Apple Reports 3Q 2022 Results: $19.4B Profit on $83B Revenue

A: China had very good results on Services last quarter, and so they grew strong double-digits, better than the company average. Set a new June quarter revenue record.

A: We have incorporated all our thoughts into the guidance that Luca gave. In aggregate we plan to accelerate revenues in the quarter, and decelerate on the services side. Digital advertising clouds will continue in the current quarter.

Impact on aggregate gross margin is our mix or products and services. Different margin profiles, different businesses, different accounting treatment at times. Something we need to track over time. People love our products and services and we want them to all to be successful on the marketplace. We have had a significant expansion of gross margin, despite difficult economic circumstances. From commodities standpoint, asking about components, commodities are behaving okay, we've seen some price pressure on silicon components, but commodities are behaving well.

A: It's challenging to measure the replacement cycle with any precision, so I'm gonna punt on that. Our key task is to make a product that everybody loves and people want to trade in their current phone to get. That's what we're focusing on is to innovate like crazy and give people something they really want and see themselves using.

A: We are being more deliberate in hiring, in recognition of the realities of the environment.

A: Both things are true, we did see a lower demand based on covid lockdowns, and we did see a rebound in those cities towards the end of the June quarter, in particular in the runup to June 18 which is a major shopping holiday in China. We think that the net is still a negative but some of it did rebound by June timeframe. Restrictions came down in early June.

A: Wearables, Home and Accessories... we saw sort of a cocktail of headwinds on wearables, home and accessories. FX, supply constraints, impact from business in Russia. But in addition to those things, which affected all the products, we also had a different launch timing for certain Home and Accessory products. Year ago had AirTag in it, one example of something that announced last year that didn't announce this year, or a comparable announcement this year. In addition to those four items, we believe that there was a macro environment hit and, whether or not that is because they are lower ASPs vs higher ASP of a phone, I can't tell you that. Looking at the numbers, there does appear to be headwinds in addition to the four items above, and we believe those to be macroeconomic headwinds.

A: We are not providing guidance because of uncertainty out there, but we have given a few data points. One of them that you mentioned, 600bp of negative FX, you do the rough math and it's around $5 billion. That's a big number right there that's going to affect us. Impact from the situation in Russia, that is different from normal seasonality as well. Our supply constraints as Tim said are going to be lower than in June, but they're still going to be there. When you look at those three headwinds, plus deacceleration that we talked about, we think it's pretty remarkable.

A: We're thrilled right now to have more than 14,000 ARKit apps in the App Store. They're providing incredible AR experiences for millions of people. That's utilizing iPhone and iPad. And, of course, we're in the business of innovation so we're always exploring new and emerging technologies but I wouldn't want to say anything beyond that.

A: More color on what we saw in June, we came in slightly below from a constraint point of view the $4 billion number, low end of $4-8 billion that we predicted. The majority of that constraint last quarter was coming out of the covid restrictions that resulted in plants running at less than full utilization for some amount of the quarter, or the majority of the quarter. The other component that is the minority part, the silicon shortage that has affected our results for several quarters now. If you look into the future, the silicon shortage, we're not forecasting when that will end. In the aggregate, our constraint numbers for Sept will be less than June. The two components, we're optimistic about covid restriction piece.

In terms of testing the demand, you can't really test demand unless you have the supply. We were so far from that last quarter that we have an estimate of what we believe demand was, but it is an estimate. We recognize how the industry is doing, we think that we've got a great story with the Mac, getting M1 out and now M2 out, we have a very strong offering for the back to school season and we'll see how we do this quarter. We'll report back in October.

A: From an aggregate point of view, worldwide, looking at the data on iPhone for the June quarter, there's not obvious evidence in there that there's a macroeconomic headwind. I'm not saying there isn't one, but the data doesn't show it. We can clearly see it in Wearables, Home and Accessories area. I would differentiate those two.

A: Affordability is a very important topic for us, has been for many years. Buy now, pay later is the latest that we're doing on this front. Fundamentally we're working on two major initiatives for affordability. Installment plans, and they've become more widespread around the world, not just here in the US, especially in emerging markets. Trade-in programs are available in a number of markets, we can do better in other markets, but they're incredibly important because the residual value of our products is a huge differentiator for our users. They can bring them back and they retain much more value than other platforms. Important to raise that awareness. Installments and trade-ins are important on affordability.

A: We view privacy as a fundamental human right. What we try to do with all of our features on privacy is put the decision back at the user where we believe it belongs as to whether they want to share their data or not. That was what was behind application tracking transparency and a number of other features, we're trying to empower the user to own their data and make their own choices. In terms of us selling ads, we have a Search Ads business across the App Store that believes represents a great way for discovery for small and large developers and I see that we play a role in that.

A: Deceleration... 6% impact from FX overall, a big element for us. Digital advertising slowdown for us to work through. Services grew a lot last year so the compare is challenging. Don't have a specific number to give out, we expect to grow but we will see how the quarter develops.

A: It's the product and innovation in the product that's driving it. Key variables such as size of the installed base have been growing significantly, June quarter record for switchers with strong double-digit growth. Fueling installed base. Continue to execute across significant geographies with low penetration of iPhones. Indonesia, Vietnam, India. iPhone tends to be the engine for those markets, particularly at the beginning of creating the market for Apple products. We're really looking at all of these things, installed base to switchers to geographic distribution. The most important thing for us is to maintain incredible customer satisfaction and loyalty. 98% for iPhone. 5G has been an accelerant. 5G penetration, particularly globally, is still quite low. In some geographics it's higher, but 5G is still quite low. There's reason to be optimistic.

A: We always look and we ask ourselves how strategic it is, and we never buy just to buy or buy for revenue. We would buy something that is strategic. To date we have concentrated on smaller IP and people acquisitions and I wouldn't rule anything out for the future and obviously we are constantly surveilling the market.

A: The way we think about it, there are a number of levers to take into account. First one is installed base, the engine for our company and it continues to grow. It's reached an all-time high across every product category. The second lever is customer engagement. Customers are getting more engaged, transacting accounts, paid accounts, paid subscriptions. Breadth and quality of services tends to grow over time. Tend to help us over the long term. If you go back and look at our growth rates over a number of quarters now, they've always been very good. Macro has an impact on this business, digital advertising can be affected at times. During covid, some of the compares have been a bit lumpy. Lockdowns and reopenings and so-on, difficult to talk about a steady-state growth rate for services business. Entirety of Services, we feel good about the future of the business.

A: Tim: I'm not an economist, so I'll narrow my comments to what we saw in the business. Look at the June quarter, we believe we saw macro headwinds that impacted our business and results. One of those is FX, over 300bp on YoY growth rates. Look at the product categories, on iPhone, no obvious impacts aside from FX. Mac and iPad were so gated by supply that we didn't have enough product to test demand. Wearables, Home and Accessories, we did see some impact there that we would attribute to macroeconomic environment. When you look at Services, there were some Services that were impacted. Digital advertising were impacted by macroeconomic environment. Mixed bag in terms of what we believe that we saw. Overall, we're very happy with the results and when you think about the number of challenges in the quarter, we feel really good about the growth that we've put up for the quarter.

A: Guiding 41.5-42.5%. On sequential basis the decline is expected to be driven by foreign exchange and mix, partially offset by better leverage. We expect FX impact on a sequential basis to be 50bp. YoY standpoint, we're in the ballpark of a year ago in spite of the fact that FX is 130bp negative to a year ago. We think we're navigating this fairly well.