Quarter 1
Q3 2026 Earnings Call — July 30, 2026
Analyst Amit Daryanani (Evercore): Thanks for taking my question. Tim, best of luck. It's been a pleasure working with you over the years. Maybe to start with, if I think about the 9% to 11% sort of growth that's guided for September, it's about a 500 basis points or so deceleration versus what we've seen in, you know, really in June quarter, even through this year, I would say. Can you just talk about how much of this decel is really supply constraint versus other factors like FX? And if you just flush out what these supply constraints are, they're broadening beyond these advanced SOCs you talked about last quarter as well.
Executive Kevin (Title): This is Kevin. How are you doing? Why don't I start with just kind of describing the sequential change and then I'll let Tim jump into, you know, kind of a bit more color on supply constraints. So I think as I mentioned in my prepared remarks, we expect the December quarter total revenue to grow by 9 to 11 percent year over year. We expect that to be impacted by two main factors. First, when we look at kind of going from the June quarter to September quarter, we expect foreign exchange to be a sequential headwind of around two and a half percentage points to the year-over-year total company growth rate. And then the second impact is that the impact from supply constraints is we expect that to increase significantly when we go sequentially from June to September. That protected supply constraint in the September quarter will affect the iPhone, Mac, and the iPad. And really, when you combine those two factors, we get pretty close to the June overall total company growth rate.
Executive Tim (Title): Yeah, Mitt, it's Tim. First of all, thank you for your comments. During the June quarter, we did experience supply constraints primarily on the Mac and to a lesser extent on iPhone and iPad. These were driven by very high levels of demand. And as we've said before, we are seeing less flexibility in the supply chain than normal. The constraints were primarily driven by the availability of the advanced nodes that our SOCs are produced on. If you look forward then into the current quarter, the September quarter, we’re seeing some very significant constraints currently with limited flexibility in the supply chain to remedy it.
Analyst Amit Daryanani (Evercore): Got it. It's really helpful. Thanks a lot for that. And then, Tim, I just have a memory question for you. You know, Apple has historically, I think, done a really excellent job about delivering capability and utility to customers without really making them pay disproportionately more. The staggering memory inflation seems to challenge that equation for you folks right now. And there are reports that suggest that you're seeking greater sourcing flexibility for memory. Can you just talk about, is this sourcing options really about ensuring that you have supply and it's a way to mitigate memory inflation? Or is it more to preserve the value proposition for your customers? Just any light you could shed on this would be helpful. Thank you.
Executive Tim (Title): Yeah, let me back up and talk about memory in general, because I know this is a subject on many of your minds. If you look at the, as I said on the last call, we paid more for memory in the March quarter than the December quarter. And then, as I alluded to last quarter, we expected to pay significantly more. By a few factors, and let me walk through kind of what they are. The first is, as you would expect, we have a benefit from some carry-in inventory in the September quarter. However, we believe this will see decreasing benefit from this over time beyond the September quarter. The second is we're expecting lower costs on certain non-memory components that are in our BOM. And then if you look beyond September, we see the market pricing for memory continuing to increase, which could drive an increasing impact on our business. And we're continuing to evaluate this. In terms of the sources of supply, primarily the DRAM market has three suppliers. And obviously, if there were more suppliers, that would be good, and it would help us on the supply side and perhaps the pricing side. It's unclear on the pricing side, but it could help on the supply side. And so we're evaluating all options.
Analyst Michael Eng (Goldman Sachs): Good afternoon. First, Tim, congratulations on the extraordinary run on these earnings calls. In terms of my questions, I have two as well. First, on the Apple upgrade program, could you talk a little bit about the expected adoption rates across your $2.5 billion device install base in success? Do you see it shortening the replacement cycle for iPhone or also having an equal impact to Mac and iPad, which may not have benefited from device subsidies in the U.S. like iPhone has historically? Thank you.
Executive Tim (Title): Michael, first of all, thank you for your comments. I really appreciate that. If you look at the upgrade program, what it's all about is making it easier for customers to get their hands on our latest products with a leasing plan that's right for them. And of course, as you know, the residual values on Apple products are generally high. And so we're very excited about it. It is offered in our retail stores, and so it's not widely offered in all channels. And so we'll see what the customer uptake is, but the early feedback on it is quite positive.
Executive Tim (Title): Yeah, Michael, I just mentioned that it's only available in the U.S. right now as well.
Analyst Michael Eng (Goldman Sachs): Great. Thank you. That's very helpful. And then my second question, just on iOS 27 and Apple intelligence, you know, went into public beta earlier this month. Could you talk about, you know, learnings from the public beta? Will, you know, the new Siri AI be a demand driver for iPhones this holiday? You know, how does the Apple intelligence...
Executive Tim (Title): First of all, we are off the charts excited about Siri AI. We had a great reception from WWDC. We released the developer beta immediately after the keynote. The developer feedback has been overwhelmingly positive. The feedback from reviewers and so forth have been overwhelmingly positive. We released it to the public for a public beta a few weeks ago and the continued feedback is really, really great. I think it's a very big idea to have AI that's private, that's based on your personal context and that's integrated across the operating system. And so we couldn't be happier with how things are going. In terms of what it means for compute cost, it's obviously early going for us. And so I don't want to say that we have a complete plan for that. We do believe there will be people that want to use it a lot. And so we will have some kind of upgrade possibilities on iCloud Plus where people can buy up the stack on iCloud Plus. And we'll see how the pickup for that is. But we could not be more excited about where the product is.
Analyst Ben Rices (Millies Research): Yeah. Hey, guys. Thanks a lot for the question. And obviously, Tim, I've known you a long time. I really miss you. I wanted to ask about the supply constraints again. And I think people are just trying to make sense of it a little bit this way is that, you know, the street had yet 12% growth for the quarter. September. And so, you know, you could argue that to get to the 10 percent you guided, that's just the FX. And then in the first quarter, which is December, street has decelerating quite a bit, you know, to like eight to nine percent. So I think, you know, what we're struggling with after hours here is how much these supply constraints really hit you in December and, you know, impact that because, you know, the street did a pretty good job of taking that number into the you know, higher single digits. Is there any guidance you can give us there as you see it, Tim? And we'd really appreciate it. Thanks.
Executive Tim (Title): Let me talk about the constraints a little more, and then Kevin can weigh in on the guidance for revenue. As I had mentioned before, the primary issue is advanced nodes that we run our SOCs on. That's the primary supply constraint now, and the root cause of it is not a regular supply issue. It's a demand forecast issue, to be candid, where the iPhone and the Mac are both doing remarkably better than we thought they would do. And we had high expectations, so it wasn't that our expectations were low, but as you can see, we’re now scrambling on the supply side, essentially.
Executive Kevin (Title): Yeah, thanks, Tim. Ben, let me jump in here. And the dynamics Tim mentioned combined with the foreign exchange impact I mentioned earlier sequentially is really what's built into the 9% to 11% guidance we're giving for the September total company revenue year on year growth rate. Beyond September, we're not providing any color. At this point, you mentioned December, so we're not providing any kind of color or guidance beyond the September quarter.
Analyst Ben Rices (Millies Research): Okay. And then, you know, if I could just ask, and you guys, you know, know what's in the press all the time, but there's this little company that is also building a fab in Arizona that you guys have been speculating you guys could work with that could potentially alleviate some at least your silicon constraints. Is there any possibility that you guys broaden out your silicon providers in a reasonable timeframe to alleviate these so we feel better about supply?
Executive Tim (Title): Let me stress again. This isn't a partner or supplier issue. This issue is an incredibly strong, it's a great issue in some ways. It's an incredibly strong iPhone and Mac product cycle that has really yielded demand beyond our expectation. In Arizona, we do source over 100 million components this year out of Arizona. And so we have, it is part of our $600 billion commitment to the US and we could not be more pleased with how that fab has ramped and is producing for us.
Analyst Eric Woodring (Morgan Stanley): Great, thanks so much for taking my questions, guys. And Tim, just echo what everyone is saying. It's been a pleasure working with you. Hope to still talk to you in the future. You know, I want to maybe focus on pricing here, Tim, and kind of unprecedented for you to take pricing in the ways that you have I guess two related questions is just, you know, is it your intention to pursue some of these multi-year LTAs with your suppliers just to ensure access to supply at pre-agreed prices? And when you approach product pricing in this environment, is it your intention to protect, you know, product gross profit dollars? Is it your intention to protect product gross margins? We just love the kind of thought process behind the pricing. And then a quick follow-up, please. Thank you.
Executive Tim (Title): On the pricing front, we reluctantly raised prices, I would say. We did it because we're in what I would characterize as a 100-year flood on the memory pricing, with exponential increases in memory prices. So that was the rationale for it. In terms of our philosophy on dollars or percentages, we look at units, revenue, and margin, and then come to a business judgment as to how to handle that. And so it's not a mathematical formula that gets us to a specific result or just looking at one dimension of that. We look at all three dimensions and think about it over the long term instead of a 90-day clock. Hopefully that helps.
Analyst Eric Woodring (Morgan Stanley): Yeah, yeah, no, that does help. Thank you, Tim. And then just maybe a quick follow-up, I guess Tim or Kevin, just 12% services growth was just a bit below your guidance. I imagine FX maybe played a role there. I think the fiscal 4Q guidance assumes another deceleration. I think the math would imply below 10% year-over-year as reported. Can you maybe just help us understand the kind of function factors underlying that deceleration? And if that's App Store, which I think some third-party data sources would suggest, is that a function of AI maybe reprioritizing time away from parts of the App Store? Just want to make sure we understand the moving pieces on services, please. Thank you so much.
Executive Kevin (Title): Hey, Eric, this is Kevin. I'll take that one. So let's walk from kind of the 16% in our fiscal second quarter to kind of the 12% that we just talked about in the June quarter that you referenced. And we look at that, you know, relative to the March quarter, foreign exchange was the main driver for the change in the year-on-year growth rate sequentially. And also a couple other factors to keep in mind. One is we had the theatrical release of F1, which is one of the highest grossing sports films in history. And this year we didn't have a theatrical release. So that had a favorable impact on both the June quarter and also the September quarter and the year ago. We also had some factors that impacted the performance of the App Store. We did see some headwinds in mobile gaming. And then keep in mind, we also made some changes to the App Store business model in certain countries. And in the U.S., we do continue to operate under a court ruling impacting the link-out transactions. But we're pleased the Supreme Court will hear our appeal. Despite this, the App Store did set a June quarter revenue record.
So if we take a step back, there are several positive trends in the services business. And during the June quarter, we saw strong double-digit growth in categories like cloud services, video, payment services, and advertising. We set revenue records in every category with June quarter records in advertising, the App Store, Apple Care, music and video where Apple TV viewership reached an all-time high in the quarter. And then we also set all-time records in cloud services and payment services where Apple Pay saw a record level of users in both developed and emerging markets. And services also had a June quarter record in emerging markets. And as we outlined in the prepared remarks, our services continue to attract more customers and we now have surpassed one and a half billion in paid subscriptions and our transacting and paid accounts hit an all-time high with double growth in both those two in emerging markets. So I think when I step back, if I look at how we landed versus our expectations that we had outlined in the March quarter for the June quarter, I would say that we roughly met our expectations, but we did see a bit more softness on mobile gaming in the App Store.
As we go into the September quarter, what I would say is we expect foreign exchange will continue to be a headwind. This is a theme that's impacting the services business more so than the total company. We expect foreign exchange to drive about a five percentage point headwind to the year-on-year growth rate from the March to September quarter. So if we look at the sequential change from the June quarter, the 12% services we reported to what we're guiding for the September quarter, we are going to see another two and a half point sequential headwind.
Analyst Aaron Rakers (Wells Fargo): Yeah, thanks for taking the questions and also best wishes, Tim. I guess I want to, you know, maybe it tethers with the memory pricing dynamic, but, you know, as you look at the demand that you're seeing right now, I'm curious of how you assess whether or not you've seen any pull forward of demand either from the consumer or even the enterprise and education markets and whether or not you're factoring that into your views as we look forward at all.
Executive Tim (Title): You're talking about an iPhone, I assume, in general. We've been running at this 22% growth rate for the last while for this cycle has been a 22% increase year to date. And so it's not obvious, I would say, that it's not obvious in the data that what you're asking is true. Obviously, we've now had to increase prices on iPad and Mac. and the price elasticity there is just too early to come to a definitive conclusion of what happens there because it takes a little while for the channels to adjust since there's channel inventory and it takes a while for the consumer to respond and so we'll understand that more in the weeks ahead.
Analyst Aaron Rakers (Wells Fargo): Very helpful and then as a quick follow-up maybe more longer term thematically as AI, you know, proliferates towards the edge and more consumers utilize AI I'm curious Tim if you see AI opening up additional opportunities I can appreciate that you're not going to give us specifics but do you see other kind of addressable markets evolving from AI over time?
Executive Tim (Title): Yes, I think there are enormous opportunities for Apple moving forward in AI. And, you know, I'm so excited about Siri AI and kind of where it is and where it's going. And I'm excited about the feedback that we're getting there. And of course, the ability to run some percentage of requests on device is also very strategic and sort of a competitive weapon, if you will. So I could not be more excited about the opportunities there.
Analyst Bansi Mohan (Bank of America): Hi, yes, thank you. Tim, first, congrats on your tenure as CEO. You joined back in 2011 when Apple reported $108 billion in revenue, and you just delivered a quarter of $109 billion, so just an amazing journey. Thank you for that.
Executive Tim (Title): I really appreciate it.
Analyst Bansi Mohan (Bank of America): For my question, first on Siri AI, do you expect that Siri AI would change the capital intensity of Apple despite the fact that you have the ability to do so much differentiated workloads on device and you have this distributed compute? You do have some requests that go into the back end, both in your own first party cloud as well as third party. So is it right to think that the capital intensity of Apple...
Executive Tim (Title): We use a hybrid model, as I know Kevin has reviewed with you earlier. And so we use some third-party cloud and we do our own data centers. And so there will be a mix. But generally speaking, as you know, we have been growing our OPEX and spending more in AI in general and quite a bit more. And there are other locations on the P&L other than OpEx like OCogs and et cetera that also have AI expenditures. And so we'll see what Siri AI does from the cost side of it, but there's also the ability when people use it a lot for them to move up on an iCloud platform plan as well. And so what the balance of that is a bit uncertain at the moment.
Analyst Bansi Mohan (Bank of America): Okay. Thanks, Tim. Yeah. And John, since you're on the call, congrats on the new role. I'd love to get maybe just a high-level take from you if you think that the competitive landscape here is changing, especially as you hear about potentially companies like OpenAI building an AI-enabled competitive device or SpaceX AI potentially having a phone that could bypass some of the typical carrier attacks. Just would love your high-level thoughts on how you see the competitive landscape evolving and Apple's position there.
Executive John (Title): Well, thank you for asking. I guess I would just say, reiterate what Tim said. There is so much opportunity for us with everything that's happening in this space. And we're just really focused on our plans and very excited about it.
Analyst Samik Chatterjee (J.P. Morgan): Hi, thanks for squeezing me in here and 10 best wishes from my side as well. Maybe just for my first one, if I go back to WWDC when you announced Siri AI, you also did mention along with the rollout that probably we won't have the initial rollout in China and Europe. So just wanted to get your updated thoughts on that front and any more color in terms of what hurdles you need to cross to be able to launch it in those regions and have a follow up. Thank you.
Executive Tim (Title): Yeah, thanks for the question. Let me take them individually. If you look at the EU, we're working closely with the Commission. Obviously, our complete desire is to launch everything everywhere at the same time. That's always the goal. There, because the Mac is not covered by the same regulations as the iPhone and the iPad. So net-net, we're working with them and hope to reach some sort of solution. If you then look at China, last week we received approval to ship sort of the original features of Apple intelligence, things like cleanup and so forth. And so we're working now through the rollout of those. and there will be more work required down the road for Siri AI, but we're at the front end of that.
Analyst Samik Chatterjee (J.P. Morgan): Great. And for my follow-up, Kevin, just not to beat sort of this FX thing to death here, but if I look at the gross margin, you delivered 48% in the quarter without the tariff refund benefit, you're guiding to like 46 and a half. Any way to walk us through the sequential driver there and how much of that is FX impacting it versus maybe like increased commodity costs, et cetera, that's driving that sequential moderation? Because it does seem a bit more atypical than your normal sort of yours.
Executive Kevin (Title): Yeah, Samik, that's a good question. So let me walk through kind of what's impacting our gross margins. We look at our gross margin change from the 49.3 we had at the total company level for the March quarter. And as you mentioned, the 48.1 adjusted for the tariff refund in the June quarter, that 120 basis point change. If you look at the drivers of that, more than 100% of that can be explained by the memory cost change that Tim outlined. While FX was a factor, really the main driver was really the memory cost impact. And as Tim outlined earlier when we talked a bit about the dynamics around the memory cost is we did see some partial offsets from things like the benefit of carrying inventory, reduction in non-memory component costs and some favorable mix. We are seeing the same dynamics when you go from the 48.1 that we printed in the June quarter...
Executive Kevin (Title): Thank you both for taking my questions. And congrats again, Tim.
Executive Tim (Title): Thank you so much for saying that. I appreciate it.
Analyst Samik Chatterjee (J.P. Morgan): Thank you, Samik. A replay of today's call will be available on Apple Podcasts and at apple.com slash investor. Thanks again for joining us today. Once again, this does conclude today's conference. We do appreciate your participation.
Quarter 2
Q2 2026 Earnings Call — April 30, 2026
Analyst Eric Woodring (Morgan Stanley): I would love maybe, Tim, if I could ask you just to maybe contextualize the supply constraints you alluded to in your prepared remarks, meaning how much did demand outpace supply for iPhone and Mac in the March quarter? And does your June quarter guidance also reflect supply constraints for those segments? Or is that kind of an unconstrained guide as you see it today? And then a quick follow-up, please.
Executive Tim (Title): We were constrained during the March quarter. This was primarily on iPhone and to a lesser extent on the Mac. And as we talked about in the last call, the constraints were primarily driven by the availability of the advanced nodes our SOCs are produced on. If you look forward to the June quarter, the majority of our supply constraints will be on several Mac models, given the continued high levels of demand that we're seeing. For Mac, in the June quarter, there's two factors that are driving the constraints. One is that on the Mac Mini and the Mac Studio, both of these are amazing platforms for AI and agentic tools. And the customer recognition of that is happening faster than what we had predicted. And so we saw higher than expected demand. The second reason is that the customer response to Mac Neo has just been off the charts with higher than expected demand. We set a March quarter record for customers new to the Mac, partly due to the Neo. We think, looking forward, that the Mac Mini and the Mac Studio may take several months to reach supply-demand balance. And so hopefully that gives you a view of both Q2 and Q3 on the supply side.
Analyst Eric Woodring (Morgan Stanley): Thank you very much for that color, Tim. And then, Kevin, I'd love to maybe turn to you and kind of a surprise little announcement there talking about net cash neutral is still a great path, but we're no longer providing this as a formal target. Could you maybe expand on that a bit? Are we thinking about any different type of capital return policy? It doesn't seem so, but maybe... Maybe give a little bit more detail when you talk about making investments. Is that organic versus inorganic? Just maybe tease that comment out a little bit more for us. It would be super helpful. Thank you so much, guys.
Executive Kevin (Title): Yeah, let me just kind of reiterate what we said, which is really kind of more of a comment on the capital structure. But our goal of net cash neutral has really served us well. It's been a valuable framework for us and for our capital structure since 2018. We believe we're at a stage where we're evaluating cash and debt independently is really the right approach for us and allows us to make more optimal economic decisions around how we best utilize our debt and cash portfolios to support the business based on business factors and market conditions. We also believe we can manage this flexibility while also being very efficient and remaining disciplined. So with all that being said, we remain very committed to returning excess cash to shareholders.
As we talked about, our investment in the business, I think, as you know, we invest in the business first and foremost and then look to kind of return excess cash to shareholders. We've returned over a trillion dollars to shareholders from the start of the program, over $850 billion of which has been through share repurchases. And so another piece as well that's really important is as part of that, we also have increased our buyback authorization by another $100 billion. And that's on top of the leftover capacity from the prior authorization. So you can see the capital return piece is something very important to us. And as we talked about in the prepared remarks, important to the overall approach to delivering long-term shareholder value.
Analyst Eric Woodring (Morgan Stanley): Thanks so much, Kevin. Good luck, guys.
Executive Tim (Title): Thanks, Eric.
Analyst Ben Wrightsies (Milius Research): The first one is there's just been a lot of talk, and it's great to, by the way, speak with you, Tim and John and Kevin.
The first question is around there's been some commentary around an agentic smartphone. By the way, I don't even know what that means. There's comments about AI on the edge and that agents could catalyze smartphones, but also shift the smartphone kind of form factor or maybe not. I was just wondering with the rise of agents, how you would like us to think about that. Does this mean there's new products coming of a totally new form factor or does it change the game or anything high level you might want to say about that and that trend or potential non-trend? Thanks.
Executive Tim (Title): You know, we don't get into our future roadmap. And so I don't want to, you know, give too much info there. But I would just say that we're thrilled with how the iPhone is doing, growing 22 percent in the quarter and followed up from an incredible Q1. We could not be happier with it.
Analyst Ben Wrightsies (Milius Research): Thanks. I appreciate that. I'm sure we'll hear a lot more. Then with regard to, I guess, the question around constraints and whatnot, and Tim, you know, I may push you one more time. Try to do it nicely, though, just given my age. You know, the big concern out there is maybe how margins go after the June quarter, given the components and trends and whatnot and all these constraints. I mean, is there some kind of overarching philosophy that you want us to think about? Do you feel, and maybe Kevin wants to weigh in on this, do you see a lot of variability in the model? Or is 47-48 kind of a range you think you might be able to stay in? Or is there just no visibility beyond June to answer this question? I think any comfort level there as we go throughout the calendar year would be so helpful. Thanks.
Executive Tim (Title): Let me talk about memory specifically, which I think is the root of the question. So, and I'll go back to December for a moment and just walk you through the chronology. In the December quarter, we really had a minimal impact due to memory. And you can kind of see that in the gross margin results. We said it would be a bit more in the March quarter, and we did see higher memory costs in the March quarter, and they were partially offset by benefits from carry-in inventory that we had. For the June quarter and what's embedded in the guidance that Kevin went through earlier, we expect significantly higher memory costs. They are also partly offset by the benefit of carry-in inventory. And then where we don't give color beyond June, I can tell you that beyond the June quarter, we believe memory costs will drive an increasing impact on our business. And we'll continue to evaluate this, and as we've said before, we'll look at a range of options.
Analyst Ben Wrightsies (Milius Research): Okay, thanks, Tim.
Executive Tim (Title): Yep.
Analyst Michael Ng (Goldman Sachs): First, given the success of the MacBook Neo, I was wondering if you could talk a little bit about how it's helped drive penetration with new customer segments, whether that be education or value or emerging markets? And then how do you think about opportunities in, you know, under-penetrated markets more broadly, and how will your future product roadmap inform that strategy? Thank you.
Executive Tim (Title): Right now we're supply constrained on the MacBook Neo. The response has been, we were very bullish on the product before announcing it, but we under-called the level of enthusiasm that would be with it. And it's very much focused on getting the Mac to even more people than we were reaching before. We're very focused on customers new to the Mac and customers that have been holding on to their Mac a very long period of time. We're doing well with both of those. And as Kevin alluded to in his comments, we're seeing school systems like the Kansas City Public Schools that are switching from Chromebooks and Windows PCs to the MacBook Neo. And I'm hearing anecdotally more and more of those kind of stories, both happening at the school system level and at the individual consumer level. And so we could not be happier with how things are going at the moment.
Analyst Michael Ng (Goldman Sachs): Great. Thank you, Tim. And for the second question, I wanted to ask about advertising within services. I think Apple introduced new inventory to ads on the App Store earlier this year. Has that new ad inventory on the App Store been a notable contributor to the service's growth and outperformance in the quarter? And then could you talk more broadly about your ad strategy, given the plans to also introduce ads to Maps this summer? Thank you.
Executive Kevin (Title): In advertising, we did see year-over-year growth in our advertising business. As you alluded to, we recently did introduce additional ads across the App Store search results to provide developers with more ways to drive downloads on platforms that users trust. And this summer, as you said, in the U.S. and Canada, Apple Maps will feature ads during key search and discovery moments, creating a new way for local businesses to reach customers and explore new places. But importantly, I think, you know, we believe it's possible to help businesses of all sizes grow via advertising while still delivering a great customer experience, while also importantly respecting people's fundamental right to privacy.
Analyst Michael Ng (Goldman Sachs): Thank you, Kevin.
Executive Kevin (Title): Thanks, Mike.
Analyst Wamsi Moen (Bank of America): Tim, you noted higher impact from memory as you look beyond the June quarter. Clearly, you guys have a lot of scale supply chain efficiencies, relationships from a long time. As you think about product position relative to your competitors. So when you think about product position and pricing, relative to competition, do you think in such times of dislocation that Apple would be strategically more focused on share gain or where potentially you don't raise pricing and perhaps lower ends of the portfolio where your competitors are struggling or more focused on profitability? Like what's the right framework for us to think through as you enter that period and have a follow-up?
Executive Tim (Title): We will look at a range of options with memory costs increasing. And so I really don't want to go beyond that at this point.
Analyst Wamsi Moen (Bank of America): As a follow-up here, how is Apple thinking about the broader monetization, maybe following Ben's question here in the agentic AI world? So what parts of the stack do you think Apple will be focused on internally versus maybe leveraging your partners? I mean, we have some early looks into where you are developing relationships, but as we think longer term, do you think Apple will invest more? Where will Apple invest more heavily over the next several years? And is this at all related to your net cash comments in terms of perhaps building out more infrastructure as we enter an AI-centric world? Thank you.
Executive Tim (Title): We are clearly investing more. You can see that in the OPEX numbers. And if you click down on those a step deeper and look at the R&D area separate than SG&A, you'll find that R&D is even accelerating much higher than the company is. And so we're clearly investing. We're investing in products and services. And we see opportunities in both of those. And we could not be more excited about how the future is playing out.
Executive Kevin (Title): From the start, we said we, you know, believe AI is a really important investment area for Apple, and we're going to be doing that incrementally on top of what we normally invest in our product, you know, roadmap. And so I think I just wanted to reiterate that point as well.
Analyst Wamsi Moen (Bank of America): Okay. Thanks, Tim.
Analyst Amit Daryanani (Evercore): I guess first one, maybe just going back to the iPhone performance, which for a couple of quarters, you folks have had 20% plus growth despite the supply constraint. And I think the guide sort of implies the momentum will continue in June. I'd love for you folks to just maybe double-click and talk about what are the levers that's driving this sort of impressive iPhone growth despite the supply constraints? And then, sir, what is the durability of this growth?
Executive Tim (Title): If you look at it, it's the iPhone 17 family that's driving it. And that is, as you point out, is despite the supply constraints that we're experiencing. And it's the things that are driving people to the 17 are people love the design. People love the performance. They love the durability. They love the camera. They love center stage. And they love that Apple intelligence is integrated across the platform from where we're seeing the growth. It is amazing. We're seeing double-digit growth in the majority of the markets we track, from the U.S. to Latin America to greater China to Western Europe to India to Japan to Southeast Asia. And we set a new March quarter record for upgraders as well. And, you know, what's driving all this is that the customer satisfaction for the 17 family in the U.S., as an example, is 99%. These numbers are just unheard of.
Analyst Amit Daryanani (Evercore): Perfect. Thank you. And then, Tim, I think we have you for one more earnings call, but I would really appreciate if you could kind of share a bit about the upcoming transition. You have historically talked about the advice that Steve gave you when you took over, and I might be paraphrasing this, but it was around, don't ask what I would do, just do the right thing. That's really been a big win, I think, for Apple and shareholders over the last 15 years. I would love to understand what advice are you giving John to help him build on Apple's strengths while shaping up the next chapter for the company? Thank you.
Executive Tim (Title): I think Steve's advice to me lifted a huge burden. And so that advice did well for me. And over the 15 years for John, I think my advice is that or what I told him is that one of the most important decisions he'll make is where to spend his time. And I would spend it where the greatest benefit to the company and the users are. And never forget the North Star for the company. You know, we're about making the best products in the world that really enrich other people's lives. And if you keep focusing on that and make your decisions around that, it will produce a great business and we'll be able to build more products and do it all over again. Thank you for the question.
Analyst David Vogt (UBS): Maybe, Tim, I want to come back to the supply chain for a second. I don't think I heard you state in your prepared remarks or in response to a question that the iPhone is constrained in the June quarter so can you walk through kind of how you're thinking about your ability to secure not just SOC but also memory? Are you thinking about using alternative sources of memory outside of sort of the traditional partners that you have and just what's kind of driving that confidence that the iPhone isn't constrained given the amount of share it sounds like you're taking in that market and then I have a follow-up as well.
Executive Tim (Title): The current constraint for the March quarter and the June quarter, the primary constraint is the availability of the advanced nodes our SOCs are produced on, not memory. And so I don't want to predict our ability for supply and demand to match, because if I look at it realistically, I think on the Mac Mini and the Mac Studio, I believe it'll take several months to reach supply-demand balance. And so we're not at the point where we're saying this is going to end anytime soon. And it's not because of a problem per se, other than we just under-call the demand. And, you know, there are lead times to this, as you well understand, and it takes a while to correct that. And the primary constraint from a product point of view are the majority of it for this quarter, for the June quarter, will be on the Mac. And it's Mac Mini, Mac Studio, and the MacBook Neo. It's all of those.
Analyst David Vogt (UBS): Yeah. And then maybe just on services real quick, you know, obviously... you know, relatively strong gross margins yet again. Are we getting to a point, given sort of the product mix within services, I know a lot of different offerings are growing double digits, that we're sort of asymptotically getting to a level where we're seeing, you know, increasingly more challenging to scale that business from a profitability perspective? Or is there still sort of low hanging fruit in terms of volume leverage in some of the offerings? Or maybe lower losses in some different categories that can continue to scale gross margin across the services base?
Executive Kevin (Title): Look, as you know, our services portfolio contains a wide range of businesses that have different business models and profitability profiles and also are growing at different rates. So at any given time, the relative performance of those can impact the gross margin. This time in particular, we look at the Q2 services margin. We talked about the fact that it increased 20 basis points sequentially. That's primarily driven by mix. And so again, I think it's hard to speculate how that evolves over time, but we're encouraged by what we're seeing. We do have some services that are improving in profitability as they gain scale. But again, I think we have a wide portfolio that has different characteristics and can grow at different rates at different times. But overall, we're encouraged by the overall trajectory that we've seen.
Analyst Samik Chatterjee (JP Morgan): Tim, for my first question, last quarter you did talk about Apple's foundational models and sort of the two-pronged strategy there of the collaboration with Google as well as continuing to internally sort of work on your own models. I'm hoping you can sort of give us an update in terms of how you're able to balance those two priorities as well as do you feel like you need to double down and invest more to be able to balance those two priorities side by side?
Executive Tim (Title): We are investing more. You can see that in the OPEX numbers. And as I'd mentioned before, the R&D in particular has scaled rather significantly on a year-over-year basis. The collaboration with Google is going well. We're happy with where things are, and we're happy with the work that we're doing independently as well.
Analyst Samik Chatterjee (JP Morgan): And my follow-up for Kevin, Kevin, the sequential moderation in the product gross margin this year is relatively muted compared to what you've historically seen, at least over the last couple of years. Is it primarily mix or what was the maybe the FX tailwind as well? How would we sort of break it down in terms of what was different this year relative to what we typically see? And if you could sort of also clarify what the FX impact on gross margin was for the quarter. Thank you.
Executive Kevin (Title): Basically, products gross margin did decrease by 200 basis points sequentially, driven by seasonal loss of leverage and higher memory costs, as Tim had alluded. If I zoom out, though, I think it's important just to look at what drove the overall company gross margin performance. And let me just give you a quick kind of rundown of that. If you look at our overall performance, our sequential gross margin impact was 110 basis points positively, and that was driven by favorable mix, lower tariff-related costs, and that was partly offset by seasonal loss of leverage and higher memory costs.
Executive Tim (Title): For the March quarter, the gross margin of 49.3 did include the impact of tariff-related costs. However, tariffs in the March quarter versus the December quarter were lower because we had lower product volume, as you know, sequentially from Q1 to Q2, and there was the full quarter benefit from a reduction in the IEPA tariff rates, as well as the reduced global tariff rate under Section 122. In terms of applying for a refund of tariffs paid, we're following the established processes and we plan to reinvest any amount we receive back into U.S. innovation and advanced manufacturing. These would be new investments and would be in addition to our prior commitments in the U.S. And then one last point on your FX question. We really didn't see any sequential impact related to foreign exchange as a factor going from Q1 gross margin to Q2.
Analyst Aaron Rakers (Wells Fargo): I wanted to ask about a few of the end markets. I guess particularly, Tim, if you could comment a little bit on what you're seeing specifically in China. I guess from a competitive perspective, are you seeing advantages from supply constraints impacting some of your competitors? Any thoughts on the China market? And I do have a quick follow-up.
Executive Tim (Title): We are thrilled with the performance in Greater China. The first half of the year grew at 33 percent. In the March quarter, revenue was up 28. It's a quarterly revenue record for us. The performance is really driven by iPhone, which was also a March quarter record. If you look at the individual products, the iPhone was the top selling model in urban China, the Mac Mini was the top selling desktop in China, and the MacBook Air was the top selling laptop model. We're really doing well pretty well across the board there. And I was over there in March. The traffic in our stores grew by double digit. We were celebrating Apple's 50th anniversary there, and it was just amazing to be a part of the community there. And so I'm really happy with how things have gone the first half of this year.
Analyst Aaron Rakers (Wells Fargo): And then maybe I'll stick with a similar theme, kind of the same question on the India market. It seems like that continues to be a focal point on these last several quarterly conference calls. I mean, how are you seeing the market in India evolve around, you know, the base of iPhones and the opportunity of kind of a rising middle class, just the overall opportunity set in that large mobile market?
Executive Tim (Title): I think it's a huge opportunity for us. You know, we've been focused on this for a while. It's the second largest smartphone market in the world and the third largest PC market. And despite doing extremely well there for quite some time, we still have a modest share. And so I think that really speaks to the opportunity that we have. There are a lot of people moving into the middle class there. And we've got some great products for them, both currently and coming. And if you look at the majority of customers on all of our stores, categories from the iPhone to the Mac to the iPad to the watch are new to that product there. And so it speaks very well to growing the install base there. Net-net, I'm over the moon excited about India.
Analyst: A replay of today's call will be available for two weeks on Apple Podcasts as a webcast on apple.com slash investor and via telephone. The number for the telephone replay is 866-583-1035. Please enter confirmation code 280-3309 followed by the pound sign. These replays will be available by approximately 5 p.m. Pacific time today. Members of the press with additional questions can contact Josh Rosenstock at 408-862-1142. And financial analysts can contact me, Suhasini Chandramali, with additional questions at 408-974-3123. Thanks again for joining us today. Once again, this does conclude today's conference. We do appreciate your participation.