Apple Inc.

Good afternoon, and welcome to the Apple Q4 Fiscal Year 2025 Earnings Conference Call. My name is Suhasini Chandramali, Director of Investor Relations. Today's call is being recorded. Speaking first today is Apple CEO Tim Cook, and he'll be followed by CFO Kevin Parekh. 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, capital allocation, and future business outlook. 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. For more information, please refer to the risk factors discussed in Apple's most recently filed reports on Form 10Q and Form 10K and the Form 8K filed with the SEC today, along with the associated press release. Additional information will also be in our report on Form 10-K for the year ended September 27, 2025, to be filed tomorrow and in other reports and filings we make with the SEC. Apple assumes no obligation to update any forward-looking statements, which speak only as of the date they are made. Additionally, today's discussion will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures in our fourth quarter earnings release, which is available on our investor relations website. I'd now like to turn the call over to Tim for introductory remarks.

Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call. Today, Apple is proud to report $102.5 billion in revenue, up 8% from a year ago and a September quarter record. Services achieved an all-time revenue record of $28.8 billion, growing 15% from a year ago. EPS came in at $1.85, setting a September quarter record. We grew in the vast majority of markets we track and had September quarter revenue records in dozens of markets, including the U.S., Canada, Latin America, Western Europe, the Middle East, Japan, Korea, and South Asia. We also set a September quarter revenue record in emerging markets and an all-time revenue record in India. These results come at the close of an extraordinary year for Apple, in which we achieved an all-time revenue record of $416 billion for the fiscal year. We set all-time revenue records in emerging and developed markets. We set an all-time revenue record for iPhone. And in services, we achieved all-time records across every geographic segment. These results reflect the tremendous customer enthusiasm for Apple products and services, as well as our deep commitment to innovation. We are incredibly excited about the strength we're seeing across our products and services, and we expect the December quarter's revenue to be the best ever for the company and the best ever for iPhone. We are heading into the holiday season with a truly remarkable lineup. That includes the biggest leap ever for iPhone, which has had a tremendous response from our users around the world. Our Apple Watch lineup is more capable than ever, too, giving users ways to take charge of their health like never before through new features like hypertension notifications and sleep score. And the next-level sound quality and active noise cancellation of AirPods Pro 3 are hitting all the right notes for our users. In October, we also broke new ground in power-efficient performance with the uncomparably fast M5 chip packed with neural accelerators in each GPU core to supercharge AI workflows. iPad Pro combines game-changing features in iPadOS 26 with the power of M5 to create our most capable iPad ever. At the same time, the M5 MacBook Pro raises the bar for what users can do with a laptop, while the new M5-powered Apple Vision Pro opens up amazing possibilities on its infinite canvas. We also launched a beautiful new software design that creates a unified experience across all of our platforms for the very first time. The design is crafted with a new material called Liquid Glass that brings fluidity, vitality, and flexibility to our products. Along with the new design, we delivered powerful new features to enable users to do even more with their devices. That includes updates to the phone and messages apps in iOS 26 to help users stay connected, continuity enhancements in Mac to deliver an even more seamless experience across devices, and a powerful new windowing system that fundamentally transforms the user experience in iPadOS 26. As we continue to expand our investment in AI, we're bringing intelligence to more of what people already love about our products and services, making every experience even more personal, capable, and effortless. At the heart of it all is Apple Silicon, and we were thrilled to launch new products powered by the A19 Pro Chip and M5. These incredibly advanced chips make Apple products the very best place to experience the power of AI. With Apple Intelligence, we've introduced dozens of new features that are powerful, intuitive, private, and deeply integrated into the things people do every day. Features like live translation, which help users communicate across languages in real time, and visual intelligence, which opens new ways to learn about and explore the world. We also introduced Workout Buddy, a new experience that uses AI to provide personalized, motivational insights based on a user's workout data and fitness history. And these join so many others from cleanup and photos and new image creation tools to powerful writing tools. We're also seeing developers take advantage of our on-device foundation models to create entirely new experiences for users around the world. We're also excited for a more personalized Siri. We're making good progress on it, and as we've shared, we expect to release it next year. Now let's take a closer look at the September quarter results across our lineup, starting with iPhone. iPhone set a revenue record for the September quarter at $49 billion, up 6% from a year ago, with growth in the vast majority of markets we track, despite supply constraints we faced on several iPhone 16 and iPhone 17 models given strong demand. Redesigned from the inside out, empowered by the outstanding A19 Pro chip, the iPhone 17 Pro is by far the most powerful iPhone we've ever made, setting a whole new standard for the smartphone industry. The iPhone 17 Pro also offers our best camera system ever with an all-new 8X telephoto camera and looks stunning with bold new finishes like cosmic orange. The iPhone Air introduces an incredibly breakthrough design, and with a bigger and brighter display with ProMotion, the iPhone 17 is a fantastic upgrade packed with features users will love. In Mac, we had a strong September quarter with revenue of $8.7 billion, up 13% year over year, driven by the strength of the MacBook Air. The MacBook Air enables users to get things done easily on the world's most popular laptop. Mac mini users are loving how much performance is packed into our smallest Mac ever made, while Mac Studio customers are pushing the envelope of what's possible with our most powerful Mac ever. And the latest 14-inch MacBook Pro unlocks incredible speed and next-level performance with the all-new M5 chip, which delivers 3.5 times faster AI performance than M4. Turning to iPad, revenue was $7 billion for the September quarter. Last month, we released one of the most attention-grabbing software updates we've had in years with iPadOS 26, and we recently gave iPad users even more to love with the launch of the incredible M5 iPad Pro, which offers an incredible boost in AI performance. With an unmatched combination of power and versatility, the new iPad Pro makes every interaction delightful with its thin, light, and portable design. In wearables, home, and accessories, revenue was $9 billion. As I mentioned earlier, we were excited to unlock new possibilities for users with the launch of our newest Apple Watch lineup, making the world's most popular watch even better. That includes Apple Watch Ultra 3 with the largest display ever in an Apple Watch, improved battery life, and emergency SOS via satellite. Apple Watch Series 11 brings our users the most comprehensive set of health features yet. And Apple Watch SE3 delivers advanced capabilities at an incredible value. AI and advanced machine learning are at the core of powerful health features like heart rate monitoring, fall detection, crash detection, and more. With our latest Apple Watch lineup, we were proud to introduce hypertension notifications, developed using large-scale machine learning models. Hypertension is one of the leading risk factors for heart attack and stroke, affecting more than 1 billion adults worldwide, and we expect to notify more than a million users of this life-threatening condition. We're also excited about Sleep Score, a simple, intuitive way to help users better understand their sleep quality and discover ways to improve it. That's something I'm sure we can all benefit from. Meanwhile, AirPods Pro 3 have been a huge hit. You have to hear them to really understand just how remarkable they are. Users and reviewers alike are praising their incredible sound quality and improved fit. They feature the world's best in-ear active noise cancellation, removing up to two times as much noise as the previous generation. And with live translation powered by Apple intelligence, AirPods deliver an incredibly new and exciting experience for users around the world. Turning to services, as I mentioned earlier, revenue was $28.8 billion for the September quarter, 15% higher year over year, and an all-time record. We saw double-digit growth in both developed and emerging markets and set new all-time records across advertising, app store, cloud services, music, payment services, and video. Apple TV celebrated a big night at this year's Emmy Awards with 22 wins. The studio led the night with 13 wins, the most of any comedy series in Emmy's history. Severance topped all dramas with eight wins, adding to the accolades for this landmark series. Today, Apple TV productions have now earned over 600 wins and 2,800 nominations in total, driven by powerful, original storytelling. And we're excited for audiences to discover new productions like Pluribus and to catch returning favorites like Slow Horses and The Morning Show. And soon, Apple TV will be the destination for F1 fans across the U.S. on track day, thanks to a new partnership with Formula One. F1 is one of the most exciting and fastest-growing sports in the world, and starting next year, Apple TV will be the place for subscribers to follow every twist and turn of the new season. And in addition, F1 the Movie, one of the year's biggest blockbusters, will be coming to Apple TV on December 12th. During the September quarter, we also marked the 10-year anniversary of Apple News. Apple News provides access to front-page news from all around the world, putting hundreds of publications right at users' fingertips. Turning to retail, we're heading into our busiest time of year with our best ever lineup. In the last few months, we've opened new stores in emerging markets like India and the UAE and new locations in the U.S. and China. I was also in Tokyo last month for the opening of the redesigned and reimagined Apple Ginza store, and the energy among the crowd was truly remarkable. When it originally opened, it was our first store outside the United States, and so it was especially meaningful to come back to welcome customers to the beautiful new space. Everywhere we operate and in everything we do, we strive to give the best to our users while living by our values, whether that's building new accessibility features into our most recent software releases or advancing our environmental work by using even more recycled materials than our latest lineup or providing free educational programming to train and support American businesses with our new Apple Manufacturing Academy in Detroit. And we're continuing to invest in innovation and user experiences that will transform our future. A great example is the work we're doing in the U.S., where we're committed to invest $600 billion over the next four years with a focus on innovation and strategic areas like advanced manufacturing, silicon engineering, and artificial intelligence. These commitments build on our longstanding investments in America, while supporting more than 450,000 jobs with thousands of suppliers across all 50 states. We built a new factory in Houston for advanced AI service, for example, which just started shipping its first products off the line and we're leading the creation of end-to-end silicon supply chain across the country. In recent months, I've connected with developers, innovators, artists, entrepreneurs, and so many others around the world, people passionate about innovation and all the things they can do with Apple products. Each one is another reminder of why we do what we do. We're driven to empower people to do more of the things that matter most to them and enrich their lives along the way. As we head into the holiday season with our most powerful lineup ever, I couldn't be more excited for what's to come. With that, I'll turn it over to Kevin.

Thanks, Tim, and good afternoon, everyone. Our revenue of $102.5 billion was up 8% year over year and is a new September quarter record. We set September quarter records in the Americas, Europe, Japan, and the rest of Asia Pacific and grew in the vast majority of markets we track. Products revenue was $73.7 billion, up 5% year over year, driven by growth across iPhone and Mac, and reached a September quarter record. Thanks to our exceptional customer satisfaction and strong levels of loyalty, our install base of active devices has reached another all-time high across all product categories and geographic segments. Services revenue was $28.8 billion, up 15% year over year, and an all-time record. The performance was broad-based with double-digit growth in the vast majority of the markets we track and double-digit growth across most of our services categories. Company gross margin was 47.2% above the high end of our guidance range and up 70 basis points sequentially, driven by favorable mix. This includes approximately $1.1 billion of tariff-related costs, which is in line with what we had estimated on our last call. Products gross margin was 36.2%, up 170 basis points sequentially, driven by favorable mix. Services gross margin was 75.3%, down 30 basis points sequentially. Operating expenses landed at $15.9 billion, up 11% year over year, driven by increased investment in R&D. These strong levels of business performance led to September quarter records for both net income, and diluted earnings per share. Net income was $27.5 billion, and diluted earnings per share was $1.85, up 13% year-over-year on an adjusted basis, excluding the one-time charge we recognized during the fourth quarter of 2024. Operating cash flow was also a September quarter record at $29.7 billion. Now, I'm going to provide some more details for each of our revenue categories. iPhone revenue was $49 billion, up 6% year over year, driven by the iPhone 16 family. iPhone grew in the vast majority of the markets we track with September quarter records in many emerging markets, including Latin America, the Middle East, and South Asia, and an all-time record in India. The iPhone active install base grew to an all-time high, and we set a September quarter record for upgraders. According to the recent survey from World Panel, iPhone was a top-selling model in the U.S., urban China, the U.K., France, Australia, and Japan. We continue to see very high levels of customer satisfaction in the U.S. at 98%, as measured by 451 research. Mac revenue was $8.7 billion. up 13% year over year, driven by MacBook Air. We grew in every geographic segment with strong double-digit growth in emerging markets. The Mac install base reached another all-time high, with nearly half of customers who purchased a Mac being new to the product. And the latest customer satisfaction for Mac in the U.S. was reported at 96%. iPad revenue was $7 billion, flat year over year. Keep in mind, we faced a difficult compare against the full quarter impact of the iPad Air and iPad Pro launch from last year, offset by the better-than-expected performance on the iPad. The install base reached an all-time high, with a September quarter record for upgraders, and over half of the customers who purchased an iPad during the quarter were new to the product. Based on the latest reports from 451 Research, Customer satisfaction was 98% in the U.S. Wearables, home, and accessories revenue was $9 billion, flat year over year. This was driven by growth on watch and AirPods, offset by accessories, which was impacted by strong performance in the year-ago quarter, driven by the iPad launches. Both the Apple Watch and AirPods install bases reached new all-time highs. Over half of the customers purchasing an Apple Watch during the quarter were new to the product, and we also set a September record for upgraders on Apple Watch. And in the U.S., customer satisfaction was recently measured at 95%. Our services revenue reached an all-time high of $28.8 billion, up 15% year-over-year, We achieved all-time revenue records in the Americas, Europe, Japan, and rest of Asia Pacific, as well as a September quarter record in Greater China. The majority of categories saw a sequential acceleration, and as Tim mentioned, we set many all-time revenue records, including payment services, where we reached an all-time revenue record and saw a double-digit growth year over year on Apple Pay active users. This strong momentum in the September quarter drove our total fiscal year services revenue to surpass $100 billion, up 14% year-over-year and our best ever. The growth of our install base of active devices continues to offer us great opportunities for the future. Customer engagement across our services offerings also continued to grow. Both transacting and paid accounts reached new all-time highs. and we continue to improve the quality and expand the reach of our services offerings. From additional markets for Apple Pay, now available in nearly 90 countries, to Apple Care One, a great new way to cover multiple Apple products in a single plan. Turning to enterprise, we are seeing an adoption of Apple products accelerate across industries to improve productivity and drive innovation. The BMW Group has been deploying tens of thousands of iPhones, including to factory employees, to further strengthen its digital capabilities and advance innovation at the company. Capital One has expanded its Mac choice program by adding thousands more MacBook Airs across its workforce. In the Czech Republic, its largest bank, Česká Sportelna, continues to invest in the Apple ecosystem with over 5,000 iPhones in addition to its existing thousands of iPads and Macs. And Purdue University continues has launched a spatial computing hub built around Vision Pro designed to help prepare students to lead the next wave of innovation in critical industries like semiconductor and pharmaceutical manufacturing. Let's turn to our cash position and capital return program. We ended the quarter with $132 billion in cash and marketable securities. We had $1.3 billion of debt maturities and decreased commercial paper by $1.9 billion. resulting in $99 billion in total debt. Therefore, at the end of the quarter, net cash was $34 billion. During the quarter, we returned $24 billion to shareholders. This included 3.9 billion in dividends and equivalents and 20 billion through open market repurchases of 89 million Apple shares. Taking a step back, we are very pleased with our record fiscal year 2025 results. As Tim mentioned, total company revenue for the year was $416 billion, with growth in iPhone, Mac, iPad, and services and all-time records in the vast majority of markets we track. This revenue performance led to very strong full-year operating results, with all-time records for net income and for diluted EPS, which grew double-digits year-over-year on an adjusted basis. As we move ahead into the December quarter, I'd like to review our outlook, which includes the types of forward-looking information Suhasini referred to. Importantly, the color we're providing assumes that the global tariff rates, policies, and 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 by 10% to 12% year over year, which would be our best quarter ever. We expect iPhone revenue to grow double digits year over year, which would be our best iPhone quarter ever. On Mac, keep in mind, we expect to face a very difficult compare against the M4 MacBook Pro, Mac Mini, and iMac launches in the year-ago quarter. We expect services revenue to grow at a year-over-year rate similar to what we reported in the fiscal year 2025. We expect gross margin to be between 47% and 48%, which includes an estimated impact of $1.4 billion of tariff-related costs. And as we've said before, we are significantly increasing our investments in AI while continuing to invest in our product roadmap. And so for the December quarter, we expect operating expenses to be between $18.1 billion and $18.5 billion. We expect OINE to be around $150 million 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 26 cents per share of common stock payable on November 13th, 2025 to shareholders of record as of November 10th, 2025. With that, let's open the call to questions.

Thank you, Kevin. We ask that you limit yourself to two questions. Operator, may we have the first question, please?

Certainly. We will go ahead and take our first question from Eric Woodring with Morgan Stanley. Please go ahead.

Hey, good afternoon, guys. Thank you for taking my question. Congrats on the results. Tim, can you maybe share a bit more detail on why you think the iPhone 17 is having the degree of success that it is at this point? And really, the question is, do you believe this is, you know, the aged install base model? uh replacement cycle kicking in or are there specific features or functionality you believe stand out this cycle versus past cycles that consumers are really looking for and then just a quick follow-up thanks eric thanks for your comments uh i think it's all about the product uh the pro the product lineup is incredibly strong our strongest ever

The 17 Pro is the most pro phone we've ever done. It's incredible in the design things. The iPhone Air feels so thin and so light in your hand, it feels like it's going to fly away. And then the 17 phone is an incredible value and takes several of the features that were reserved for pro before and brings them down to the consumer lineup. So overall, strongest iPhone lineup ever, and it's resonating around the world.

Great. Thank you. Thank you, Tim. And then maybe a follow-up for you, Kevin. Can you maybe just discuss your approach to managing component cost inflation during this time? You're obviously increasing the memory content in your devices quite substantially at the same time memory prices are going through some pretty significant inflation. So just how are you managing through this cycle? Thanks so much, guys.

Yeah. Hey, Eric. Thanks for the question. Look, as you know, we've got a pretty incredible world-class procurement team. And so we're constantly finding ways to continue to drive cost opportunities. Right now on the commodity side, I would say we're seeing a slight tailwind on memory in storage prices and nothing really to note there. And as we saw from our gross margin performance, we landed in a pretty good spot above the high end of the guidance range we provided at 47.2%. And as well, we're guiding at 47 to 48%. So I think we're managing costs pretty well. As you'll recall, when we talked about this time in the cycle, we just launched a bunch of new products. Those new products do have a slightly higher cost structure than the products they replace. But the team does a very good job of focusing our efforts on getting those costs down over time. And we feel pretty good about the performance we're seeing right now overall on material cost savings.

Great. Thanks so much. Good luck, guys.

All right.

Thank you.

Thanks, Eric. Operator, can we get the next question, please? Our next question is from Ben Ricey with Mellius Research. Please go ahead.

Hey, guys. Thanks for this. Tim, can you talk a little bit about iPhone in China specifically? How is that going to trend in the December quarter? And have you turned the corner there? And how do you think that trajectory is going? And then I have a quick follow up. Thanks.

Yeah, Ben, I was just there. It's incredibly vibrant and dynamic. The store traffic is up significantly year over year. The iPhone 17 has been, the family has been very well received there. We do believe that we'll return to growth in Q1, and that is largely based on the reception of the iPhone there. And so I couldn't be more pleased with how things are going there in the early going.

All right. That's great. And then services, great upside there. A little surprising, right? We were a little worried about that one only a few quarters ago. I was wondering if there were any tax payments in there or you know, if the resolution that we saw with the antitrust ruling with one of your partners was a boost and if that played a role or if it was all really just organic outperformance with many of the things you mentioned. Thanks.

Yeah. Hey, Ben, it's Kevin here. Let me try to answer that question. You're referring, just wanted to clarify, when you're referring to the antitrust piece, you're talking about the Google trial. Is that what you're referring to?

Yeah. Yeah. Yes, sir.

Okay. Yeah, there was no tax-related impact. And what I would say is our strong performance of the court is really organically driven. And again, just to reiterate, we had a... all-time revenue record here for the quarter at $28.8 billion, and as well we surpassed $100 billion, so the best year ever at 14% year-on-year. So really that was all organic growth. As Tim outlined and I outlined in the prepared remarks, we saw a majority of the categories have sequential acceleration, and we had many all-time revenue records, but nothing abnormal at all, really pretty much all organic growth.

Thank you.

Thanks, Ben. Operator, could we get the next question, please? Our next question is from Michael Ng. Please go ahead.

Hi, good afternoon. Thank you for the question. I just have two as well. First, just to follow up on the last one, you know, the services revenue growth I think was the fastest across many categories and certainly the fastest in the last two years. I was just wondering if you could just