Apple Inc.

Good afternoon, and welcome to the Apple Q2 Fiscal Year 2025 Earnings Conference Call. My name is Suhasini Chandramouli, Director of Investor Relations. Today's call is being recorded. Speaking first today is Apple's CEO, Tim Cook, and he'll be followed by CFO, Kevin Parekh. After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation, and future business outlook, including the potential impact of tariffs and other trade measures and macroeconomic conditions on the company's business and results of operations. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in Apple's most recently filed reports on Form 10Q and Form 10K and the Form 8K filed with the SEC today, along with the associated press release. Additional information will also be in our report on Form 10Q for the quarter ended March 29, 2025, to be filed tomorrow. and in other reports and filings we make with the SEC. Apple assumes no obligation to update any forward-looking statements, which speak only as of the date they are made. I'd now like to turn the call over to Tim for introductory remarks.

Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call. 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. Diluted EPS was $1.65, up 8% year-over-year and a March quarter record. Services achieved an all-time revenue record, growing 12% compared to the prior year. 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. 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. 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. We're going to be expanding our teams and our facilities in several states, including Michigan, Texas, California, Arizona, Nevada, Iowa, spend $500 billion over the next four years. 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. During calendar year 2025, we expect to source more than 19 billion chips from a dozen states, including tens of millions of advanced chips being made in Arizona this year. We also sourced glass used in 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. iPhone revenue was $46.8 billion, up 2% from a year ago. During the quarter, we introduced iPhone 16E, a great new entry-level addition to our iPhone 16 lineup. 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. Meanwhile, iPhone 16 and iPhone 16 Plus users are exploring how they can use camera control, whether capturing stunning images or exploring the world with visual intelligence. 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. Mac revenue was $7.9 billion, 7% higher year over year, another great quarter for Mac. During the quarter, we introduced significant new updates to our lineup. 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. and now it comes in a beautiful new sky blue color. 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. 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. Turning to iPad, revenue for the quarter was $6.4 billion, up 15% from a year ago, another strong quarter of double digit growth. Our iPad lineup continues to help users learn, work, play, and go wherever their imaginations take them. The new iPad Air with M3 combines powerful performance and exceptional portability whether you're taking it across the street or around the world. 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 and the Notes app to elevate simple sketches into polished illustrations. 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. And AirPods 4 with active noise cancellation delivers an extraordinary experience in an open-ear design. 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. 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. It's a powerful reminder of the impact technology can have when it's designed with care. 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. 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. 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. Let's now turn to services, where we achieved an all-time revenue record of $26.6 billion in the UAE, the arrival of the online store in Saudi Arabia, and new retail stores in India starting later this year. 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. 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 Plus, Apple services are enriching our users' lives all throughout their day. With incredible shows like The Studio, Your Friends and Neighbors, and the culture-shaping Severance, Apple TV Plus has become a must-see destination with record viewership during the quarter. 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. And there is so much more to come this year. It's no wonder Apple TV Plus has earned more than 2,500 award nominations and 560 wins. 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 app. Turning to software, we just released iOS 18.4, which brought 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. 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. It's also what makes Apple products the best devices for generative AI. At WWDC24, 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. To achieve this goal, we built our own highly capable foundation models that are specialized for everyday tasks. We designed helpful features that are right where our users need them and are easy to use. And we went to great lengths to build a system that protects user privacy, whether requests are processed on device or in the cloud with Private Cloud Compute, an extraordinary step forward for privacy and AI. Since we launched iOS 18, we've released a number of Apple Intelligence features, from helpful writing tools to Genmoji, Image Playground, Image Wand, Cleanup, Visual Intelligence, and a seamless connection to ChatGPT. We made it possible for users to create movies of their memories with a simple prompt and added AI-powered photo search, smart replies, priority notifications, summaries for mail messages, and more. We've also expanded these capabilities to more languages and regions. With regard to the more personal Siri features we announced, we need more time to complete our work on these features so they meet our high quality bar. We are making progress and with capabilities to more languages and regions. With regard to the more personal Siri features we announced, We need more time to complete our work on these features so they meet our high-quality bar. We are making progress, and we look forward to getting these features into customers' hands. Turning to sustainability, we just celebrated Earth Day, and we were proud to announce that we've cut our emissions by 60% from our 2015 levels. Today, we're using more clean energy across our operations and more recycled materials in our products than ever. 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. All of this will help us make important progress towards our goal of carbon neutrality across our supply chain and the lifecycle of our products by 2030. 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. For the March quarter, we had a limited impact from tariffs as we were able to optimize our supply chain and inventory. 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. 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. This estimate should not be used to make projections for future quarters, as there are certain unique factors that benefit the June quarter. 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, confident that we will continue to build the world's best products and services, confident in our ability to innovate and enrich our users' lives, and confident that we can continue to run our business in a way that has always set Apple apart. Next month, we can't wait to welcome our developer community for the Worldwide Developers Conference, and we look forward to revealing some exciting announcements. With that, I'll turn it over to Kevin.

Thanks, Tim, and good afternoon, everyone. Our March quarter revenue of $95.4 billion was up 5% year over year, despite a headwind of almost 2.5 percentage points from foreign exchange. 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. And thanks to our high levels of customer satisfaction and strong loyalty, our installed base of active devices reached an all-time high across all product categories in geographic segments. Services revenue was $26.6 billion, up 12% year-over-year, despite over two percentage points of foreign exchange headwinds. And as Tim mentioned, this was an all-time revenue record. We also grew in every geographic segment and saw double-digit growth in both developed and emerging markets. Company gross margin is 47.1% in the middle of our guidance range and up 20 basis points sequentially, primarily driven by favorable mix. Products gross margin was 35.9%, down 340 basis points sequentially, driven by mix, foreign exchange, and a seasonal loss of leverage. Services gross margin was 75.7%, up 70 basis points sequentially, primarily driven by a different mix, partly offset by foreign exchange. Operating expenses landed at $15.3 billion, up 6% year over year. Net income was $24.8 billion, and diluted earnings per share was $1.65, up 8% year over year, and a March quarter record. Operating cash flow was also strong at $24 billion. Now, I'm going to provide some more details for each of our revenue categories. iPhone revenue was $46.8 billion, up 2% year over year, driven by the iPhone 16 family. The iPhone active install base grew to an all-time high in total and in every geographic segment, and iPhone upgraders grew double digits year over year. According to a recent survey from Kantar, during the March quarter, iPhone was a top-selling model in the U.S., urban China, the U.K., Germany, Australia, and Japan. And we continue to see high levels of customer satisfaction in the U.S. at 97%, as measured by 451 research. Mac revenue was $7.9 billion, up 7% year-over-year, driven by the latest MacBook Air, MacBook Pro, and Mac Mini models. This performance was broad-based, with every geographic segment growing year-over-year. The Mac install base reached an all-time high, and we saw strong growth for both upgraders and customers new to the Mac. Customer satisfaction was reported at 95% in the US. iPad revenue was $6.4 billion, up 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. Based on the latest reports from 451 Research, customer satisfaction was 97% in the US. 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. 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. And customer satisfaction for Watch in the U.S. was recently measured at 95%. Our services revenue reached an all-time high of $26.6 billion, up 12% year-over-year. This growth rate was comparable to the December quarter year-over-year growth rate when we removed the negative impact from foreign exchange. 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. Customer engagement across our services offerings also continued to grow. 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 continue to improve the quality and breadth of our service offerings, from additional features in News Plus to new games available in Arcade. Apple Pay continues to help our customers with an easy, secure, and private payment solution, and we were pleased to see that our active users in Apple Pay reached an all-time record, up double digits year over year. Turning to enterprise, 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 U.S. employees, reflecting their confidence in Apple security and privacy features. We also continue to see strong Mac performance in enterprise. NewBank, the largest digital bank in Latin America, has selected MacBook Air as a standard computer for their thousands of employees. With Vision Pro, companies are continuing to find new and innovative ways to leverage this technology. Dassault Systèmes, 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. Now, let's turn to our cash position and capital return program. 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. During the quarter, we returned $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. Given the continued confidence we have in our business now and into the future, today our board authorized an additional $100 billion for share repurchases as we maintain our goal of getting to net cash neutral. 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. This cash dividend will be payable on May 15th, 2025 to shareholders of record as of May 12th, 2025. As we move ahead into the June quarter, I'd like to review our outlook, which includes the types of forward-looking information that Suhasi referred to. Importantly, The color we're 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. 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 beginning of the call.