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    AAPL
    Earnings call· Jun 2022(Q3 FY22)

    Apple Q3 FY22 earnings call AAPL

    Jul 28, 2022 Source

    Executive summary

    Apple Q3 FY22 — Record June Quarter Revenue Despite Headwinds

    Apple reported a record June quarter, demonstrating resilience despite significant macroeconomic headwinds, supply constraints, and foreign exchange impacts. The company saw strong performance in iPhone and Services, driven by an expanding installed base and high customer loyalty. While acknowledging macro uncertainties, Apple remains focused on innovation and strategic investments, including in new technologies and affordability initiatives, to drive future growth.

    Highlights

    5

    • Record June quarter revenue of $83 billion, up 2% year-over-year

    • Record June quarter revenue for iPhone, up 3% year-over-year to $40.7 billion

    • Services revenue reached a June quarter record of $19.6 billion, up 12% year-over-year

    • Installed base of active devices reached an all-time high across all major product categories and geographic segments

    • Operating cash flow of $22.9 billion was a June quarter record

    Concerns

    5

    • Foreign exchange headwinds impacted revenue growth by over 300 basis points in Q3 FY22 and are expected to be 600 basis points in Q4 FY22

    • Wearables, Home and Accessories revenue was down 8% year-over-year to $8.1 billion due to FX, launch timing, supply constraints, and macro environment

    • Mac revenue was $7.4 billion, down 10% year-over-year due to significant supply constraints from COVID lockdowns

    • iPad revenue was $7.2 billion, down 2% year-over-year due to supply constraints and negative foreign exchange

    • Services revenue growth is expected to decelerate in Q4 FY22 due to macroeconomic factors and foreign exchange

    Guidance & targets

    8
    CategoryTargetConfidence
    September quarter revenue growth
    accelerate compared to the June quarter
    high materiality
    Medium
    September quarter Services revenue growth
    grow but decelerate from the June quarter
    medium materiality
    Medium
    September quarter gross margin
    41.5% to 42.5%
    high materiality
    High
    September quarter OpEx
    $12.9 billion and $13.1 billion
    medium materiality
    High
    September quarter OI&E
    around negative [indiscernible] impact from the mark-to-market of minority investments
    low materiality
    Medium
    September quarter tax rate
    around 16%
    medium materiality
    High
    Supply constraints
    lower than what we experienced during the June quarter
    high materiality
    High
    Net cash position
    net cash neutral position
    high materiality
    High

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Emerging Markets
    Saw June quarter revenue records with very strong double-digit growth in Brazil, Indonesia, and Vietnam, and a near doubling of revenue in India.
    Brazil revenue growth: double-digitIndonesia revenue growth: double-digitVietnam revenue growth: double-digitIndia revenue growth: near doubling
    		————
    Products
    Revenue for the June quarter.
    		$63.4 billion———
    Services
    June quarter revenue record, up 12% year-over-year. Set all-time revenue records in the Americas and the rest of Asia Pacific, and June quarter records in Europe and Greater China. Also set June quarter revenue records in each major Services category, including all-time records for Music, Cloud Services, Apple Care, and Payment Services.
    		$19.6 billion12%——
    iPhone
    June quarter record revenue despite foreign exchange headwinds. Set June quarter records in both developed and emerging markets. iPhone active installed base reached a new all-time high across all geographies.
    Customer satisfaction: 98%Switchers growth: strong double-digit year-over-year
    		$40.7 billion3%——
    Mac
    Revenue generated despite supply constraints and negative effects. Installed base reached an all-time high.
    New customers: nearly half of customers purchasing a Mac were new to the product
    		$7.4 billion-10%——
    iPad
    Revenue down due to supply constraints and negative foreign exchange. Installed base reached a new all-time high.
    New customers: over half of customers during the quarter were new to the product
    		$7.2 billion-2%——
    Wearables, Home and Accessories
    Revenue down due to foreign exchange headwinds, different launch timing for Home and Accessories products, supply constraints, and the overall macroeconomic environment. Installed base hit a new all-time record.
    Apple Watch new customers: over 2/3 of customers purchasing an Apple Watch were new to the product
    		$8.1 billion-8%——

    Operational metrics

    21
    Total Revenue
    $83 billion2% year-over-year
    Q3 FY22

    Record June quarter revenue.

    Foreign Exchange Headwinds
    over 300 basis points
    Q3 FY22

    Impact on year-over-year revenue growth rates.

    Company Gross Margin
    43.3%down 40 basis points sequentially
    Q3 FY22

    Seasonal loss of leverage and unfavorable foreign exchange partially offset by favorable mix.

    Products Gross Margin
    34.5%down 190 basis points sequentially
    Q3 FY22

    Mainly driven by seasonal loss of leverage, mix, and FX.

    Services Gross Margin
    71.5%down 110 basis points sequentially
    Q3 FY22

    Due to a different mix and foreign exchange.

    Net Income
    $19.4 billion
    Q3 FY22

    Total net income for the quarter.

    Diluted Earnings Per Share
    $1.20
    Q3 FY22

    Diluted EPS for the quarter.

    Cash and Marketable Securities
    $179 billion
    Q3 FY22 end

    Total cash and marketable securities at the end of the quarter.

    Debt Repaid
    $3 billion
    Q3 FY22

    Maturing debt repaid during the quarter.

    Commercial Paper Increase
    $4 billion
    Q3 FY22

    Increase in commercial paper during the quarter.

    Total Debt
    $120 billion
    Q3 FY22 end

    Total debt at the end of the quarter.

    Net Cash
    nearly $60 billion
    Q3 FY22 end

    Net cash position at the end of the quarter.

    Capital Returned to Shareholders
    $28 billion
    Q3 FY22

    Total capital returned to shareholders during the June quarter.

    Dividends and Equivalents
    $3.8 billion
    Q3 FY22

    Paid in dividends and equivalents.

    Share Repurchases
    $21.7 billion
    Q3 FY22

    Through open market repurchases of Apple shares.

    Cash Dividend Per Share
    $0.23
    Q4 FY22

    Declared by the Board of Directors.

    Paid Subscriptions
    more than 860 millionup more than 160 million during the last 12 months
    Q3 FY22 end

    Across services on the platform.

    App Store iOS Economy Jobs (US)
    more than 2.2 million
    2021

    Jobs supported in the United States.

    Small Developer Earnings Growth
    more than double
    past 2 years

    Earnings by small developers.

    Fraudulent Transactions Prevented
    nearly $1.5 billion
    2021

    Prevented by stopping risky and vulnerable apps and app updates.

    Housing Crisis Deployment
    more than $1.3 billion
    to date

    Deployed to initiatives addressing the housing crisis in California.

    Industry KPIs

    6
    MetricValueDetails
    Capital return FCF$22.9 billionUSD
    Gross margin drivers43.3%%
    Company specific kpis98%%
    Component supply constraintsslightly below the $4 billion low end of the rangeUSD
    Installed base refresh runwayall-time record
    Revenue mix by end market segment—

    Product announcements

    11
    ProductTypeDetails
    MacBook Airlaunch
    13-inch MacBook Prolaunch
    iPadOS 16update
    iOS 16update
    macOS Venturaupdate
    watchOS 9update
    Accessibility Innovationsupdate
    Apple Pay Laterlaunch
    Next Generation of CarPlayupdate
    Passkeylaunch
    Lockdown Modelaunch

    Deals & partnerships

    1
    Major League Soccerlicensing10-year deal

    A 10-year deal to present Major League Soccer matches around the world on Apple TV+.

    Risks & headwinds

    6
    Supply constraintsQ3 FY22

    less than anticipated at the beginning of the quarter, slightly below the $4 billion low end of the range

    Mitigation: Optimistic about the COVID restriction piece of this, but silicon shortage not forecasted to end.

    Foreign exchange headwindsQ3 FY22, Q4 FY22

    over 300 basis points impact on year-over-year growth rates in Q3 FY22; approximately 600 basis points negative year-over-year impact in Q4 FY22

    Mitigation: Hedging program in place to mitigate impact, but hedges roll off over time.

    Impact of business in RussiaQ3 FY22, Q4 FY22

    impacted revenue

    Macroeconomic environmentQ3 FY22, Q4 FY22

    impacted Wearables, Home and Accessories, and digital advertising within Services

    COVID lockdowns in ChinaQ3 FY22

    lower demand in affected cities for iPhone, significant impact to Mac business due to plant closures and reduced utilization

    Mitigation: Rebound in demand towards the end of the quarter as restrictions eased; supply constraints expected to be lower in Q4 FY22.

    Services decelerationQ4 FY22

    revenue expected to grow but decelerate from 12% in Q3 FY22

    Mitigation: Attributed to macroeconomic factors and foreign exchange, as well as challenging year-over-year compares.

    Q&A highlights

    10

    What are the puts and takes for the sequential decline in gross margin for the September quarter, specifically regarding FX impact?

    Luca Maestri explained that the sequential decline in gross margin for the September quarter is expected to be driven by foreign exchange (50 basis points impact) and mix, partially offset by better leverage. He noted that year-over-year, gross margin is in line with the prior year despite a 130 basis point negative FX impact.

    “On a sequential basis, the decline is expected to be driven by, as you mentioned, foreign exchange but also mix, which will be partially offset by better leverage. We expect the foreign exchange impact on a sequential basis to be 50 basis points.”

    asked by Amit Daryanani · answered by Luca Maestri

    2 min read6 chapters

    Detailed Narrative

    01

    Macroeconomic Headwinds and Product Performance

    Apple acknowledged macroeconomic headwinds🌐 impacting its business, particularly foreign exchange, which had over a 300 basis point impact on year-over-year growth rates in the June quarter and is expected to be 600 basis points in the September quarter. While iPhone showed no obvious macroeconomic impact🌐, Wearables, Home and Accessories, and digital advertising within Services were affected. Mac and iPad were primarily constrained by supply, making it difficult to assess demand.

    02

    iPhone Strength and Global Penetration

    iPhone achieved a June quarter record for both revenue and switchers, with strong double-digit growth in switchers. This performance is attributed to product innovation, a significantly growing installed base, and low iPhone penetration in key emerging markets like Indonesia, Vietnam, and India, where revenue nearly doubled. Customer satisfaction for iPhone remains high at 98%.

    03

    Services Ecosystem Growth and Engagement

    Services revenue reached a June quarter record of $19.6 billion, up 12% year-over-year, despite significant FX headwinds🌐 and impacts from the Russian business. The growth was driven by an all-time high installed base, increased customer engagement (double-digit growth in transacting accounts, paid accounts, and paid subscriptions), and an expanding portfolio of offerings. Paid subscriptions now exceed 860 million, adding over 160 million in the last 12 months.

    04

    Supply Constraints and Outlook

    Supply constraints were less than anticipated in the June quarter, coming in slightly below the low end of the $4 billion to $8 billion range previously discussed. The majority of these constraints stemmed from COVID-related lockdowns in the Shanghai corridor, which significantly impacted Mac production. For the September quarter, supply constraints are expected to be lower than in June, with optimism regarding the easing of COVID restrictions, though silicon shortages are not yet forecasted to end.

    05

    Capital Allocation and Affordability Initiatives

    Apple returned over $28 billion to shareholders in the June quarter, including $3.8 billion in dividends and $21.7 billion in share repurchases. The company maintains its long-term target of achieving a net cash neutral position. To address affordability, Apple is expanding installment plans and trade-in programs globally, leveraging the high residual value of its products, and recently introduced Apple Pay Later.

    06

    Investment Strategy and Innovation

    Apple continues to invest through economic downturns, focusing on strategic areas and hiring, albeit with more deliberation. Recent innovations include the M2-powered MacBook Air and MacBook Pro, iPadOS 16 features, and accessibility advancements. The company also announced a 10-year deal for Major League Soccer matches on Apple TV+ and introduced passkey and Lockdown Mode for enhanced security.

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