Every quarter after releasing financial results, Apple CEO Tim Cook and its CFO—now Kevan Parekh, since the semi-retirement of Luca Maestri—hop on a conference call with analysts to detail the quarter gone by, give a peek at what’s to come, and creatively avoid answering any pointed questions from analysts. This is Six Colors’s transcript of the call.
Tim Cook’s opening statement
Good afternoon, everyone, and thanks for joining the call.
Before I talk about our results, I’d like to take a moment to acknowledge the devastating wildfires that impacted the Los Angeles area this month. From our retail teams to Apple TV+, Apple Music, Fitness+, Beats, and more, L.A. is home to many of our team members. Our thoughts are with everyone who is beginning the road to recovery. For our part, we are contributing to the relief efforts, and we will continue to support our teams and the local community.
Now, turning to the quarter. Today, Apple is reporting revenue of $124.3 billion for the December quarter, up 4% from a year ago, and an all-time record. EPS also set an all-time record of $2.40, 10% higher year-over-year. We achieved all-time revenue records across the majority of the countries and regions we track, including the Americas, Europe, Japan, and the rest of Asia-Pacific. We also continue to see momentum in emerging markets, setting all-time revenue records in a number of markets, including Latin America, the Middle East, and South Asia, among others.
In services, we achieved an all-time revenue record, and in the past year, we’ve seen nearly $100 billion in revenue from our services business. I’m also pleased to announce that we reached a new record for our installed base with over 2.35 billion active devices.
In October, we released the first set of Apple Intelligence features in U.S. English for iPhone, iPad, and Mac, and we rolled out more features and expanded to more countries in December. Now, users can discover the benefits of these new features in the things they do every day. They can use Writing Tools to help find just the right words, create fun and unique images with Image Playground and Genmoji, handle daily tasks and seek out information with a more natural and conversational Siri, create movies of their memories with a simple prompt, and touch up their photos with Clean Up. We introduced Visual Intelligence with Camera Control to help users instantly learn about their surroundings. Users can also seamlessly access ChatGPT across iOS, iPadOS, and macOS, and we were excited to recently begin our international expansion with Apple Intelligence now available in Australia, Canada, New Zealand, South Africa, and the UK.
We’re working hard to take Apple Intelligence even further. In April, we’re bringing Apple Intelligence to more languages, including French, German, Italian, Portuguese, Spanish, Japanese, Korean, and simplified Chinese, as well as localized English to Singapore and India. And we’ll continue to roll out more features in the future, including an even more capable Siri. Apple Intelligence builds on years of innovations we’ve made across hardware and software to transform how users experience our products.
Apple Intelligence also empowers users by delivering personal context that’s relevant to them. And importantly, Apple Intelligence is a breakthrough for privacy and AI with innovations like Private Cloud Compute, which extends the industry-leading security and privacy of Apple devices into the cloud. Apple Intelligence opens up an exciting new frontier and is already elevating experiences across iPhone, iPad, and Mac. We’re going to keep investing in innovation and in transformative tools that help users in their everyday lives.
Let me now turn to our results for the quarter, starting with iPhone. iPhone revenue came in at $69.1 billion, reaching all-time iPhone revenue records in dozens of markets and regions. Our iPhone 16 lineup takes the smartphone experience to the next level in so many ways, and Apple Intelligence is one of many reasons why customers are excited. With the A18-powered iPhone 16 and iPhone 16 Plus, users are getting a big boost in battery life and incredible camera experiences with camera control. Our amazingly powerful iPhone 16 Pro models go even further, with larger-than-ever displays and a pro camera system so advanced, it can turn moments into masterpieces.
In Mac, revenue was $9 billion for the December quarter, 16% higher year-over-year, driven by significant excitement around the world for our latest Mac lineup. The Mac is more than just a powerful tool, it’s a launchpad to enable users to bring their best ideas and boldest creations to life. And there are so many reasons to choose Mac, from the breathtaking performance of the M4 family of chips to the groundbreaking and growing capabilities of Apple Intelligence. Every product in the Mac lineup offers something extraordinary, whether that’s the super-portable MacBook Air, the powerhouse MacBook Pro, the world’s best all-in-one iMac, or the small wonder that is the Mac Mini, which is not only stunningly capable, but is our first carbon-neutral Mac. All of this is enabled by the unparalleled power of Apple Silicon.
iPad revenue was $8.1 billion, up 15% from a year ago, driven by strong interest for our latest products. We love hearing from customers who are discovering for the first time the versatility of iPad, from the ultra-portable iPad Mini, built from the ground up for Apple Intelligence, to the powerful M4 iPad Pro in a stunningly thin and light design. iPad is there for our users whenever they need it, and wherever they go, and we are pleased to see so much excitement and enthusiasm for our lineup.
Wearables, Home and Accessories revenue came in at $11.7 billion. With its most advanced display yet, and a thinner, more comfortable design, the all-new Apple Watch Series 10 is the perfect companion to help users pursue their health and fitness goals this year. From the powerful Vitals app to more customizable activity rings, users have an ever-increasing set of innovative health tools at their fingertips in WatchOS 11. Health innovation has long been a focus for us, and we’re committed to continuing to advance this work because we know how much it matters to our users. We’ve introduced new hearing health features on AirPods Pro 2, and new sleep apnea notifications on Apple Watch are also helping users learn of a potentially serious condition that’s thought to affect up to a billion people worldwide. During the quarter, we also brought Apple Vision Pro to even more countries, enabling more customers to discover the magic of spatial computing. Users are enjoying incredible, immersive entertainment experiences and powerful new features and enhancements to Mac Virtual Display. Vision Pro is also supercharging the creative process, and the incredibly talented director John M. Chu recently shared how its extraordinary capabilities helped him bring the movie “Wicked” to life.
Turning to Services, we set an all-time revenue record of $26.3 billion for the December quarter, growing 14% from a year ago. We set all-time records in the Americas, Europe, and Rest of Asia-Pacific, and a December quarter record in Japan. Five years since launch, Apple TV+ continues to be home to incredible storytelling that viewers love. There’s nothing quite like the anticipation that comes when a fan favorite returns, and we were thrilled to debut the second season of “Severance” earlier this month. We have so much in store for our subscribers this year with new shows like “The Studio” and “Your Friends and Neighbors.” And we can’t wait for the premiere of “Formula 1,” starring Brad Pitt, on June 27th, which will take viewers inside the sport in a truly unprecedented way. We’re excited that Apple TV+ continues to draw attention and accolades. To date, Apple TV+ productions have earned more than 2,500 nominations and 538 wins. During the quarter, we were also excited to launch a new Find My service that can help our users when they lose their luggage. For the first time, if you put an AirTag in your suitcase, you’ll be able to share its location information with many major airlines so they can quickly track down your bags if they get lost.
Turning to Retail, our teams went above and beyond to help customers find the perfect gift throughout the holiday season. We also celebrated openings of new stores in China, Spain, and the U.S., and we were excited to announce plans to connect with even more customers this year by adding a fifth store in the UAE and bringing our online store to Saudi Arabia this summer. We can’t wait to welcome customers to the first of several flagship store locations in Saudi Arabia that we’re opening beginning in 2026. I just had the chance to visit both countries last month, and I had a great time meeting with customers and team members. There’s an incredible energy and passion for technology in these growing markets.
Every day, I get deeply moving notes about the many ways our technology is enriching our users’ lives. I recently got a note from a customer who put his watch on his father’s wrist when he feared something was wrong with him. The watch alerted them that the father was in AFib and they were able to get him to the hospital for potentially life-saving treatment. Another user put his new watch on for the first time, and within 15 minutes was notified of a low heart rate that led to a necessary pacemaker. And there are so many touching notes around the profound impact of our new hearing health feature, like a recent user who told me it had changed her life, allowing her to take part in conversations with her children and grandchildren.
These are the kind of stories that remind us of how profoundly important our work is, and it drives us to innovate each and every day. At Apple, the future is full of promise and potential. We’re always searching across a world of possibilities, finding those places where we can do the most good, and putting all of our energy and ingenuity into making something special. With that, I’ll turn it over to Kevan.
Kevan Parekh’s opening remarks
Thanks Tim, and good afternoon everyone. I’m going to cover the results for the first quarter of our fiscal year. We are very pleased to report an all-time high for revenue, with December quarter revenue of $124.3 billion, up 4% year over year. We achieved all-time revenue records in the Americas, Europe, Japan, and Rest of Asia-Pacific, and grew in the vast majority of markets we track.
Products revenue was $98 billion, up 2% year over year, driven by growth from iPad and Mac. Thanks to our incredible customer satisfaction and strong loyalty, our installed base of active devices reached an all-time high across all products and geographic segments and is now over 2.35 billion active devices.
Services revenue reached an all-time record of $26.3 billion, up 14% year-over-year. We grew in every geographic segment and achieved all-time records in both developed and emerging markets. Company gross margin was 46.9 percent, at the high end of our guidance range and up 70 basis points sequentially, primarily driven by favorable mix. Products gross margin was 39.3 percent, up 300 basis points sequentially, primarily driven by favorable mix and leverage. Services gross margin was 75%, up 100 basis points sequentially, primarily driven by mix. Operating expenses of $15.4 billion landed at the midpoint of our guidance range and up 7% year over year. This strong business performance resulted in all-time records for both net income at $36.3 billion and diluted earnings per share of $2.40, up 10% year-over-year. Operating cash flow was also strong at $29.9 billion, which included the impact of the $11.9 billion we paid during the quarter in connection with the State Aid decision. Now I’m going to provide some more details for each of our revenue categories.
iPhone revenue was $69.1 billion, roughly flat to the prior year. We grew in the majority of markets we track and reached all-time revenue records in several developed markets, including Canada, Western Europe, and Japan, and in emerging markets like Latin America, the Middle East, and South Asia. The iPhone Active Install Base grew to an all-time high in total and in every geographic segment. We also set an all-time record for upgraders. According to a recent survey from Kantar, during the December quarter, iPhone was a top-selling model in the U.S., urban China, India, the UK, France, Australia, and Japan. We continue to see high levels of customer satisfaction in the US at 96%, as measured by 451 Research.
Mac generated $9 billion in revenue, up 16% year over year. We saw strength across our lineup, from the new Mac Mini to the latest MacBook Air and MacBook Pro models. This incredible performance was broad-based, with double-digit growth in every geographic segment. With our latest advances in Apple Silicon and our fastest neural engine ever, customers are able to take advantage of the full capabilities of AI on Mac. The Mac installed base reached an all-time high, and we saw double-digit growth for both upgraders and customers new to the Mac. Additionally, customer satisfaction in the U.S. was recently measured at 94%.
iPad revenue was $8.1 billion, up 15% year-over-year, driven by the new iPad mini and latest iPad Air. The iPad installed base reached another all-time high, and over half of the customers who purchased an iPad during the quarter were new to the product. Customer satisfaction was at 96% in the U.S. based on the latest reports from 451 Research.
Wearables, Home and Accessories revenue was $11.7 billion, down 2% year over year. Customers are excited about the new AirPods 4 and the latest hearing health features in AirPods Pro 2. On Watch, although we face a difficult compare against a watch Ultra 2 launch last year, the Apple Watch installed base reached a new all-time high, with over half of customers purchasing an Apple Watch during the quarter being new to the product. Customer satisfaction for Watch in the U.S. was reported at 94%.
Our Services revenue reached an all-time high of $26.3 billion, up 14% year-over-year. Services continues to see strong momentum, and the growth of our installed base of active devices gives us great opportunities for the future. We also see increased customer engagement with our Services offerings. Both transacting and paid accounts reached new all-time highs, with paid accounts growing double digits year-over-year. Paid subscriptions also grew double digits. We have well over a billion paid subscriptions across the Services on our platform. We remain focused on improving the breadth and quality of our Services offerings, from new games on Apple Arcade to exciting new programming on Fitness+. And the continued expansion of features like Tap To Pay, now live in 20 markets.
Turning to Enterprise, we have seen business continue to expand their deployments of our products and services. Deutsche Bank launched its Mac As Choice program for their developers, and also issued the latest MacBook Air as a standard for their entire mortgage lending division, and we’re excited to see leading enterprises such as SAP leverage Apple Intelligence in the U.S., with features like writing tools, summarize, and priority notifications to enhance both their employee and customer experiences. We also see strong demand in our emerging markets. For example, Zomato, a leading food ordering and delivery company in India, has deployed thousands of Macs across their workforce to foster innovation. And Vision Pro continues to see more use cases in enterprise, with Cisco’s new Spatial Meetings delivering a fully immersive video conferencing experience for remote collaboration and learning.
Let me quickly summarize our cash position and capital return program. We ended the quarter with $141 billion in cash and marketable securities. We repaid $1 billion in maturing debt and decreased commercial paper by $8 billion, resulting in $97 billion in total debt. Therefore, net cash at the end of the quarter was $45 billion. During the quarter, we returned over $30 billion to shareholders. This included $3.9 billion in dividends and equivalents and $23.3 billion through open market repurchases of 100 million Apple shares. As usual, we will provide an update to our capital return program when we report results for the March quarter.
As we move ahead into the March quarter, I’d like to review our outlook, which includes the types of forward-looking information that Suhasini referred to at the beginning of the call. The color we’re providing today assumes that the macroeconomic outlook doesn’t worsen from what we’re projecting today for the current quarter. As the dollar has strengthened significantly, we expect foreign exchange to be a headwind, and to have a negative impact on revenue of about 2.5 percentage points on a year-over-year basis. Despite that headwind, we expect our March quarter total company revenue to grow low to mid-single digits year-over-year. We expect services revenue to grow low double digits year-over-year. When you remove the negative impact of the foreign exchange headwinds I described earlier, the year-over-year growth rate would be comparable to that of the December quarter.
We expect gross margin to be between 46.5% and 47.5%. We expect operating expenses to be between $15.1 billion and $15.3 billion. We expect OI&E to be around negative $300 million, excluding any potential impact from the mark-to-market of minority investments, and our tax rate to be around 16 percent.
Finally, today our Board of Directors has declared a cash dividend of 25 cents per share of common stock payable on February 13, 2025, to shareholders of record as of February 10, With that, let’s open the call to questions.
Analyst Q&A
Eric Woodring, Morgan Stanley: Great, guys. Thanks so much for taking my questions. Tim, in your prepared remarks, you had noted that iPhone 16 models are selling better in markets where Apple Intelligence is available, and I’m just wondering if you could double-click on that comment a bit and share any other details you believe could better help us understand how Apple Intelligence is really impacting iPhone demand. And/or what features do you find that users are using most often already?
Tim Cook: Yeah, Eric. Hi, it’s Tim. We did see that the markets where we had rolled out Apple Intelligence, that the year-over-year performance on the iPhone 16 family was stronger than those where Apple Intelligence was not available. In terms of the features that people are using, they’re using all of the ones that I’d referenced in my opening comments from Writing Tools to Image Playground and Genmoji to Visual Intelligence and more, and so we see all of those being used. Clean Up is another one that is popular, and that one demoed in the stores as well. We only had two, two and a half weeks or so during the December quarter of the second release of 18.2, and then only had the UK and the other English language countries for the two and a half weeks, and so we’ve got just the early indications at the moment.
Eric Woodring, Morgan Stanley: Thank you for that color, Tim, it’s helpful. And then if we just touch on China, obviously, in the news fairly frequently. If we set aside China macro, which I understand is still challenging, can you maybe talk about the headwinds that Apple faces, whether that’s shifting preferences for Western technology brands in favor of domestic vendors? Or is this just a function of not necessarily having Apple Intelligence available with the iPhone 16, which is not necessarily helping replacement cycles? Just maybe double clicking on what you think and what you’re hearing in China as it relates to the iPhone.
Tim Cook: Yeah, sure. If you look at our Greater China Revenue for the quarter, we were down 11% year-over-year, and over half of the decline that we experienced was driven by change in channel inventory from the beginning to the end of the quarter. And of course on the Apple Intelligence side, we have not rolled out in China, and as we just talked about, we did see better results in the markets that we had rolled out in than markets we hadn’t rolled out in. And of course, it’s the most competitive market in the world, and so all of those things are true. In terms of the macro situation, there was a fiscal stimulus or subsidy announced very recently in January that did not affect the December quarter. There were some provincial subsidies in the December quarter, but the national program was announced, I believe, on January 20th. And it does cover the categories that we have products in, from smartphones to tablets and PCs and smartwatches up to a maximum price point, and so we do see fiscal stimulus occurring and we’ll be glad to talk about what that looks like on the next call.
Ben Reitzes, Melius: Hey, guys. Thanks a lot for the question, and hey, Tim, I wanted to ask you, you knew this one was coming, but there’s a perception that you’re a big beneficiary of lower cost of compute, and I was wondering if you could give your worldly perspective here on the Deep Seek situation, and if anything’s happened to change your views in terms of a tailwind to margins and your ability to execute, even, due to the potential for cost to come down due to that development and probably what was going to happen anyway. But love your perspective on that.
Tim Cook: Sure. In general, I think innovation that drives efficiency is a good thing and that’s what you see in that model. Our tight integration of silicon and software, I think, will continue to serve us very well. As you know, we do things on the device and we do things in the private cloud, which mimics from a architectural point of view what happens on device, and from a CapEx point of view, we’ve always taken a very prudent and deliberate approach to our expenditure and we continue to leverage a hybrid model, which I think continues to serve us well.
Ben Reitzes, Melius: Oh, great. All right. Thanks, Tim, and then, just with regard to, the iPhone trajectory, you obviously don’t talk about new products and stuff like that, but do you feel that there’s a lot of room for form-factor innovation in the future, or do you feel that the current lineup shows where you’re going? I guess, without pulling punches, wondering if you you thought, in terms of the phone innovation if there’s a lot more to come and you could see the kind of current market changing a bit over the next two to three years?
Tim Cook: Ben, I think there’s a lot more to come and I could not feel more optimistic about our product pipeline. So I think there’s a lot of innovation left on the smartphone.
Michael Ng, Goldman Sachs: Good afternoon. Thank you for the question. I have two as well. First, it was encouraging to hear about the record for iPhone upgraders, which I think is something you haven’t said for about a year now. I was wondering if you could talk a little bit about what you would attribute this upgrade strength to, has Apple Intelligence played a role in helping upgrades in the markets that you’ve launched in? Thanks.
Tim Cook: Thank you for the question. If you look at iPhone, we did set an all-time record for upgraders, we’ve never seen a higher level of upgraders before. The installed base hit a new all-time high as well, and if you look at the 16 compared to the 15 from launch, which occurred as you know, in September, so this is across now two quarters from September to the end of the December fiscal quarter, the 16 outperformed the 15. And so I think you can conclude from that that there are compelling reasons to upgrade, and in the markets where we had launched Apple Intelligence, they outperformed the markets that we did not. Lots of good color there.
Michael Ng, Goldman Sachs: Thank you, Tim. That’s very clear, and then, I had one about the iPad Pro M4, the inner version. I was just wondering if you could talk about that thin form factor for the iPad Pro, how did it help iPad sales overall and what did your kind of marketing consumer research tell you about how consumers value that thin product form factor?
Tim Cook: It’s a good question. iPad overall grew 15% for the quarter, and it was more driven by iPad Air and the entry-level iPad than it was the top-level iPad. But overall, we could not be more pleased with the iPad category growing 15%. It’s a great achievement for the quarter, and probably what is most important is that over half of the sales in the December quarter went to customers who were new to the iPad. So that tells us that there’s a good amount of customers there to attract.
Amit Daryanani, Evercore: You folks are seeing some very robust growth trend in emerging markets right now for Apple products. Could you, at a high level, discuss the durability of growth that you see in emerging markets and do you think that some of the emerging markets are starting to get big enough or perhaps on the growth path enough that they can actually offset some of the china headwinds.
Tim Cook: We have great results in a number of emerging markets, and as you know from past calls, particularly keen on India. India set a December-quarter record during the quarter, and we’re opening more stores there, we’ve announced that we’re going to open four new stores there. The iPhone was the top selling model in India for the quarter, and it’s the second largest smartphone market in the world and the third largest for PCs and tablets, and so there’s a huge market, and we have very modest share in these markets, and so I think there’s lots of upside there, and that’s just one of the emerging markets.
Kevan Parekh: Tim, maybe I’ll add, Amit, that in emerging markets are also seeing double the growth on the installed base, both in total and for the iPhone as well. So that’s also an encouraging sign.
Amit Daryanani, Evercore: Perfect. Thank you. And then just a question on gross margins for the March quarter. You folks are guiding gross margins flatter on a sequential basis. It tends to be guided up a little bit, 50 basis points or so sequentially. Can we just touch on what are the offset, the puts and takes you see on gross margins? And, Kevan, maybe you can talk about is FX having an outsized impact in your margin profile as well in March.
Kevan Parekh: Yes, Amit, let me take that one. As we mentioned in my remarks, we’re guiding to 46.5% to 47.5%. So we think we’re very pleased with that level of guidance. As you mentioned, there’s always puts and takes. We do think there’s going to be some FX headwinds, which we talked about, that’s going to affect our revenue growth as well. It’ll have an impact here on the margin, a sequential impact on margins. But we think that’s going to be offset by favorable costs and the relative mix of services. We also, as you know, when we move from Q1 to Q2, especially on the product side, because Q1 is such a large quarter for our products business, we do have a loss of leverage. So there are some puts and takes, and I think we feel good about the range. We think it’s a very, very strong guide for gross margin.
Wamsi Mohan, Bank of America: Tim, I want to follow up on your comment about channel inventory in China. I was wondering if you could maybe address more broadly if channel inventory across your different product lines and regions, do you feel they’re elevated or out of range in any other regions? And given the clearing event that kind of happened in China I guess in the quarter, should we think of a more normal progression quarter and quarter into the March quarter in China in particular?
Tim Cook: Yeah, I don’t want to project sales for the current quarter by region, but if you look at the channel inventory and look at iPhone in the aggregate, so on a worldwide basis, we’re very comfortable with our channel inventory position. In China, my point was that our channel inventory reduced from the beginning of the quarter to the end of the quarter, and that was over half of the reduction in the reported results, and so if you look, part of the reason for that is that our sales were a bit higher than we forecasted them to be toward the end of the quarter and so we ended a little leaner than we had expected to.
Wamsi Mohan, Bank of America: Okay, that’s very clear. Thank you. Your services growth has been very strong and I know you’ve kind of been navigating some pretty challenging regulatory burdens on the business globally. So how should investors think about maybe either a top-line or margin headwind that let’s say you are currently absorbing in your results that could potentially maybe reverse in a more balanced regulatory environment?
Kevan Parekh: So, I wanted to kind of reiterate the fact that our services business set an all-time record for December quarter, up 14%, and that was one strength that we saw across all geographic segments and also was very broad based across all of our services. So we have, as you know, a very broad services portfolio and so we do see a good momentum across the board, and as well we see increasing engagement across the customer base, across all of the service offerings, both transacting and paid accounts. We talked about reaching all-time highs, and we have over now a billion paid subscriptions across the services platform.
Samik Chatterjee, JPMorgan: You had a great quarter on Macs and iPads both, and I’m just curious in terms of — if you can help us think about the sustainability of this double digit growth that you saw in both the product lines, and we’re interested to also hear, we’re talking about Apple Intelligence sort of influencing volumes on iPhones, but any thoughts on sort of what does that influence look like in terms of volumes for Macs, for example, where I think there’s a lot of conversation already, AIPCs, how you’re thinking about the impact there?
Tim Cook: If you look at Mac, Mac was up 16% and on iPad, we were up 15%. The Mac was driven by a very strong uptake on our new products during the quarter and continued success of the MacBook Air, and so as you know, we launched an M4-based MacBook Pro, an iMac, and a Mac mini during the quarter. We believe we’ve got the best AI PC out there for running workloads. The silicon in the Mac is, and it has been for several years now, designed by us and really designed for these workloads. I don’t want to project at the category level for the future, but we’re incredibly pleased with both the Mac and the iPad for the quarter.
Samik Chatterjee, JPMorgan: Tim, I’m going to use your discussion about India, those strong emerging markets, to ask you about the supply chain planning there in terms of how much of the supply chain planning there that you’re doing is more a reflection of the growth expectations from that market relative to more diversification of the supply chain and how should we sort of think about that strategy related to that particular country?
Tim Cook: Yeah, if you look at the manufacturing we do there, we do manufacturing both for the domestic market and we export. Our business needs certain economies of scale for it to make sense to manufacture in country, and so that really means that we’re going to be both a use for the domestic market and an export market.
David Vogt, UBS: I’m trying to think about your commentary around Apple Intelligence being sort of a momentum driver for the iPhone business. But when I think about your framework for the March quarter, if I kind of adjust for channel inventory over the last couple of years, it kind of feels like your iPhone revenue for the March quarter is going to be relatively similar to the quarter two years ago and even the quarter last year. So how do we square the momentum versus the iPhone business effectively really kind of unchanged over the last couple of years? And then second, when I think about the gross margin profile of the business, obviously you’ve done a great job in taking gross margins up, where do you think we sit in terms of, on the services side at least, where margins could go? It looks like the 75% margin has been an incredibly successful quarter, but just trying to get a sense for where do you think this number could go over the intermediate term.
Tim Cook: Yeah, if you look at Apple Intelligence, my point earlier was that markets where we had rolled out Apple Intelligence during the Q1 period performed better on a year-over-year basis than markets where we had not. It’s a positive indicator that we were pleased with. There are many compelling reasons to upgrade, and the other thing I would say that I think I mentioned earlier is that if you look at it from a launch to the end of the December quarter, and so that goes back to September, the 16 family is outperforming the 15 family. And so I think those are two good data points. Our next round of language rollouts will be in April, and so it will be in our Q3 quarter.
Kevan Parekh: Hi, David. How are you? So on the services gross margin, I think maybe stepping back a second, services business in general and aggregate is accretive to the overall company margin, and one of the things as an important reminder is we have a very broad services portfolio, and those businesses have very different margin profiles, and so I think, one, it’s because of the nature of those businesses, and in part, also because of the way we account for them. And so one of the big factors that drives the services gross margin is the relative performance of those different businesses within the portfolio. We also have the dynamic of some scale businesses, like payment services, iCloud, that are actually growing, and there when we add incremental users, those end up being accretive to margins as well. And so, in general, what we saw in the December quarter was nice momentum across our entire services business, that allows us to deliver that 75 percent margin at the services level, and I think our guidance takes into consideration what we think we’re going to land from a company standpoint at 46.5 to 46.5, which again we think is a strong guide.
Krish Sankar, TD Cowen: You had very strong Mac growth, 16% year-over-year last quarter, just wondering how much of that was driven by some of the Mac silicon innovation versus a replacement cycle for Macs?
Tim Cook: I don’t know the answer to your question precisely, but I think it is a combination of of these products are so compelling. The M4-based products are so compelling that it’s driving both upgrades, at the double-digit level, and it’s driving switchers at a double-digit level. And so we’re seeing both come out and I think it’s just because of the compelling products.
Krish Sankar, TD Cowen: On gross margin, more on the product side, last quarter you had 39.3%, which is very strong compared to the year ago period. How much more level do you have on the product side to improve the gross margin, or do you think some of the more new AI related devices there’s more upside to growth margin from here on the product hardware side?
Kevan Parekh: Yeah, thanks Krish for the question. So on the product side as you mentioned, we had pretty strong sequential improvement, 300 basis points for the December quarter. That was really driven by, we talked about favorable mix and leverage. In Q1, again, it’s a launch quarter for many products, and so we tend to benefit from the leverage that we get from that higher volume. I would say, in general, our gross margin on products is driven by a number of factors. One of them is the various product launches that we have, different products do have different margin profiles, and so that mix does make a difference. And in particular what we’re seeing is, for example, many of our of our mixes across like phone, for example, we’re seeing customer gravitating toward our pro products because of things like affordability that allows our customers to get into our best products which have favorable gross margins. So we’re continuing to that trend that impacted us in the December quarter. As well, I think we’re in a favorable commodity environment from a cost standpoint, and so we’re benefiting from that as well in the December quarter. And then that’s going to be, as we talked about, we’re going to have a foreign exchange headwind heading into the March quarter. But we figured, that’s contemplated in the guidance range that we gave in the 46.5 47.5 percent.
Richard Kramer, Arete Research: I’d like to ask about what might accelerate the pace of Apple intelligence adoption. I guess, do you see this simply as a question of time, i.e. to launch more markets and languages or increase the percentage of installed base devices that can support it, or is it a question of money, i.e. shifting R&D or marketing spend towards AI? And based on other prior Apple services, do you expect a sort of tipping point where adoption will go mainstream?
Tim Cook: I do believe it will go mainstream. I’m getting feedback from people using different features today, and this is—keep in mind that on the iPhone side of our business, you either have to have an iPhone 15 Pro or iPhone 16 to use Apple Intelligence. And so as that base grows, I think the usage will continue to grow. And I know from my own personal experience using the features, you can’t imagine not using them anymore. I know I get hundreds of emails a day and the summarization function is so important. So I think it’s a combination of that and of course in April we roll out a whole series of new languages that we had mentioned and so the base grows further.
Richard Kramer, Arete Research: Kevin, one of Luca’s legacies was really getting Apple to record margin levels and also maintaining very consistent pricing across the product range. But taking the current high levels of profitability as fairly stable, what observations might you share about price sensitivity of users and whether having a wider range of pricing across the products might unlock potentially further market share gains or boost overall product growth?
Kevan Parekh: Yeah, it’s a good question. One, I don’t think we’re going to really depart from what’s served us pretty well to now. I mean, we always take into consideration looking at comparisons between short-term and the long-term. We’ve had a pretty disciplined pricing strategy, which has served us pretty well, and I think we’re going to continually kind of stick with that, as far as I can tell.
Atif Malik, Citi: How do you guys see the potential tariff impact to your products for consumer demand under Trump 2.0? You guys did find under Trump 1.0.
Tim Cook: We are monitoring the situation and don’t have anything more to add than that.
Atif Malik, Citi: Great. And Tim, as a follow up, there is a lot of discussion on agentic AI, the use of agents. Do you guys see the upgrades to Siri expected in April as something that will, let’s say, be the killer application among the suite of features that you have announced for Apple Intelligence?
Tim Cook: I think the killer feature is different for different people, but I think for most, they’re going to find that they’re going to use many of the features every day, and certainly, one of those is Siri. And that will be coming over the next several months.
Ben Bollin, Cleveland Research Company: Tim, I’m interested in your thoughts and how you would have us think about the average useful life of these devices in the wild, and in particular, I’m curious if you look at the strength you saw in fiscal ’21 and how that might support accelerated refresh opportunity into the future.
Tim Cook: Yeah, Ben, I think it’s different for different types… you have very early adopter kind of users that are very quick to jump on the latest technology that upgrade very frequently, and then you have people that are on the entire opposite side of that barbell. And most people are between those two points, and so I do think there were lots of units that are sold during the COVID period of time and it’s a huge opportunity for us as a company for more than one of the product categories.
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