Apple reported a Q2 FY 2024 revenue of $90.8 billion with an EPS of $1.53, setting records in several regions including Latin America, the Middle East, Canada, India, Spain, and Turkey.
The company achieved an all-time revenue record in Indonesia and in Services, with a 14% year-over-year increase.
iPhone revenue was $46 billion, down 10% year-over-year, partly due to a $5 billion impact from the previous year’s supply disruptions.
Mac revenue increased by 4% year-over-year to $7.5 billion, while iPad revenue decreased by 17% to $5.6 billion.
Wearables, Home, and Accessories saw a 10% decrease in revenue year-over-year, totaling $7.9 billion.
Services reached an all-time revenue record of $23.9 billion, up 14% from the previous year.
Net income for the quarter was $23.6 billion, with operating cash flow of $22.7 billion.
Product Performance
iPhone 15 and iPhone 15 Pro Max were the 2 bestselling smartphones in urban China for the quarter.
The new 13- and 15-inch MacBook Air, powered by the M3 chip, contributed to the Mac’s revenue growth.
Despite a decline in iPad revenue, its installed base continued to grow, reaching an all-time high.
Nearly two-thirds of Apple Watch purchasers during the quarter were new to the product.
Strategic Initiatives
Apple introduced the Apple Vision Pro, marking its entry into spatial computing, with significant interest from over half of the Fortune 100 companies.
The company remains bullish on its opportunities in generative AI and plans to make significant investments in this area.
Apple continues to focus on environmental initiatives, aiming for carbon neutrality across all products by 2030 and using more recycled materials than ever before.
Capital Allocation
Apple returned over $27 billion to shareholders through dividends and share repurchases during the quarter.
The board authorized an additional $110 billion for share repurchases and raised the dividend by 4% to $0.25 per share.
Future Outlook
For the June quarter, Apple expects low single-digit year-over-year revenue growth despite foreign exchange headwinds.
The company anticipates double-digit growth in its Services business and iPad revenue for the June quarter.
Gross margin is expected to be between 45.5% and 46.5%, with operating expenses between $14.3 billion and $14.5 billion.
Question and Answer
June Quarter Guidance and Product Assumptions
Question
What are the product assumptions underlying the June quarter guidance, particularly for iPhone and Services?
Answer
The company expects low single-digit growth in total revenue, with double-digit growth in Services and iPad.
Services have shown strong performance with record results across several categories and geographic segments.
Subscription business, transacting accounts, and paid accounts are all experiencing growth, with paid accounts growing at a double-digit rate.
CapEx Cadence and Generative AI
Question
Will the increasing focus on AI, particularly generative AI, lead to changes in the historical CapEx cadence or the split between tooling, data centers, and facilities?
Answer
The company is excited about the opportunities with generative AI and continues to push for innovation across all fronts.
Apple has a hybrid CapEx model, sharing investments with suppliers and partners, and plans to continue this approach going forward.
EU DMA and Third-Party App Stores
Question
What are the implications of the EU Digital Markets Act (DMA) for Apple, particularly regarding the opening up of third-party app stores and alternate billing options?
Answer
It is too early to determine the full impact of the EU DMA as the changes were implemented recently.
The company is focused on compliance while mitigating any potential impacts on user privacy and security.
Product Gross Margins and Commodity Costs
Question
Can you provide more color on the sequential step-down in product gross margins, particularly regarding mix and leverage? Are customers starting to mix down across product lines?
Answer
The sequential step-down in product gross margins was primarily due to a different product mix and the shift from the holiday quarter to a more typical quarter.
Leverage also played a significant role in the margin change.
There is no specific evidence of customers shifting down within product categories.
Monetization of Generative AI and Commodity Cost Trends
Question
How is Apple thinking about the monetization of generative AI technology, considering historical software upgrade cycles and potential impacts on replacement cycles? Are rising commodity costs a headwind for product gross margins?
Answer
The company sees generative AI as a significant opportunity across its products and believes it has advantages that set it apart.
More details on the monetization strategy will be shared in the future.
Commodity costs and general component costs were favorable during the last quarter, with memory prices starting to increase slightly.
Apple actively manages commodity costs through buying ahead during favorable cycles and believes it is well-positioned to mitigate potential headwinds.
China Market and Generative AI
Question
Is there any additional color from your recent visit to China that gives you confidence in the market’s turnaround? How should investors think about the potential impact of generative AI on Apple’s ability to monetize its mobile real estate?
Answer
Despite the overall decline in Greater China, iPhone sales in Mainland China grew on a reported basis, excluding the supply disruption impact.
The top two selling smartphones in urban China are iPhones.
The company remains optimistic about the long-term potential of the Chinese market.
Generative AI presents significant opportunities for Apple to monetize its mobile real estate across products.
AI Strategy in Consumer and Enterprise Markets
Question
Will the AI strategy primarily focus on consumer or enterprise markets, or will it be a combination of both?
Answer
Apple’s enterprise focus has been on selling iPhones, iPads, and Macs, with recent additions like Vision Pro showing promising results and generating interest from big companies.
The company sees enormous opportunities in the enterprise market and believes its AI strategy will benefit both consumer and enterprise segments.
Consumer Behavior and iPhone Models
Question
In the current macro environment, are you seeing a bias towards standard iPhone models versus the Pro models, particularly considering the weaker consumer spending environment? How does this relate to the growth and margins of the Services business?
Answer
The company continues to see strong interest in the top-of-the-range products, driven by consumer preferences for the best offerings and affordability programs such as installment plans and trade-in programs.
This trend is particularly pronounced in emerging markets where affordability is a key factor.
The company believes this trend is sustainable and has been reflected in its gross margins in recent years.
Capital Allocation and China Market Dynamics
Question
As Apple moves towards its net cash neutral target, how does the company think about leverage on the balance sheet and the potential for continuing the buyback program? Can you provide more insights into the macro and competitive dynamics in the China market and the drivers behind the year-over-year declines?
Answer
Apple is focused on reaching its net cash neutral target and will reassess its capital structure once that goal is achieved.
The company has a strong free cash flow generation and has increased its buyback program to $110 billion this year.
The company sees a lot of people in China moving into the middle class and remains optimistic about the long-term opportunities in the market.
iPhone Replacement Cycle and Demand Drivers
Question
Given the continued mid-single-digit decline in the iPhone business, how is Apple thinking about the competitive landscape and potential changes in consumer demand or receptivity to new devices? Are generative AI initiatives expected to drive a change in demand drivers or the replacement cycle timing?
Answer
The company sees generative AI as a key opportunity that will drive the upgrade cycle in the future.
While the company does not provide product-level guidance, it highlights the strong performance in Q2, with iPhone results being flat when adjusted for the supply disruption impact.
The company maintains its guidance for low single-digit growth in total revenue, double-digit growth in Services, and double-digit growth in iPad for the June quarter.
Services Growth Drivers and India Market Momentum
Question
Can you elaborate on the drivers behind the acceleration in Services growth, and why is this acceleration not expected to be sustained in the next quarter? How much of the momentum in the India market is attributed to the retail strategy versus supply chain or manufacturing changes?
Answer
The acceleration in Services growth was driven by strong performance across various categories and geographic segments, with many smaller categories like cloud, video, and payment services setting all-time revenue records.
The company expects the comps for the Services business to become more challenging as the year progresses, but it remains confident in double-digit growth for the June quarter.
The momentum in the India market is attributed to both operational and supply chain improvements, as well as go-to-market initiatives, including retail expansion, channel expansion, and developer ecosystem investments.
iPhone Traction in China and Channel Inventory Dynamics
Question
Given the concerns and data points surrounding iPhone traction in China, what factors do you think people may be overlooking, and where is Apple’s iPhone traction particularly strong in the market? Can you also provide insights into the channel inventory dynamics for iPhone?
Answer
The company cannot address specific data points but highlights its own results, including iPhone acceleration in China and growth in Mainland China.
For the March quarter, Apple decreased channel inventory, which is typical for that time frame, and is comfortable with the overall channel inventory levels.
Emerging Markets Growth and Capital Deployment
Question
Considering the rapid growth in many emerging markets, is Apple approaching a point where these markets, in aggregate, might surpass the Greater China segment in terms of size and become a significant driver of growth for the wider business? Are there opportunities to deploy capital to spur replacement demand in the installed base, and how does the strong dollar impact demand for products in international markets?
Answer
While China remains the largest emerging market for Apple, other markets like India, Saudi Arabia, Mexico, Turkey, Brazil, Mexico, and Indonesia are seeing significant growth, and the gap with China is narrowing.
The company acknowledges the impact of the strong dollar on reported results and highlights the underlying demand for products in international markets.
Apple focuses on innovation as the primary driver of the upgrade cycle and considers a combination of factors, including economic conditions and carrier offerings.
Vision Pro Use Cases and Commodity Pricing Assumptions
Question
What are some of the top use cases for Vision Pro that are generating the most excitement in the enterprise market? Can you also share the assumptions for commodity pricing, particularly for memory, in the June quarter and full year?
Answer
Vision Pro is being used across a wide range of applications in the enterprise market, including field service, training, healthcare, and control centers, among others.
The company does not provide guidance beyond the current quarter but expects memory to be a slight headwind to gross margins, along with foreign exchange.
