Apple Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Revenue: Apple reported revenue of $124.3 billion for the December quarter, up 4% from a year ago, an all-time record. EPS also set an all-time record of $2.40, 10% higher year-over-year.
• Installed Base: Achieved a new record for the installed base with over 2.35 billion active devices.
• Apple Intelligence: Rolled out more features and expanded to more countries in December, with international expansion in April to include more languages. Users are benefiting from various features like writing tools, Image Playground, and visual intelligence.
• Product Highlights: iPhone 16 lineup driving sales, Mac new models popular, iPad growth driven by new products, wearables with health innovation, services business at record high.
• Retail: Teams did well during holiday season, new stores opened in China, Spain, and the U.S., with plans to expand in the UAE and Saudi Arabia.

Segment Performance

• iPhone: Revenue was $69.1 billion, roughly flat year-over-year. Grew in the majority of tracked markets and set all-time revenue records in several developed and emerging markets. The iPhone Active installed base and upgraders reached all-time highs.
• Mac: Generated $9 billion in revenue, up 16% year-over-year. Saw strength across the lineup with double-digit growth in every geographic segment. Mac installed base and new/upgrading customers reached all-time highs.
• iPad: Revenue was $8.1 billion, up 15% year-over-year, driven by the new iPad Mini and latest iPad Air. iPad installed base reached an all-time high, with over half of quarter purchasers being new to the product.
• Wearables, home and accessories: Revenue was $11.7 billion, down 2% year-over-year. Customers excited about new AirPods and hearing health features in AirPods Pro 2. Apple Watch installed base reached new all-time high.
• Services: Set an all-time revenue record of $26.3 billion for the December quarter, growing 14% from a year ago. Grew in every geographic segment and achieved all-time records in many markets.

Guidance

• Revenue: Expect March quarter total company revenue to grow low to mid-single-digits year-over-year, with services revenue growing low-double-digits year-over-year. Foreign exchange is expected to be a headwind, negatively impacting revenue by about 2.5 percentage points year-over-year.
• Gross Margin: Expected to be between 46.5% and 47.5%.
• Operating Expenses: Expected to be between $15.1 billion and $15.3 billion.
• OI&E: Expected to be around negative $300 million, excluding potential impact from mark-to-market of minority investments. Tax rate expected to be around 16%.
• Dividend: Board declared a cash dividend of $0.25 per share of common stock payable on February 13, 2025, to shareholders of record as of February 10, 2025.

Risks

• Macroeconomic Conditions: Potential impact of macroeconomic conditions on the company's business and results of operations.
• Foreign Exchange: Fluctuations may affect revenue and profit.
• China Market: Macro environment challenges in China may impact performance.
• Regulatory Environment: Global regulatory changes may adversely affect services business.

Question and Answer

Q: Erik Woodring asked about how Apple Intelligence is impacting iPhone demand and features users are using most, and about China market headwinds.

A: Tim Cook said markets where Apple Intelligence was rolled out had stronger iPhone 16 family performance. Features like writing tools, Image Playground are used. On China, greater China revenue down 11% year-over-year, over half of decline due to channel inventory change, and Apple Intelligence not rolled out in China yet.

Q: Ben Reitzes asked about DeepSeek impact on margins and iPhone future form factor innovation.

A: Tim Cook said innovation driving efficiency is good, tight integration of silicon and software serves well. On form factor innovation, thinks there's a lot more to come.

Q: Michael Ng asked about iPad Pro thin form factor impact on sales and marketing research on consumer valuation.

A: Tim Cook said iPad grew 15% for the quarter, more driven by iPad Air and entry level iPad, over half of sales in December quarter to new iPad customers.

Q: Amit Daryanani asked about emerging markets growth durability and offsetting China headwinds, and March quarter gross margin offsets.

A: Tim Cook said great results in emerging markets, India set record, opening new stores. Kevan Parekh said emerging markets see double-digit growth on install base. On gross margin, FX headwinds, favorable costs and services mix offset puts and takes.

Q: Wamsi Mohan asked about channel inventory across product lines and regions, and services margin headwinds from regulations.

A: Tim Cook said comfortable with channel inventory position, part of reduction due to higher sales toward end of quarter. Kevan Parekh said services business had all-time record, broad portfolio, increasing engagement.

Q: Samik Chatterjee asked about sustainability of Mac and iPad double-digit growth and AI PC impact on Mac, and India supply chain planning.

A: Tim Cook said Mac and iPad growth due to compelling products, M4-based products driving upgrades and switchers. On India, manufacturing for domestic and export market.

Q: David Vogt asked about Apple Intelligence adoption pace and services gross margin.

A: Tim Cook said Apple Intelligence will go mainstream, usage grows as base expands. Kevan Parekh said Services gross margin due to broad portfolio, different margin profiles, scale businesses accretive to margins.

Q: Krish Sankar asked about Mac growth drivers and product side gross margin improvement potential.

A: Tim Cook said Mac growth due to compelling products driving upgrades and switchers. Kevan Parekh said product gross margin driven by favorable mix, leverage, product launches, and commodity environment.

Q: Richard Kramer asked about Apple Intelligence adoption acceleration and product pricing sensitivity.

A: Tim Cook said Apple Intelligence adoption due to base growth and feature usage. Kevan Parekh said disciplined pricing strategy will be maintained.

Q: Atif Malik asked about tariff impact and agentic AI in Apple Intelligence.

A: Tim Cook said monitoring tariff situation. On agentic AI, killer feature varies, Siri to be improved in coming months.

Q: Ben Bollin asked about average useful life of devices and accelerated refresh opportunity.

A: Tim Cook said different users have different upgrade habits, COVID period sales provide opportunity for product categories