Apple today announced financial results for its third fiscal quarter of 2024, which corresponds to the second calendar quarter of the year.
For the quarter, Apple posted revenue of $85.8 billion and net quarterly profit of $21.4 billion, or $1.40 per diluted share, compared to revenue of $81.8 billion and net quarterly profit of $19.9 billion, or $1.26 per diluted share, in the year-ago quarter.
Apple set new June quarter records for both revenue and earnings per share, while the Services category set an all-time revenue record. The iPad category also saw a notable increase in revenue thanks to the introduction of new iPad Pro and iPad Air models.
Gross margin for the quarter was 46.3 percent, compared to 44.5 percent in the year-ago quarter. Apple also declared a quarterly dividend payment of $0.25 per share, payable on August 15 to shareholders of record as of August 12.
"Today Apple is reporting a new June quarter revenue record of $85.8 billion, up 5 percent from a year ago," said Tim Cook, Apple's CEO. "During the quarter, we were excited to announce incredible updates to our software platforms at our Worldwide Developers Conference, including Apple Intelligence, a breakthrough personal intelligence system that puts powerful, private generative AI models at the core of iPhone, iPad, and Mac. We very much look forward to sharing these tools with our users, and we continue to invest significantly in the innovations that will enrich our customers' lives, while leading with the values that drive our work."
As has been the case for over four years now, Apple is once again not issuing guidance for the current quarter ending in September.
Apple will provide live streaming of its fiscal Q3 2024 financial results conference call at 2:00 p.m. Pacific, and MacRumors will update this story with coverage of the conference call highlights.
Conference call recap ahead...
1:41 pm: After declining over 1.5% in regular trading today, Apple's stock is currently up over 1% in after-hours trading following the earnings release.
1:45 pm: Apple CEO Luca Maestri notes that Apple generated nearly $29 billion in operating cash flow and returned over $32 billion to shareholders during the quarter, while the company's installed base of active devices hit all-time highs in all geographic segments.
1:47 pm: On a year-over-year basis, Apple's iPhone revenue was down 1.0%, Mac revenue was up 2.5%, iPad revenue was up 23.7%, Wearables revenue was down 2.3%, and Services revenue was up 14.1%
1:56 pm: Apple's quarterly earnings call with analysts should begin at the top of the hour. Expected on the call are CEO Tim Cook and CFO Luca Maestri.
2:01 pm: The call is beginning with the usual warning about forward-looking financial statements. Tim and Luca are indeed on the call, beginning with opening statements.
2:02 pm: "Apple assumes no obligation to update any forward looking statements, which speak only as of the date they are made."
2:02 pm: Tim is on.
2:02 pm: Apple reports a June quarter revenue record of $85.8 billion, up 5% from a year ago, and better than Apple had expected. EPS grew double-digits to $1.40, a record for the June quarter. Set quarterly revenue records in more than two dozen countries and regions, including Canada, Mexico, France, Germany, the UK, India. Indonesia, the Philippines and Thailand.
2:03 pm: Services revenue set a new all-time record, up 14%.
2:03 pm: Tim is going over the announcements from WWDC, in particular Apple Intelligence.
2:04 pm: "We are very excited about Apple, intelligence, and we remain incredibly optimistic about the extraordinary possibilities of AI, and its ability to enrich customers lives."
2:05 pm: Now he's talking up Apple Vision Pro, noting 2,500 native spatial apps and new immersive content coming to Vision Pro. "And we've seen great interest for Vision Pro in the enterprise where it can empower companies large and small to pursue their best ideas like never before."
2:06 pm: Now iPhone, revenue was $39.3 billion, down 1% year over year. On a constant currency basis, iPhone sales grew compared to 2023.
2:07 pm: Moving to Mac, revenue was $7 billion, up 2% from a year ago. He's mentioning the M3-powered MacBook Air's as the best computer for students and others. In particular, he notes Apple Intelligence running on M3, in particular safety and privacy.
2:08 pm: iPad revenue was $7.2 billion, 20% higher year over year, on the back of the new 11- and 13-inch iPad Air, as well as the new iPad Pro.
2:08 pm: iPad Pro and iPad Air models, powered by the M series of Apple Silicon, will be able to use Apple Intelligence, he notes.
2:09 pm: In Wearables, Home and Accessories, revenue was $8.1 billion, down 2% from last year. This category includes Apple Watch, AirPods, HomePods and the Apple Vision Pro.
2:09 pm: In Services, Apple set an all-time revenue record of $24.2 billion, with paid subs rising to an all-time high. Set new records in advertising, cloud, and payment services.
2:11 pm: Tap to Pay on iPhone expanded to more markets, including Canada, Italy, and more. New updates to Services are coming this fall, including National Park hikes to Apple Maps.
2:13 pm: Tim is talking up Apple's focus on privacy, security, accessibility, and more. "We are determined to keep users in control of their data. And we are just as dedicated to ensuring the security of our user's data."
2:13 pm: All of Apple's data centers, including those using cloud compuete, operate on 100% renewable energy.
2:14 pm: Now Luca is on to discuss the financials in more detail.
2:16 pm: There was a new record of $85.8 billion, up 5% year over year, despite 230 basis points of negative foreign exchange impact. Products revenue was $61.6 billion, up 2% year over year. The install base of active devices reached an all-time high across all products and geographic segments.
Services revenue reached a new record, with an all-time record in developed markets and a June quarter record in emerging markets. Gross margin was 46.3%, at the high end of its guidance range. Products gross margin was 35.3%, down 130 basis points. Services gross margin was 74%, down 60 basis points from last quarter.
OpEx of $14.3 billion, up 7% year over year. Net income was $21.4 billion, diluted EPS of $1.40 (up 11% and a June quarter record). Operating cash flow was $28.9 billion, also a June quarter record.
2:16 pm: iPhone revenue was $39.3 billion, down 1% YoY, but growing on a constant currency basis. "We set June quarter records across several countries, including the UK, Spain and In Poland, Mexico, Indonesia and the Philippines, and the iPhone active install base to a new all time high. In total, and in every geographic segment."
2:17 pm: "According to a survey from Cantar iPhone was the top selling model. In the US, urban China, the UK, Germany, Australia and Japan. Customer satisfaction on the iPhone 15 family continues to be extremely high, with 451 Research measuring it at 98% in percent in the US in their latest reports."
2:18 pm: "The Mac installed base reached an all time high, with half of MacBook Air customers in the quarter new to Mac. Customer satisfaction for Mac was recently reported at 96% In the US."
2:19 pm: Almost two thirds of customers buying an Apple Watch in the quarter were new to the product. Customer sat of 97% for Watch in the US.
2:20 pm: The growth of the install base of active devices "sets a strong foundation for the future expansion of our ecosystem." Transacting and paid accounts continue to show strong double digit growth. There are more than 1 billion paid subscriptions across the platforms, more than double that of four years ago.
2:21 pm: "We continue to see businesses leveraging our entire suite of products to drive productivity and creativity for their teams and customers. USAA, a leading insurance and financial services company, recently expanded beyond their existing iPhone and iPad deployments to provide their employees the latest MacBook Air and American Express has continued to add to their fleet of over 10,000 Macs to enhance their employees' productivity."
2:22 pm: Apple entered the quarter with $153 billion in cash and marketable securities. It repaid $4.3 billion in maturing debt and increased commercial paper by $1 billion, leaving total debt of $101 billion. Net cash was $52 billion after returning $32 billion to shareholders between dividends and open market repurchases of $26 billion across 139 million AAPL shares.
2:23 pm: Foreign exchange will continue being a headwind, affecting 1.5 percentage points year over ear. September quarter revenue is expected to grow at a rate similar to June, with Services revenue growing double digits at a similar rate to the first three quarters of the year. Gross margin between 45.5 and 46.5%, OpEx between $14.2 and $14.4 billion, and a tax rate of around 16.5%. The board declared a cash dividend of $0.25/share later in August.
2:23 pm: The Q&A session is beginning.
2:25 pm: Q: Can you help us understand where you see iPhone replacement cycles today, where you think the size of the base of iPhones that are aged and likely to upgrade are and what that translates to, and potential pent up demand as we enter a new iPhone cycle?
A: The install base hit an all time high during the quarter, and so we were very happy about that iPhone in general, it grew in constant currency. And the 15, as you point out, if you look at the same number of weeks of the 15 from launch and compare that to the 14, the 15 is doing better than the 14. And so that's kind of a state of of where we currently are.
In terms of upgrade rates, it's very difficult mid cycle to call upgrade rates. With Apple intelligence, we're very excited and about the level of value that we're going to provide to users and we believe that that presents another reason for a compelling upgrade.
2:28 pm: Q: Can you dig into China dynamics a bit, sales down 6% this quarter, 3% in content currency, an improvement from last quarter on a tougher compare. You know that came on the back of some iPhone discounting. So can you share color on the China market as a whole? How much do you believe promotions helped in the quarter, how sustainable this improvement is, and if this performance really changes any of your approach to the China market, as we look forward?
A: This quarter was an improvement from the first half of the year. If you look at iPhone, in particular, for Greater China, the install base set a record. We also, in mainland China, set a June quarter record for upgraders. And so, that that's a very strong signal. iPhones were the top three models in Urban China.
One of the things we look at is the 15 family compared to the 14 family for the same number of weeks from launch. So this goes all the way back to the September of '23 if you if you look at that, the 15 is outperforming the 14. In addition, one of the things that we're very focused on is the level of new customers buying the our products. And so if you look at this on the Mac and iPad in mainland China, the majority of customers are buying for the first time. We're very confident in the long term.
2:29 pm: Q: Now that you've launched Apple Intelligence, will it accelerate Services and augment it, maybe folks need to buy more storage, how is it a catalyst for Services in the next year?
A: We started the rollout of Apple Intelligence this week. Some of the features are out there as of Monday. We couldn't be more excited about getting them out there. This will enable developers to take their apps to the next level, we're taking this first step in getting the beta out there and we're excited to see what they do with it.
2:32 pm: Q: Have you seen a shift in demand for iPhone 15 Pro and Pro Max models that could potentially foreshadow consumer demand for Apple Intelligence-enabled phones?
A: We just announced the requirements for the system and the Silicon level in June, and we had limited time in the quarter so it's really too early to tell.
2:33 pm: Q: With the focus on upgrader potential for the next few years, what are you expecting for the US promotional environment from your channel partners given the importance of device sales for those partners during an upgrade cycle?
A: We are very excited about Apple Intelligence and what it brings and it's another compelling reason for an upgrade. I think the promotional questions are for the carriers themselves to answer, but I think it will be a key time for a compelling upgrade cycle.
2:35 pm: Q: Is the intent to launch Apple Intelligence at the same time to consumers or will it get staggered? How could it affect how consumers buy during the rollout?
A: We started with some features this week, but not the complete suite. There are some languages beyond US English that will happen over the course of the year, and other features. ChatGPT will be integrated by the end of the calendar year. It is a staggered launch.
2:37 pm: Q: Services growth rate has been extremely impressive for several quarters. How much is coming from installed base growth versus better monetization of the existing base? How do you see that going forward?
A: Combination of a number of factors, install base growth is very important, because we have more customers. We are seeing this consistently for many quarters, we see continued growth in the level of engagement that our customers have with our ecosystem, we have more transacting accounts every quarter, more people using the ecosystem, both free and paid elements. We see paid accounts growing double digits for many quarters now. Our paid subscriptions on our platform are growing strong double digits as well. Obviously, the growing level of engagement helps us both from an ARPU standpoint and a volume standpoint.
As you've seen over the last several years, we launch new services and we've launched many new services fairly recently. Payments, Apple TV+, Apple Arcade, Fitness+, we're providing more opportunities for customers to interact with the ecosystem. And we've done a good job improving the quality of these services. Launching new shows and new games all the time and I think you will continue to see that going forward. Very happy with the 14% growth that we had this quarter.
If you look at performance of Services a year ago, it got a little more challenging in the second half of the fiscal year, but in spite of that we delivered a level of growth better than we were expecting.
2:39 pm: Q: You announced Apple Intelligence but also announced partnerships with OpenAI and other partners down the road. How should we think about monetization of models like these and these partnerships? The CapEx investments are being made by these potential partners, but you're leveraging your distribution. Do you see the Services growth from Apple Intelligence being the larger contributor or these partnerships over time?
A: The way I look at it, Apple Intelligence is the on-device processing and private cloud compute. A lot of that will be things with a personal context, and then for world knowledge, we are integrating with ChatGPT initially and that will be focused on world knowledge. The monetization model, I don't want to get into the terms of the commercial agreements because they're confidential, but I see both aspects as being very important. People want both.
2:42 pm: Q: You had margin growth over the last several years and a bit more flat. Are there other headwinds besides FX that are limiting upside perhaps?
A: Foreign exchange is incremental on a year over year basis and is outside our control, we try to hedge but it is what it is. When the dollar is strong our margins are affected. Within the products business, our products have different margin profiles and depending on their relative success in the marketplace, our product gross margin tends to move. The mix of our products has an impact on gross margin. We just launched an iPad so that's one of the factors. We want all our products to be successful, so we always look at gross margin dollars as first priority and percentage follows from that.
Also we have the state of the commodity markets and this tends to go in cycles, so we'll see how that plays out over time. We feel good about the level of gross margin we have for our products business. We feel in a good position there.
2:44 pm: Q: We keep hearing about this increase in silicon content for AI edge devices, Luca you talk about increasing commodity costs, how should we think about margins for new AI devices, and do any Apple Intelligence features need more hardware than we have today?
A: In terms of the requirements to run Apple Intelligence, there are system requirements and there are silicon requirements, so from an iPhone point of view, the iPhone 15 Pro and Pro Max will run Apple Intelligence and the successor products. If you look at the Mac, it starts with the M-series of silicon that started in 2020, and the iPad is the same. The M series of silicon. There are system requirements and silicon requirements that go with each of those.
From a gross margin standpoint, we don't provide any color for the quarter, 45.5-46.5, essentially broadly in line with what we recorded for the June quarter.
2:45 pm: Q: On China, was the weakness macro related or related to Apple or domestic competitors?
A: The competitive environment is the most competitive in the world and that remains the case. The macro economic factors have been in the press too, I'm not an expert on those, I can only tell you what we're seeing. We were pleased that the business showed improvement from the first half of the year.
2:47 pm: Q: Developers are just getting their hands on Apple Intelligence, are these going to be iterative applications, is there some category that lends itself more naturally to Apple Intelligence, games, more creative, trying to get a sense...
A: If you look at how we've deployed Apple Intelligence, we've thought about it as all of the apps you use every day. Notes, Mail, Messages and all the rest. There's been a deep level of thinking about how it affects those apps. That's going to surface Apple Intelligence in a way that is natural to the user and in a way that will get them very excited about it.
Similarly, I think the developers will do that on a broad basis with their apps as well. I think it's profound, and we'll see what the developers do. We're excited to get the initial seed out there this week and see what they do. I think it will be amazing.
2:49 pm: Q: It sounds like, with Services being strong and FX easing, you're saying product revenue might be flat with the quarter next year. What are the puts and takes in that outlook with Apple Intelligence stoking demand going forward?
A: We have provided... we think we'll be growing company revenue at a state that is similar to what we reported. 5%, in spite of the fact that we'll have 150 bp of FX headwinds in the December quarter. We said that we'll grow Services double digits at a rate similar to the first three quarters of the fiscal year. We are not going into the other categories, there's a lot of good math that you can do from what we've given you. Keep in mind, on Mac we'll have a challenging compare from a year ago given that we had a full-quarter impact of the MacBook Air 15-inch a year ago, and iPad we had the benefit from the launch of the new iPad Air and iPad Pro this past quarter so keep that in mind on a sequential basis.
2:50 pm: Q: You mentioned a staggered launch of Apple Intelligence, are all of these going to be a part of iOS 18 or will some potentially be part of iOS 19 next year?
A: We'll start with US English this fall and add more functionality, features, and languages and regions coverage over the next year. We gave a time frame and we're tracking to that.
2:52 pm: Q: Are you seeing any impact from changes made to the European app store rules?
A: We have seen a good level of adoption from developers on those changes, we are in ongoing discussions with the European Commission on how to ensure full compliance with the DMA. In general, our results for the Services business and the App Store have been pretty good. To provide a frame of reference, the percentage of revenue we get from the EU on the App Store is about 7% of the total.
2:53 pm: Q: Re Apple Intelligence, how do you think about the regulatory process in the EU and China, thinking about the rollout, are you embedding the regulartory aspect in it and how should we think about timing?
A: We are engaging with the regulatory bodies and we're moving as fast as we can. Our objective is always to get features out there for everyone. We have to understand the regulatory requirements before we can commit to doing that but we're engaged with both.
2:54 pm: Q: On Wearables, it's been lagging there for the last couple of quarters. Any comment on that?
A: When you look at Wearables, Home and Accessories, we have a difficult launch compare. Last year we had the continued benefit of the AirPods Pro, the Watch SE, and the first Watch Ultra. It's important to keep that in mind. If you take a step back and look at the business across the trailing 12 months, the Wearables business has grown to almost $40 billion, double what it was five years ago.
2:56 pm: Q: You referenced the investment in innovation, R&D to sales ratio reached a record even before launching Apple Intelligence. How should we think about CapEx for cloud compute capacity and is it possible to forecast services usage as these things roll out?
A: We've increased R&D over time, we've been investing in AI and ML for years. We've redeployed certain skills onto AI and ML, and the growth is sort of embedded in our numbers that we've shared. On CapEx, remember that we employ a hybrid approach where we do things internally and we have partners that we do business with externally where the CapEx would appear in their respective businesses. Yes, you can expect that we will continue to invest and increase it year on year.
2:58 pm: Q: When we look at the free cash flow margins for the first nine months, they're up materially. What, in the services mix or cost controls, what is driving structural higher free cash flow margins across the business?
A: I'm glad you noticed that. We're pretty pleased with that fact. We also increased our return to shareholders, a record quarter for us. An improvement in the topline helps, margin expansion that we've had over the last several years and quarters has helped. That is driving better operating cash flow. On the CapEx front, as Tim said, we employ a hybrid model. Some investments show up on our balance sheet, other investments show up somewhere else and we pay as we go. In general, we try to run the company efficiently. We think capital efficiency is a good thing. We're pleased that our free cash flow is doing well this year.
2:59 pm: The call has completed. Expect the next quarterly earnings call in late October.
