Apple reports results for the 4th quarter of 2023: profit of $23 billion on revenue of $89.5 billion

14:16: “Gross product margin was 36.6%, up 120 basis points sequentially, also driven by leverage and a mix partially offset by foreign currency. Gross profit from services amounted to 70.9%.”

14:17: “Revenue ‌iPhone‌ amounted to $43.8 billion, which is 3% more than last year and a new record for the September quarter. We delivered strong results in several markets, including a record high in India and records for the September quarter in Canada and Latin America. , in the Middle East and South Asia. Our active user base ‌iPhone‌ grew to a new record level, and FY 2023 was another record year for users upgrading to the new version.”

14:17 : “Mac's revenue was $7.6 billion, down 34% year-over-year, driven by challenging market conditions and compounded by difficult challenges in our own business. and were subsequently able to meet significant pent-up demand during the September quarter. We also had a difference in the timing of the launch of the MacBook Air, launched earlier this year, in the June quarter compared to the September quarter last year.”

14:17: “Our The install base is at an all-time high, and half of Mac buyers during the quarter were new to the product, helped by the ‌MacBook Air‌. According to our data, Mac customer satisfaction in the US was 97%.

14:18: “Revenue ‌iPad‌ amounted to $6.4 billion, which is 10% less than last year. As with the Mac, these results were the result of a difficult comparison caused by supply disruptions in the June quarter a year ago and the subsequent fulfillment of outstanding commitments. demand increased in the September quarter. ‌iPad‌ continues to attract a large number of new customers to its installed base, with more than half of the customers purchasing iPad during the quarter being new to the product. Recent reports from 451 Research show customer satisfaction at 98% in the US.”

14:19: “Wearables, Home & Accessories revenue was 9.3 billion dollars, down 3% from last year. We had a September recession. Apple Watch continues to expand its reach: Nearly two-thirds of customers who purchased Apple Watch during the quarter were new to the product, and customer satisfaction recently rated the watch at 97% in the US.

14 :19: “The service industry had a great quarter. We achieved a new all-time revenue record of $22.3 billion, up 16% year over year. And we are pleased to see growth in every category and every geographic segment as a direct result.” strength of our ecosystem.”

14:20: “Our installed base of over 2 billion active devices continues to grow at a rapid pace and provides a strong foundation for future ecosystem expansion.”

14:20: “We continue to see increased customer engagement with our services, with both transactional and billing accounts up double digits year over year. year, each reaching a new all-time high. Our paid subscriptions have shown significant growth. We have more than 1 billion paid subscriptions across all of our platform services, which is almost double what we had three years ago.”

14:21: Luca cites a number of enterprise clients who are investing heavily in the Apple ecosystem.

14:21: “Towards our cash position and capital return program. We ended the quarter with more than $162 billion in cash and marketable securities. We increased commercial paper by $2 billion, bringing our total debt to $111 billion. This resulted in net cash of $51 billion. at the end of the quarter.”

14:22: “During the quarter, we returned nearly $25 billion to shareholders, including $3.8 billion in dividends and cash equivalents and 15.5 billions of dollars in dividends and their equivalents. To repurchase 85 million Apple shares in the open market, we also initiated a $5 billion accelerated share repurchase program in August, resulting in 22 million shares repurchased and repurchased.”

14:23 : “Our annual revenue was $383 billion, down 3% from the previous year, growing on a consistent basis despite a volatile and uneven macroeconomic environment. Our annual revenue performance has improved each quarter as we've gone through this year, as have our earnings per share: we reported double-digit earnings per share growth in the September quarter.”

14 :23: “We are particularly pleased with our performance in emerging markets, with revenue reaching record levels and double-digit growth in constant currency in fiscal 2023.”

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14:23 : “In terms of foreign exchange rates, we expect the annual negative impact on earnings to be about 1 percentage point.”

2:24 pm: “As a reminder, This year's December quarter will last the usual 13 weeks, down from the December quarter a year ago lasting 14 weeks. Revenue from the extra week last year added about seven percentage points to total revenue for the quarter.”

14 :25: “We expect the company's overall December revenue to be similar to last year.

We expect &zwnj ;iPhone revenue‌ to increase year-over-year in absolute terms.”

We also expect growth after normalization of both last year's supply disruptions and one additional week, we expect Mac's year-over-year performance to improve significantly compared to the September quarter.

We expect year-over-year revenue performance for both ‌iPad‌ and sales of wearables, home products and accessories will slow significantly compared to the September quarter due to different timing of product launches on ‌iPad‌. We released the new iPad Pro and ‌iPad‌ next generation in the December quarter a year ago. Last year, we made full profit for the December quarter from the launch of 2nd generation AirPods Pro, Apple Watch SE and the first Apple Watch Ultra.”

14:26: We move into question and answer section.

14:26: Q: On ‌iPhone‌ storage and demand compared to ‌iCloud‌. As demand for storage increases, is there a shift toward more ‌iPhone‌ models, or are consumers mainly choosing them because of the growing popularity of ‌iCloud‌+? What are the strategic and financial considerations and trade-offs here when you think about shifting the mix towards higher storage models versus ‌iCloud‌ penetration?

14:27: A: We started the line with ‌iPhone‌ Pro Max is 256GB, so we're seeing a different ratio, if you will, this year compared to last year. Otherwise, minor but significant changes.”

14:29: Question: Could you talk a little about the market conditions for laptops and desktops, as well as any other colors, which you can share regarding the timing of the Mac release through the M3 MacBook Pro this year versus the M2 earlier in the calendar year.

A: We are very excited to announce the M3 line.Get your hands on the new MacBook Pro and the new iMac.

We expect Mac sales to accelerate significantly in the first quarter. In the June quarter of last year, the plant experienced an outage that lasted several weeks. The resulting pent-up demand was satisfied in the September quarter. And that made the September quarter not only a record, but a significant one, and obviously now we're comparing it to 2023 numbers, and I wouldn't look at negative growth of 34% as a measure of the fundamentals of the business.”

14:31: Can you help us characterize the demand situation you're seeing in China, how the ‌iPhone 15‌ and how would you characterize the structure within China during the current production cycle?

A: One thing to keep in mind here is that the exchange rate impact was almost six points. So we grew on a constant currency basis and under that, if you look at the different categories, ‌iPhone‌ actually set a record for the September quarter, and in mainland China performance was down largely due to the combination of Mac and ‌iPad‌. Services also grew during the quarter and Mac and ‌iPad‌ faced the same problems as the company when comparing problems with 2022.”

14:33: Q: As we move towards more inflationary pricing, how do we think about this effect or how do you think about gross margins at the product level?

Perhaps component prices are starting to turn what has clearly been a very favorable environment over the past few quarters into an even more inflationary environment.

A: As you saw from our fourth quarter results and first quarter guidance, we are obviously seeing very strong gross margin levels. 45.2 was a record for that September quarter. And then you know the guidance for the first quarter is clearly strong – 45 to 46%. There are many factors that affect gross profit. Obviously, the raw material environment is one of them. as you mentioned. The environment has been good in recent quarters, but what we sell is equally important. The growth of the services sector is favorable for us and this has helped our company increase its gross margin. On the other hand, foreign exchange rates have been a drag for several quarters given the strength of the dollar.

14:33: Q: I know that the ‌iPhone 15 Pro‌ and Pro Max are limited today, but I think some of your comments suggest that you shouldn't go back to balancing supply and demand until the end of the quarter. Does your December earnings forecast take into account any supply constraints? And if so, is there any way to quantify how much supply will limit your earnings for the December quarter?

A: Today we are limited on the ‌iPhone 15 Pro‌ and ‌iPhone 15 Pro‌ Max. We make every effort to ensure that the product ends up in the hands of all customers who order it. As of today, we expect that by the end of the quarter we will have a balance between supply and demand, and this is reflected in the forecasts.

14:35: Question: You are at the forefront of innovation in hardware, software, services, technology and long-term projects in which you invest. How should we think about your capital intensity when we look at financial In 2024, as in the last few years, capex as a percentage of revenue was relatively low compared to the previous eight years.

What should we expect? growth in capital investment intensity and what exactly are the notable moving parts that we need to think about?

A: The main areas of investment for us are tooling and equipment for manufacturing plants, our investments in data centers, as well as our investments in our own facilities, both corporate and facilities and retail stores.

So, both in terms of the equipment in our factories and, you know, our investments in data centers, we tend to use sort of a hybrid model where we share some of the investment with our partners and suppliers. This may be why you sometimes see some variability. But over the past few years, we have made all the necessary investments and plan to make all the investments that we believe are necessary and appropriate to continue to innovate.

14:38: Question: &zwnj ;iPhone‌ The business appears to have returned to growth this quarter. But it's still relatively softer than I expected at this point in the cycle. Some US carriers apparently aren't being particularly aggressive in pushing updates. I wanted to get an idea of ​​your US partners now and in the future: what do you expect from updates?

Is it fair to say that in the first quarter, the product/service mix is ​​sort of the key driver of the improvement in overall gross margin forecast compared to the December quarter, or is there more to it? I know you mentioned that there are a lot of moving parts, but is this the main driver of profitability growth?

A: For US carriers and the US business in general, it is too early to make any decisions. or conclusions. ‌iPhone‌ cycle, especially given the restrictions around the Pro and Pro Max in the US, tends to handle these products quite well. It's really too early to say what the pace of updates will be and what the pace of transition will be.

December is a quarter in which our products business tends to be very heavy due to the holiday season, so gross margin in the services business has an impact, but not as significant as other quarters throughout the year. And so I think the main drivers of the guidance we've provided is the fact that we're seeing cost improvement and margin improvement on the product side of the business, partially offset by foreign exchange, which continues to be a drag both sequentially and over the long term. year-on-year.

14:40: Question: The growth rate of services in September accelerated sharply and amounted to 16%. Can you talk about what's driving this acceleration? Are there a couple of products that have seen a significant increase in popularity? What's driving the situation? This is very remarkable compared to what you've seen over the last few quarters.

Answer: We had a really strong quarter across the board, both geographically and in terms of product categories. We had absolute records for ‌App Store‌, advertising, ‌iCloud‌, video, ‌AppleCare‌ and payments, as well as the record for the September quarter for music, so it is difficult to choose one in particular because they all did well.

14:42: Question: About Vision Pro , which I believe should launch more widely sometime in 2024, early in the year. .

I'm curious how differently you think about launching this product and educating consumers. How will these be different from other things like AirPods or Apple Watches that you've made, and maybe what you've particularly found from the developers that have been able to use it and from the development labs, what kind of feedback have you gotten from them?

A: Vision Pro has generated a lot of excitement and we were very excited to share it with developers. We have developer labs set up in different parts of the world so they can really embrace it and work on applications, and I've been lucky enough to see some of them. To answer your question, is this similar to AirPods or Apple Watch? I would say no. There has never been a product like Vision Pro and that's why we're intentionally releasing it in our stores just to put more emphasis on the last mile of the journey. We will be offering in-store demos and the process will be very different from a typical take-out purchase.

14:44: Question. : Many companies are experimenting with generative artificial intelligence. I'm interested in what kind of efforts you've put in, I was wondering if you could give us an idea of ​​how some of those efforts could be monetized using generative AI.

A: If you zoom out and see what what we have done in artificial intelligence and machine learning and how we have used it. We view artificial intelligence and machine learning as fundamental technologies, and they are an integral part of virtually every product we deliver.

When we released ‌iOS 17‌, it included features like personalized voice and live voicemail. Artificial intelligence is at the core of these features and then you can move on to vital features on the watch and phone such as fall detection, collision detection. ECG on the clock. This would not be possible without AI.

We do not label them as such, we label them for their consumer benefit. But the fundamental technology behind it is artificial intelligence and machine learning. In terms of generative AI, we obviously have work going on, but I won't go into detail about what that is because, as you know, that's not what we do.

But you can be sure that we invest a lot. We're going to do this responsibly.

14:47: Q: Over the last decade, you can purchase many important chips for your iPhone, Mac, iPad, etc. Now we see As these silicon makers, chip makers are moving to ARM architecture. So my question to you is: regarding silicon in general, is owning it a cost-effective proposition for Apple or a strategic one for you? And is it vital to your products in terms of customer experience or can you buy them from manufacturers?

A: Apple Silicon has really allowed us to create products that we couldn't have created without making it ourselves. We like to own the core technologies in the products we deliver. And Apple's silicon may be at the heart of its core technology. And so no, I don't see a return to off-the-shelf shopping. I'm happier today than I was yesterday than I was last week because we made the transition that we made and I see the benefits of it every day.

14:49: Question : Obviously you had a great quarter in the services sector, and part of your services business comes from licensing relationships.

For web search partners, you perform a very important distribution function for them. Can you talk about what you think about this relationship and maybe some of the options that Apple has to mitigate some of the risks given the scrutiny on what some of these search partners are doing?

Answer: This is an important relationship, and as you know, during the conversation we do not discuss our commercial relationship. I believe they are important, and we make decisions that we believe are in the best interests of our users.

14:51: Question: Is there an opportunity to increase profits? As revenue has declined, gross margin has increased.

A: With respect to products, when we launch new products, the cost structure of those products tends to be higher than the products they replace.

This is because we are constantly adding new technologies and new features. And then we work our way through the cost curve throughout the product's life cycle and, over time, we tend to realize the benefits. The guidance we've provided for December reflects all of this, and so we're starting from a different position than we did a year ago, or in the past in general.

There are other factors that play a role. For example, the range of products we sell. Not every product has the same gross margin profile. And so our recommendations and results reflect that, as well as within a specific product category. A lot depends on the type of models we sell, as they have different cost-effectiveness profiles.

I think one of the things we've done well over the last few years is to offer more affordable solutions to our customers. clients in the form of installments, trade-in options and low-cost financing in general. And this has resulted in lowering the affordability threshold for our customers and hence they can buy the best products from our range. This has been an important factor in increasing our profits.

14:53: Question: There is amazing momentum in India. How do you see the growth opportunities for India with these hardware? How should we view ASP compared to other geographies and is there a way to compare and contrast India and China?

Answer: This is China, maybe ten years ago. We had record revenue in India and raised very high double digits. This is an incredibly interesting market for us and our main goal. We have a small share of a large market and so it would appear that there is a lot of headroom there.

ASP, I haven't looked at them lately, but I'm sure they are lower than Worldwide.

In terms of similarities, I would say that every country has its own path and I wouldn't want to play the comparison game, but we are seeing an unusual market where a lot of people are moving into the middle class. Distribution is getting better. We opened two retail stores there and they are doing better than we expected. It's still early, but they're off to a good start and I'm very happy with how things are going at the moment.

14:56: Q: I appreciate all your comments about China. It was great to hear about the growth potential and your optimism. What about the supply chain and what is your priority? Do you have a priority in diversifying your supply chain and what do you think about Apple's supply chain around the world, in particular what do you think about investing in the US?

A: You know, our supply chain is truly global. We invest all over the world, including in the USA. We've been very focused on advanced manufacturing in the US and have been working on a number of different projects in the US, whether it's our joint venture with Corning on glass, Face ID or semiconductors. So, all of this is our advanced manufacturing, and I think these are the kinds of things that you think the US would be very good at.

We are also investing in other regions of the world and constantly optimizing the chain. The moment we learn that something is not working as it should, we correct it. And we're going to continue to do that. But ultimately it will still be a global supply chain.

14:58: Q: Very quickly on the dynamics of the extra week. Last year there was a problem with ‌iPhone‌ production while Covid-19 restrictions were in effect in China. Is it possible to shed some light on the situation regarding the normalized supply chain this year?

A: An extra week is seven points of income. Last year we had supply shortages over the phone. And then week 14 of the December quarter a year ago.

When we normalize these two factors, and I said this during the call, we still expect growth on ‌iPhone‌. You take the loss of a week into account, compare it to the supply disruptions that hopefully won't happen again this year, and when you normalize those two things, we still expect growth on ‌iPhone‌.

14:59: Question: Where is the growth in research and development coming from? Is it Vision Pro, content or new services?

A: This is Vision Pro, it is artificial intelligence and machine learning. We are investing in silicon. It's kind of all of these things, and I think you'll find that the R&D costs in the aggregate look very competitive relative to others. Some of the investments we make in research and development are also drivers of gross margin growth. I think it's important to think about it that way.

15:02: Question: Tim mentioned that college students are choosing Macs, and you mentioned record service revenue. What metrics do you think you could provide to help investors understand how Apple measures customer lifetime value, especially as we see many users entering the ecosystem with relatively cheaper products or even refurbished devices? You're growing your ecosystem, but how do you think about increasing customer lifetime value over the long term?

A: We want to make sure you know that the customers we acquire stay with us. We pay great attention to the behavior of the installation base, both by product and geography. Then we look at daily participation in the ecosystem. That's why we focus a lot on things like transaction accounts and fee accounts. We want to see if we can move our customers from a free model to a paid one over time. This is obviously very, very important to us.

We track all of these things and, you know, what we do because I think what's really important is that we add new services over time. The progress we've made in payments in recent years is important because we've got more people using more features on our devices and we can monetize that.

We take all of that into account. check. We understand what happens when a customer joins us, when they buy a basic device rather than a used one. We understand their behavior in different markets and so on. We have pretty good visibility, and I think the progress we've made in services ($85 billion in the last 12 months) is the size of the Fortune 50. Significantly more than it was just a couple of years ago.

15:03: That's the end of the conversation! Thank you for joining us.

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