AAPL - Earnings call transcript Q2 2019

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Operator

Good day, and welcome to the Apple Incorporated Second Quarter Fiscal Year 2019 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Nancy Paxton, Senior Director of Investor Relations. Please go ahead.

Nancy Paxton

Thank you. to joining thanks today. and afternoon, everyone us for Good

to materially and CEO, future statements, followed trends that, Speaking without hear Please during call information Apple's of Cook; other taxes, that expense, we'll from he'll income those consist some note our the our After first is you'll Maestri. Tim be business Actual revenue, or regarding the from and analysts. Luca by open discussion results outlook. questions will differ today including gross of could and capital forward-looking limitation margin, expenses, forecast. allocation, CFO, operating

no For the filed over Risk release. dates. periodic their the of today, the obligation SEC more Form update speak Form Factors any recently information, Form on to Apple's Tim respective the call remarks. XX-K to along press for and or Apple turn with to most refer information forward-looking which statements associated the reports as like please XX-Q, with discussed I'd now filed to assumes introductory and in X-K

Tim Cook

January, investors one joining of the afternoon is flexibility, Apple. Thanks, for of In you creativity. quarter been today. letter culture and This to of has my Apple's to all great Good and an of for that thanks beginning exciting Nancy. I our us wrote productive at strengths adaptability, and

with like greater get start the our into commitment of you. to I'll speak top-line to then power featured long-term financial quarter started to announcements and thinking. important results. with This I'd that some highlights detail innovation with move some and

with had our our best $XX.X indicate. Services of rate of growth now quarter for ever This headwinds currency, across And We with dollar. in of company, XX% the see amazing this relative reported Apple first year-over-year currencies basis for I'll statistic of size iPad revenue end for blockbuster had a better only the in is from quarter results quarter outcome more Wearables we later. number We weaker XX%. from would revenue sensational very about with XXX it's business We growth $XX our year U.S. ago. iPad, the you a another up talk four areas revenue result It in near This revenue consider range. the was XXX years results foreign a categories billion. was an business. six years. positive revenue is Our was toward constant guidance high great it billion about as our highest have In Fortune when ongoing than a been these points reaching been performance our light a to delivered since our Watch.

markets, while United markets of we and markets. Canada, United we the and year-over-year Kingdom, a decline emerging While the But grew including in positive March in in feel major experience our had number trajectory. we results Japan, about did we quarter developed revenue record States, a

China. market, we've trade our dialog economy, customer retail Greater Our of States the China the the and pricing that financing response United our taken we've very in and measures relative performance actions the to seen to stimulate stores, trade-in and in December quarter, year-over-year improved revenue between positive in government to and programs the improved effects

in tech-savvy growing we're approvals. population We to App believe recent and of the in gaming Our Store still in in strongly in consumers developer thanks China, the ecosystem, increase our robust long-term regulatory slowdown apps results very the best country's and value who talented our of products the opportunity services. community, approval our encouraged are by of in pace the but impact reflecting the China,

from revenue significantly weeks smaller the were in the March worldwide our iPhone, quarter. For down of year final declines while a XX% was ago,

challenging, so and an pace. our to most five past up the the encouraging we're at with We like trend. back is Looking this November pick now direction iPhone were is the goal months, the December headed and

of our is categories. new growing Importantly, the all of business continues grow record it's base a new our major geographic installed and all-time base segments, That our active and to for reflection installed and driving of our devices product in of customers, to satisfaction set loyalty a each Services heights.

Pay for cloud had our and more business, than set March for Apple doubled and Store, quarter revenue we in XX AppleCare Apple and year. ad on calendar transaction In markets, the and will Pay end ever early to systems to we year. by of App fact, the XX and in Apple XX reach transit More we New transactions more expect best Pay. billion Pay Store Apple and track quarter services, search system our the App markets Apple records new volume begin MTA is year-over-year, now York's are available we're and in summer. live rollout Music this accepting be the

London, in year, and business. announced this will contactless on are services, family. the helps of places increase moving in an These our contactless a between systems boundary powerful States. forward. end NFL have. And important get of Ticketmaster help Pay a XX paid through the Services the like and personalized, accepting hardware, Apple sporting features your eliminate using purchases privacy that also in experience app, security. of and unmatched a subscriptions aren't entry will and They and to This million singularly United tickets Pay new spur our a our XXX Apple in over them majority the for has event seen high this user transit for of into to believe We broader actually be Services They ticket web and to attention service, and the for Ticketmaster more Pay In of people previewed we ready million Apple expertly adoption, launching and of the Shanghai, principles are we've Tokyo, they users. a venues easy including alone. entertainment we just by detail. driver at Subscriptions even As to vast over stadiums. reached put their are software, array new shared feature each nice game-changing March, in to They're be of the of an premium fundamentally everyone creating They're quarter incredibly exceptional March, last to use. on They Apple. was rooted curated, XX quarter that just

all app First, curated News date Apple popular on the and solution newspapers, builds and mobile interest built over new News, pay momentum Apple magazines, United we to the the we and for software elegant and replace building Apple the terrific. XX News+. Card on you our encourage is fees, Apple bring center. which Apple It's that experiences integrated interest, States Apple great Advancing can news been on transparency, Apple the has trusted the the principles together privacy. the the Wallet United app. provide like you delivers Apple vision first announced simplicity, one number app journalism and and less that leading customer sources, to experience to cash an to services card from launched give your and Kingdom, and convenient, wallet, places integrating eliminate for already will devices. is on customer in It providing supporting beautiful, hardware, daily magazine digital within news publishers to the only the a ever all stands News+ into at and reading Card purchases best our commitment into quality in our experience of while

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but constraints believe X% leading in revenue compared business would Mac quarter some last and our year, year constraints our been those For decline a our last on impact will we believe compared without to a results. this that QX challenge faced have processor up to significant overall, revenue Mac have we the to March don't

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we results chip. iPad in strong and an launched powered performance ultra-thin all-new to Apple Pencil support, were driven by the by quarter, response Bionic Apple's iPad AXX design, Pro. great iPad customer Late high-end with an primarily Air Our

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our of the now which from announced we the month Apple of with February, eight participants enrolled additions kind, are Heart world sharing For U.S. projects from development records make our ranging XX expansion world generation including to the to supporting XX environmental of of initiatives million more kind the Study, than the records of recently UT around lives the Medicine with Apple's iPhone its world by across Medicine example, send completed a leave Each This a to million X.X alloys to Stanford reported allowing our can recycling recycling impact its are on XXX,XXX allocation to Day locations Austin. over solar of largest states recent the results impact to power we in Health disassemble to will from where announcements custom XXX% to institutions Daisy can service we per to which found nine recovered devices quadrupling around is record VA, process. U.S. health year, And span aluminum. working only our for all manufacturing available of programs, study ever including extends providing the that available record and months. materials Daisy, the We've number products disassembled we conservation iPhones recycled now across Department robot. the In platform our hundreds announced water U.S. of green first Michigan energy. We've more our major customers the XXX% a be made and have to largest to in about of veterans we the us. $X.X facilities. suppliers the major billion bond the customers with medical follow on clean with be our innovation number recycled our we beyond to And leave than of We into iPhone transition of lead marked than X,XXX the Earth partnered better the Affairs on it. proceeds last Veterans several veterans. in be their efforts system to of health

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going update run to cash than repurchase share announcing we capital quarterly to we're miss and to increase our not in authorization to today position fortunate program this to future, We're want are our You need including latest dividend. and the one. so business invest in confidently generating more of the our an our our return

Luca. results, our quarter I'll on details call and more For the that March to turn over

Luca Maestri

we and you, Thank last Revenue in XX March high everyone. X% of days provided from Good end Tim. the range near $XX billion was ago the quarter afternoon, guidance down that year. the

basis the dollar. while XX% Overall, exchange, XXX to U.S. strength to declined a reflects revenue of points decline foreign revenue driven record. the all-time Our of by X% products negative due primarily grew iPhone, Services new revenue

new billion. the seasonal and was our $XX.X a share was sequentially six set to were record was was $X.XX to loss XX.X% cash billion. quarter best $XX.X sequentially XXX Wearables in of XXX margin margin and income also from earnings we was headwinds gross for We Diluted from about higher leverage due exchange. Products revenue. XX.X% years. line operating Company Services growth basis points points guidance. flow and foreign margin iPad a mix gross gross due rate and March and with in leverage XX.X%, different basis Accessories, Net Home down up our recorded per

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and a This latest of base of active iPhone and plan the Research industry plan smartphones March. customers. combined. leading satisfaction business U.S. purchase XS among all-time consumers Our Max customer for iPhone our growing of the installed of purchase base XX% reflects indicates to of quarter, XX% XR, who high at in And survey June new buyers, installed The from reached XS satisfaction loyalty XXX the end iPhones. to

Turning to Services.

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annual continue forward, plan increases Going we in per dividends share. to for

As ahead forward-looking types which outlook, the I'd June beginning our to like quarter, review into that the move the call. we the of includes referred information of Nancy to at

a quarter We favorable guidance be item of final basis our one-time million connection of revenue last comprehends between to in Services range the expect the exchange points billion. negative lawsuits. with $XX.X revenue XXX included and impact $XX.X $XXX June various as foreign billion This year-over-year. Also year, resolution a reminder, in

gross expect XX% We XX%. margin between and be to

to OpEx expect billion. $X.X and be We $X.X between billion

tax per approved of on Directors rate as May has stock, of million, shareholders Board be reflecting the XXXX. $X.XX XX, a payable I Also XX, We dividend May $XXX XX.X%. about of share common today of of open XXXX cash would to record the expect With to to the questions. like and call that, to be to about OI&E our increase, we declared expect

Nancy Paxton

Luca. to you, you may And we questions. question two Operator, we that ask Thank please? have first the limit yourselves

Operator

Certainly.

from question Cross with first come will Our Cross Research. Shannon

Shannon Cross

about in it bit my talk Tim, things can a you taking what much very looks you for seeing you're Thank China? like are Clearly, question. more improving sequentially.

markets, stabilizing I You in believe. emerging also quarter, the mentioned last of that weeks were few

follow-up. then And partners what and customers in saying So saying China? are are there what have your I a

Tim Cook

full Yeah. the in the of iPhone space, it was the the better year-over-year or a Thanks -- to sort the as December, seeing which quarter to we compared last question, performance -- quarter saw a and for trough. of weeks November Shannon. in We're the appears be

that trade-in a the they've think weaker out implemented positive financing in backing VAT way. including I'm an our trade the the between adjustments dialog happened affected effect then some made in programs there. essentially confidence and there's to reduced we consumer China. U.S. stores improved aggressive with and this of then happy from stimulus currency for point in XX% reasons government stimulus And the XX%, -- and very in view, there's I so this. of date programs ground a being the Three, has our And some. from retail there this we’ve to that One, on four, and well results early the April, side. set price executed and has have There's received been our been there,

we so, of I of did feel it's days things these a and a than ago. XX we think lot better certainly set all And

Shannon Cross

Great. settlement. then, a Qualcomm expecting I'm And on Thank you. you're probably question sure

you it because XG, think to So settlement? when going component say to -- this what that about on like clearly your sure development about thinking your helps the And I don't I'm are but not to path. you should know you're providers with you. about we Thank how forward? How to future do would talk going plans in this regard you're going

Tim Cook

we license have good I dismissed supply and and Shannon. both agreement, we you, around resolution. the all for has to the Qualcomm, and litigation have about we're world a arrangement so been the very litigation happy glad We're put direct was feel with companies, settled. a important We're that Thank Yeah. happy to and behind the us, which know multi-year

Nancy Paxton

please? have we next Can Shannon. the you, question, Thank

Operator

come will Samik question with next from Chatterjee JPMorgan. The

Samik Chatterjee

as in get about markets, Do you for actions responding et you cycle? well question. taking talked these kind ready you've through to next that remaining decide of taken Thanks cetera any in India, for China product how the pricing pricing carry into market. the that you the emerging of like learnings those Hi. Tim,

Tim Cook

results thinking, we've We adjustments that we in future, have India, does do that and we'll hold there. in made better preliminarily some that seen this best into advise everything and we to try some so as our do with do we obviously we and the learn can Everything [ph] the well.

Samik Chatterjee

support the guiding new later the incremental follow-up had higher Luca, expenses year? Luca in that going a Services Thank the you. much to launch of just that I quarter-on-quarter. you're see we services planning to side. you're in that is for quick How to on operating

Luca Maestri

Yeah.

services see over different necessary Of are Clearly them. make of as we add you need OpEx products our services, investments we to new both will supporting quarters. the and course, we business trajectory support can the and to our the

multiple streams. to it Services gross In has total, margins. accretive company is Our business

services seen XX%. the latest margins running -- You've we're at over

very for it's our and ability a So, important for ecosystem for us it. many to our ways monetize business in

received so necessary successful, new in And services for launch we level the of so, will we're that the anticipation to response really the make that are these services. the by far ensure encouraged customer of all we and investments clearly

Nancy Paxton

have the please. you, next question Thank we Samik. Can

Operator

The next with question will come from Katy Stanley. Morgan Huberty

Katy Huberty

Thank you. March declines revenue the quarter back XX% Luca, the if about typically from June over past I years, five look quarter.

You're year. to drop guiding an this X%

can or which segments seasonality? talk you product just can So regions outperform you about, typical think that

Luca Maestri

be product would we QX Katy. to the half expect currency our by Yes, category the the on of we fiscal the including versus mind have first guidance keep improvement XXX exchange, numbers even growth relative year-over-year this in At negative revenue in first the actually from that also constant for year. And categories a way, point basis reporting in will basis we've from so as non-iPhone the We're stronger. a had in performance half. impact expecting foreign our level, are strong iPhone continue a we

provide where March the believe results you've seen Geographically, but seen. should year-over-year on improve of month and March over the strongest said, Tim you've geo we given course, from as was our China time. a some guidance quarter quarter, we As trajectory has for the this the challenges, found the confidence the the so that basis of is to

Katy Huberty

meaningful how not timing And then talk Thank you those new to benefit, market you're a generally driver but follow-up, phone, timing how installed is the XG think technology just higher a upgrades significant cost XG as approaches around characteristics? potentially you. the you of the a Tim Shannon the said as about about going And with can coming right company demand given to think specifics how for you. base? this also iPhone your then in the a product, for you like Thank maybe just with but talk

Tim Cook

can. there those cost so. certainly view a -- soon the cost years been try punt and things right get come as the at as We to a we is probably I'm products from the to guess. has together that on pressure one would largely that and couple you at different look things this of the of into as technologies And Katy, -- had point have on of technologies the select lot or time and the over going last look --

there's other in in side markets commodity the like of NAND. flip the at things going DRAM of On a number the the moment and direction that

project the aggregate to next, difficult it of it's matters a all really price happens that point of of what so view. from but And it's

Nancy Paxton

Thank you, Katy.

next question, have we please. the So

Operator

next Jim Suva our has question. from Citi

Jim Suva

shared maybe then you that's things? you some about made or the of Tim, the mentioned how by of Can adjustments Thank trade-in Luca it pricing impacts on divide it understand or Luca it ask how markets Tim probably and margins split trade-in a you've type about In COGS was what but can opening Tim and I'll also both pricing response, of about elasticity and that up. remarks, revenues of and or to topic you in and your help you'd A very and like question much. decide us programs strength the lessons talked program and Thank learned about you. you the also. the

Tim Cook

in device three that financing believe price them. we we've the specifically. reductions, but opening the year-over-year four And things was better and better are retail people It I the view the the really four relative customer not being remarks here from a way and stores. does QX the surprise do to that a trade-in learned talking there trade-in And in many, it I also mentioned user and point is to of and Jim, than subsidy, a many want phone. current a the instead -- of that a to at -- there literally cost in, really is and so on QX China their weeks it's trade-in that all what our responsible But people like the this looks want in offset Yeah. of of tried number reasonable people final in something others programs many of market instituted those performance one I pay installments the that's for once. the the that take and every average. to And are itself. Clearly, for is March one we've of is others are QX about

elasticity each quickly those. so, we're that of of the but a And what all bet you learning little on terms it's different market in can is, in

stimulus positive confidence consumer a think move. -- it's that VAT the The I insignificant that don't are XX%, an from a so in are aggressive very likely be I not between And April trade there not China the the here as in stimulus that well affects way. XX% programs to in was I items is to two But are under the happened consumer in that have the an dialogue believe, the this that other one having visibility much is lose improved either then And consumer. -- to to -- and level. finally effect weighted that the other I want programs, on early got reduction effect countries

all so, of sort of think of sum the those things. it's And I

Luca Maestri

that's of And see few respect dollars. when impact on percentage emerging as has what pricing think matters actions, we at it the pricing I is margin most But action the of we if of in diluted. may us Jim, And course, is the these really. experience what been elasticity gross these positive at and on really look you we a the gross look margin a to that what level we had in gross do add markets so our we've that at -- look anytime programs and -- what to margin matters the

Jim Suva

gentlemen. so you Thank much,

Nancy Paxton

Thank you, Jim.

question, next the please. have We

Operator

Wamsi The Mohan Merrill will from next of America with Lynch. Bank come question

Wamsi Mohan

Yes. of of the characterize in? sort you. someone folks sort I being something but are cycles Or color drive profile Hi. a of seeing that? can And you have that these you are What or installed newer who dynamics And you base can hoping seeing across trade-ins, was so? providing that beyond Is of trading iPhone? Tim, you're replacement to incentives have next you I really shared you of And maybe follow-up. type also as the financing trade-ins. has old in? a sort are over the around lot on of traded this see year iPhones Thank a your what accelerate here do what devices

Tim Cook

X you the to Plus, the XS and the three some on and honest. Plus, and is -- get XS, customers traded two-year on But X then over each there's one-year the X, X then Plus. so X, Plus being We're X -- are in as of some those and of actually that's all and that well the product place, customers fewer be cycle customers customers and cycle four-year on It's cycles.

all so place. And really the over it's

of terms in book In the device the will offering is for a that has -- lack than of sort our trade-in stores more of you of that the currently value a if incentives retail blue better we're the description.

would offering what versus get bit And is I -- the geography. would we in versus best And the installments installments geography that can each further and regular the so doing probably are moment China. the to I so those unique benefit user. we have provide in there a The extra have to different be say in market that an topped that up the of at a helps think you the there.

parts you on And learning bet likes user most. these can of so we're the that that finding the the each

do new to And in their I on think and for a good into we're the environment we is best our the build consumer for them the good trying it's trade device key of -- that it device. a current it current in build the to on to some form. something the or if can the on that use carry end that are we recycling device else to that parts product in at getting sure can is someone cases life make another of an mindset

Wamsi Mohan

headwinds? either Thank your margin be could you color creating Qualcomm that my can near-term? gross if pricing And contemplate or a the is with the your actions incremental guidance Luca settlement for Tim. follow-up Thanks gross just the headwind as you. to some margins creating a in tailwind And clarify does

Luca Maestri

As with comprehensive Tim we've explained this Qualcomm. has agreement reach

June agreement, this that. to agreed part in guided Qualcomm. What with XX% we gross have of terms honor not going we so to the the the margin quarter agreement you we're outcome the As financial we the XX% share to for comprehends of that plan our guidance fully of see

Nancy Paxton

Could Wamsi. please? question have Thank you, the we next

Operator

Mike our Olson question. Jaffray from next has Piper

Mike Olson

taking question. my Thanks for

So, devices have you you of have and obviously leverage that more services your this base. announced devices than horse households. a you out remarkable many kind X.X Trojan position installed event And billion that of with at so active in

like services but the is to So, of a the of aren't event? continuation I March services these works? yet live saw Is near the and on then some there in what I And expect a likely services of out categories we follow-up. at a building new to we what question for the know pipeline term? have intermediate see we I have we're should of of even new that front the seen Or kind guess,

Tim Cook

always on getting now there. the out call, want And we're wouldn't but focused on four I to working announcing these new on Yes, things. obviously, get into things right we're really but we're --

Apple We'll Apple in and in market go the products Card the and the Apple will have fall the the the in Arcade summer in TV+ the News+ have out We timeframe. today. market

out these And getting about so us and lots we've excited there. got in of front we're very

Mike Olson

Right. you related than that's the that if margin Store to least the the prepared the a wondering confirm material imagine also overall is Thanks. that it's is high-margin where Services moving you search can there ad not. and in at anything can overall I business quantify that? case or reaching but become remarks. maybe if couple App times needle this Or And services point you then a of a mentioned business the maybe Is for revenue? higher

Tim Cook

It's growing very Mike. fast very,

that can move expanding the there still around up dial and was previous geographies think geographies over We're well more into the it new think I out we XX% year. as further. have we

getting it's So, it that is is -- big and a a definitely business bigger.

Nancy Paxton

Can you, please? Mike. next question, Thank we have the

Operator

comes with Markets. Miscioscia Capital Our question next Daiwa from Louis

Louis Miscioscia

best And they're realize say a look which out has the my maybe, thank the Tim, then dates months different when announced. the question. quick And ones follow-up. your have but, that next then, you taking over has you most at to for you XX potential long-term things have Services potential? one would line? I I and the when And they help coming you Okay four have which

Tim Cook

the get wait and right going things is and that these excited. level on consumer you we're Apple we been on Card a We're And we're what that I until now there's tell to the taking -- interest interest out. can of of significant sort

the is you -- As top gaming category know the the on Store. App

it We do wanted And for think our where get really kind them. we're product be so of game, And great to magazines. and News+ the Apple to the market. plays in that give great a unique multiple it's support then, cable users. bundle to think product the to of most Apple working Because huge serve are And which serves it Arcade product. there's going hard to we're over very with it's different developers the have one from the products. I TV+ And to some we will be of for And The going market convince a love we a that TV+ think will top. move best users -- Apple should publishers. them over-the-top get to And everyone a very we that a look.

beginning but ramp of at -- we're to very We do there. the the And a hard working at service… so, -- the wouldn't very

Louis Miscioscia

great. Okay,

Tim Cook

meaningful. didn't think be we …that could

look it. So way that's I at of the sort

Louis Miscioscia

Great.

Tim Cook

aren't Yeah, hobbies. these

Louis Miscioscia

to Okay. share the huge -- on quick really the side, Android what's already trying to India, obviously below to potential market seems start you the you. maybe could market if be up aggressively obviously the could But talk but be on looking share so follow-up you're there. manufacturing China. believe there about Thank I just well pretty dominated A is ramp there.

Tim Cook

a It's market in But we're the is lot. short-term. a important think a India market in learning long-term. I very the challenging

approval a to reasonable we serve we're would started the seek there. place to we're to there. with to manufacturing in important And working be that like there And is way. very And capability government We able market that. growing have to stores the which do retail

with some our might. huge on I It's of overnight we that's to the phenomenal. is that the there. me there something out accelerator a potential means at play. there, which the doesn't business on opportunity sort think happy long-term there's of plan all of business. going opened growth there. it's going very a bother a that And so, But moment just Android lot of we're in It's It not with because be of primarily coming developer, We've things

Nancy Paxton

weeks Time A XXX-XXX-XXXX. webcast XXXXXXX. telephone the on via Lou. again Matt And can these today. Huguet Members contact XXX-XXX-XXXX, additional XXX-XXX-XXXX. be the for Blake XXX-XXX-XXXX replay of questions contact today's to Pacific and press will Kristin at Apple.com/investor telephone. Matt two approximately call available questions. Thank as And numbers by And And be enter is confirmation replay will can joining code financial with PM at of or on available analysts at or the additional me us. Podcasts Please replays X:XX you, with are Apple and a I'm XXX-XXX-XXXX. for thanks

Operator

today. for conclude conference for participation. Thank does That our your you

Apple (AAPL) 30 Apr 192019 Q2 Earnings call transcript