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    AAPL
    Earnings call· Mar 2023(Q2 FY23)

    Apple Q2 FY23 earnings call AAPL

    May 4, 2023 Source

    Executive summary

    Apple Q2 FY23 — iPhone and Services Set Records Amidst Macro Headwinds

    Apple reported Q2 FY23 revenue above expectations, driven by record iPhone sales and an all-time high for Services, despite significant foreign exchange headwinds and a challenging macroeconomic environment impacting Mac, iPad, and Wearables. The company highlighted strong performance in emerging markets and continued growth in its active installed base. Management remains focused on long-term growth, investing in innovation, and expanding its ecosystem, while also increasing capital returns to shareholders.

    Highlights

    5

    • Total revenue of $94.8 billion, better than expectations

    • All-time record for Services revenue at $20.9 billion

    • March quarter record for iPhone revenue at $51.3 billion, up 2% YoY

    • All-time records in Mexico, Indonesia, Philippines, Saudi Arabia, Turkey, and UAE, plus March quarter records in Brazil, Malaysia, and India

    • More than 975 million paid subscriptions across services, up 150 million in 12 months

    Concerns

    5

    • Revenue down 3% YoY due to foreign exchange headwinds of over 500 basis points and macroeconomic challenges

    • Mac revenue down 31% YoY to $7.2 billion due to difficult compare and macro environment

    • iPad revenue down 13% YoY to $6.7 billion due to tough compare and macro environment

    • Wearables, Home and Accessories revenue down 1% YoY to $8.8 billion due to macroeconomic impact

    • Certain services offerings like digital advertising and mobile gaming affected by current macroeconomic environment

    Guidance & targets

    9
    CategoryTargetConfidence
    June quarter year-over-year revenue performance
    similar to the March quarter
    high materiality
    High
    Foreign exchange impact on June quarter revenue
    negative year-over-year impact of nearly 4 percentage points
    medium materiality
    High
    Services June quarter year-over-year revenue growth
    similar to the March quarter
    medium materiality
    High
    Gross margin
    between 44% and 44.5%
    high materiality
    High
    Operating expenses (OpEx)
    between $13.6 billion and $13.8 billion
    medium materiality
    High
    Other Income and Expense (OI&E)
    around negative $250 million
    low materiality
    High
    Tax rate
    around 16%
    low materiality
    High
    Share repurchases authorization
    additional $90 billion
    high materiality
    High
    Dividend increase
    4% to $0.24 a share
    high materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    iPhone
    Set a March quarter revenue record despite significant foreign exchange headwinds and challenging macroeconomic environment. Strong performance in emerging markets, with India, Indonesia, Turkey, and U.A.E. doubling YoY. Active installed base grew to a new all-time high across all geographic segments.
    Customer satisfaction (U.S. 451 Research survey): 99% for iPhone 14 family
    		$51.3 billion2%——
    Mac
    In line with expectations, impacted by challenging macroeconomic environment and a difficult compare against last year's M1 MacBook Pro launch. Installed base reached an all-time high across all geographic segments, with strong upgrade activity to Apple silicon.
    Customer satisfaction (U.S. 451 Research survey): 96%New customers (China): ~60%
    		$7.2 billion-31%——
    iPad
    In line with expectations, impacted by a tough compare against the M1-powered iPad Air launch in the prior year and macroeconomic headwinds. Installed base reached a new all-time high across all geographic segments, with high customer loyalty and new customer acquisition.
    New customers: >50%
    		$6.7 billion-13%——
    Wearables, Home and Accessories
    Experienced impact from the macroeconomic environment. Set March quarter records in both the U.S. and Greater China. Watch installed base set a new all-time record due to high customer loyalty and new-to rates.
    New Apple Watch customers: ~66%
    		$8.8 billion-1%——
    Services
    Set a new all-time revenue record. Achieved all-time records across App Store, Apple Music, iCloud, and payment services, and March quarter records for advertising, AppleCare, and video. Certain services (digital advertising, mobile gaming) affected by macroeconomic environment. Strong growth in paid subscriptions and customer engagement.
    Paid subscriptions: >975 millionPaid subscriptions growth (last 12 months): 150 millionPaid subscriptions growth (last 3 years): nearly doubledTransacting accounts growth: double digits YoYPaid accounts growth: double digits YoY
    		$20.9 billion5%——
    Greater China
    All-time Services revenue record. Grew on a constant currency basis. Accelerated performance compared to December quarter. Gained share in smartphone market, with 4 out of top 5 selling smartphones in urban China. Strong buyer metrics for Mac, iPad, and Watch.
    		—-3%——

    Operational metrics

    32
    Total Revenue
    $94.8 billion-3% YoY
    Q2 FY23

    Better than expectations, impacted by foreign exchange headwinds of over 5 percentage points.

    Products Revenue
    $73.9 billion-5% YoY
    Q2 FY23

    Due to challenging compares on Mac and iPad.

    Company Gross Margin
    44.3%+130 bps sequentially
    Q2 FY23

    Strong gross margin performance.

    Products Gross Margin
    36.7%-30 bps sequentially
    Q2 FY23

    Sequential decrease due to seasonal factors.

    Services Gross Margin
    71%+20 bps sequentially
    Q2 FY23

    Sequential increase in services gross margin.

    Operating Expenses
    $13.7 billiondecelerating from December quarter
    Q2 FY23

    At the low end of guidance range, managed closely with continued investment in innovation.

    Net Income
    $24.2 billion
    Q2 FY23

    Strong net income generation.

    Diluted Earnings Per Share
    $1.52unchanged YoY
    Q2 FY23

    EPS remained flat year-over-year.

    Cash and Marketable Securities
    $166 billion
    Q2 FY23 end

    Total cash and marketable securities at quarter end.

    Debt Repaid
    $2.3 billion
    Q2 FY23

    Repayment of maturing debt.

    Commercial Paper Increase
    $300 million
    Q2 FY23

    Increase in commercial paper.

    Total Debt
    $110 billion
    Q2 FY23 end

    Total debt at quarter end.

    Net Cash
    $57 billion
    Q2 FY23 end

    Net cash position at quarter end.

    Capital Returned to Shareholders
    $23 billion
    Q2 FY23

    Total capital returned to shareholders during the quarter.

    Dividends and Equivalents
    $3.7 billion
    Q2 FY23

    Amount of dividends paid.

    Share Repurchases
    $19.1 billion
    Q2 FY23

    Amount spent on open market share repurchases.

    Dividend Per Share
    $0.24+4%
    Q3 FY23

    Increased cash dividend declared by the Board of Directors.

    Foreign Exchange Headwind
    >5 percentage points
    Q2 FY23

    Impact on revenue, in line with expectations.

    Global Manufacturing Partners Renewable Energy
    over 13 gigawattsnearly 30% increase in last year
    April 2023

    Amount of renewable energy supported by manufacturing partners.

    Avoided Carbon Emissions
    17.4 million metric tons
    April 2023

    Equivalent to removing nearly 3.8 million cars from the road.

    Restore Fund Investment
    up to an additional $200 million
    Ongoing

    Investment to support nature-based carbon removal projects.

    Certified Recycled Cobalt in Batteries
    100%
    by 2025

    Plan for all Apple-designed batteries to include 100% certified recycled cobalt.

    Installed Base of Active Devices
    over 2 billiongrowing at a nice pace
    Q2 FY23

    Reached an all-time high for all major product categories and geographic segments.

    iPhone Active Devices
    well over 1 billion
    Q2 FY23

    Large and growing installed base for iPhone.

    Customer Satisfaction for iPhone 14 family (U.S.)
    99%
    Latest survey

    High customer satisfaction for the latest iPhone models.

    Customer Satisfaction for Mac (U.S.)
    96%
    Latest survey

    High customer satisfaction for Mac products.

    New iPad Customers
    >50%
    Q2 FY23

    Over half of customers purchasing iPads during the quarter were new to the product.

    New Apple Watch Customers
    nearly 2/3
    Q2 FY23

    Nearly two-thirds of customers purchasing an Apple Watch during the quarter were new to the product.

    Transacting Accounts Growth
    double digitsYoY
    Q2 FY23

    Both transacting and paid accounts grew double digits year-over-year, setting new all-time records.

    Paid Accounts Growth
    double digitsYoY
    Q2 FY23

    Both transacting and paid accounts grew double digits year-over-year, setting new all-time records.

    Paid Subscriptions
    >975 million+150 million in last 12 months
    Q2 FY23

    Strong growth in paid subscriptions across the platform.

    Component Pricing Dynamics
    favorabledeclined during March quarter
    Q2 FY23

    Component prices declined in Q2 FY23 and are expected to continue declining in Q3 FY23.

    Industry KPIs

    8
    MetricValueDetails
    Capital return FCF$23 billionUSD
    Gross margin drivers44.3%%
    Company specific kpis99%%
    Market share commentary4 out of top 5top-selling smartphones
    Services peripheral attach>975 millionpaid subscriptions
    Component supply constraintsfavorable
    Installed base refresh runwayover 2 billionactive devices
    Revenue mix by end market segmentMarch quarter records in Mexico, Indonesia, Philippines, Saudi Arabia, Turkey, U.A.E., Brazil, Malaysia, India

    Product announcements

    6
    ProductTypeDetails
    Emergency SOS via Satelliteexpansion
    MLS Season Passmilestone
    Apple Music Classicallaunch
    Apple Pay Laterlaunch
    Apple Card Savings accountslaunch
    Shop with a Specialist over Videolaunch

    Risks & headwinds

    4
    Foreign exchange headwindsQ2 FY23

    over 5 percentage points impact on revenue

    Macroeconomic environment challengesQ2 FY23 and ongoing

    Impacted Mac, iPad, Wearables, Home and Accessories revenue; affected digital advertising and mobile gaming services

    Mitigation: Focus on long-term growth, investment in innovation and product development, strong performance in emerging markets.

    Difficult compares for Mac and iPadQ2 FY23

    Mac revenue down 31% YoY; iPad revenue down 13% YoY

    Lower promotional activity in U.S. carriersQ2 FY23

    Lower performance in Americas

    Q&A highlights

    8

    How did customers behave after the December quarter production shutdowns? Did deferred demand from Q1 materialize in Q2 or is it still being pushed out?

    Management believes some deferred sales were recaptured in the March quarter, leading to accelerated iPhone performance. Supply was not an issue in Q2, and channel inventory levels are comfortable.

    “it's hard to quantify this, but we do believe we did recapture some amount of sales in the March quarter as we did see the iPhone performance accelerate relative to the December quarter. The production levels for the whole quarter were where we wanted them to be. So supply was not an issue during Q2.”

    asked by Erik Woodring · answered by Timothy Cook

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Performance in Emerging Markets

    Apple achieved all-time revenue records in Mexico, Indonesia, the Philippines, Saudi Arabia, Turkey, and the U.A.E., and March quarter records in Brazil, Malaysia, and India. This strong performance in emerging markets was a key driver for the quarter's results, particularly for iPhone, which saw doubling of year-over-year growth in India, Indonesia, Turkey, and the U.A.E. The company sees significant opportunity in these markets due to low market share and favorable demographics.

    02

    Services Ecosystem Strength and Growth

    Services set an all-time revenue record of $20.9 billion, growing 5% year-over-year. This growth was driven by all-time records in App Store, Apple Music, iCloud, and payment services, as well as March quarter records in advertising, AppleCare, and video. The installed base of over 2 billion active devices provides a strong foundation, with paid subscriptions reaching over 975 million, nearly double the number from three years ago.

    03

    Product Performance and Macroeconomic Headwinds

    While iPhone set a March quarter record with $51.3 billion in revenue, Mac and iPad faced significant year-over-year declines of 31% and 13% respectively, primarily due to challenging comparisons from prior-year product launches and macroeconomic headwinds🌐. Wearables, Home and Accessories revenue also saw a slight decline. Foreign exchange had a negative impact of over 5 percentage points on total revenue.

    04

    Capital Allocation and Shareholder Returns

    Apple returned over $23 billion to shareholders during the March quarter, including $3.7 billion in dividends and $19.1 billion through share repurchases. The Board authorized an additional $90 billion for share repurchases, maintaining the goal of achieving net cash neutral over time⏳. The quarterly dividend was also raised by 4% to $0.24 per share, with plans for annual increases.

    05

    AI Integration and Future Outlook

    Apple continues to integrate AI and machine learning across its ecosystem, with examples like fall detection, crash detection, and ECG in its products. While not commenting on product roadmaps, the company views AI as a significant area and plans to continue weaving it into products thoughtfully. The company also highlighted its environmental initiatives, including increasing renewable energy use among manufacturing partners and investing in carbon removal projects.

    AI-generated summary of the company’s earnings call. Not investment advice.