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Transcript: Apple CEO Tim Cook on the company’s 2017 Q1 earnings

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Transcript: Apple CEO Tim Cook on the company’s 2017 Q1 earnings

Apple's record-breaking first-quarter effects for 2017 are in. This is our live-updating transcript of the name.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts all through the company's Q1 2017 earnings name. This is our ongoing stay transcript in their remarks! If you wish to have extra information on Apple's effects, we recommend Six Color's ace charts for the quarter.*

Cook's opening remarks

Tim Cook

Just right afternoon, everybody, and thank you very a lot for becoming a member of us. I am more than happy to percentage with you the remarkable result of Apple's December quarter.

We generated the best quarterly income in Apple's historical past, at the side of all-time unit and income data for iPhone and Apple Watch; all-time income data for products and services and Mac; and all-time income data for 4 out of our 5 geographic segments.

The robust efficiency of our industry additionally produced all-time list earnings-per-share. Income in the quarter used to be 78.4 billion greenbacks, which used to be above the most sensible of our steerage vary. iPhone had an amazing quarter because of remarkable call for that beat our personal inside expectancies.

Whilst iPhone 7 is our most well liked style, we noticed particularly robust call for for iPhone 7 Plus, which used to be a better portion of the new product combine than we now have ever noticed with Plus fashions in the previous. Call for for iPhone 7 Plus exceeded delivery right through the quarter, and we got here into delivery/call for stability in January.

iPhone 7 Plus has earned rave critiques for its complex new options, particularly the dual-camera device, which produces surprising portraits and high quality zoom. This can be a uniquely Apple function this is unexpected and delighting our customers. Each iPhone 7 and iPhone 7 Plus are empowering our consumers to be extra productive, extra engaged, and extra expressive than ever via integrating hardware, tool, and products and services to create stories that handiest Apple can ship.

It used to be our ultimate quarter ever for products and services, with virtually 7.2 billion greenbacks in income. App Retailer consumers broke all-time data all the way through the vacation quarter, together with 3 billion greenbacks in purchases in December on my own, making it the App Retailer's unmarried superb month ever.

Our cutting edge and colourful developer group has created over 2.2 million apps for doing virtually anything else that you can think of. Apple's developer group has now earned over 60 billion greenbacks, together with over 20 billion [dollars] in 2016 on my own.

Income from our track industry grew for the 0.33 quarter in a row, and our AppleCare and iCloud garage products and services had all-time listing effects. Apple Pay persisted its robust momentum, with its selection of customers greater than tripling over the previous yr, and loads of tens of millions of transactions and billions of greenbacks in purchases in the December quarter on my own.

Transaction quantity used to be up over 500% % year-over-year as we expanded to 4 new nations, together with Japan, Russia, New Zealand, and Spain, bringing us into a complete of 13 markets.

Apple Pay on the Internet is turning in our companions nice effects. Just about two million small companies are accepting bill bills with Apple Pay thru Intuit QuickBooks On-line, FreshBooks, and different billing companions, and starting this quarter, Comcast consumers will pay their per thirty days invoice in one contact with Apple Pay.

Products and services are changing into a bigger a part of our industry, and we think the revenues to be the measurement of a Fortune 100 corporate this yr. Our products and services choices at the moment are riding over 150 million paid buyer subscriptions; this comprises our personal products and services and third-party content material that we provide on our retail outlets.

We really feel nice about this momentum, and our objective is to double the measurement of our products and services industry in the subsequent 4 years.

The Mac now not handiest returned to expansion, however generated its very best quarterly income ever. Our newest knowledge presentations that the majority Mac consumers are purchasing their first Mac, with the overwhelming majority of them coming from a Home windows PC.

The brand new MacBook [Pro] Contact with Contact Bar is a phenomenal instance of the innovation made imaginable through integrating world-class hardware and device. We have been supply-constrained for the new MacBook Professional during the December quarter, and are simply now entering delivery/call for stability.

It used to be additionally our splendid quarter ever for Apple Watch — each devices and revenues — with vacation call for so robust that we could not make sufficient. Apple Watch is the best-selling smartwatch in the global, and in addition the most-loved, with the very best buyer delight in its class by way of a large margin. Apple Watch is the final software for a wholesome lifestyles, and it is the gold same old for smartwatches. We could not be extra occupied with Apple Watch.

We are additionally overjoyed with the reaction to AirPods: Consumers love the magical revel in AirPods are turning in, and if you have not attempted them but, you'll be able to be overjoyed while you do. They are some distance forward of anything on the marketplace lately, and we are running exhausting to meet up with the fantastic call for.

With AirPods off to an unbelievable get started; a robust, complete first yr for Apple Watch; and Beats Headphones providing an ideal wireless revel in the use of the Apple-designed W1 chip, we've a wealthy lineup of wearable merchandise. Their design, magnificence, and straightforwardness of use make us very fascinated with the massive expansion attainable for wearables going ahead.

Our ecosystem is broadening to increasingly more of the spaces the place folks spend their time: at the fitness center, on the pass, in the house, and on the task. As an example, each and every primary automaker is dedicated to supporting CarPlay, with over 200 other fashions introduced together with 5 of the most sensible ten promoting fashions in the United States. There are smartly over one million other folks the use of CarPlay now, and this continues to develop hastily.

We are main the business via being the first to combine house automation into a significant platform with iOS 10. With Siri and the new House app in iOS 10, all over the place you pass you'll be able to simply and securely your whole house equipment together with your iPhone, iPad, or your Apple Watch. The choice of HomeKit-compatible equipment continues to develop hastily, with many thrilling answers introduced simply this month, together with video cameras, movement detectors, and sensors for doorways, home windows, or even water leaks. In all probability much more importantly, we're unrivaled on the subject of securing your house with HomeKit-enabled door locks, storage doorways, and alarm techniques.

I am individually the use of HomeKit equipment in the House app to combine iOS into my house regimen: Now, once I say "Just right Morning" to Siri, my space lighting fixtures come on and my espresso begins brewing. Once I pass to the front room to chill out in the night, I exploit Siri to regulate the lighting fixtures and switch on the hearth. And once I depart the space, a easy faucet of my iPhone turns the lighting fixtures off, adjusts the thermostat down, and locks the doorways. Once I go back to my space in the night as I am close to my house, the space prepares itself for my arrival routinely via the use of a easy geofence.

This degree of house automation used to be impossible only a few years in the past, and it is right here these days with iOS and HomeKit.

We are making nice growth in the undertaking marketplace along our primary companions. The mix of iOS and Cisco Generation is giving firms in all places the alternative to hugely support the consumer revel in for his or her cellular workers. With enhanced networking efficiency, as much as 8x quicker roaming, higher reliability for apps, and local voice revel in, we are occupied with how a lot more productive the team of workers might be with those functions. If truth be told, the overall choice of joint buyer alternatives has grown over 70% since ultimate quarter.

Enterprises are the use of IBM's new mobile-at-scale design and construction type to deploy more than one iOS apps with velocity and potency. As an example, Fennar [sic] is reworking airport upkeep, and Cemex is revamping actions from attracting new shoppers to invoicing to after-sale make stronger.

And later this spring, SAP will probably be rolling out its SDK for iOS, offering its group of greater than 2.5 million developers the equipment to construct tough, local iOS apps that leverage the SAP HANA cloud platform. We are extremely joyful with how those partnerships are making it even more uncomplicated for undertaking consumers to become how paintings will get carried out with iOS.

As we mirror on a record-breaking December quarter, I would love to thank our developers, our industry companions, and our workers for his or her unbelievable contributions and dedication, and I would love to thank all of our consumers round the global for his or her pleasure and loyalty, which in the end drives those effects.

On foreign currencies and unique Apple TV content material

Katie Huberty, Morgan Stanley: First, Luca, what are the elements that brought about you to widen the gross margin steerage for the March quarter, and what are the one or two elements that put you at the low finish, as opposed to the tailwinds that would possibly put you at the top finish of that vary?

Luca Maestri

In case you glance again at our historical past, 100 issues vary for gross margin isn't odd; obviously, all the way through a duration when foreign currency could be very risky, we expect it is extra prudent to expand the vary of it. I discussed that we think, assuming that charges do not transfer an excessive amount of, we think foreign currencies to be a significant unfavorable as we transfer from the December to the March quarter. You realize that the greenback liked considerably towards the finish of the December quarter, and so we have were given 80 foundation issues of sequential headwind from foreign currency.

We even have the sequential lack of leverage, which is conventional of our seasonality, however we think to offset those two affects with value efficiencies and in addition with our mixture of services.

So, y'know, clearly, if the greenback is rather less robust than it's these days, shall we do a bit of higher on gross margins; clearly we proceed to paintings very arduous on our value potency, so we're going to see the place we land.

Katie Huberty, Morgan Stanley: Tim, there is a affordable chance you could get get entry to to the 200+ billion of money that is been locked in another country, so I feel it will be useful to only get an update on your perspectives round probably higher M&A [mergers and acquisitions], and a few of the spaces of hobby that you've got famous in the previous like proudly owning extra unique content material to penetrate extra of the TV alternative that the corporate has lengthy mentioned addressing?

Tim Cook

I'm positive, given what I am listening to, that there would most probably be some kind of tax reform this yr, and it does appear to be there are folks in each events that would prefer a repatriation as part of that, so I feel that is excellent for the nation and just right for Apple. What we'd do with it, let's wait and notice precisely what it's. However, as I have stated sooner than, we're all the time taking a look at acquisitions; we got 15-20 firms in line with yr for the final 4 years, and we search for firms of all sizes. There is now not a measurement that we'd now not do founded on simply the measurement of it, it is extra about the strategic worth of it.

With regards to unique content material, we put our toe in the water — we've put our toe in the water with performing some unique content material for Apple Song, and that might be rolling out thru the yr; we are studying from that, and we're going to pass from there.

The best way that we take part in the adjustments which might be going on in the media business — that I absolutely be expecting to boost up, from the type of cable package starting to spoil down — one, we began the new Apple TV a yr in the past, and we are proud of how that platform has come alongside. We've extra issues deliberate for it, however it is come far in a yr, and it provides us a transparent platform to construct off of.

Two, embedded in the 150 million paid subscriptions that I discussed in my opening feedback, there are a variety of third-party products and services which might be part of that the place we take part economically in a few of that through providing our platform and promoting and distributing.

After which thirdly, we are patently with our toe in the water, we are studying so much about the unique content material industry, and interested by ways in which shall we play in that.

On the products and services industry and China

Amit Daryanani, RBC Capital Markets: I in reality respect the knowledge you guys are offering round your products and services industry, which is as much as 18% year-over-year. Are you able to simply speak about — how a lot of that do you assume is expansion on your set up base as opposed to greater monetization on a per-iOS software foundation? It is bizarre to take into consideration the ones in two separate phrases.

Luca Maestri

The ones are the two key parts for us, and what is in particular fascinating to us is to peer the quantity of people who are transacting on our retail outlets is increasingly more robust double-digits, and we are additionally seeing that the ARPU [average revenue per user] in line with paying buyer is expanding double-digits, proper? So it is the aggregate of the two, clearly — the high quality and the amount of content material that we make to be had in our products and services improves all the time, and we additionally see that as folks get into the platform and get started transacting on the platform and we stay monitor in their conduct over the years, we in reality see that they have a tendency to spend increasingly over the years. And that is the reason why we are fascinated by the long run of the products and services industry, and as Tim stated, we've a purpose — it is already turn out to be an overly massive industry; it is going to be a Fortune 100 corporate this yr — however we've a objective to double it over the subsequent 4 years.

Amit Daryanani, RBC Capital Markets: There is been a good quantity of discussions round your marketplace percentage in China and what is taking place over there; your numbers in reality glance quite spectacular in Larger China, China in particular. So may just you simply speak about what are the call for developments you are seeing over there on the floor, and the way do you spot that transpire for the yr?

Tim Cook

Should you take a look at how we did in the quarter, as I feel Luca shared, our Larger China income used to be down 12%, and about 4 issues of that used to be currency-related, so it is an 8 level decline in consistent foreign money. After which, inside of Larger China, when you take a look at the PRC [People's Republic of China], our income used to be flat year-over-year, and that used to be towards the all-time listing quarter; and in case you take a look at that on a continuing foreign money foundation, it used to be in reality up six. So it is a much better efficiency, on kind of each and every means you take a look at it as opposed to what we had skilled the prior 3 quarters.

Beneath that, what we have now noticed is that iPhone 7 used to be the best-selling smartphone in China all through the quarter in keeping with Quantar; Singles Day — which is a large day in China, as you already know — we have been the most well liked U.S. logo on Alibaba.

We set a brand new list for products and services in China, as the corporate did, and Mac income used to be up double digits yr over yr. iPad devices have been additionally up double digits in mainland China which used to be, clearly other than the development that we noticed in the stability of the global.

We additionally noticed 50% of our iPhone gross sales in China have been to switchers and first-time consumers, which is an overly top quantity that we are proud of. Clearly, our overall set up base continues to develop there, in the robust double digits.

That stated, the demanding situations which might be there: One, the foreign money has devalued 6% yr over yr, and two, Hong Kong stays an overly very tricky marketplace. And so I take a look at it and I am inspired with the vital development, however we are not with out demanding situations there, and I would not need to suggest that, even though I do like many many stuff that I have noticed and the way broad-based the Pluses have been throughout our product line.

We're going to be updating this reside as the call progresses, so test again!


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