Skip to content
    AAPL
    Earnings call· Jun 2023(Q3 FY23)

    Apple Q3 FY23 earnings call AAPL

    Aug 3, 2023 Source

    Executive summary

    Apple Q3 FY23 — Services and Emerging Markets Drive Better-Than-Expected Results

    Apple delivered better-than-expected Q3 FY23 results, driven by record Services performance and strong growth in emerging markets, particularly for iPhone. Despite an uneven macroeconomic environment and significant foreign exchange headwinds, the company achieved record gross margins. Management remains focused on deliberate spending and innovation, with an optimistic outlook for Services and iPhone acceleration in the upcoming quarter, while acknowledging challenges for Mac and iPad due to tough prior-year comparisons.

    Highlights

    5

    • Total revenue of $81.8 billion, better than expectations despite 4 percentage points of FX headwinds

    • Services revenue reached an all-time record of $21.2 billion, up 8% YoY and double digits in constant currency

    • June quarter total revenue records in India, Indonesia, Mexico, Philippines, Poland, Saudi Arabia, Turkey, UAE, France, Netherlands, and Austria

    • Company gross margin was 44.5%, a record level for the June quarter, up 20 bps sequentially

    • Diluted EPS of $1.26, up 5% YoY, with strong operating cash flow of $26.4 billion

    Concerns

    5

    • iPhone revenue down 2% YoY to $39.7 billion

    • Mac revenue down 7% YoY to $6.8 billion

    • iPad revenue down 20% YoY to $5.8 billion due to difficult compare

    • Expected double-digit decline for Mac and iPad revenue in Q4 FY23 due to difficult compares

    • Foreign exchange expected to be a headwind of over 2 percentage points in Q4 FY23

    Guidance & targets

    10
    CategoryTargetConfidence
    September quarter year-over-year revenue performance
    similar to the June quarter
    high materiality
    Medium
    Foreign exchange headwind
    over 2 percentage points
    medium materiality
    High
    iPhone year-over-year performance
    accelerate from the June quarter
    high materiality
    Medium
    Services year-over-year performance
    accelerate from the June quarter
    high materiality
    Medium
    Mac revenue year-over-year performance
    decline by double digits
    medium materiality
    High
    iPad revenue year-over-year performance
    decline by double digits
    medium materiality
    High
    Gross margin
    between 44% and 45%
    high materiality
    High
    Operating expenses (OpEx)
    between $13.5 billion and $13.7 billion
    medium materiality
    High
    Other income and expense (OI&E)
    around negative $250 million
    low materiality
    High
    Tax rate
    around 16%
    low materiality
    High

    Segment performance

    8
    SegmentRevenueYoYQoQMargin
    iPhone
    Revenue declined year-over-year but grew on a constant currency basis. Set revenue records in several markets globally, including an all-time record in India and June quarter records in Latin America, the Middle East and Africa, Indonesia, the Philippines, Italy, the Netherlands and the U.K. Active installed base reached a new all-time high.
    Constant currency revenue growth: grewJune quarter record for switchers: achievedCustomer satisfaction (iPhone 14 family in U.S.): 98%
    		$39.7 billion-2%——
    Mac
    Revenue declined year-over-year. Completed the transition of the entire Mac lineup to Apple silicon, driving strong upgrade activity and new customers. Invested in the Mac portfolio with new 15-inch MacBook Air, Mac Studio with M2 Max and M2 Ultra, and Mac Pro with M2 Ultra.
    New to product buyers: almost halfCustomer satisfaction (U.S.): 96%
    		$6.8 billion-7%——
    iPad
    Revenue declined year-over-year due to a difficult compare against the full quarter impact of the iPad Air launch in the prior year. Continues to attract a large number of new customers to the iPad installed base.
    New to product buyers: over halfCustomer satisfaction (U.S.): 96%
    		$5.8 billion-20%——
    Wearables, Home and Accessories
    Revenue grew year-over-year, in line with expectations. Strong performance in Greater China and several emerging markets. Apple Watch continues to expand its reach with a high percentage of new customers. The category has become a very large business for Apple.
    June quarter record: Greater ChinaNew Apple Watch customers: about 2/3Customer satisfaction (Apple Watch in U.S.): 98%Last 12 months business: $40 billion
    		$8.3 billion2%——
    Services
    Set a new all-time revenue record with year-over-year growth accelerating sequentially. Performance was strong globally, reaching all-time records in Americas and Europe, and June quarter records in Greater China and rest of Asia Pacific. Driven by a growing installed base, increased customer engagement, and strong growth in paid subscriptions.
    Constant currency growth: double digitsAll-time revenue records: total services, video, AppleCare, cloud, payment services, Americas, EuropeJune quarter records: Greater China, rest of Asia Pacific, advertising, App Store, MusicPaid subscriptions: over 1 billionPaid subscriptions growth (last 12 months): 150 millionPaid subscriptions growth (last 3 years): nearly doubleActive devices installed base: over 2 billionTransacting accounts growth: double digits YoYPaid accounts growth: double digits YoY
    		$21.2 billion8%sequential acceleration—
    Europe
    Set a June quarter record, with strong performance in emerging markets within Europe and countries like France, Italy, Netherlands, and Austria.
    June quarter record: achieved
    		————
    Greater China
    Performance improved significantly, with strong iPhone sales and June quarter records in Services and Wearables, Home and Accessories.
    Constant currency growth: double digits
    		—8%acceleration from -3% in Q2—
    Americas
    Experienced a slight sequential acceleration, primarily in the United States, but still declining year-over-year due to a challenging smartphone market.
    		—declining somewhatslight acceleration sequentially—

    Operational metrics

    30
    Company gross margin
    44.5%up 20 bps sequentially
    Q3 FY23

    This is a record gross margin for the June quarter.

    Products gross margin
    35.4%down 130 bps from last quarter
    Q3 FY23

    The decline was partially offset by favorable costs.

    Services gross margin
    70.5%decreasing 50 bps sequentially
    Q3 FY23

    This is the gross margin for the Services segment.

    Operating expenses
    $13.4 billionbelow low end of guidance, decelerated from March quarter
    Q3 FY23

    Management is taking a deliberate approach to managing spend.

    Net income
    $19.9 billion
    Q3 FY23

    Result of actions to manage spend and focus on innovation.

    Diluted earnings per share
    $1.26up 5% versus last year
    Q3 FY23

    Strong EPS growth driven by overall performance.

    Cash and marketable securities
    $166 billion
    Q3 FY23

    Total cash position at the end of the quarter.

    Maturing debt repaid
    $7.5 billion
    Q3 FY23

    Amount of debt repaid during the quarter.

    New debt issued
    $5.2 billion
    Q3 FY23

    Amount of new debt issued during the quarter.

    Commercial paper increase
    $2 billion
    Q3 FY23

    Increase in commercial paper during the quarter.

    Total debt
    $109 billion
    Q3 FY23

    Total debt outstanding at the end of the quarter.

    Net cash
    $57 billion
    Q3 FY23

    Net cash position at the end of the quarter.

    Capital returned to shareholders
    $24 billion
    Q3 FY23

    Total capital returned to shareholders during the quarter.

    Dividends and equivalents
    $3.8 billion
    Q3 FY23

    Portion of capital returned as dividends.

    Open market share repurchases
    $18 billion
    Q3 FY23

    Amount spent on share repurchases.

    Cash dividend per share
    $0.24
    Q3 FY23

    Declared by the Board of Directors.

    Foreign exchange headwind
    nearly 4 percentage points
    Q3 FY23

    Negative impact on revenue.

    Services paid subscriptions
    over 1 billionup 150 million during last 12 months, nearly double from 3 years ago
    Q3 FY23

    Reached an important milestone, showing strong growth.

    Apple Card high-yield savings account deposits
    more than $10 billion
    Q3 FY23

    Customers have made significant deposits since its introduction this spring.

    Apple TV+ nominations
    more than 1,500
    since launch

    Reflects the quality of original content.

    Apple TV+ wins
    370
    since launch

    Reflects the quality of original content.

    Apple TV+ Emmy Award nominations
    54
    last month

    Received across 13 titles.

    Racial Equity and Justice Initiative commitment
    more than $200 millionmore than doubled initial commitment
    ongoing

    Supports education, economic empowerment, and criminal justice reform.

    Apple Learning Coach educators
    more than 1,900
    current

    Educators welcomed to the free professional learning program.

    Apple Learning Coach expansion
    12 more countries
    by end of year

    Program will be offered in additional countries.

    Installed base of active devices
    over 2 billioncontinues to grow at a nice pace
    Q3 FY23

    Establishes a solid foundation for the future expansion of the ecosystem.

    iPhone customer satisfaction (U.S.)
    98%
    Q3 FY23

    High levels of customer satisfaction.

    Mac customer satisfaction (U.S.)
    96%
    Q3 FY23

    High levels of customer satisfaction.

    iPad customer satisfaction (U.S.)
    96%
    Q3 FY23

    High levels of customer satisfaction.

    Apple Watch customer satisfaction (U.S.)
    98%
    Q3 FY23

    Very high levels of customer satisfaction.

    Industry KPIs

    7
    MetricValueDetails
    Capital return FCF$24 billion$B
    Gross margin drivers44.5%%
    Company specific kpis98%%
    Market share commentaryvery modest and low share
    Services peripheral attachover 1 billionpaid subscriptions
    Installed base refresh runwayall-time high
    Revenue mix by end market segment—

    Product announcements

    17
    ProductTypeDetails
    Apple Vision Prolaunch
    15-inch MacBook Airlaunch
    Mac Studio with M2 Max and M2 Ultralaunch
    Mac Pro with M2 Ultralaunch
    iOS 17 features (Live Voicemail, StandBy)update
    macOS Sonomaupdate
    iPadOS 17update
    watchOS 10update
    Final Cut Pro and Logic Pro for iPadlaunch
    Apple Card high-yield savings accountlaunch
    Apple Music new discovery featuresupdate
    Apple Store online in Vietnamexpansion
    Redesigned Apple Store in Tysons Cornerupdate
    New Apple Store in London (Battersea Power Station)launch
    Apple Stores in Indialaunch
    New accessibility tools (Assistive Access, Personal Voice)launch
    Safari Private Browsing, Communication Safety, Lockdown Mode updatesupdate

    Deals & partnerships

    4
    Blackstonecustomer contract

    Expanding Apple footprint from corporate iPhone fleet to offering MacBook Air powered by M2 to all corporate employees and portfolio companies.

    Gileadcustomer contract

    Deployed thousands of iPads globally to their sales team and doubled their Mac user base by making MacBook Air available to more employees over the last 6 months.

    Major League Soccer (MLS)partnership

    Partnership for MLS Season Pass on Apple TV+, with Lionel Messi's debut driving significant viewership.

    Acumenpartnership

    Joined with global nonprofit Acumen in a new effort to improve livelihoods in India through clean energy innovation.

    Risks & headwinds

    4
    Uneven macroeconomic environmentQ3 FY23

    nearly 4 percentage points of foreign exchange headwinds

    Mitigation: Managed deliberately, innovated relentlessly, grew on a constant currency basis in aggregate and majority of markets.

    Foreign exchange headwindQ4 FY23

    over 2 percentage points negative year-over-year revenue impact

    Mitigation: Hedging programs in place to minimize volatility, but some impact is unavoidable.

    Difficult compares for Mac and iPadQ4 FY23

    expected double-digit decline year-over-year for both products

    Mitigation: Acknowledged as a result of unusual activity in prior year (pent-up demand fulfillment after factory shutdowns).

    Challenging smartphone market in the U.S.Q3 FY23

    Americas segment still declining somewhat year-over-year

    Mitigation: Focus on affordability programs and strong product mix to attract customers.

    Q&A highlights

    8

    Given the record gross margin in Q3 and strong guidance for Q4, what are the key drivers and sustainability of this trend?

    Luca Maestri confirmed the 44.5% gross margin was an all-time record for a June quarter, driven by cost savings and a favorable mix shift towards Services, partially offset by seasonal loss of leverage. He noted a favorable commodity environment and strong product mix, expecting similar gross margins for the September quarter, with foreign exchange being the primary drag.

    “I think you remember correctly, Shannon, because the 44.5% for the June quarter is an all-time record for us in June. We were up 20 basis points sequentially. It was driven by cost savings and a mix shift towards Services, which obviously helps company gross margins, partially offset by the seasonal loss of leverage.”

    asked by Shannon Cross · answered by Luca Maestri

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Performance in Emerging Markets and Greater China

    Apple reported robust growth in emerging markets, with June quarter total revenue records in India, Indonesia, Mexico, the Philippines, Poland, Saudi Arabia, Turkey, and the UAE. On a constant currency basis, the company grew year-over-year in aggregate and in most markets. Greater China saw an acceleration from -3% in Q2 to +8% in Q3, with double-digit growth in constant currency, driven by strong iPhone performance and increasing engagement with the ecosystem.

    02

    Services Momentum and Ecosystem Engagement

    Services revenue reached an all-time record of $21.2 billion, accelerating to 8% year-over-year growth and double digits in constant currency. This performance was broad-based, with all-time records in cloud, video, AppleCare, and payments, and June quarter records in App Store, advertising, and Music. The growth is attributed to a growing installed base of over 2 billion active devices, increased customer engagement with double-digit growth in transacting and paid accounts, and strong growth in paid subscriptions, which surpassed 1 billion.

    03

    Product Performance and Market Dynamics

    iPhone revenue was down 2% year-over-year but grew on a constant currency basis, setting records in several markets and achieving a June quarter record for switchers. Mac revenue declined 7% year-over-year, while iPad revenue was down 20% due to a difficult compare against the prior year's iPad Air launch. Despite these declines, both Mac and iPad continue to attract new customers, with almost half of Mac buyers and over half of iPad buyers being new to the product.

    04

    Strategic Approach to AI and Innovation

    Apple views AI and machine learning as core fundamental technologies integrated into nearly every product. The company highlighted features like Personal Voice and Live Voicemail in iOS 17, as well as lifesaving features like fall detection and crash detection, as examples of AI/ML applications. Apple continues to invest and innovate responsibly in AI technologies, with a focus on enriching users' lives and announcing advancements as they come to market.

    05

    Capital Allocation and Shareholder Returns

    Apple ended the quarter with over $166 billion in cash and marketable securities and a net cash position of $57 billion. The company returned over $24 billion to shareholders, including $3.8 billion in dividends and $18 billion through open market repurchases of 103 million shares. Apple remains committed to its target of reaching a net cash neutral position over time⏳, indicating continued confidence in its stock value.

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