Apple Inc.

Q1 2026 Earnings Call — January 29, 2026

take our first question from Amit Daryani of Evercore. Yes, I have two. Maybe we'll start with, you know, there's a lot of focus on the impact of memory to host a company, and I'd love to kind of get your perspective when you focus on guiding gross margins up into the March quarter. Just talk about, you know, A, your comfort in securing the bits that you need for shipment, and B, how do we think about memory inflation flowing through Apple's model over time? Yeah, a minute. Hi, it's Tim. Let me back up a bit and talk about the constraints that Kevin referred to in his remarks and memory. I'm trying to get both of these out at once. First of all, we were thrilled with the customer response on the latest iPhone lineup. It exceeded our expectations, to say the least. And, you know, iPhone grew 23%. What the result of that was, was that we exited the December quarter with very lean channel inventory due to that staggering level of demand. And based on that, we're in a supply chase mode to meet the very high levels of customer demand. We are currently constrained. And at this point, it's difficult to predict when supply and demand will balance. The constraints that we have are driven by the availability of the advanced nodes that our SOCs are produced on. And

at this time, we're seeing less flexibility in supply chain than normal, partly because of our increased demand that I just spoke about.

From a memory point of view, to answer your question, memory had a minimal impact on the Q1, so the December quarter gross margin. We do expect it to be a bit more of an impact to the Q2 gross margin, and that was comprehended in the outlook of 48 to 49 percent that Kevin gave earlier. Beyond Q2, you know, we don't obviously provide outlooks beyond the current quarter, but We do continue to see market pricing for memory increasing significantly. As always, we'll look at a range of options to deal with that. So hopefully that gives you the full view. No, thank you. I appreciate all the clarity on that, Tim. Maybe the second question I have for you is maybe just touch on the China strength you folks had. I think this is very close to all-time high revenues we've had in China. What's driving the strength over here and just sort of the durability of the growth rates we saw in the December quarter would be helpful to understand. Thank you. Sure. Greater China was up 38% year on year. It was driven by iPhone, where we set an all-time revenue record. So it was the best iPhone quarter in history in Greater China. It's driven by the customer enthusiasm for the iPhone 17 lineup.

And I would tell you that during the quarter, Traffic in our stores in China grew by strong double digits year over year. It was a terrific quarter. Our installed base reached an all-time high in both greater China and mainland China. And we set an all-time record for the upgraders. And we saw strong double-digit growth on switchers. And According to a survey from World Panel, iPhones were the top three smartphones in urban China during the quarter. And it's really driven primarily by the product strength and the customer response to the product strength. We do see on non-iPhone products, that the majority of customers that are buying a Mac and iPad, a watch, are still new to that product. So that's a very good sign for us. And if you look at iPad, on that same survey, iPad was the top tablet model in urban China. And according to CounterPoint, the MacBook Air was the top-selling laptop model and Mac Mini was the top-selling desktop model in the December quarter. So overall, great quarter in China. We could not be more happy with it. Awesome. Thank you, Amit. Operator, can we get the next question, please?

Our next question is from Eric Woodring of Morgan Stanley. Please go ahead. Great, guys. Thank you for taking my questions. Tim, congrats on announcing the partnership with Google, and we're all excited to see what you bring to market later this year. When I think about your AI initiatives, you know, it's clear there are added costs associated with that. We're obviously seeing that flow through in OpEx. Can you help us understand maybe what the revenue upside potential that exists with AI? Many of your competitors have already integrated AI into their devices, and it's just not clear yet what incremental monetization they're seeing because of AI, but you're always disciplined with investing. You obviously have a differentiated product. So how do you monetize AI, and what's the timeline to realizing that ROI? Then a quick follow-up. Thank you. Well, let me just say that we're bringing intelligence to more of what people love, and we're integrating it across the operating system in a personal and private way. And I think that by doing so, it creates great value, and that opens up a range of opportunities across our products and services.

And we are very happy with the collaboration with Google as well, I should add. Okay. Thank you, Tim. And then maybe just a follow-up. Now that you have kind of more time and data to evaluate this cycle, Can you help us understand what the primary factors are driving strength in the iPhone? I'm sure there's a number of factors, but if you had to point to one or two, just what would they be and how sustainable do you think those are? I think it's different for different cohorts of where people are coming from in the device that they have. But it's a combination of things always that make the product sing. It's the display. It's the camera. It's the performance. It's the new selfie camera. uh it's the design the design is beloved and so it's it's all of these things that that um that come together at once and and have are producing a very strong product cycle as witnessed by our december quarter results great thank you tim best of luck yep thank you awesome thank you eric operator can we get the next question please We'll now go to Michael Eng of Goldman Sachs. Please go ahead. Wonderful. Good afternoon. Thank you for the questions. I have two as well, if I could.

First, it was encouraging to hear about the revenue growth outlook of 13% to 16% for the March quarter. I was just wondering if you could talk about any comps that we should be particularly aware of as we kind of think about each of the product categories. I know last year you guys had, you know, MacBook Air with M4, the iPhone 16E, the iPad A16, and the iPad Air with M3. So just wanted to, you know, ask if those things would create tough comps or is it just less of an issue just given the new product outlook? Thank you. Yeah, Mike, it's Kevin. How are you? Thanks for the question. Yeah, I wouldn't say there's any particular – comp issue that we'd note, as you recall, last quarter, we talked about the difficult comparison, we had a Mac. But there's nothing that rises to that kind of color that we'd outline, you know, in the outlook. And so I think it's just, you know, continuation of the strong cycle, we're seeing subject to the constraints that I had mentioned in the prepared remarks that Tim, you know, alluded to a little earlier as well. Great, wonderful.

And then, you know, just on on services, you know, advertising, you know, strong in the quarter, I wanted to ask about some of the new growth opportunities in advertising. I know you guys are doing the new ad slots in the App Store. Maybe you could just talk a little bit about that and then any plans to do more in advertising across other products like maps or TV. Thank you. Yeah, sure. Like what I was saying, just if I step back in general, I think as we outlined, we saw really good broad-based performance in our crossword services business. So ranging from, you know, all-time records and advertising, music, payment services, and cloud services. So I think we see really good opportunities across a lot of our service categories. And we continue to, you know, add new service offerings. We talked about, you know, what we added to the to the wallet, the digital ID, and you referenced the additional kind of additional ads coming into search in the App Store, which we are excited about. It provides advertisers more ways to be discovered. And so I think we'll continue to look for ways to expand opportunities to add value to users and also create opportunities for Apple.

I think, as we talked about, we've created across a really significant milestone at 2.5 billion active devices, so we really feel excited about the opportunity that provides for our services business as well. Wonderful. Thanks for the thoughts, Kevin. Sure thing. Thank you, Mike. Operator, can we get the next question, please? The next question will be coming from Ben Ritzes of Melius. Please go ahead. Yeah. Hey, guys. How are you? Hi, Ben. Hey, Tim. First question is on Google partnership again. I wanted to understand how you came to that decision with regard to the AI and Siri in particular. And if there's an opportunity for you guys to share in revenue to with that partnership, like you do in search. Thanks. Yeah, we basically determined that Google's AI technology would provide the most capable foundation for AFM, I'm sorry, Apple Foundation models. And we believe that we can unlock a lot of experiences and innovate in a key way due to the collaboration. We'll continue to run on the device and run in private cloud compute and maintain our industry-leading privacy standards in doing so. In terms of the arrangement with Google, we're not releasing the details of that. Bummer.

Okay. Well, I tried. You did. So, yeah, you knew it would be me. So the –

The next question is on gross margin. You know, I'm pretty shocked. I got to hand it to you, Tim, you know, that you're able to do 48 to 49. What's really going on there? How are you doing that with this memory, the NAN prices? Is it due to mix that there's, you know, a good less hardware and more services and services margins are going up? How are you doing it? to keep it at 48 to 49. Yeah, Ben, this is Kevin. How are you doing? Let me start maybe by just reflecting on the Q1 gross margin. I think we talked about the fact that we landed at 48.2%, so just above the high end of the range that we provided on the last call. And I think if you look at that performance, you know, we were up 100 basis points sequentially. We talked about the fact that we had favorable mix. I mean, as you know, when we have a good product cycle, strong product cycle, we're seeing for iPhone, that does lend itself to a bit more favorable opportunity on the mix and leverage side. So we're having a strong iPhone cycle, as Tim outlined. And so that also translated itself. We talked about products sequentially went up by 450 basis points.

So I think in general, I think we're just seeing – you know, favorable mix dynamics as well. You know, services continue to contribute as well. That business is growing, you know, double digits, so that also is a contributor. And I think that, you know, if you looked at our guidance, you know, we're providing a similar range to where we reported in December, and there's going to be a few puts and takes. You know, we do expect to see favorable mix in the services. As you know, when we move from Q1 to Q2, that tends to be the case, and that's partly offset by a seasonal loss of leverage. So there will be puts and takes, but, you know, again, we feel pretty good about the guide of 48% to 49%, which is similar to the range we reported in December. Wow. Okay, great. Thank you. All right. Thanks, Ben. Operator, could we get the next question, please? The next question will be coming from David Locke of UBS. Great. Thanks, guys, for taking my question. Maybe Tim or Kevin, if we could pull out a little bit.

Can you help us understand how you're thinking about the overall kind of smartphone market demand, particularly given where memory prices are headed? And we've heard some conversations with some other OEMs as well as component providers that are worried about either the availability of components, potential market weakness in terms of demand destruction, if some of the actions to offset or higher prices. I know you don't give outlooks for the full year, but how are you thinking about all of those different vectors and what that might mean for the overall smartphone market and then ultimately what that might mean for demand for iPhones as we move through the rest of this calendar year? Yeah, on the supply side, I had made comments earlier about the constraint that we are seeing in Q2. And that's reflected in the revenue guidance that Kevin gave earlier. The constraint, as I've mentioned, is due to the advanced node capacity. And It's really a result of growing so well in Q1 with the 23%, and having less flexibility partly due to that in the process to increase it as much as we would like to increase it. Beyond Q2, I don't really want to comment on supply.

You know, supply is a function of a lot of things in the industry that move around a lot. So I would want to comment on that. And I commented before on memory pricing. And so hopefully that answers your question. In terms of smartphone demand, You know, we believe that based on the information that we've got is we gained share in the December quarter. Obviously, the market wasn't growing at 23%. So we feel good about doing that. But I wouldn't want to predict how the market reacts in the future. It's very difficult to do that. Got it. At the risk of not getting this answered, I'm going to follow up with, can you maybe help us understand, you know, you mentioned there's a range of options that you're looking at. How should we think about kind of like LTAs in the marketplace? I mean, is that an option as we move through the year, or is it more spot-based? From a owner perspective, particularly around memory, just want to get a better sense for how we should think about kind of the dynamics in the marketplace. It's a range, and so I don't want to get more specific than that.

I mean, there are different levers that we can push, and who knows how successful they'll be, but there's just a range of options. Great. Thanks, guys. Yep. Great. Thank you, David. Operator, could we get the next question, please? We'll now be taking questions from Wami Mohan from Bank of America. Start with pronunciation. That's fine. Thank you. Tim, on services, you were pretty impressive, 14%. And I know you said that the App Store was a record for the December quarter. But third-party data is showing a notable deceleration in App Store growth, maybe 7% in the December quarter relative to your 14% growth. I was hoping if you could maybe confirm that, and secondarily, if it's correct, what might be some of the drivers of that, and what could be things that you could do to reverse that in future quarters? I have a follow-up. Hey, Wamsi. It's Kevin here. Look, I think we want to reiterate the fact that during the summer quarter, you know, we had a quarterly record on the App Store. As you know, we don't provide, you know, specific color on how the individual services categories have done.

But, again, if we step back, I think we saw, you know, again, broad-based growth across all the different categories, also across, you know, various geographies. We had, you know, all-time records in both developed and emerging markets as well, and double-digit growth in both of those, too. And so I think, in general, you know, we don't provide, you know, the color at the detailed, you know, services level. Okay. Thanks, Kevin. I guess back to the memory-prized. I appreciate you have a range of options to address that. Historically, Apple's not used a pricing lever unless FX markets got maybe very dislocated to prevent arbitrage or issues like that. But given some of these unprecedented moves in memory, would pricing be a lever that you would be willing to pull or push outside of everything else that you can do? Yeah, I wouldn't want to speculate on that one. Okay, thanks, Jim. Yeah. Thanks, Wamsi. Operator, can we have the next question, please? I'll go to Sami. Strategy of J.P. Morgan. Please go ahead. Your line is open. Hi. Thanks for taking my questions.

Maybe for the first one, I'm just looking at your capital investment strategy. in the first quarter, which did moderate from the last one, and wondering if the partnership with Google on Gemini and sort of help collaboration to develop the next generation of Apple foundational models, does that have any near-term sort of impact on your intent to use Apple private cloud? I know you emphasize sort of the role Apple private cloud plays in the long term, but are there any changes on that front through this collaboration? Any thoughts around that? And I have a quick follow-up. Thank you. Yeah, sure. I think this is Kevin here. I think in general, you know, as Tim outlined, we weren't going to provide any details on our, you know, arrangement and collaboration with Google. Just speaking of CapEx in general, You know, as you know, we have a hybrid, you know, model for CapEx. And so I think that, you know, what happens is our CapEx can be volatile, independent of kind of the volume of performance of our business.

And as you know, our CapEx is made of several different line items that include tooling, our facilities, retail investments, investments in our retail store, data centers, and And on tooling and data centers, we leverage this hybrid model that I mentioned before, which we leverage a combination of first and third party capacity. So in general, it's hard to read into the CapEx and draw any conclusions. And so I think I would just say there's going to be some ebbs and flows in CapEx. Last year, remember, we did build out our private cloud compute environment. And so we did have CapEx spending related to that in our results in December. Got it. And my follow-up probably is for you again. You did mention product gross margin and the sort of drivers there for the product gross margin improvement. When you sort of highlighted mix as a driver, can you just sort of talk through what are the big differences in mix you're seeing for iPhone 17 versus 16? And did tariffs and tariffs coming in more favorable play a role at all? And what are you expecting for tariffs for the next quarter? Yeah, so there's a few things to unpack there.

So on the overall margin on product side, I think I mentioned that we had favorable mix of products and leverage. I think given the strong iPhone cycle we're seeing, that was – I would say probably a higher favorability than you might have seen in maybe other cycles. And as well, as you know, in Q1, typically we do see the impact of the cost structure of our new products that we launch. And in this case, we were seeing a more favorable offset from mix of products and leverage versus historical, you know, sequential changes from Q4 to Q1. On the tariff piece, we had outlined an amount of $1.4 billion for the December quarter, and we landed roughly in that range, you know, at that level. Thank you. Awesome. Thank you, Samek. Operator, could we have the next question, please? We'll now go to Krish Sankar of TD Cowen. Please go ahead. Yeah, thanks for taking my question. The first one I have for us for Tim, I think you touched upon this earlier on the Gemini integration and Apple Foundation model.

How to think about kind of like the, you know, the difference between Apple Foundation model functionality and third-party models? Like, you know, does the Apple Foundation model evolve to a different layer in the AI software stack? How to think about it as you partner with third-party frontier models? I had a follow-up. Yeah, Chris, you should think of it as a collaboration. And we'll obviously independently continue to do some of our own stuff. But you should think of what is going to power the personalized version of Siri as a collaboration with Google. Got it. Awesome. And then a quick follow-up for maybe Kevin or Tim, just, you know, a lot of discussion on memory pricing. Given that the memory constraint or commodity scarcity is impacting both the smartphone and the PC markets and Apple arguably having more purchasing power, do you think this is a chance for you to increase your market share both in iPhone and Mac at the expense of competition who might have more constraints in getting access to memory? Yeah, I don't really want to talk about kind of what has happened. And we do believe, as I had shared, that iPhone gained share in the December quarter.

And if you look at Mac for the full year of full calendar year 25, we also believe we gained share. And so we feel very good about our position. Thanks, Tim. Yep. Thank you, Krish. Operator, could we have the next question, please? When I go to Atif Malik calling from Citi. Please go ahead. Hi. Thank you for taking my question. The first one for Tim. Tim, some of the industry pundits are comparing the iPhone 17 upgrade cycle to the 2020-2021 years. as some of the iPhone 12, 13 users upgrade. Curious if you agree with that view, and also if you can layer on the impact from Apple intelligence to the refresh rate. I think each iPhone cycle has its own unique characteristics, and so I wouldn't compare it to a specific one. I think iPhone 17, the family of 17, is a unique product that brings – several very compelling features in one product, and it has done extremely well. And so we feel, you know, quite good about it. And I'll just add to Tim's comment that we talked about the fact we have a large and diverse install base of customers, and so this product has really resonated with multiple cohorts, whether you're on older devices or newer iPhones as well.

So we've seen really strong reaction to the product lineup. Great. As my follow-up, there was a lot of discussion on supply constraints, and I'm surprised that you guys are constrained on advanced packaging as you generally get your share at the big foundry. How long will these supply impact your ability to ship to true demand? It's difficult to estimate demand when you haven't met the demand. And so obviously we have internal estimates on that, but I don't want to share those. But it's very difficult. And just to be clear, it's the advanced nodes that we, like 3 nanometer to be specific, where our SOCs are, the latest SOCs are produced on as to what is gating the Q2 supply. And it's a direct result of the 23% growth and, you know, that far outstripping what we had internally estimated and having more limited flexibility in the supply chain for some period of time. I don't want to estimate when supply and demand will balance at this point. Thank you, Atif. Operator, could we have the next question, please? The next question will be coming from Aaron Rakers, calling from Wells Fargo. Please go ahead. Yeah, thanks for taking the question.

I have two as well, and I'll try and stay away from the memory question. I'm curious, and, you know, obviously a lot of focus on the China demand, but I'm curious, you also called out India. And so can you maybe unpack some of the things that you're seeing in the Indian market, you know, as far as iPhone traction, any kind of color on that? You know, what is a very large install base in India that seems to be a good growth opportunity for Apple still? Yeah, thanks for the question. We did set a quarterly revenue record during the December quarter. And to go a little further down, we set quarterly revenue records on iPhone and Mac and iPad and an all-time revenue record on services. So it was a terrific quarter in India. We really like what we see there. It's the second largest smartphone market in the world and the fourth largest PC market. And we still have, despite a very nice growth history, we have modest share there. And so we think there's a huge opportunity for us there. And we could not be more excited about it.

If you look at the other thing that I would point out is that the majority of customers that are buying iPhone and Mac and iPad and watch are all new to that product. And so it speaks very well to opportunity there. Yeah, and Aaron, I know you mentioned the install base. We're seeing strong double-digit growth in the install base in India as well, which is really encouraging. Yep. And then as a quick follow-up, you know, kind of tied to memory, maybe not so much, but, you know, part of this current generation, you know, iPhone cycle is you clearly deepen some of your own internal silicon capabilities on the device. I'm curious if that, if we should think about that as a lever and maybe a supportive factor to gross margin that might be underappreciated and, you know, any thoughts on, you know, where we go from here as far as continual opportunities of internalizing your own silicon? Thank you. Yeah, I'll let Kevin talk about the gross margin. But in terms of the product, which is at the heart of what we think about in the user, Apple Silicon has just been an incredible game changer for us, starting with iPhone and then on iPad and, of course, the Mac as of a few years ago.

And so we believe it's a game changer and a major competitive advantage. Yeah, and as far as impact on gross margin, you know, we have been, as you know, investing in core technologies like our own silicon, our own modem, and certainly while those do provide opportunities for cost savings and can be reflected in margins, they also importantly provide, you know, the differentiation that's really important for our products as well and give us more control over our roadmap. So I think there's a lot of strategic value to it, but also we are seeing, you know, investments in our core technologies impacting, you know, gross margin in a positive way. Yep. Thank you. Awesome. Thank you, Aaron. Operator, could we have our last question, please? Most certainly. Our last question will be coming from Richard Kramer calling from Areth Research. Please go ahead. Thanks very much. I have two questions.

Tim, when you think about how Apple might manage AI, do you see that evolving towards more edge AI or on-device services versus cloud-based AI? And are you confident you've reserved sufficient data center capacity to support the widespread Siri adoption, especially given that you're not following the other hyperscalers and sharply increasing CapEx? The answer is that we see both being important, the on-device and the private cloud compute. And so we don't see it as an either-or. We see it as a both. And we believe it's a differentiator because of our privacy approach. In terms of do we have enough capacity, it's hard to estimate with precision what the demand will be. But we've done sort of the best job that we can do and either have or are putting capacity in for it. Okay. And you also, you mentioned the 2.5 billion active device number, but Apple intelligence features have only been available since the 15 Pro. So can you speak at all to roughly what portion of your iPhone or overall active device install base is now AI capable? And has this been a factor in maybe a more gradual pace of launching wider AI services? Yeah, Richard, this is Kevin.

You know, we don't provide that specific number, but it is a growing number, as you can imagine, in our install base. And so we're encouraged by the amount of devices now that are capable. But we're not going to provide a specific figure on that today. Okay. Well, I had to try. Thank you. All right. Thank you, Richard. 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 890-2968, followed by the pound sign. These replays will be available by approximately 5 p.m. Pacific time tonight. Members of the press with additional questions can contact Josh Rosenstock at 408-862-1142, and financial analysts can contact me, Suhasini Chandramouli, with additional questions at 408-974-3123. Thanks again for joining us today. Once again, this does conclude today's conference. We do appreciate your participation.

Q4 2025 Earnings Call — October 30, 2025

Analyst Eric Woodring (Morgan Stanley): Congrats on the results. Tim, can you maybe share a bit more detail on why you think the iPhone 17 is having the degree of success that it is at this point? And really, the question is, do you believe this is, you know, the age installed base replacement cycle kicking in or are there specific features or functionality you believe stand out this cycle versus past cycles that consumers are really looking for?

Executive Tim (Title): Thanks, Eric. I think it's all about the product. The product lineup is incredibly strong, our strongest ever. The 17 Pro is the most pro phone we've ever done. It's incredible in the design things. The iPhone Air feels so thin and so light in your hand, it feels like it's going to fly away. And then the 17 phone is an incredible value and takes several of the features that were reserved for pro before and brings them down to the consumer lineup. So overall, strongest iPhone lineup ever, and it's resonating around the world.

Analyst Eric Woodring (Morgan Stanley): Thank you, Kevin. And then maybe a follow up for you, Kevin. Can you maybe just discuss your approach to managing component cost inflation during this time? You're obviously increasing the memory content in your devices quite substantially. At the same time, memory prices are going through some pretty significant inflation. So just how are you managing through this cycle?

Executive Kevin (Title): Hey, Eric. Thanks for the question. Look, as you know, we've got a pretty incredible world-class procurement team. And so we're constantly finding ways to continue to drive cost opportunities. Right now on the commodity side, I would say we're seeing a slight tailwind on memory in storage prices and nothing really to note there. And as we saw from our gross margin performance, we landed in a pretty good spot above the high end of the guidance range we provided at 47.2%. And as well, we're guiding at 47 to 48%. So I think we're managing costs pretty well. As you'll recall, when we talked about this time in the cycle, we just launched a bunch of new products. Those new products do have a slightly higher cost structure than the products they replace. But the team does a very good job of focusing our efforts on getting those costs down over time. And we feel pretty good about the performance we're seeing right now overall on material cost savings.

Analyst Ben Ricey (Mellius Research): Tim, can you talk a little bit about iPhone in China specifically? How is that going to trend in the December quarter? And have you turned the corner there? And how do you think that trajectory is going?

Executive Tim (Title): Yeah, Ben, I was just there. It's incredibly vibrant and dynamic. The store traffic is up significantly year over year. The iPhone 17 has been, the family has been very well received there. We do believe that we'll return to growth in Q1, and that is largely based on the reception of the iPhone there. I'm couldn't be more pleased with how things are going there in the early going.

Analyst Ben Ricey (Mellius Research): That's great. And then services, great upside there a little surprising right. I was wondering if there were any tax payments in there or, you know, if the resolution that we saw with the antitrust ruling with one of your partners was a boost and if that played a role or if it was all really just organic outperformance with many of the things you mentioned.

Executive Kevin (Title): Yeah, hey, Ben, it's Kevin here. Let me try to answer that question. You're referring, just wanted to clarify, when you're referring to the antitrust piece, you're talking about the Google trial. Is that what you're referring to?

Analyst Ben Ricey (Mellius Research): Yeah.

Executive Kevin (Title): Okay. Yeah, there was no tax-related impact. And what I would say is our strong performance of the court is really organically driven. And again, just to reiterate, we had an all-time revenue record here for the quarter at $28.8 billion, and as well, we surpassed $100 billion, so the best year ever at 14% year-on-year. So really, that was all organic growth. As Tim outlined and I outlined in the prepared remarks, you know, we saw a majority of the categories have sequential acceleration, and we had many all-time revenue records, but, you know, nothing abnormal at all, really pretty much all organic growth.

Analyst Michael Ng: Hi, good afternoon. Thank you for the question. I just have two as well. First, just to follow up on the last one, you know, the services revenue growth I think was the fastest across many categories and certainly the fastest in the last two years. I was just wondering if you could just unpack a little bit more of the drivers of the acceleration. You know, was there kind of cross-selling with the new iPhone launch? Was it just installed base growth? I know you've been doing a lot of bundling with Apple One and Apple Care One. So any thoughts on that would be very helpful.

Executive Kevin (Title): Hi, Michael. It's Kevin. Thanks for the question. Yeah, let me build on the answer there. I think that the way we look at it is not one thing to point to that would have driven this higher performance. You're right that it is slightly higher than we've seen in the last few quarters. But as you know, our services portfolio is very broad with a broad range of businesses, all that have different growth profiles and different performance characteristics. So those can vary in any given quarter. I would say our strength, again, was very broad based, both across categories and also geographically. So I wouldn't point to any particular factor that drove any kind of outperformance at all. We were just very pleased to see that result.

Analyst Michael Ng: Great. Thank you. And just on iPhone sell-through, I was wondering if you were seeing any notable shifts in trends between the sell-through coming from upgraders versus switchers. Is the USB carrier, competitive dynamic, helping at all in terms of promotional activity, and any thoughts on channel inventory?

Executive Tim (Title): Okay. We did set a September quarter record for upgraders, and so it was a great quarter from that point of view. It's really too early in the cycle on 17 to make any comments about upgraders or switchers. In terms of channel inventory, we ended the quarter toward the low end of the targeted range, obviously because we had constraints on several models of the 16 and the 17. And for complete transparency and clarity, we're constrained today on several models of the iPhone 17. There's not a ramp issue. It's just we have very strong demand. And we're working very hard to fulfill all the orders that we have.

Analyst Amit Daryanani (Evercore): Thanks for that, too, as well. I guess, Kevin, maybe we should start with gross margins. Can you just walk through the expectations for December quarter? I think it implies up 30 basis points or so sequentially. Can you just talk about the puts and takes on gross margin, given you do have very sizable operating leverage in the quarter?

Executive Kevin (Title): Yeah, sure. Let me walk through the outlook. As we mentioned in our outlook, we're targeting a range of 47 to 48 percent. We take the midpoint of that range at the 47 and a half. You said it's roughly 25 basis points, 30 basis points higher. Really, there's a lot of puts and takes, as I talked about earlier. This is a quarter we launched a lot of new products. Those new products tend to have a higher cost structure than the products they replace. So there's definitely an impact from the cost side of things. But that was more than offset by favorable mix, especially on the product side, as well as you outlined. We typically see higher leverage in this quarter. So I would say those are the two big drivers. And so the sequential increase is really going to be driven by favorable mix, particularly from the product side.

Analyst Amit Daryanani (Evercore): If I just go back to the China discussion for a minute, the performance in China, at least in September quarter, was a bit muted. Could you just talk about what resulted in the weakness over there, and do you think it was a bit more of a pause given iPhone Air, for example, I don't think was available until a few weeks ago. So just somewhat what drove the weakness in September, and is the uptake or better expectations of December there just from the iPhone Air coming out, or are there other factors as well?

Executive Kevin (Title): Yeah, the Greater China revenue was down 4% in the year-over-year in the September quarter. It was driven by iPhone. And if you look at the iPhone, the majority of the sequential year-over-year change was due to supply constraints that I mentioned earlier. And so it was basically supply constraints that drove the results. We're thrilled with what we're seeing right now with traffic being up significantly year over year and the reception of the 17 family. We expect to return to growth this quarter.

Analyst Wamsi Mohan (Bank of America): Tim, if I could follow up on your comments about the constrained supply in the quarter, just given the very strong demand for iPhones. Do you expect that, as you can see, your visibility across demand and supply, do you think that you will be exiting December at a point where you wouldn't be constrained anymore, or do you still expect that there could be constraints as you exit the December quarter?

Executive Tim (Title): This is Tim. The advertising category, which is a combination of third party and first party, did set a record during the quarter.

Analyst Wamsi Mohan (Bank of America): Okay, and sorry, just to be clear, both Apple's own internal advertising and within the licensing category individually set records?

Executive Tim (Title): Actually, I'm not saying that. I'm just saying that the combination of the two set a record. We don't, I'm dodging the question intentionally because we don't split it at that level.

Analyst Samik Chatterjee (J.P. Morgan): Tim, you talked about the strong momentum you're seeing in China, which is also driving your confidence for the December quarter. Any thoughts on the role that the smartphone subsidies in that region are playing in this momentum? And how do you think about sort of what portion of consumers are maybe using some of those subsidies, leveraging subsidies at this point?

Executive Tim (Title): Yeah, the subsidies play a favorable role. The subsidies, as you know, are sort of across multiple categories from PCs to tablets to smartwatches and smartphones. And however, it's important to note they only apply to certain price ranges. And so there's a maximum price and there's several of our products that sell above that price and therefore are not eligible for a subsidy. But it does have a favorable effect. And it's clearly, at least from our vantage point, driving some consumer demand.

Analyst Samik Chatterjee (J.P. Morgan): Okay, got it. And a follow-up for Kevin here, on the OPEX increase going into the December quarter, fairly sizable step up. So if you could just dig into that number a bit more, what are sort of the components towards what you're spending? And then that increase year over year in OPEX does sort of exceed your revenue growth. So is that sort of what we should expect on a going forward basis as well, where you probably need to invest a bit more in the near future?

Executive Kevin (Title): Yes, Amit, thanks for that question. As we've been outlining and reiterated in our last call, we are increasing our investments in AI. We're also continuing to invest in our product roadmap. So the vast majority of the increase to our operating expenses are driven by R&D. While we continue to manage the company in a thoughtful and disciplined way, we're also managing the business for the long term and are super excited about all the opportunities that we see ahead. As it relates to the question around OPEX and revenue growth, while OPEX has been growing at a faster rate than revenue, you know, we have seen gross margin expansion. And so when we look at that on a combined basis, it does allow us to have healthy operating leverage, and our operating income growth has been generally outpacing revenue growth for the past, you know, several years.

Analyst David Vogt (UBS): So maybe, Kevin, can I ask first, can you help us understand sort of the tariff impact sequentially from the September quarter to the December quarter, particularly around iPhone supply constraints? Because I think I heard you say tariffs go from $1.1 to $1.4 billion, but the sequential uplift in iPhone revenue and presumably production given supply chain constraints is dramatically bigger. So you can help us understand how to think about the timing of those tariff headwinds as we move forward and sort of that correlation.

Executive Kevin (Title): David, I'll take this one. You're right. It goes from 1.1 to a projection of 1.4, and the 1.4 is based on sort of what we know right now and where the tariff rates and policies and so forth are. So it assumes a stable kind of environment for the quarter, it does comprehend the change that was just made, which we're very encouraged to see with the tariffs moving from 20% to 10% in China. And so that is factored in. And that is one of the reasons why it's not linear to volume, if you will. Does that make sense?

Analyst David Vogt (UBS): Got it. No, that's what I was asking, if the change is reflected in that outlook. And then just as a follow-up, you know, when you think about, I think on the Macs, I know people aren't asking about it. You talked about the tough comp, but you're going into sort of a holiday season. I understand that. But when you think about the attached possibility for other products to the iPhone in the holiday season, you know, how do we think about sort of where the consumer's head's at and their wallet is at this point in the cycle?

Executive Tim (Title): We always like to remind people that buy an iPhone all the other things that we offer, and so you can bet that we're doing that. From a Mac point of view, the challenge is that last year was sort of the mother of all Mac launches. All of these from Mac Mini to iMac to all the MacBook Pros all launched literally at the same time. And this year, that compares to launching the 14-inch MacBook Pro. And so there's a very difficult compare. Of course, in the long run, I'm very bullish on the Mac. And you can see that the Mac, again, last quarter outgrew the market. And so we feel really well about how MAC is positioned, but this certain quarter is an extremely difficult compare.

Executive Kevin (Title): Yeah, and Tim, I'll add to that that we also had the DRAM upgrade last year for the MAC lineup.

Analyst Krish Sankar (TD Cowen): Yeah, thanks for taking my question. My first one is on the iPhone constraints. Is there a way to quantify how much business you left on the table because of those constraints? And is the different iPhone manufacturing from two different regions contributing to the constraint?

Executive Tim (Title): To be clear, the constraint was not related to manufacturing capacity per se. It was that we called the number of iPhone 16s that we were going to make and were a bit short of where the demand really was. So we could have sold more. We're not publicly, at least, estimating the extent of that. And then on iPhone 17 family, the demand is very strong. And so we obviously came out of the Q4 timeframe with lots of back orders.

Analyst Krish Sankar (TD Cowen): Got it. Thanks, Tim. And then a quick follow-up. Given the prevalence of chatbots and some of these AI-infused web services, do you think that could change the consumer behavior on mobile app ecosystems? Or are you seeing any of that? And would that have any impact on your app store?

Executive Tim (Title): I think there are opportunities on the App Store with artificial intelligence. And so I think, you know, as we have made our on-device models available for developers, and we've seen developers begin to adopt them, and so I think as that proliferates, there's an opportunity for developers and for Apple to benefit from that, from adding features to their apps and so forth.

Analyst Aaron Rakers (Wells Fargo): Yeah, thanks for taking the question. I have two as well. I guess

the first question is when we look at the iPhone 17 demand, which you've repeatedly highlighted is very strong. I'm curious if there's been any discernible kind of change in the mix within the iPhone 17 categories between the Pro and the Pro Max versions relative to prior cycles.

Executive Tim (Title): It's really too early to call the mix, to be honest. And we don't like to publicly disclose that for competitive reasons. But frankly, we don't really know what the mix will be yet because we have constraints on both sides of the ledger, at the top and at the entry. And so we'll see what happens as we get more supply.

Analyst Aaron Rakers (Wells Fargo): Yep. And then, as a quick follow up I'm curious as we kind of work through kind of the AI narrative that continues to build. Is there, could you provide any kind of updated thoughts around the build out of apple's private compute cloud and how we should think about that kind of as we look forward?

Executive Tim (Title): Yeah, we're obviously using PCC, our private cloud compute, today for a number of queries for Siri. And we will continue to build it out. In fact, the manufacturing plant that makes the servers used for Apple Intelligence is just started manufacturing in Houston a few weeks ago, and we've got a ramp planned there for use in our data centers. And, you know, it's robust.

Executive Kevin (Title): Yeah, Aaron, I'll add maybe there, too, since you asked the question about private cloud compute, that we, in 25, we did have CapEx costs associated with building out our private cloud compute environment in our first-party data centers. So, you know, you would have seen that in some of the CapEx investment in the year.

Analyst Atif Malik (Citi): Hi, thank you for taking my questions and great execution.

The first question is on iPhone Air. Does the consumer reception on iPhone Air give you a feel on perhaps the foldable coin market, or are the two form factors very different?

Executive Tim (Title): I'm not sure that one is a proxy for the other. The thing that I would say is that where we don't get into the model kind of demand, at the aggregate level, we are thrilled with how iPhone has been received, and that's the reason that we're expecting double-digit growth in the current quarter.

Analyst Atif Malik (Citi): Great. And Tim, as a follow-up, good to know that the personalized theory is making good progress and on track for next year. Will you continue to use the three-pronged approach with your own foundation models and partner with other LLM providers and maybe potential M&A, or is one strategy more emphasized over another?

Executive Tim (Title): We're obviously creating Apple Foundation models within Apple. We ship them on device and use them in the private cloud compute as well. And we've got several in development. And so we also from a continually to surveil the market on M&A and are open to pursuing M&A if we think that it will advance our roadmap.

Analyst Richard Kramer (Rate Research): Thank you very much, Tim. We've often seen Apple be a fast follower with iPhone and new technology, whether large displays or 4G or 5G. But with all the hype now around AI, are you seeing evidence that AI capabilities or features are a material purchase consideration for consumers? Or are the record sales levels you're reporting simply reflecting other factors like the retention of your iOS space?

Executive Tim (Title): I think that there are many factors that influence people's purchasing considerations. And we don't have a great in-depth survey yet on the current iPhone 17 because it's very new in the cycle and we give it some time to formulate. But I would say that Apple intelligence is a factor. And we're very bullish on it becoming a greater factor.

Analyst Richard Kramer (Rate Research): Okay, thanks. And then one for Kevin. In the wake of nearly every other large tech company massively increasing their CapEx in advance of AI demand and also mentioning that their scarce capacity, do you anticipate Apple altering its sort of longstanding hybrid approach to your own and third-party data centers? And maybe can you talk a little bit about the role you see for Apple Silicon with the new M5 series of chipsets?

Executive Kevin (Title): Hi, Richard. Thanks for the question. In general, I think as we've talked about before, we are expecting increases in our CapEx spending related to AI investments. For example, as I mentioned earlier, we did end up having investments this year to build out our private cloud compute environment. And we do believe this hybrid model has served us very well, and we continue to want to leverage it. And so I don't see us moving away from this hybrid model where we leverage both first-party capacity as well as leverage third-party capacity. We'll continue to want to build out private cloud compute, as Tim outlined, as we have more usage there over time. But I think in general, we'll want to continue to have this hybrid model.

Executive: 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 0689794 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 Chandramouli, with additional questions at 408-974-3123. Thanks again for joining us. Once again, this does conclude today's conference. We do appreciate your participation.