Apple (AAPL) Q4 FY26 Earnings Call Transcript

Unidentified speaker00:00

I've been gone in a flash let's dance till we go what a day all of us will be there beating storm take a breath make a word every step as we go tumbling in the wind soak it in all the light following traveling time a tree through the tip of the tree foolish how I believe I'm I'm immortal tumbling in the wind in the end may we lie with the lingering smile for those beautiful times in the end if we cry for forgiveness let's die for those beautiful times

Unidentified speaker00:18

You'll be gone in a flash let's dance till we go take a nip every chance let's dance real slow how I long for a life next to you tumbling in the wind

Unidentified speaker01:02

In the end may we lie with a lingering smile for those beautiful times

Unidentified speaker01:17

In the end if we cry for forgiveness let's die for those beautiful times

Unidentified speaker01:46

Sometimes me on my own

Unidentified speaker01:52

Five I can't April

Unidentified speaker01:58

I think I needed to meet you

Unidentified speaker02:03

Put in my cards on the table

Unidentified speaker02:09

We dialogue in our own way

Unidentified speaker02:15

Say what you think you'll be okay

Unidentified speaker02:20

This thing with you needs no label

Unidentified speaker02:26

Put in my cards on the table

Unidentified speaker03:13

When I'm with you it's always fun you make me feel so young hung up on you you're one of one you ain't just anyone your eyes are blue mine are brown we're in a hazel ain't no one like you I guess that my cards are on the table working too much I forget I'm young trying to tell me how my life should run work is a chore deep down I want fun let's slow down take things one by one

Unidentified speaker04:32

When I'm with you it's always fun you make me feel so young hung up on you you're one of one you ain't just anyone your eyes are blue mine are brown with a tint of hazel ain't no one like you I guess that my cards are on the table when I'm with you it's always fun you make me feel so young hung up on you you're one of one you ain't just anyone your eyes are blue mine are brown with a tint of hazel ain't no one like you I guess that my cards are on the table working too much I forget I'm young trying to tell me how my life should run work is a chore deep down I want fun let's slow down take things one by one

Unidentified speaker06:01

Yeah.

Suhasini Chandramouli06:21

Good afternoon and welcome to the Apple Q4 fiscal year 2026 earnings conference call. My name is Suhasini Chandramouli, Head of Investor Relations. Today's call is being recorded. Speaking first today is Apple CEO John Ternus and he'll be followed by CFO Kevan Parekh.

Suhasini Chandramouli06:42

After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward looking statements including without limitation those regarding revenue gross margin operating expenses other income and expense taxes and future business outlook.

Suhasini Chandramouli07:02

These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast including risks related to the potential impact to the company's business and results of operations from macroeconomic conditions tariffs and other measures and legal and regulatory proceedings.

Suhasini Chandramouli07:18

For more information please refer to the risk factors discussed in Apple's most recently filed reports on Form 10-K and Form 10-Q and the Form 8-K filed with the SEC today along with the associated press release.

Suhasini Chandramouli07:31

Additional information will also be in our report on Form 10-K for the year ended September 26, 2026 to be filed tomorrow and in other reports and filings we make with the SEC.

Suhasini Chandramouli07:44

Apple assumes no obligation to update any forward looking statements which speak only as of the date they are made. I'd now like to turn the call over to John for introductory remarks.

Prepared remarks

John Ternus08:06

Thank you Suhasini hello everyone and thanks for joining us. It's a privilege to be with you for the first time as Apple Apple CEO. I'm honored to represent our teams and the work they do every day. Today, Apple is pleased to report $114.5 billion in revenue, up 12% from a year ago and a September quarter record.

John Ternus08:12

These results helped Apple achieve its best ever fiscal year for revenue and EPS.

John Ternus08:18

This is an amazing time at Apple. We just completed one of the most prolific launch periods in our history.

John Ternus08:39

It's been a remarkable time for innovation across all of our categories. One of the greatest testaments to that is the all new iPhone Duo. The most transformational iPhone since the original. We're also incredibly excited about iPhone 18 Pro and 18 Pro Max which take massive leaps forward on camera battery life and performance.

John Ternus08:50

Features that our users care deeply about. Meanwhile Touch has arrived on Mac for the first time with the all new MacBook Pro and we were excited to announce the new iMac and 14 inch MacBook Pro.

John Ternus09:29

The all new iPad mini features a stunning new OLED display and brings a super thin design to the smallest member of the iPad family. Apple Watch now offers users the clearest window yet into their heart health we introduced AirPods 5 which feature industry leading active noise cancellation in an open ear design and we've laid the foundation for an even more intelligent smart home with the all new Home View Apple TV 4k and HomePod mini on top of it all we're unlocking more powerful AI experiences across our lineup including with the all new Siri AI.

John Ternus09:45

A profoundly capable and deeply personal assistant seamlessly integrated across our platforms. And like everything we make Siri AI is built with essential privacy protections so no one can access users data not even Apple.

John Ternus10:02

We launched Siri AI in beta for US English users in September and expanded to French, Japanese, Korean, Portuguese, and Spanish in October. We're really excited to have rolled all these innovations out and there's still so much more we plan to do.

John Ternus10:22

I'm feeling great about the opportunities ahead for Apple. From our product roadmap and broad range of services to promising areas like health emerging markets enterprise and education as one example

John Ternus10:40

Education deal ever for Mac, with the Department of Education in the Philippines. They're going to deploy 170,000 MacBook Neos to teachers and staff. opportunities like this bring more users into our ecosystem and help fuel growth across our business.

John Ternus10:56

Apple is the greatest company in the world, we've assembled an extraordinary collection of talent, the best engineers, designers, developers, and experts in every corner of our business, from our supply chain to our stores.

John Ternus11:10

Every day we bring the right people together with the best ideas to build products and services that change lives. Guided by a foundational set of values and a belief that the best technology should make a better world.

John Ternus11:23

We do that by making products that are powerful and intuitive and meet Apple's uncompromising standards for quality, performance, design, and durability. That's the Apple experience customers love.

John Ternus11:42

And with our latest lineup people have even more reasons than ever to upgrade or switch to an Apple product. At the same time, Apple Services amplify the experience of every device, helping people work, play, listen, watch, and stay connected to the world around them.

John Ternus11:56

I'm delighted with where our services business is today and where it's going. And with an installed base of more than 2.5 billion active devices, I'm looking forward to expanding our offerings and improving the lives of users around the world.

John Ternus12:12

We see tremendous opportunity in AI as well. Siri AI marks a new chapter in AI at Apple. It is a completely reimagined assistant that that is powerful, personal, private, and deeply relevant to our users daily lives.

John Ternus12:31

Siri AI picks up what's relevant to our users, understands what's on their screen, and holds a natural conversation every day. It's the Siri we've always wanted. We are very pleased with the reviews and feedback we've received and we're so excited that more and more users are getting to experience it.

John Ternus12:58

iPhone remains at the center of our opportunity as the intelligent personal hub it's always with you and understands your personal context from your messages to your photos notes and apps to deliver powerful intelligence right when you need it then there's Mac which is having an AI moment all its own Mac is what brought me to Apple, and through the years it has opened a world of possibilities.

John Ternus13:18

More than 40 years after the first Mac, the category is having its biggest moment yet, with every Mac in our latest lineup a powerful platform for AI. Mac mini and Mac Studio in particular are pushing the boundaries of local private AI, giving users the ability to do things once considered impossible.

John Ternus13:32

From Mac, to iPhone, to iPad, we are proud that our products are the best platforms in the industry for AI for both first party and third party applications. And we're excited about the opportunities that creates.

John Ternus13:49

Ultimately, everything we do at Apple is for our users. The success of every innovation is best measured by its impact on people's lives. And that's what drives us to keep building great products and to get them into the hands of people all around the world.

John Ternus13:53

Now, let's take a deeper dive into our results for the quarter.

John Ternus14:07

As I mentioned earlier, we had an excellent quarter at Apple, in addition to September quarter and fiscal year records in total company revenue, iPhone set a September quarter revenue record, capping its best fiscal year ever.

John Ternus14:23

Services achieved an all-time record during the quarter to close out our best year ever there too. We grew in the vast majority of markets we track, setting September quarter records in the Americas, Europe, Greater China, and the rest of Asia Pacific.

John Ternus14:46

We also set September quarter revenue records in both developed and emerging markets. In addition to an all-time record in India. Turning to our lineup, iPhone revenue was 57.6 billion dollars for the September quarter up 17% from a year ago despite supply constraints and foreign exchange headwinds.

John Ternus14:59

We grew strong double digits in the US and greater China to achieve September quarter revenue records. We also set a September quarter record for worldwide as well as in the US, China mainland and India.

John Ternus15:20

Helping to deliver our best fiscal year ever for upgraders globally. At the launch in September, we introduced the all new iPhone Duo. From the very beginning, we knew what we wanted to create a foldable form factor with a larger display that feels as natural and intuitive as iPad.

John Ternus15:35

We designed the hardware and software together to make it unmistakably iPhone while enabling entirely new ways to use it. The result is a series of remarkable innovations that we believe will redefine what a foldable phone can be.

John Ternus15:54

We're so proud of what our teams have built. Developers have been quickly adapting to this new form factor and we're excited to see more and more apps optimized for iPhone Duo. We've been thrilled with the early response from reviewers and customers and we are working hard to get iPhone Duo into customers hands as quickly as we can.

John Ternus16:25

We have also been thrilled with the response to iPhone 18 Pro and Pro Max it's easy to see why customers are embracing them our latest models feature a dramatically improved camera system with breakthrough upgrades like variable aperture and all new photographic styles the A20 Pro and next generation vapor chamber together deliver the highest sustained performance in iPhone history and iPhone 18 Pro Max delivers the biggest increase in battery life ever on an iPhone.

John Ternus16:42

A20 Pro also features a new dual 16 core neural engine accelerating on device AI and computational photography. Turning to Mac revenue was 10.8 billion dollars up 24% from a year ago despite supply constraints.

John Ternus16:53

We had double digit growth in the majority of markets we track and particularly strong performance in our emerging markets where we set a September quarter revenue record.

John Ternus17:08

We also set a September quarter record for customers new to the Mac. According to IDC, we gained share globally during the quarter and for the full fiscal year. And we have never sold more Macs in a fiscal year than we did this time.

John Ternus17:30

Which is a truly remarkable testament to these incredible products. Last week we introduced a whole new way for people to experience Mac the all new MacBook Pro with ProLED XDR brings touch to the Mac for the first time It also boasts the best Pro laptop display we have ever shipped plus all day battery and our most immersive laptop audio.

John Ternus17:54

And it all comes together in a thinner and lighter design. We also brought the power of M6 to the new 14 inch MacBook Pro and the new iMac. This latest generation of Apple silicon includes the world's fastest CPU core to speed up everyday tasks in addition to a dual 16 core neural engine to drive private on device AI tasks.

John Ternus18:09

Now turning to iPad where revenue was 6.2 billion dollars for the September quarter. Last week we introduced the all new iPad mini with an amazing new OLED display super thin design and the power of A20 Pro.

John Ternus18:29

With the newest addition our iPad lineup is more capable and versatile than ever before anywhere our users go there's a place for iPad like a classroom where it helps students explore the world in amazing ways or a design studio giving artists and creatives an expansive canvas to explore their ideas.

John Ternus18:41

In wearables, home and accessories revenue was 8.3 billion dollars for the September quarter. Apple Apple Watch makes the simple act of wearing a watch a powerful way to help take care of your health.

John Ternus18:59

We were thrilled to introduce our all new health sensing system to help our users get the most out of health tracking. Paired with the S11 chip Apple's most powerful wearable chip the health sensing system delivers the most accurate heart rate sensing in a wearable.

John Ternus19:17

We were also happy to unveil new features like Health Health Age and Readiness which will tell you when to push forward or hold back. as well as the all new Health app redesign. and we're excited for Audio Intelligence which will be coming in a future software update and will help you remember moments you might otherwise miss.

John Ternus19:31

Apple Watch Series 12 brings it all together in a beautifully light design while Apple Watch Ultra 4 goes further with longer battery life compared to the previous generation and the most accurate on device GPS in a sports watch.

John Ternus19:39

Meanwhile AirPods 5 offers best in class open ear active noise cancellation at an incredible price.

John Ternus19:51

While improving sound quality, battery life and durability. With iPhone and Apple Intelligence including Siri AI AirPods allow users to do remarkable things.

John Ternus20:38

Like connect with someone who's speaking another language with live translation or get answers with broad world knowledge entirely hands free. And just a few weeks ago we introduced a whole new generation of hardware for the home, that that includes Apple Home View which was designed to be central to the home and personal to everyone in it bringing entertainment connection and home management together in one place we announced this alongside the new Apple TV 4k now smarter with Apple Intelligence the all new HomePod mini and Apple Home Collection a new program that extends Apple Home beyond our own products through deep collaboration with key partners all of it as always is built on Apple's approach to privacy Now let's turn to services.

John Ternus20:57

Revenue was 31.6 billion dollars up 10% from a year ago and an all-time record. We saw double digit growth in the majority of markets that we track and we set all time revenue records in the Americas and Europe as well as the September quarter record in the rest of Asia Pacific.

John Ternus21:06

78th primetime Emmy Awards were a night to remember for Apple Apple TV with our shows earning more awards than any other network.

John Ternus21:22

Widows Bay the show of the summer became the most awarded comedy ever in a single year with 14 wins. We're very excited about our programming from fan favorites like Slow Horses and Ted Lasso to the upcoming film Being Human.

John Ternus21:29

To date Apple TV productions have earned more than 900 wins and over 3800 nominations.

John Ternus21:39

Turning to Apple Pay, we recently launched in India with Axis Bank, bringing a seamless, safe and secure way to pay in one of the biggest markets in the world.

John Ternus22:03

Today, Apple Pay is available in over 90 markets, giving customers around the world peace of mind built into every transaction. was created to bring artists and fans closer together. and with the opening of Apple Music Music Hall we have a beautiful new venue for intimate shows that bring them even closer to celebrate the opening of the site in London we hosted an unforgettable performance by Elton John.

John Ternus22:19

People love Apple products and services for the countless ways they make life easier, more enjoyable, and just plain better. They also count on Apple to create technology responsibly, built the right way, not the easy way.

John Ternus23:56

That means building products with even more recycled content to take less from the earth and with even better durability so they last longer. It means developing intelligent capabilities like sound recognition on Apple Watch to alert users who are deaf or hard of hearing to what's happening around them it means designing privacy protections like on device processing so personal data stays on a user's device and it means introducing new child safety features to make it easier for parents to manage when and how their kids can use their devices we're also pleased to be doing more and more manufacturing in the United States through our American manufacturing program we're deepening partnerships with suppliers across the country including Paramount a titanium producer now supplying iPhone Duo and Unity Electronics which is producing the camera technology behind iPhone 18 Pro's new variable aperture system nearly 100 components in our newest iPhones come from American companies in more than a dozen states all told Apple supports more than 450,000 American jobs with thousands of suppliers and partners across all 50 states it's all part of our 600 billion dollar four year commitment to US innovation and advanced manufacturing I am proud of what we've accomplished this quarter and I'm excited for what's ahead we have everything we need to be extraordinarily successful and with this team this vision this mission and these values I have no doubt that we will with that I'll hand it over to Kevin

Kevan Parekh24:32

Thanks, John, John. And good afternoon, everyone. Here's a quick rundown of our key financial metrics. Our revenue of $114.5 billion was up 12% year over year a September quarter revenue record this strong performance was despite sequential foreign exchange headwinds of nearly two percentage points as well as supply constraints on iPhone Mac and iPad products revenue was $82.9 billion up 12% year over year driven by strong double digit growth on iPhone and Mac

Kevan Parekh25:17

Our installed base of over two and a half billion active devices has reached another all-time high across all major product categories and geographic segments services revenue was 31.6 billion dollars up 10% year over year we saw strong performance in many services categories with all-time records in video cloud services payment services and advertising and a September quarter record in music company gross margin was 47.9% and products gross margin was 37.2% These both included a benefit from tariff refunds which had a favorable impact of approximately one percentage point in the September quarter.

Kevan Parekh25:30

When you remove the tariff refunds from both the June and September quarter, both company and products gross margin would be down about one point sequentially primarily driven by higher memory costs.

Kevan Parekh25:38

As of the September quarter, we have received the vast majority of the refunds related to tariffs paid.

Kevan Parekh25:54

Services gross margin was 76% up 40 basis points sequentially. Operating expenses came in at $19.2 billion, up 21% year over year, as we continue to make investments in R&D.

Kevan Parekh26:08

Net income was $30.7 billion, diluted earnings per share was $2.10, up 14% year over year, and included five cents of favorable impact from tariff refunds.

Kevan Parekh26:21

Both net income and EPS set September quarter records even when excluding the tariff refund benefit. Operating cash flow was also very strong at $28.1 billion.

Kevan Parekh26:37

This performance marked our best fiscal year yet, with 478.8 billion dollars in revenue up 15% year over year and a fiscal year record for EPS of 8.98 up 20% year over year.

Kevan Parekh26:50

Now I'm going to provide some more details for each of our revenue categories. iPhone revenue was 57.6 billion dollars up 17% year over year despite supply constraints.

Kevan Parekh27:11

We grew double digits in the majority of markets we track and we also reached September quarter revenue records across both developed and emerging markets. As John mentioned it was a record year for the total company and we also had our best year ever for iPhone both worldwide and in every geographic segment.

Kevan Parekh27:27

The iPhone active install base grew to an all time high and iPhone had a record year for upgraders globally and in several markets including the US China mainland India and Japan.

Kevan Parekh28:12

According to a recent survey from World Panel iPhone was a top selling model in the US urban China India the UK Germany Australia and Japan Mac revenue was 10.8 billion dollars up 24% year over year despite supply constraints this performance was driven by the strength of the MacBook Neo and MacBook Pro we saw double digit growth in both developed and emerging markets with all-time records in markets like India and Southeast Asia emerging markets continued to see strong performance on Mac resulting in Mac's best fiscal year there driven by record upgraders and customers new to the Mac.

Kevan Parekh28:27

iPad revenue was 6.2 billion dollars down 10% year over year driven by the supply constraints I mentioned earlier as well as a continued difficult compare against the launch of the A16 powered iPad in the prior year.

Kevan Parekh28:50

The iPad install base reached an all-time high during the quarter and over half of the customers who purchased an iPad were new to the product. Wearables home and accessories revenue was 8.3 billion dollars down 8% year over year as we face a difficult compare against the launch of the Watch SE 3 and the AirPods Pro 3 in the prior year.

Kevan Parekh29:36

The wearables install base reached a new all-time high and over half of customers who bought an Apple Watch in the quarter were new to the product. services revenue set an all-time record of 31.6 billion dollars up 10% year over year despite over one and a half points of sequential FX headwinds we set all-time revenue records in the majority of markets we track including several emerging markets like Latin America and India we are optimistic about the long-term future of our services business with our large install base of over two and a half billion active devices, we have an incredibly strong foundation for growth opportunities.

Kevan Parekh29:39

Our services continue to attract

Kevan Parekh29:50

More customers and both transacting and paid accounts we also have over one and a half billion paid subscriptions which grew double digits during the quarter reaching an all-time high.

Kevan Parekh30:10

And we continue to improve and expand our services offerings from iCloud Plus plans that now include Apple TV and Apple Arcade in more than 100 countries and regions to ads in Apple Maps now live in the US and Canada which will give local businesses a new way to reach customers while respecting our users privacy.

Kevan Parekh30:44

Turning now to enterprise organizations are continuing to expand their fleets of Apple devices to transform operations and drive productivity. Duke Health performed the first surgical procedure using Apple Vision Pro for hip arthroscopy with an FDA authorized app from Stryker American Airlines is deploying over 37,000 iPhone 17 devices to flight attendants for in-flight purchases with tap to pay in addition to 25,000 iPads for pilots and mechanics.

Kevan Parekh31:01

And more companies are choosing Mac across a growing range of use cases including for on device AI. For example, Gap Inc. is running AI entirely on Mac mini for loss prevention across hundreds of stores eliminating cloud token costs.

Kevan Parekh31:12

Christie's a world leading auction house is running local models on Mac Studio to improve core productivity workflows such as pricing estimates.

Kevan Parekh31:24

Let's turn to our cash position and capital return program. We ended the quarter with 137 billion in cash and marketable securities and 80 billion dollars in total debt.

Kevan Parekh31:36

During the quarter we returned 28 billion dollars to shareholders this included 3.9 billion in dividends and equivalents and 24 billion in share repurchases.

Kevan Parekh32:28

As we move ahead into the December quarter I'd like to review our outlook which includes the types of forward-looking information that Suhasini referred to. importantly the color we're providing assumes that global tariff rates policies and their application remain in effect as of this call and the global macroeconomic outlook does not worsen from today we expect our December quarter total company revenue to grow between 7 and 10% year over year which reflects our best view of constrained supply we expect this to be the best quarter for revenue in the history of the company we expect services revenue to grow between 8 and 9% year over year in the December quarter This contemplates sequential headwinds primarily driven by third party licensing and foreign exchange.

Kevan Parekh32:43

We expect gross margin to be between 45% and 46% this includes primarily the impact of higher memory costs as well as some costs related to the ramp of Siri AI.

Kevan Parekh32:52

We expect operating expenses to be between 20.4 billion dollars and 20.8 billion dollars

Kevan Parekh33:22

We expect OINE to be around 300 million dollars excluding any potential impact from the mark to market of minority investments and our tax rate to be around 17%. Finally, today, our board of directors has declared a cash dividend of 27 cents per share of common stock payable on November 16th, 2026 to shareholders of record as of November 12th, 2026. with that I'll hand it back to John.

John Ternus33:54

Thanks Kevin before we get into questions I'd like to introduce Sabi Khan Apple's chief operating officer many of you know Sabi from his work with worldwide operations and supply chain leading many important functions at Apple including manufacturing AppleCare environmental efforts and supplier partnerships around the world Sabi and his team are the reason we're able to build and deliver products at a scale and of a caliber unlike anyone else out there I've asked Sabi to join Kevin and me on these calls as we take your questions.

Suhasini Chandramouli34:01

Thank you John we ask that you limit yourself to two questions operator may we have the first question please

Questions and answers

Operator34:10

Our first question is from Michael Ng of Goldman Sachs. please go ahead

Michael Ng34:35

Hey, good afternoon. Thank you for the questions. I have two first on the iPhone 18 the standard model was left out of the September lineup. I was just wondering if you could share some of the reasons why whether there were some supply constraints and component related things that led to that decision or if it had to do with the launch of the duo any color there would be helpful and then I have a follow-up thank you

John Ternus34:58

Yeah thanks Michael look we were thrilled to introduce the iPhone Duo and 18 Pro earlier this year in September and you know we have iPhone 17 iPhone Air and 17e continuing to kind of round out this incredibly strong lineup for the holidays so obviously we don't make any comments about future roadmap but we're excited about where we're at

Michael Ng35:30

Great thank you and then my second question is just around iCloud Plus it seems like it's becoming a more strategic product just given the tie in with home security as well as the potential monetization opportunity for Apple Intelligence so I was just wondering what are you seeing on iCloud Plus are there any tailwinds in terms of attach rates you know just particularly given the rising cost for increased storage options on iPhone and the company's push into home products thank you

John Ternus36:19

Yeah thanks for the question I think you know we just in the September quarter had an all-time record for our cloud services for revenue and you know you mentioned iCloud Plus this is something we're very excited about we have these iCloud Plus plans that now include Apple TV and Apple Arcade in more than 100 countries and regions where we think we can really reach you know new potential subscribers and then as you mentioned you know we think there's good opportunities on Apple Intelligence you know there's going to be some usage limits on features that rely on server side models which include Siri AI and intelligent photo editing some other things like that and so anyone who needs greater capacity will be able to purchase expanded access in the future so kind of to your point in the beginning iCloud tiers are largely about storage but we've been you know adding more capabilities and features to it

Michael Ng36:23

Thank you so much John

Suhasini Chandramouli36:27

Awesome thank you Mike operator could we get the next question please

Operator36:34

Our next question is from Erik Woodring from Morgan Stanley. please go ahead

Erik Woodring37:04

Hey guys, thank you for taking my questions and John congrats on your first quarter here. So as the world of AI evolves from chatbots to consumer agents it seems like there are growing opportunities for Apple it also seems like there are risks and John I just love to get your perspective on what role you want Apple and Siri AI to play in kind of this consumer agentic AI landscape and just how you look at any potential risks of some of these agents trying to encroach on your services business and then a quick follow please thank you

John Ternus37:56

Sure thanks Eric look we you know first and foremost we're incredibly excited to launch Siri AI alongside you know the latest generation of Apple Intelligence features Siri is long been a popular with our users with more than two and a half billion requests every day and with Siri AI we really have the kind of the Siri that we always wanted you know it's primarily request based today but as we talked about at WWDC it's built on a modern orchestrator driven architecture that gives us real room to expand its capabilities over time as far as agentic capabilities you know we think these are promising tools for users we just want to make sure that users are aware of what they're giving access to we want to make sure this is done in a way that protects security and privacy so you know we're pushing really hard on that with Siri AI but we're also really encouraged the fact that Apple devices we think are the best places to use all forms of AI

Erik Woodring38:32

Okay awesome I appreciate that John and then just quickly as a follow-up yeah how should we if we take a big step back how should we think about the durability of services growth just you know we're I realize that was 10% in the September quarter we're a little bit below that in the December quarter you know as certain things like search evolves and regulatory changes impact app store monetization or are there new services that we should be looking towards that you believe can become a more sizable offset to maybe take some pressure off these historically important revenue streams thanks so much guys

Kevan Parekh39:46

Yeah hey Eric it's Kevin thanks for the question let me take this one let me start by just talking through kind of what we did we talked about during the September quarter services grew by 10% year over year and we look at that relative to June quarter you know foreign exchange was the main driver and that change on year and year growth rate sequentially you know we saw we continue to see strong performance in September and many of our service categories all-time records in video cloud services payment services and advertising including our first party Apple ads and September quarter record in music but I think it's important to kind of step back also and look at the progression of what we see in our services business over the last several quarters I think it's an important backdrop and so we spoke about in the last call you know we expected foreign exchange to be the largest driver of the change in the year on year growth rate from the March to September quarter this ended up being a significant headwind of about four percentage points and we expect additional sequential headwind of about another half of a percentage point for the services business as we go into the December quarter we've also seen some factors that impacted the performance of the App Store and during the September quarter the performance on the App Store was similar to the prior year and we had a record number of paid subscriptions with double digit growth for third party apps on the App Store at the same time we did see some headwinds in mobile gaming that we've talked about before and expect to see those continue into the December quarter.

Kevan Parekh40:15

And keep in mind we also made some changes to the App Store business model in certain countries and in the US we continue to operate under a court ruling impacting link out transactions. As we move ahead we expect services growth to be between eight to 9% as I mentioned in the prepared remarks in the December quarter and this outlook contemplates our best estimates on sequential headwinds primarily from you know third party licensing and the additional half percentage point of foreign exchange I just mentioned and I'll turn it over to John to talk about some perspectives as we look ahead.

John Ternus40:34

Yeah, thanks. I guess I'd like to add to that, Eric. I think you know fundamentally we feel really good about the long term opportunity that we have in our services business you know we see continued growth in the install base of over 2.5 billion active devices which is fundamentally the foundation

John Ternus41:06

For future growth as more customers are able to experience our quarter App Store saw a record number of nearly a billion average weekly visitors and we saw growth in the number of users who are paying for at least one service reaching an all-time high another good example of this in India we recently launched Apple Pay with Axis Bank bringing you know the seamless safe secure way to pay to one of the biggest markets in the world and then on top of all this as we talked about we think you know intelligence is going to be another opportunity as well so overall we're feeling really good about where we're headed in the long term

Erik Woodring41:10

Awesome guys thanks so much for the color best of luck

Suhasini Chandramouli41:15

Thanks Eric operator could we take the next question please

Operator41:22

Our next question is from Amit Daryanani from Evercore please go ahead

Amit Daryanani42:00

Yep um thanks a lot um and congrats on mind as well John on your first earnings call here um John you sort of described the iPhone as a intelligent personal hub in your opening comments and you know as personal AI agents become more prominent do you see the potential for the primary customer relationship to shift from the device to the agent over time and Apple's integration of you know silicon hardware and software where do you see the greatest opportunity to combine things like personal context and on-screen awareness into an agent that can perhaps move beyond answering questions um and how far along do you think Siri is in bringing those pieces together right now.

John Ternus42:44

Yeah thank you Amit for the question like as I said before and we said in our announcement we really do think of the iPhone as the intelligent personal hub I mean if you think about it so much of your personal data is on your iPhone you know whether it's your contacts your communications health data financial data all of that and Siri can tap into that and help you access it in a way that's very secure and private and that nobody else has access to even Apple doesn't have access to it and so we think that is a core kind of differentiator that that we're excited about and we're going to continue to push on that and so I think this is an area that we feel really really good about

Amit Daryanani43:10

Got it and then Kevin the December quarter gross margin I'm wondering if you'd spend a bit of time on that I think if I exclude all the tariff refunds you started implicating gross margin would be down about 140 basis points sequentially at least can you just separate how much of this is maybe commodity memory inflation versus mix versus you called out Siri AI ramp costs as well can you just talk about what the different moving parts are as you think about the sequential gross margins that would be helpful thank you

Kevan Parekh43:36

Yeah, it sounds good. Let me let me try to address that for you. So as you alluded for the December quarter we talked about a gross margin you know outlook between 45 and 46% as you said when you remove the benefit of the tariff refunds from September the midpoint of the range is a decline sequentially in the magnitude you mentioned we expect most of that decline to be driven by higher memory costs and I'll give John kind of the mic here to give you perspective on that and then I'll take the balance of your question.

John Ternus44:47

Yeah let me give you an overall view on memory what we're seeing with memory pricing right now is is unprecedented and as we said earlier in the September quarter we did see higher memory costs as compared to the June quarter which were partly offset by the benefit of carrying inventory and lower costs on certain non-memory components now for the December quarter we expect even higher memory costs partly offset by a few factors so as you know we changed the price on many of our products including Mac and iPad at the end of June and iPhone in September and these price increases provided some offset we also expect to see some benefit from carry inventory in the December quarter as well as lower costs on certain non-memory components and looking beyond the December quarter we see the pricing for memory purchases continuing to increase as we said before we do believe we'll see a decreasing benefit from the carry-in inventory on memory over time and there's one more thing I wanted to add as we work to improve supply our manufacturing purchase obligations have increased by 33 billion dollars from June to the September quarter which you'll see in our annual filing when it comes out tomorrow now back to Kevin for the other parts of it

Kevan Parekh45:42

Yeah you mentioned Siri AI and what I alluded to in the prepared remarks so as we continue to roll out Siri AI to more customers the associated cloud costs will be recognized through services cost of sales and consistent with how we've always accounted for maps Siri and iCloud for the devices we sell that include these bundled services we defer a portion of the revenue recognize it over the life of the device so our hardware deferrals as of the December quarter will reflect the addition of Siri AI both of these items will have an impact to the gross margin but as always we you know we look to continue to make the investments necessary to support the business and we also see a you know wide range of ways that AI can contribute to revenue growth over time so on the product side you know we feel AI offers a compelling reason for customers to upgrade and switch in order to get the latest capabilities and we also feel there's opportunities across third party apps and partnerships as well as first party opportunities as John highlighted earlier with the expanded access to you know server side features of Siri AI and Apple Intelligence features as well.

Amit Daryanani45:47

Really helpful. Thank you.

Suhasini Chandramouli45:53

Thank you Amit. Operator could we have the next question please?

Operator45:59

Our next question is from Ben Reitzes from Melius Research please go ahead.

Ben Reitzes46:35

Hey guys thanks hey John my first question I wanted to ask you about your cash neutral policy on one of the previous calls you guys said that you weren't going to focus on that anymore and that that that was not no longer the policy what are you how under your leadership what do you mean by that do you mean like you may go to net debt to buy back stock or do some M&A or go the opposite way and hoard some cash again your thoughts on that would be welcome thanks

Kevan Parekh47:04

Yeah hey Ben it's Kevin let me take that one as you know we did talk about the fact that we we're no longer using net cash neutral as a target I think as we explained in the last call the last time we talked about that was the fact that we think it makes sense to evaluate our cash and debt position independently and making sure we can optimize that and giving us the right flexibility we remain committed to our capital allocation philosophy

Kevan Parekh47:16

Which is we're going to invest everything we need to put in you know invest in our business and return contain that discipline and we do think this removal of net cash gives us flexibility to optimize so we can make the right investments for the company

Ben Reitzes47:45

Alright thanks and then I wanted to ask about services I realize you only got one quarter at a time but you know from the eight to 9% when you think long term I was wondering if you're willing to say you think whether it can accelerate from there and whether AI could help you launch new services we haven't thought of yet that are accretive to the growth rate there thanks

Kevan Parekh48:47

Yeah, I think Ben on that one, you know you hear John talk about a lot of the long term attributes that we really you know feel give us optimism about the long term opportunity in our services business Again, we talked about things like the install base of over two two and a half billion active devices you know we obviously saw you know a record number of weekly visitors in the App Store in September quarter we also continue to see growth in users who are paying for at least a service reaching all time high in both you know transacting and paid accounts we're excited about emerging markets we talked about the launch of Apple Pay in India but we continue to see good momentum in emerging markets in our services business where we had double digit growth and so we continue to feel really bullish about you know all the different elements as we look ahead to the longer arc of time and I think as John mentioned we are continuing to improve the features and reach of existing and new services as well you know the example was the expansion of iCloud plans to include Apple TV and Arcade obviously reaching you know a lot of new potential subscribers AppleCare One families another example of that and so you know we continue to look for opportunities you know to grow our services business.

Ben Reitzes48:52

Thank you.

Suhasini Chandramouli48:58

Alright thank you Ben operator could we have the next question please?

Operator49:05

Our next question is from Wamsi Mohan from Bank of America please go ahead

Wamsi Mohan49:37

Uh yes thank you so much and John great to have you on the call as I appreciate the comments on memory clearly you're now competing for memory more so versus historically from pretty well capitalized companies who are signing long term agreements so my question is is Apple changing anything in the way that you are procuring memory how do you think about the progression of memory over time and if it continues to be a headwind is pricing also going to remain dynamic and potentially move higher and I have a follow-up

Sabih Khan50:07

Good afternoon Wamsi this is Sabi let me take that one so as you know we have worked with many of our suppliers for decades and we deeply value their partnership over the years we know our products would simply not be possible without them and we look forward to continuing our work together we're always working hard to improve supply and as John said earlier we our manufacturing purchase obligations have increased by 33 billion from the June to the September quarter.

Kevan Parekh50:46

And Wamsi maybe I'll add here because you asked the question about pricing and how we're managing it so look we're trying to manage through this with a number of actions you just talk about the fact we're continuing to pursue lower costs and non memory components John mentioned the fact that we have some benefit of carrying inventory and you know we did reluctantly make the decision to change pricing on a number of our products right starting with the iPad and Mac in the June time frame and then iPhone more recently in September I think what we try to do is evaluate and doing all that we evaluate the units revenue margin and we're really being thoughtful and deliberate at evaluating kind of the short term and long term considerations and we really believe we're balancing this well

Wamsi Mohan51:15

Okay, thanks, Kevin. Thanks, Abby. And I guess my follow-up is on Siri AI in the early days of launching this can you give us some sense of how the token consumption associated with Siri AI is being done on device versus private cloud compute versus GCP and have you started to see any acceleration of usage and if it does accelerate really fast globally would it change your outlook on what you need to spend for compute thank you so much

Kevan Parekh52:01

You know I can take that one as well so we do envision you know Siri to kind of you know have queries that kind of are managed on device and also in the private cloud compute environment that we've outlined the mix of that is still very early days and so it's hard to predict exactly the mix of those costs are going to look like obviously on device you know is very very efficient no real cost associated with that but on the server side you know we would have some inference costs and that's really the connection of the Siri AI related costs that I mentioned that will be you know recognized through services cost of sales but I think again we've just recently launched it and made it available to more users and so in very very early stages of understanding the kind of mix of those costs as well as any you know further requirements we might have on the compute side

Wamsi Mohan52:05

Thanks Kevin.

Suhasini Chandramouli52:11

Thank you Wamsi operator could we have the next question please?

Operator52:16

Our next question is from Samik Chatterjee from JPMorgan please go ahead.

Samik Chatterjee52:48

Hi, thanks for taking my question and John Sabi good to get a chance to talk to you guys and Kevin same there. Maybe on the duo can I just ask in terms of maybe your thoughts in terms of our learnings from the launch of the duo and the demand that you've seen on that front and what are the sort of supply chain related issues that you're facing right now that you probably need to iron out if you're trying to meet demand on that front.

Samik Chatterjee52:55

Any more visibility there in when you reach supply demand balance on the duo as well will be helpful. And I have a quick follow-up. Thank you.

Sabih Khan53:18

Hi, Samik. This is Sabi. Let me start with that question. So we're thrilled with the initial response on the iPhone Duo is constrained as of today the ramp is going well and we're working hard to get this revolutionary new product into the hands of our customers as quickly as possible but at this time it's really hard to predict when supply and demand will be in balance.

Samik Chatterjee53:46

Okay, okay, good. And then maybe Kevin for you just in terms of you have mentioned supply chain constraints impacting September quarter and going into December but any way to sort of help us think about whether those are getting overall for the company are those increasing in terms of magnitude relative to sort of the impact on revenue and if you are willing to sort of quantify those impacts for September and December

Sabih Khan54:18

Yeah let me start with that this is Sabi so during the September quarter we experienced supply constraints on iPhone Mac and iPad and this was driven by the high levels of demand and as we said before we're seeing less flexibility in the supply chain than normal the Q4 constraints were primarily driven by the availability of the advanced nodes our SOCs are produced on but as we've transitioned more of our lineup to the latest two nanometer technology nodes our constraints on advanced nodes are easing.

Sabih Khan54:29

And for the December quarter we expect constraints on Mac and iPad primarily driven by memory as demand has been higher than what we expected.

Samik Chatterjee54:35

Thank you.

Suhasini Chandramouli54:40

Thank you Samek. Operator could we take the next question please?

Operator54:46

Our next question is from Krish Sankar of from TD Cowen please go ahead.

Krish Sankar55:16

Yeah hi thanks for taking my question first one is Kevin or Sabe I understand the memory price inflation Kevin it seems like it's probably like one to one and a half or two percentage points A is the true and Sabe you know I'm just wondering I understand the you know is there a availability issue with memory are you signing LTAs with memory suppliers so that availability is not an issue even though pricing could still be an issue down the road and then a quick follow-up

Sabih Khan55:31

Yeah thanks Krish so as we said earlier you know we are continuing to work to improve supply and you'll see that our manufacturing purchase obligations have increased by 33 billion from the June to the September quarter

Krish Sankar55:42

Got it, got it. And any comments on the margin impact to think about going forward, Kevin, or?

Kevan Parekh55:53

Well, I think, Krish, let me maybe take that one. I know you'd asked about it. So when we look at the margin

Kevan Parekh56:37

Change from the June quarter to the September quarter and you remove the impact of the tariffs from point sequential change in margin and that was driven entirely by memory impacts now we did have some offsets because the gross memory impact was larger than that but we had some offsets as John talked about earlier driven by you know the benefit of carrying inventory some offsets from non memory costs as well as you know some of the benefits of pricing and so as we talked about we expect the you know the memory costs to continue to you know be a challenge for us as we look in the December quarter and our guide contemplates that right now if you look at the midpoint you know most of the sequential decline we're expecting for the December quarter we expect to be driven by higher memory costs

Krish Sankar56:58

And John congrats on the first call um you know it seems like consumer AI agent space is seeing increasing competition with several app based options I'm just wondering you know when you look at the agentic capabilities of Siri built into the OS platform versus AI agents that are confined within an app architecture how do you see that evolving?

John Ternus57:28

Uh yeah thanks Krish I think you know as I said before Siri right now is primarily request based and as we talked about before it is built on a modern orchestrator driven architecture so we see you know opportunity to expand its capabilities over time we think fundamentally you know what's most important to us is that we're giving people these capabilities that are private and secure and we're really focused on protecting people's data.

Krish Sankar57:32

Thanks, John.

Suhasini Chandramouli57:37

Thank you, Krish. Operator could we take the next question please? please?

Operator57:43

Our next question is from David Vogt from UBS please go ahead

David Vogt58:22

Great. Thanks guys for taking my questions and congrats John and maybe one to start with Kevin you know if I kind of unpack the comments around supply chain about availability of components and your outlook for the December quarter can you help us understand sort of the difference or maybe the delta of quantity versus price across sort of the product lineup because it certainly looks like you know you're looking at double digit growth across the iPhone and the Mac business and we all know I think in the industry that there's been pretty strong price inflation across the PC Mac ecosystem and you guys mentioned that you reluctantly taken price as well so can you help us understand kind of what's the driving dynamics in that market and then I have a follow up.

Kevan Parekh58:59

Yeah, David, thanks for the question. This is Kevin. You know, we don't normally provide that level of detail or color as we look at the outlook. other than to say you know again we did guide to the 7 to 10% year on year and again just as a reminder that is on top of a phenomenal December quarter last year where revenue grew 16% and so you know we don't provide level of detail but I would say it's early to really read price elasticity at this point in time you know the iPad and Mac were constrained since you know can we made those adjustments and again we just recently just adjusted the price on iPhone so it's really early to really assess any elasticity impact at this stage.

David Vogt59:28

Yeah, great. And then maybe this is a follow-up going back to the investment cycle, whether it's agentic, Siri related You know, it looks like you guys had you're coming off of a year of you know, very aggressive investments in R&D to you know, to fund the business going forward and to grow the business you know if I just think about kind of the commentary on Q1 of fiscal 27 certainly sounds like that spending is moderating a little bit can you maybe walk through some of the puts and takes in terms of what's driving that moderation and spend across the operating line items thanks

Kevan Parekh59:58

Yeah, David, again here we don't break out you know detail on our outlook but I would you know reiterate the fact that for the December quarter we do expect opex to grow between 11 11 and 13% year over year which is driven by increased you know and continued investment in R&D in particular AI this growth rate is coming down as you alluded from the levels of growth we had in FY26 but you know as we said before we continue to significantly increase our overall investments in AI while continue to invest in the product roadmap and you know our December guide is a continued reflection of that.

John Ternus1:00:05

Yeah, and I'll just add, we feel confident that we're spending what we need to spend to achieve our roadmap.

David Vogt1:00:09

Thanks, John. Thanks, John.

Suhasini Chandramouli1:00:14

Awesome. Thank Thank you, David. Operator, can we have the next question, please?

Operator1:00:20

Our next question is from Richard Kramer from Arete. Research. Please go ahead.

Richard Kramer1:00:43

Thanks very much, John. Your latest MacBook Pros included more iOS features like touch and Dynamic Island as well as obviously Siri AI should we anticipate further close linking of Mac OS and iOS features maybe even pointing at some point to a single unified OS either for simplicity or to reduce costs and have a follow up thanks

John Ternus1:01:30

Uh yeah thanks for the question Richard um look we are very proud of both the Mac and the iPad and I think what you've seen over the years is we've really enjoyed the ability to bring features and capabilities across the ecosystem and create you know really compelling features that span you know things between handoff between iPhone and Mac and iPad and so when we design the products we're looking at how can we make the best version of each and every product and if you look at what we just did last week with the MacBook Pro we took a huge leap forward these MacBook Pros are better in every way than the ones that came before them and we're really proud of that and so we don't have any fundamentally different changes that we're planning right now nor would we talk about it anyway

Richard Kramer1:01:55

Okay thanks and then you know we saw two years of declines in China sales and then this year Apple obviously grew a very healthy 28% in FY26 can you talk through to what you attribute that recovery and whether you think greater China can sustain these sort of elevated levels of growth which are really leading the company regionally now thanks

John Ternus1:03:05

Uh yeah let me give you some color on China we were very pleased with the performance in greater China right revenue was up 21% during the September quarter which was a quarterly record the performance was primarily driven by iPhone where we set a September quarter record and by Mac where we saw very strong double digit growth and taking a step back greater China was up 28% for the full year you know Tim and Sabi were just in China meeting with customers and developers and partners and it has been wonderful to see the customer reaction to our latest lineup of products including iPhone Duo our install base of active devices has reached an all-time high and we had a record year for iPhone upgraders in mainland China according to a survey from World Panel iPhone models were the top three selling smartphones in urban China and we think we gain share on iPhone and Mac you know a couple other really compelling things on Mac we had a record year for both upgraders and customers new to the product and according to Counterpoint Counterpoint MacBook Air and MacBook Neo were the top two selling laptop models and Mac mini was the top selling desktop model in the September quarter so I guess to answer your question we think you know the success comes from having really great products

Richard Kramer1:03:10

Okay, super. Thank you.

Suhasini Chandramouli1:03:16

Awesome. Thank you, Richard. Operator, may we have our last question, please?

Operator1:03:22

We will now go to Ben Bolling of Cleveland Research. Please go ahead.

Unidentified speaker1:03:46

Good evening, everyone. Thanks for getting me in. John, I'm interested in your thoughts with higher device prices how you think about the environment around affordability programs and the importance to volumes with respect to trade-ins subsidies and other options and you know what Apple can do to encourage more of that independently of funding it yourselves

John Ternus1:04:18

Yeah look you know when we're building products and then when we're pricing them we're always focused on you know building the best products and services in the world and delivering incredible value to our customers obviously as we talked about you know these memory prices are unprecedented and so that has put pressure on our prices but it's been great to see the success of the products and you know we have been investing in programs like Apple the Apple upgrade program which is a great way to help affordability and so these affordability programs are definitely an important factor.

Unidentified speaker1:04:40

And the last one for me would be when you look at I guess the level of supply demand balance could you speak to you know where you see that at not necessarily where it is where you'd like it to be and how you're thinking about the opportunity to get there across the portfolio.

Sabih Khan1:04:57

Yeah let me take that one Ben this is Sabi so for the December quarter we expect constraints on Mac and iPad and it's primarily driven by memory and that's because the demand has been higher than what we expected and beyond December quarter we're not providing an outlook.

Suhasini Chandramouli1:05:12

Alright thank you Ben a replay of today's call will be available on Apple Podcasts and at apple.com slash investor. Thanks again for joining us today everyone.

Operator1:05:19

Once again, this does conclude today's conference. We do appreciate your participation.

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