June quarter revenue record of $53.8 billion up 1% year over year.
Let me turn to growth in spite of a difficult foreign exchange environment around the world, which impacted our year over year growth rate by 300 basis points, We said June quarter revenue records in the Americas in Japan.
And the rest of Asia Pacific and as Tim mentioned earlier.
Paul our geographic segments grew in constant currency.
Overall products revenue was $42.4 billion down 2% year over year, which is significantly better than the 8% decline in product revenue that we experienced during the first half of the fiscal year.
For other categories outside of iPhone grew 20%.
With strong results in Wearables, Mac and I pad services revenue grew 13% to a new all time record of $11.5 billion.
Excluding the onetime items, we highlighted a year ago in connection with the final resolution of various lawsuits.
Services revenue growth was 16% and 18% in constant currency terms.
On a geographic basis.
We saw a marked improvement in our year over year comparisons from emerging markets relative to the first half of this fiscal year, particularly in the BRIC countries, where yield year over year performance went from 25% revenue decline in the first half to 3% growth.
In the June quarter.
We said June quarter revenue records in several major developed markets, including the US Canada, Germany, France.
Japan, Australia and Korea.
In emerging markets will return to growth in mainland China.
Grew strong double digits in India and in Brazil.
And we set new Q3 records in Thailand, Vietnam, and the Philippines.
Company gross margin was 37.6% flat sequentially and in line with our guidance.
Products gross margin was 30.4%.
Down about 80 basis points sequentially.
Due to seasonal loss of leverage and product mix, partially offset by favorable costs.
Services gross margin was 64.1%.
Up 30 basis points sequentially, primarily due to a favorable mix.
Net income was 10 billion diluted earnings per share with $2.18 and operating cash flow was 11.
$11.600 billion.
Let me get into more details for each of our revenue categories.
IPhone revenue was $26 billion down 12% compared to a year ago. This was significantly better year over year performance than last quarter, 17% decline with sequential improvement in year over year comparisons in 15 about talk top 20 markets.
Our active installed base of iPhone continues to grow to a new all time high in each of our geographic segments and in the us.
The latest survey of consumers from four or five one research indicates iPhone customer satisfaction of 99%.
Alright, iPhone 10, our iPhone tennis and tennis Max combined.
Among business buyers, who plan to purchase Mart phones in the September quarter, 83% plan to purchase I phones.
Turning to services, we reached an all time revenue record in spite of foreign exchange headwinds with double digit growth from the App store, Apple music cloud services, and applecare and triple digit growth from Apple pay and our App store search ad business.
All geographic segments at double digit growth in services revenue and set New June quarter Records with all time records in the Americas and rest of Asia Pacific in total services accounted for 21% of upward revenue and 36% of gross margin dollars.
Customer engagement in our ecosystem continues to grow the number of transacting accounts on our digital content stores reached a new all time high in the June quarter, and the number of paid accounts.
Grew strong double digits compared to last year.
We now have over 420 million paid subscriptions across the services on our platforms and we are well on our way to our goal of surpassing the 500 million Mark.
During 2020.
On the App store our growth accelerated sequentially.
Our subscription business continues to grow strongly and it's extremely diversified across many categories such as entertainment lifestyle.
Photo and video and music.
Third party subscription revenue grew by over 40%.
And across all third party subscription apps, the largest accounted for only zero point, 25% of total services revenue.
Among our many services records it was our best quarter ever for Apple care.
We are seeing an increase.
In service contract attach rates and our expanding distribution of Apple care through our partners.
We also recently expanded our authorized service provider network and nearly 1000 best buy stores across the U.S are now offering expert service and repay us what Apple products.
This expansion provides customers with an even more convenient access duty pay is using parts certified for safety quality and reliability.
In addition to Apple retail stores that are over 18, Andres third party Apple authorized service providers in the US which is three times as many locations as three years ago.
Next I'd like to talk about domestic revenue was $5.8 billion up 11% compared to last year Mac revenue growing four of our five geographic segments and said June quarter Records in the Us Europe and Japan.
Our overall market performance significantly outpaced the global PC industry.
Nearly half of the customers purchasing Max during the quarter were new to Mac.
With revenue growing in both developed and emerging markets and the active installed base of Max again reached a new all time high.
We also had great results for I pad with $5 billion in revenue up 8%.
IPad revenue grew in all five of our geographic segments with a Q3 revenue record in mainland China and double digit growth in emerging markets in total over half of the customers purchasing ipads during the June quarter, when you apply pad and the I pad active installed base also reached a new all time high.
The most recent the recent surveys from 451 research measured a 94% customer satisfaction rating for iPad from consumers and among business customers, we plan to push establishing the September quarter, 75% plan to purchase I pads.
Wearables home and accessories or accessories revenue accelerated across all our geographic segments growing 48% to over $5.5 billion and setting at June quarter record. This growth was fueled primarily by the strong performance of our Wearables business, which was up well over 50% and has become the size of a fortune 200 company over the last 12 months.
In addition, we generated double digit revenue growth from Apple TV and accessories during the quarter.
Our retail and online stores produced at best June quarter revenue Abba.
With double digit revenue growth across Apple watch I pad Mac and accessories.
Our trading program is showing great momentum with more than five times, the number of iPhone straight it in compared to a year ago.
We opened standing stores in the Carnegie Library in Washington DC.
And the busiest Shinji district in Taipei.
As well as a beautiful new location in the dial as Galleria.
We ended the quarter with 506 physical stores in 22 countries alongside our online store presence in 35 countries.
In the enterprise market, we're gaining traction with our strategy of transforming major industries by expanding our leading positions in key functional areas to grow reach and mother nice customer and employee experiences in the financial services industry 90 of the largest hundred banks by asset size are deploying apple products to improve efficiency and effectiveness across their organizations iPhone and iPad are overwhelmingly the preferred mobile devices for bankers on the go for example, 60% of the biggest banks are supporting ipads for wealth managers in retail banking two thirds of top banks are deploying I pad for branch transformation and modernizing legacy interfaces with a unified Ive had experience.
One of the world's largest banks created an I pad suite.
That reduced customer onboarding time for more than an hour to just 12 minutes.
Bank branch employees are also using Apple watch for communication and notifications and Apple TV for customer presentations from I pads using airplay.
Financial institutions also tell us that they receive positive.
Feedback from leveraging Apple solutions for direct customer engagement American Express credit Suisse discover and Tdm, Eddie trade have launched Apple business chat as a dynamic way to support.
And interact with customers.
The intuitive interface of messages on iOS enables reach communication between customers and context Center staff.
TDMA trade has also become the first brokerage in the world.
To enable immediate funding of accounts using apple pay eliminating the two to three business days it used to take to fund accounts by wire transfer.
Let me now turn to our cash position, we ended the quarter with almost $211 billion in cash plus marketable securities. We retired $3 billion of term debt and reduce commercial paper by 2 billion during the quarter, leaving us with total debt of 108 billion. As a result, net cash was $102 billion at the end of the quarter and we continue on our path.
To reaching a net cash neutral position over time.
We turned over $21 billion to shareholders during the quarter.
Including 17 billion through open market repurchases of almost 88 million Apple shares and $3.6 billion in dividends and equivalents.
As we move ahead into the September quarter I'd like to review our outlook, which includes the types of forward looking information that Nancy referred to at the beginning of the call.
We expect revenue to be between 61 and $64 billion.
This guidance includes almost $1 billion of year over year negative impact from foreign exchange.
We expect gross margin to be between 37, and a half and 38.5%.
We expect opex to be between 8.7 and $8.8 billion.
We expect oil away any to be about $200 million and we expect our tax rate to be about 16.5%.
Also today, our board of directors has declared a cash dividend of 77 cents per share of common stock.
Payable on August 15, 2019 to shareholders of record.
So August 12, 2019 with that.
I'd like to open the call to questions.
Thank you Luca and we ask that you limit yourself to two questions.
Operator may we have the first question. Please.
The first question will come from Darrin Bonnie from Evercore.
Thanks, a lot Doug Thanks for taking my question guys I guess two from me.
First I thought you could you just talk about what I think about the September quarter guide, it's implied I think up 16% or so sequentially historically at least in the guide is beating the 10% low double digit kind of range ops, just maybe help us understand what gives you the confidence for a better than seasonal guide in September .
Either from a geo product basis would be helpful.
I mean, it did say its Luca of course. This is our best estimate of where we think we land clearly we expect to have continued strong growth from then on iPhone categories. We have great momentum in Wearables, we mentioned that.
We went up almost 50% in the June quarter.
Or actually over 50% of the June quarter.
Our services business, we set an all time record.
In June and so.
These two categories have become really important to really large for us and so as we continue to grow.
Quickly that is going to help us as we go through the year keep in mind that the guidance includes an estimated almost $1 billion of foreign exchange headwind for the quarter.
Fair enough, that's really helpful and I guess, if I just follow up on China also impressed to see the continued recovery you guys are seeing that despite all the headlines that are out there.
Just curious what are the few things that are driving the success in China and how sustainable do you think those changes all for Apple as you go forward.
Yes, hi, its Tim and I apologize for my voice Im suffering from analogy, but.
What happened last quarter in China was is a confluence of things.
The government stimulus. This came in terms of a VIP reduction on a.
Very bold one.
We took some pricing action.
We.
Instituted are trading and financing programs in our retail stores and.
And.
Worked with certain channel partners on that as well and we're seeing a growing engagement with the broader apple ecosystem during the quarter and so when you look at it.
Each of our categories.
IPhone iPad Mac.
Wearables services everything improved sequentially.
So we couldn't be happier with the results are the are the progress I should say.
What I would point out is I think I'd mentioned in my comments.
That we actually grew in constant currency for greater China, and we grew in mainland China on a on a reported basis. So.
There's there's several things going on there.
Are quite positive.
Thank you on it we have the next question. Please.
And that question will comes from Shannon Cross with Cross research.
Thank you very much.
Can you talk a bit about what's going on within services some of the puts and takes.
Luca you gave us some color in terms of the growth rates in that but.
Just curious.
And I know you talked about your products, but.
As you think about the opportunity you think about what you've got now in the future and then some of what's been going on with China and that.
Is this something that could reaccelerate or you know again, the 18% on a currency that constant currency basis is obviously quite strong but that how are you thinking about it.
Yeah, I think I think it's important to start with that 18% in constant currencies.
Shannon Amp.
Our reported results are.
On a normalized basis, removing the one time items from last year was 15% to clearly FX you know plays a role around the world at 300 basis points of FX impact during the June quarter in spite of that.
It Wasnt all time.
Record revenue.
Our installed base continues to grow.
It's growing in every geography, and it's growing across all our major product categories and that is very very important for.
The services for the services business.
I would say I'll give you a bit more color around two offsetting factors around this performance during the June quarter on one side.
The App store I mentioned in my prepared remarks that the growth accelerated sequentially.
We had double digit growth on the App store in every geography.
In China, we saw significant acceleration.
As you know.
We tend to monetize in China on the App store through game titles and and the government has approved a few key game titles during the during the quarter that has helped our performance there.
On the other side.
Applecare I mentioned applecare was an all time record in June so it really strong performance, but our growth has decelerated and Apple kit.
Due to factors that we fully expect that.
Because we are we are comping.
This expansion of our coverage for Apple CAD that we've had we've had significant success.
During the last 18 to 24 months in really broadening our coverage of output care around the world with some key partners carry us and resellers and obviously.
As we go through the year, those comps become a bit more difficult.
Well, having said all that.
You know that we've given ourselves a couple of targets and we feel very confident about the reaching those targets. The first one is that we wanted to double the size of the services business from our fiscal 16 to 2020, we are on on our way there a paid subscription fees and other target is important to us its a.
An important way for us to monetize our ecosystem.
We set a target of a surpassing.
Half a billion paid subscriptions on the ecosystem. During 2020, we had already a 420 million now so we feel confident there and of course as you mentioned and we are very excited about the fact that we're going to be launching new services soon.
As Tim said.
We starting the rollout of Apple cards in August and just two more very important services that we're going to be adding 12 portfolio. During the fall. One example, arcade which is our.
Gaming subscription service and and of course, Apple TV plus she's our video streaming service. So obviously these services will help us.
Carry on with the momentum that we had in services.
Great. Thank you Adnan this is probably for you too as well Luke.
Can you talk about gross margin.
The guidance, let's let's pretty solid obviously there are various things that are at play here.
I know you mentioned $1 billion worth of topline impact I think from currency next quarter. Then maybe if you can kind of talk about what will then share your gross margin guidance. Thank you.
Yes, so of course shutter and as you've seen our guidance for margin is 50 basis points higher than the guidance that we had given for June .
I would say on the positive.
We expect to benefit from leverage as you've seen from our revenue guidance and from cost savings because as as you know the commodity environment is fairly favorable right now.
On the negative side the headwind on gross margins on a year over year basis from foreign exchange is about 100 basis points and so we need to keep that in mind, but we feel pretty good about the guidance we provided.
Thanks, Shannon could we have next question please.
Our next question will come from Katy Huberty with Morgan Stanley .
Yes. Thank you I'd like to go back to the discussion around strength in China in the quarter and understand what linear already looked like I asked because there was some industry data around the smartphone market in China.
That seemed to deteriorate in the month of June the App store data deteriorated a little bit in June and just curious if that's something you saw on the business and if it all informs you where your outlook around that the pace of.
The China business as you go into September .
Katy It's Tim we obviously took into account all of the information that we had covenant with the guidance.
Including linearity across last quarter and how the this quarter has has started.
And so.
We obviously look at betting.
Quite quite much detail.
And then just on the App store appreciate there's not a lot of detail out around the exact timing and even some pricing of the new services, but.
Or how should we think about the new services that launched in March impacting.
The overall services growth does does that start to benefit the model in the back half.
Of this calendar year or will the impact to be more longer term in nature and really show up in 2020.
Let me let me just talk about the new services that we've announced in March and then we'll talk about the timing of how we get to revenue right.
We've announced that Apple news Plas and disease to service that is available.
For consumers right now we've announced our channel service, which has also become available a few weeks ago. The other three services. The card is launching in August the the gaming service and the video service are starting in the fall keep in mind for all these services Thats at triumph picked it up from there is going to be different trial periods, we'll see what that what they look like so the road to monetization takes some time, obviously all of them will add to our base and that will help us and we'd growth rates as we get into next year.
Thank you Katy could we have the next question. Please.
That question will comes from Krish, Sankar with Cowen and company.
Hi, Thanks for taking my question I have two of them first one.
On the iPhone trade in program Hall effect will sit on.
What percentage of the iPhone sales came from the trade ins and are there any other geographies video left to roll it out and then as a follow up.
Hi, it's Tim in retail it was quite successful we got.
Going into in a larger way during that quarter, we were pretty much just ramping in the previous quarter.
Hi, and trade in as a percentage of their total sales is.
Is significant and financing is.
Is a key element of it.
Those two things in the aggregate.
OLED retail the combination of retail and online we just short form that is retail are.
Apple store led to growth in June and so we feel very very good about the trajectory.
We are obviously taking as programs.
And advocating those more widely and.
That is that different.
Levels of implementation throughout different geographies that were working with.
Art.
Carrier partners on on those and retail partners.
Got it got it that's very helpful. Tim and then a follow up.
For you a much longer term question I understand you had in the very early innings of the services growth story.
Is there any way to think of all did down the road that three or five years down the road with the services growth be focused or would it still be tethered to the hardware the iPhone or do you think at some point down the road. So those would be independent by itself and not really tied to hardwood installed base.
Well there are elements today that are not necessarily tethered to iPhone right, we have other products.
Where people are both purchasing things, they're watching Apple TV.
We offer Apple music on Android and so Theres a series of things that are that are outside of that and so we'll see what we do in the future I don't I don't want to really get in get into that but more broadly to answer your question about growth as we go forward.
The way I see it as we have the strongest hardware portfolio ever we've got new products on the way.
The pipeline is full of great new stuff on the product and the services side.
We're very fortunate and it worked very hard to have a loyal customers and to continue attracting a unimpressive number of switchers. The installed base is growing hit a new record. That's obviously, good and it hit a new record across.
All geographies and across all categories and so this is Uh huh.
This is a really good thing.
And we've got the Wearables area that is.
You know doing extremely well, we we stuck with that when others.
Perhaps didn't and really put a lot of energy into this and a lot of R&D and are in a very good position today to keep.
Playing out the what's next there at the same time on the market side, we have.
Emerging markets, where we have low penetration.
And indeed during the quarter tactically emerging markets had a bit of a rebound in fact on a constant currency basis, we actually grew.
Slightly in emerging markets, we still declined on a reported basis.
India bounced back during the quarter, we returned to growth there.
We're very happy with that we grew in Brazil as well.
We're also continuing to focus on the enterprise market Luca mentioned some of this in his his comments and we think that continues to be.
Big opportunity for US and then we've got lots of what I would call core technology kinds of things like augmented reality, where we're placing big bets and and.
That that we have a.
Vic future in addition to the.
The helped the kinds of things that May may fall out of the water.
And so hopefully that kind of gives you a view over the total and.
So we're focusing on products and services and there will be some services that that.
Art hoped and some that some that are hooked not on current period sales are mostly.
Very much services are rarely connected on that today or at least not a high percentage by any means theyre they're more.
Correlated to the installed base the active installed base and also the the level of transacting customers that are there.
And the amount per customer.
Which relates also to the offering that we have.
Thank you Chris we have the next question please.
Next we'll go to Wamsi Mohan with Bank of America Merrill Lynch.
Yes. Thank you.
Tim the China trade situation remains total fluid over here and.
Recently more recently you ask wholesome tariff exceptions were not granted those how are you thinking about the longer term footprint for manufacturing and can you talk about any potential alternatives that you looked at and considered in moving parts of production potentially out of China and I will follow up.
Yes, I know, there's been a lot of speculation around the topic of different moves and so forth I wouldn't put a lot of stock into those if I if I were you.
The way that I view. This is the vast majority of our products are kind of made everywhere.
There's a significant level of content from the United States.
And a lot from a.
Japan to Korea to China, and and the European Union also contributes a fair amount and so.
That's the nature of a global.
Supply chain I think.
Largely I think that will.
Carry the day and.
In in the future as well in terms of the exclusions.
We've.
And making the macro and the U.S., we want to continue to doing that and so.
We are working and investing currently in capacity to do so because we we want to continue to to be here and so thats whats behind the exclusions and.
So where we are.
Explaining that and.
And hope for a positive outcome.
Okay, Thanks, Tim and Anders Luca maybe for you there has been some significant destocking of inventory in the first calendar half of this year and iPhone can you comment about the broader channel inventory levels, where you are in your typical ranges, especially given the comment around June iPhone sales being quite strong and when do you expect anything atypical in channel inventory dynamics in the September quarter. Thank you.
Yes, Wamsi as you know, we not getting into this topic very much but but.
I think I can give you some color here you know that in January we decrease our inventory during the March quarter ended June quarter that has been traditionally what we've done this year, we reduced channel inventory for iPhone slightly more.
And last year.
And that is true in Toronto, and it's true for greater China as well. So we feel very good about our channel inventory.
Ranges as we get into the September quarter, I hope that that helps you with that.
Thank you Anthony and we have the next question. Please.
Our next question comes from Jim Suva with Citigroup.
Thanks, So much. The first question is probably for several months will move more and more optimal.
For some time, so we can pick and choose whichever one wanting to put your second bone multiples question Kim.
Regarding the install base comment you've made which is quite encouraging but yet when you look at the port slowdown will be year over the past. Several calls has been down can you help bridge the gap on how installed base well will mostly be called like secondary using all the new loans coming into the system as people holding more phones longwall and what does that mean youre keeping began damang slump in the mood relative to what we historical norm and then for Luka.
Boston will walk a lot lot lot bin Laden services are now coming to pass whether it be Apple care Apple Qual, all these wearables and seen Apple pay March eight are we at a point, where now a lot of harvesting is going to happen. When you kind of continue that relatively soon.
No that you've been doing for the future strategy. Thank you.
Hey, Jim its Tim I'll start with your installed base question.
Install base is a function of.
Upgrades and you know the the time between those.
It's a function of the number of switchers coming into the to the iOS macro us.
And so forth chance, it's a function of the robustness of the secondary market, which we we think.
Overwhelmingly hits incremental customer.
And it's a function still in the emerging markets.
And somewhat developed markets to a lesser degree of people.
I knew that.
They are buying their first smartphone there are still quite a few people in the world in that category and so the reason that the installed base doesn't correlate to the to the 90 day clock is that what's happening underneath the numbers is switchers are still a very key piece of what's going on the secondary market is is very key and we are doing programs et cetera.
Then they were they are staying in the ecosystem.
And and then you have the people in the new category.
As well and so that's sort of the equation.
I don't want to go into the specific numbers, but I think you can see readily mathematically.
How the.
Installed base is growing.
In an environment, where the I phone revenue is declining within a 90 day kind of window.
And Jim on on.
APAC sat it obviously is very important for us to continue to invest in the business, particularly on the R&D side, because we will always want to bring more innovation into the market that we want to improve the user experience and differentiate our products and services in the marketplace. So.
Where we continue to do that there are some pack types of investments of course that are very strategic for us and they will have long term implications youve seen the announcement that we made around the Dean tell acquisition, a very important strategically for us it requires upfront investment of course as you've seen from.
This quarter and also from the past we will continue to run our SGN a portion of Opex tightly we of course will continue to invest in marketing and advertising we talked about a lot allowed new services that we are launching during the fall and Apple.
Next month.
Obviously.
Are they really y E.
Okay.
Thanks.
Not yet.
Uh huh.
When you look at it.
Total okay.
That's right.
Right.
You bet.
Yeah, you know in quite a while that we are extremely competitive relative to other tech companies. So we want to continue to to be competitive and at the same time, we will nod to under invest in the business.
Thank you Jim can we have the next question. Please.
The next question will come from SMIC Chatterji with JP Morgan.
Hi, Thanks for taking the question I just wanted to start off with the announcement of T. W. W. D. C. Clearone de independent all independent App stores for the war somebody like Bugs [laughter] <unk> what level of interest have you seen some level of pulls on hold to thinking about the ability to monetize services independently on those app stores and how does the time people just let it was more formally into the health and fitness category.
We're seeing a good interest across virtually everything that we announced it WWDC Alec I couldn't be happier with it.
The developer tools around a arca and and I are in general that I went through earlier lots of interest there lots of interest from the watch App store to the.
Catalyst a that will be released with Michael S., Catalina, which allows developers quickly to port a iOS app to the Mac. We think we think this is huge and and so great for.
The user experience and so you look at all of these and all the things that I talked about earlier and I couldn't be happier with the reception that we're getting and the work that is going on behind the scenes a right now to a ready for the developers readying their apps for the fall.
Got it okay. If I can just follow up on the China market one of the things that are we looking that is with the HM.
Going into the New York and between 20 there'd be a lot of fiveg phones launching in the market from the Android Jews, how you're thinking about the competitive landscape and as you enter next year.
Well, we don't comment on on a future products.
You know with respect to five G. Its I think most people would tell you. It's we're in sort of the extremely early early innings of it.
And even more so.
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