Earnings call transcript: Apple beats Q4 2025 forecasts, stock rises

Apple Inc. reported strong financial results for the fourth quarter of 2025, surpassing analyst expectations with an earnings per share (EPS) of $1.85 compared to the forecasted $1.76. The company’s total revenue reached $102.5 billion, slightly exceeding the anticipated $101.69 billion. Following the announcement, Apple shares rose by 0.57% in regular trading hours and an additional 0.99% in after-hours trading, reaching $272.38.

Key Takeaways

• Apple reported record fiscal year revenue of $416 billion.
• The company’s services revenue grew by 15% year-over-year.
• Apple expects double-digit iPhone revenue growth in the upcoming quarter.
• The Greater China market showed a revenue decline of 4% year-over-year.
• Stock price increased following the earnings announcement.

Company Performance

Apple demonstrated robust performance in the fourth quarter, with an 8% year-over-year increase in total revenue. The company achieved an all-time high fiscal year revenue of $416 billion. Despite a decline in Greater China, Apple experienced growth in most tracked markets, with particularly strong results in emerging markets such as India.

Financial Highlights

• Revenue: $102.5 billion, up 8% year-over-year
• Earnings per share: $1.85, up 13% year-over-year
• Gross margin: 47.2%
• Net income: $27.5 billion

Earnings vs. Forecast

Apple’s actual EPS of $1.85 exceeded the forecasted $1.76 by 5.11%. Revenue also surpassed expectations, coming in at $102.5 billion against the anticipated $101.69 billion, marking a 0.8% surprise. This performance aligns with Apple’s historical trend of exceeding market expectations.

Market Reaction

Following the earnings release, Apple’s stock price rose by 1.55 points, or 0.57%, during regular trading, and a further 0.99% in after-hours trading. The stock’s current price of $272.38 is nearing its 52-week high of $274.14, reflecting positive investor sentiment.

Outlook & Guidance

Apple projects revenue growth of 10-12% for the December quarter, driven by expected double-digit growth in iPhone revenue. The company anticipates a gross margin between 47-48% and plans to continue significant investments in artificial intelligence. Apple is optimistic about returning to growth in the Chinese market in the first quarter of the next fiscal year.

Executive Commentary

CEO Tim Cook emphasized the role of AI in enhancing Apple’s product offerings, stating, "We are bringing intelligence to more of what people already love about our products." CFO Kevin Parekh highlighted the company’s commitment to AI investments, saying, "We’re increasing our investments in AI while continuing to invest in our product road map."

Risks and Challenges

• Supply chain constraints affecting iPhone 16 and 17 models.
• Potential market saturation in key regions.
• Macroeconomic pressures impacting consumer spending.
• Revenue decline in Greater China.
• Competitive pressures in the technology sector.

Q&A

During the earnings call, analysts inquired about supply constraints on iPhone models and the company’s growth prospects in China. Apple executives addressed these concerns, noting strong upgrader records for iPhones and expressing confidence in regaining growth momentum in the Chinese market.

Full transcript - Apple Inc (AAPL) Q4 2025:

Suhasini Chandramali, Director of Investor Relations, Apple: Good afternoon, and welcome to the Apple Q4 Fiscal Year twenty twenty five Earnings Conference Call. My name is Suhasini Chandramali, Director of Investor Relations. Today’s call is being recorded. Speaking first today is Apple’s 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 10 Q and Form 10 ks and the Form eight ks filed with the SEC today along with the associated press release. Additional information will also be in our report on Form 10 ks for the year ended 09/27/2025, 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.

Tim Cook, CEO, Apple: Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call. Today, Apple is proud to report $102,500,000,000 in revenue, up 8% from a year ago and a September record. Services achieved an all time revenue record of $28,800,000,000 growing 15% from a year ago. EPS came in at $1.85 setting a September record.

We grew in the vast majority of markets we track and had September 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 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 $416,000,000,000 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 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 to 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 three 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 have 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 our 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 results across our lineup starting with iPhone. IPhone set a revenue record for the September at $49,000,000,000 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 and powered 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 with revenue of $8,700,000,000 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 inches 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 $7,000,000,000 for the September.

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 $9,000,000,000 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 three 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 SE three 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 one billion adults worldwide and we expect to notify more than a million users of this life threatening condition. We are also excited about SleepScore, a simple intuitive way to help users better understand their sleep quality and discover ways to improve it. That’s something I am sure we can all benefit from.

Meanwhile, AirPods Pro three 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 $28,800,000,000 for the September, 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.

To date, 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, 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 12. During the September, we also marked the ten 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 are heading into our busiest time of year with our best ever lineup.

In the last few months, we have 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 in 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 $600,000,000,000 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 are 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 are 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

Kevin Parekh, CFO, Apple: to Kevin. Thanks, Tim, and good afternoon, everyone. Our revenue of $102,500,000,000 was up 8% year over year and is a new September record. We set September 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 $73,700,000,000 up 5% year over year, driven by growth across iPhone and Mac and reached a September record.

Thanks to our exceptional customer satisfaction and strong levels of loyalty, our installed base of active devices has reached another all time high across all product categories and geographic segments. Services revenue was $28,800,000,000 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 $1,100,000,000 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 $15,900,000,000 up 11% year over year, driven by increased investment in R and D. These strong levels of business performance led to September records for both net income and diluted earnings per share. Net income was $27,500,000,000 and diluted earnings per share was $1.85 up 13% year over year on an adjusted basis, excluding the onetime charge we recognized during the 2024.

Operating cash flow was also a September record at $29,700,000,000 Now I’m going to provide some more details for each of our revenue categories. IPhone revenue was $49,000,000,000 up 6% year over year, driven by the iPhone 16 family. IPhone grew in the vast majority of the markets we track with September records in many emerging markets, including Latin America, The Middle East and South Asia, and an all time record in India. The iPhone active installed base grew to an all time high, and we set a September record for upgraders. According to the recent survey from World Panel, iPhone was a top selling model in The US, 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 four fifty one Research. Mac revenue was $8,700,000,000 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 installed 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 $7,000,000,000 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 installed base reached an all time high with a September 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 four fifty one Research, customer satisfaction was 98% in The U. S.

Wearables, Home and Accessories revenue was $9,000,000,000 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 installed 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 upgrades on Apple Watch. And in The U.

S, customer satisfaction was recently measured at 95%. Our services revenue reached an all time high of $28,800,000,000 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 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 double digit growth year over year on Apple Pay active users.

This strong momentum in the September drove our total fiscal year services revenue to surpass $100,000,000,000 up 14% year over year and our best ever. The growth of our installed 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 AppleCareOne, 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 the 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, Cesca Sporitelna, 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 has launched a spatial computing hub built around VisionPro, 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 $132,000,000,000 in cash and marketable securities. We had $1,300,000,000 of debt maturities and decreased commercial paper by 1,900,000,000 resulting in $99,000,000,000 in total debt. Therefore, at the end of the quarter, net cash was $34,000,000,000 During the quarter, we returned $24,000,000,000 to shareholders.

This included $3,900,000,000 in dividends and equivalents and $20,000,000,000 through open market repurchases of 89,000,000 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 $416,000,000,000 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, I’d like to review our outlook, which includes the types of forward looking information Suhasin 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 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 4748%, which includes an estimated impact of $1,400,000,000 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 road map. And so for the December, we expect operating expenses to be between $18,100,000,000 and $18,500,000,000 We expect OI and E to be around $150,000,000 excluding any potential impact from the mark to market of minority investments and our tax rate to be around 17%. Finally, today, Board of Directors has declared a cash dividend of $0.26 per share of common stock payable on 11/13/2025 to shareholders of record as of 11/10/2025. With that, let’s open the call to questions.

Suhasini Chandramali, Director of Investor Relations, Apple: Thank you, Kevin. We ask that you limit yourself to two questions. Operator, may we have the first question please?

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

Eric Woodring, Analyst, Morgan Stanley: Hey, good afternoon, guys. Thank you for taking my question and 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 the aged installed base 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.

Tim Cook, CEO, Apple: Eric, thanks for your comments. I think it’s all about the product. The product lineup is incredibly strong, our strongest ever. The 17 Pro is the most pro phone we’ve ever done. It’s incredible and the design sings.

The iPhone Air is feels so thin and so light in your hand, 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.

Eric Woodring, Analyst, Morgan Stanley: Great. 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? So much, guys.

Kevin Parekh, CFO, Apple: 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 talk 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.

Conference Call Operator: Our next question is from Ben Reiszews with Melius Research. Please go ahead.

Ben Reiszews, Analyst, Melius Research: 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? And have you turned the corner there? And how do you think that trajectory is going?

And then I have a quick follow-up. Yes.

Tim Cook, CEO, Apple: 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.

Ben Reiszews, Analyst, Melius Research: 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 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?

Kevin Parekh, CFO, Apple: 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?

Ben Reiszews, Analyst, Melius Research: Yes, sir.

Kevin Parekh, CFO, Apple: Okay. Yes, there was no tax related impact. And what I would say is our strong performance for the quarter is really organically driven. And again, just to reiterate, we had an all time revenue record here for the quarter at $28,800,000,000 And as well, we surpassed $100,000,000,000 so best year ever at 14% year on year. So really, was all organic growth.

As Tim outlined and I outlined in the prepared remarks, we saw a majority of the categories have sequential acceleration, we and had many all time revenue records, but nothing abnormal at all, really pretty much all organic growth.

Conference Call Operator: Our next question is from Michael Ng. Please go ahead.

Michael Ng, Analyst: Hi, good afternoon. Thank you for the question. I just have two as well. First, just to follow-up on the last 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 unpack a little bit more of the drivers of the acceleration.

Was there kind of cross selling with the new iPhone launch? Was it just installed base growth? I know you’ve been doing a lot of bundling with Apple one and AppleCare one. So any thoughts on that would be very helpful. And then I just have a quick follow-up.

Kevin, CFO, Apple: Michael, it’s Kevin. Thanks for the question.

Kevin Parekh, CFO, Apple: Yes, let me build on the answer there. I think that the way we look at it is not one thing to point to that would have driven this higher performance. You’re right that it is slightly higher than we’ve seen in the last few quarters. But as you know, our services portfolio is very broad with a broad range of businesses, all that have different growth profiles and different performance characteristics. So those can vary in any given quarter.

I would say our strength, again, was very broad based, both across categories and also geographically. So I wouldn’t point to any particular factor that drove any kind of outperformance at all. We’re just very pleased to see that result.

Michael Ng, Analyst: Great. And just on iPhone sell through, I was wondering if you were seeing any notable shifts in trends between the sell through coming from upgraders versus switchers? Is The U. S. Carrier competitive dynamic helping at all in terms of promotional activity?

And any thoughts on channel inventory? Thank you.

Tim Cook, CEO, Apple: Okay. We did set a September record for upgraders. And so it was a great quarter from that point of view. It’s really too early in the cycle on 2017 to make any comments about upgraders or switchers. In terms of channel inventory, we ended the quarter toward the low end of the targeted range.

Obviously, because we had constraints on several models of the sixteen and seventeen. And for complete transparency and clarity, we’re constrained today on several models of the iPhone 17. There’s not a ramp issue. It’s just we have very strong demand and we’re working very hard to fulfill all the orders that we have.

Michael Ng, Analyst: Great. Thank you, Tim. Thank you, Kevin.

Suhasini Chandramali, Director of Investor Relations, Apple: All right. Thanks, Mike. Operator, could we get the next question, please?

Conference Call Operator: Our next question is from Amit Daryanani with Evercore. Please go ahead.

Amit Daryanani, Analyst, Evercore: Thanks a lot, too, as well. I guess, Kevin, maybe just to start with gross margins. Can you just walk through the expectations for December? I think it implies up 30 basis points sequentially. Can you just talk about the puts and takes on gross margin given you do have very sizable operating leverage in the quarter?

So just maybe what are the puts and takes around that would be really helpful?

Kevin Parekh, CFO, Apple: Yes, sure. Amit, let me walk through the outlook. As we mentioned in our outlook, we’re targeting a range of 47% to 48%. We take the midpoint of that range at the 47.5 You said it’s roughly 25 basis points, 30 basis points higher. Really, there’s a lot of puts and takes.

As I talked about earlier, this is a quarter we launched a lot of new products. Those new products tend to have a higher cost structure than the products they replace. So there’s definitely an impact from the cost side of things, but that was more than offset by favorable mix, especially on the product side. As well as you outlined, we typically see higher leverage in this quarter. So I would say those are the two big drivers.

And so the sequential increase is really going to be driven by favorable mix, particularly from the product side.

Amit Daryanani, Analyst, Evercore: Got it. And then if I just go back to the China discussion for a minute, the performance in China, at least in September was a bit muted. Could you just talk about what resulted in the weakness over there? And do think it was a bit more of a pause given iPhone Air, for example, I don’t think was available until a few weeks ago? So just somewhat what drove the weakness in September?

And is the uptick or better expectation with December there just from the iPhone Air coming out? Or are there other factors as well? Thank you.

Tim Cook, CEO, Apple: Yes. Greater China revenue was down 4% the year over year in the September. It was driven by iPhone. And if you look at the iPhone, the majority of sequential year over year change was due to supply constraints that I mentioned earlier. And so it was basically supply constraints that drove the results.

We’re thrilled with what we’re seeing right now traffic being up significantly year over year and the reception of the 17 family. We expect to return to growth this quarter.

Amit Daryanani, Analyst, Evercore: Great. Thank you.

Tim Cook, CEO, Apple: Thank you.

Suhasini Chandramali, Director of Investor Relations, Apple: Thanks, Amit. Operator, could we have the next question, please?

Conference Call Operator: Our next question is from Wamsi Mohan with Bank of America. Please go ahead.

Wamsi Mohan, Analyst, Bank of America: Thank you so much. Tim, if I could follow-up on your comments about the constrained supply in the quarter, just given the very strong demand for iPhones. Do you expect that, as you can see your visibility across demand and supply, do you think that you will be exiting December at a point where you wouldn’t be constrained anymore? Or do you still expect that there could be constraints as you exit the December? And any way to quantify sort of what revenue could have been in this quarter without constraints?

Tim Cook, CEO, Apple: Yes. If you look at the supply constraints, today we are constrained on several 17 models. We’re not predicting when the supply demand will balance. We’re obviously working very hard to achieve that because we want to get as many of these products out to the customers as possible. But today, I’m not going to predict.

Amit Daryanani, Analyst, Evercore: Thanks, Tim.

Wamsi Mohan, Analyst, Bank of America: And then as a follow-up, I heard you talk about new records across a lot of categories and services. I didn’t hear search explicitly called out. So maybe it’s a little bit of a follow-up to Ben’s question. But given that there are some concerns around search volumes decelerating at the expense of AI, how do you think about the broader sustainability of these very strong mid teens growth rates for services or extended period of time, just for next quarter where you’re obviously guiding to 14%?

Tim Cook, CEO, Apple: This is Tim. The advertising category, which is a combination of third party and first party did set a record during the quarter.

Wamsi Mohan, Analyst, Bank of America: Okay. And sorry, just to be clear, Apple’s own internal advertising and within the licensing individually set records?

Tim Cook, CEO, Apple: Actually, I’m not saying that. I’m just saying that the combination of the two set a record. We don’t I’m dodging the question intentionally because we don’t split it at that level.

Wamsi Mohan, Analyst, Bank of America: Okay. Okay. Understood. Thank you. Yes.

Tim Cook, CEO, Apple: Thank you.

Suhasini Chandramali, Director of Investor Relations, Apple: All right. Thank you, Wamsi. Operator, could we get the next question please?

Conference Call Operator: Our next question is from Samik Chatterjee with JPMorgan. Please go ahead.

Tim Cook, CEO, Apple0: Hi. Thanks for taking my question. Maybe for the first one, Tim, you’ve talked about the strong momentum you’re seeing in China, which is also driving your confidence for the December. Any thoughts on the role that the smartphone subsidies in that region are playing in this momentum? And how do you think about sort of what portion of consumers are maybe using some of those subsidies, leveraging subsidies at this point?

Any more insights into that? And I have a follow-up. Thank you.

Tim Cook, CEO, Apple: Yes, the subsidies play a favorable role. The subsidies, as you know, are sort of across multiple categories from PCs to tablets, smart watches and smartphones. And however, it’s important to note, they only apply to certain price ranges. And so there’s a maximum price and there’s several of our products that sell above that price and therefore are not eligible for a subsidy. But it does have a favorable effect and it’s clearly and at least from our vantage point driving some consumer demand.

Eric Woodring, Analyst, Morgan Stanley: Okay, got it.

Tim Cook, CEO, Apple0: And a follow-up for Kevin here, on the OpEx increase going into the December fairly sizable step up. So if you could just dig into that number a bit more, what are sort of the components towards what you’re spending? And then that increase year over year in OpEx does sort of exceed your revenue growth. So is that sort of what we should expect on a going forward basis as well where you probably need to invest a bit more in the near future?

Kevin Parekh, CFO, Apple: Samik, thanks for that question. As we’ve been outlining and reiterated in our last call, we are increasing our investments in AI while also continuing to invest in our product road map. So the vast majority of the increase to our operating expenses are driven by R and D. While we continue to manage the company in a thoughtful and disciplined way, we’re also managing the business for the long term and are super excited about all the opportunities that we see ahead. As it relates to the question around OpEx and revenue growth, while OpEx has been growing at a faster rate than revenue, we have seen gross margin expansion.

And so when we look at that on a combined basis, it does allow us to have healthy operating leverage. And our operating income growth has been generally outpacing revenue growth for the past several years.

Tim Cook, CEO, Apple0: Clear. Thanks a lot.

Suhasini Chandramali, Director of Investor Relations, Apple: Thank you, Sameh. Operator, could we get the next question please?

Conference Call Operator: Our next question is from David Voat with UBS. Please go ahead.

Tim Cook, CEO, Apple1: Great. Thanks guys for taking my questions. So maybe Kevin, can I ask first, can you help us understand sort of the tariff impact sequentially from the September to the December, particularly around iPhone supply constraints? Because I think I heard you say tariffs go from $1,100,000,000 to 1,400,000,000.0 but the sequential uplift in iPhone revenue and presumably production given supply chain constraints is dramatically bigger. So you can help us understand how to think about the timing of those tariff headwinds as we move forward and sort of that correlation?

And then I have a follow-up.

Tim Cook, CEO, Apple: David, I’ll take this one. You’re right, it goes from 1.1 to a projection of 1.4. And the 1.4 is based on sort of what we know right now and where the tariff rates and policies and so forth are. So it assumes a stable kind of environment for the quarter. It does comprehend the change that was just made, which we’re very encouraged to see with the tariffs moving from 20% to 10% in China.

And so that is factored in. And that is one of the reasons why it’s not linear to volume, if you will. Does that make sense?

Amit Daryanani, Analyst, Evercore: Got it. No, that’s helpful. That’s what was

Tim Cook, CEO, Apple1: asking if the change is reflected in that outlook. And then just as a follow-up, when you think about, I think on the MAX, I know people aren’t asking about it, you talked about the tough comp, but you’re going into sort of a holiday season. I understand that. But when you think about the attached possibility for other products to the iPhone in the holiday season, how do we think about sort of where the consumers’ heads at and their wallet is at this point in the cycle? And granted it is a tough comp, but is there an opportunity to see some maybe upside from an attach rate perspective given the strength in the iPhone portfolio?

Tim Cook, CEO, Apple: We always like to remind people that buy an iPhone all the other things that we offer And so you can bet that we’re doing that. From a Mac point of view, the challenges that last year was sort of the mother of all Mac launches. All of these from Mac Mini to iMac to all the MacBook Pros all launched literally at the same time. And this year that compares to launching the 14 inches MacBook Pro. And so there’s a very difficult compare.

Of course, the long run, I’m very bullish on the Mac. And you can see that the Mac again last quarter outgrew the market. And so we feel really well about how MAC is positioned, but this certain quarter is an extremely difficult compare. And Tim, I’ll add

Kevin Parekh, CFO, Apple: to that, that we also have the DRAM upgrades last year for the MAC lineup, which also is another factor.

Conference Call Operator: Our next question is from Krish Sankar with TD Cowen. Please go ahead.

Tim Cook, CEO, Apple2: Yes, thanks for taking my question. My first one is on the iPhone constraints. Is there a way to quantify how much business you left on the table because of those constraints? And is the different iPhone manufacturing from two different regions contributing to the constraint? And then I have a follow-up for you.

Tim Cook, CEO, Apple: To be clear, the constraint was not related to manufacturing capacity per se. It was that we called the number of iPhone 16s that we were going to make and were a bit short of where the demand really was. So we could have sold more. We’re not publicly at least estimating the extent of that. And then on iPhone 17 family, the demand is very strong.

And so we obviously came out of the Q4 timeframe with lots of back orders.

Tim Cook, CEO, Apple2: Got it. Thanks, Tim. And then a quick follow-up. Given like the prevalence of chatbots and now some of these AI infused web services, do you think that could change the consumer behavior on mobile app ecosystems? Or are you seeing any of that?

And would that have any impact on your App Store?

Tim Cook, CEO, Apple: I think there are opportunities on the App Store with artificial intelligence. And so I think as we have made our on device models available for developers and we’ve seen developers begin to adopt them. And so I think as that proliferates, there’s an opportunity for developers and for Apple to benefit from that, from adding features to their apps and so forth.

Tim Cook, CEO, Apple2: Thanks a lot, Tim. Appreciate it.

Tim Cook, CEO, Apple: Thank you.

Suhasini Chandramali, Director of Investor Relations, Apple: Thanks, Krish. Operator, could we get the next question please?

Conference Call Operator: Our next question is from Aaron Rakers with Wells Fargo. Please go ahead.

Tim Cook, CEO, Apple3: Yes, thanks for taking the question. I have two as well. I guess the first question is when we look at the iPhone 17 demand, which you’ve repeatedly highlighted is very strong. I’m curious if there’s been any discernible kind of change in the mix within the iPhone 17 categories between the Pro and the Pro Max versions relative to prior cycles?

Tim Cook, CEO, Apple: It’s really too early to call the mix to be honest. And we don’t like to publicly disclose that because of the competitive reasons. But frankly, we don’t really know what the mix will be yet because we have constraints on both sides of the ledger at the top and at the entry. And so we’ll see what happens and as we get more supply.

Tim Cook, CEO, Apple3: Yes. And then as a quick follow-up, I’m curious as we kind of work through kind of the AI narrative that continues to build. Is there could you provide any kind of updated thoughts around the build out of Apple’s private compute cloud and how we should think about that kind of as we look forward?

Tim Cook, CEO, Apple: Yes, we’re obviously using PCC or private cloud compute today for a number of queries for Siri. And we will continue to build it out. In fact, the manufacturing plant that makes the servers used for Apple Intelligence just started manufacturing in Houston a few weeks ago and we’ve got a ramp plan there for use in our data centers. And it’s robust. Yes, Aaron, I’ll add maybe there too since you asked

Kevin Parekh, CFO, Apple: the question about private cloud compute that we in ’twenty five, we did have CapEx costs associated with building out our private cloud compute environment in our first party data centers. So you would have seen that in some of the CapEx investment in the year.

Kevin, CFO, Apple: You. Thanks,

Suhasini Chandramali, Director of Investor Relations, Apple: Aaron. Operator, can we get the next question, please?

Conference Call Operator: Our next question is from Atif Malik with Citi. Please go ahead.

Kevin, CFO, Apple: Hi, thank you for taking my questions and great execution. The first question is on iPhone Air. Does the consumer reception in iPhone Air gives you a feel on perhaps the foldable phone market or are the two form factors very different?

Tim Cook, CEO, Apple: I’m not sure that they’re that one is a proxy for the other. The thing that I would say is that where we don’t get into the model kind of demand, at the aggregate level, we are thrilled with how iPhone has been received. And that’s the reason that we’re expecting double digit growth in the current quarter.

Kevin, CFO, Apple: Great. And Tim, as a follow-up, good to know that the personalized theory is making good progress and on track for next year. Will you continue to use a three pronged approach with your own foundation models and partner with other LLM providers and then maybe potential M and A or is one strategy more emphasized over another?

Tim Cook, CEO, Apple: We’re obviously creating Apple foundation models within Apple. Ship them on device and use them in the private cloud compute as well. And we’ve got several in development. And so we also from a continually to surveil the market on M and A and are open to pursuing M and A if we think that it will advance our roadmap.

Tim Cook, CEO, Apple2: You.

Suhasini Chandramali, Director of Investor Relations, Apple: Yes. Thank you. Thanks, Atif. Operator, can we get our last question please?

Conference Call Operator: Our last question is from Richard Kramer with Array Research. Please go ahead.

Tim Cook, CEO, Apple4: You very much. Tim, we’ve often seen Apple be a fast follower with iPhone and new technology, whether large displays or four gs or five gs. But with all the hype now around AI, are you seeing evidence that AI capabilities or features are a material purchase consideration for consumers or the record sales levels you’re reporting simply reflecting other factors like the retention of your iOS base?

Tim Cook, CEO, Apple: I think that there are many factors that influence people’s purchasing considerations. And we don’t have a great in-depth survey yet on the current iPhone 17 because it’s very new in the cycle and we give it some time to formulate. But I would say that Apple intelligence is a factor. And we’re very bullish on it becoming a greater factor. And so that’s the way that we look at it.

Tim Cook, CEO, Apple4: Okay, thanks. And then one for Kevin. In the wake of nearly every other large tech company massively increasing their CapEx in advance of AI demand and also mentioning that there’s scarce capacity, do you anticipate Apple altering its sort of long standing hybrid approach to your own and third party data centers? And maybe can you talk a little bit about the role you see for Apple silicon with the new M5 series of chipsets?

Kevin Parekh, CFO, Apple: Richard, thanks for the question. General, I think as we’ve talked about before, we are expecting increases in our CapEx spending related to AI investments. For example, as I mentioned earlier, we did end up having investments this year to build out our private cloud compute environment. And we do believe this hybrid model has served us very well, and we continue to want to leverage it. And so I don’t see us moving away from this hybrid model where we leverage both first party capacity as well as leverage third party capacity.

We’ll continue to want to build out private cloud compute, as Tim outlined, as we have more usage there over time. But I think, in general, we want to continue to have this hybrid model.

Tim Cook, CEO, Apple4: Thanks.

Suhasini Chandramali, Director of Investor Relations, Apple: Thanks, Richard. A replay of today’s call will be available for two weeks on Apple Podcasts as a webcast on apple.com/investor and via telephone. The number for the telephone replay is (866) 583-1035. Please enter confirmation code 60Eight-nine794 followed by the pound sign. These replays will be available by approximately five p.

M. Pacific Time today. Members of the press with additional questions can contact Josh Rosenstock at (408) 862-1142, and financial analysts can contact me, Suhasini Chandramawli, with additional questions at (408) 974-3123. Thanks again for joining us.

Conference Call Operator: Once again, this does conclude today’s conference. We do appreciate your

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