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    AAPL
    Earnings call· Sep 2022(Q4 FY22)

    Apple Q4 FY22 earnings call AAPL

    Oct 27, 2022 Source

    Executive summary

    Apple Q4 FY22 — Record Revenue and Strong iPhone Demand

    Apple delivered record Q4 FY22 results, driven by strong iPhone demand and an all-time high for Mac revenue, despite significant foreign exchange headwinds. The company's installed base of active devices and paid subscriptions continued to grow, underscoring ecosystem strength. Looking ahead, Apple anticipates revenue deceleration in the December quarter due to substantial FX impact and a challenging Mac comparison, while remaining committed to long-term investment and innovation.

    Highlights

    5

    • Record revenue of $90.1 billion, up 8% year-over-year despite significant FX headwinds

    • All-time revenue record for Mac at $11.5 billion, up 25% year-over-year

    • September quarter records for iPhone ($42.6 billion, up 10%), Wearables, Home and Accessories ($9.7 billion, up 10%), and Services ($19.2 billion, up 5%)

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

    • More than 900 million paid subscriptions across the Services platform, up over 155 million in the last 12 months

    Concerns

    5

    • Expected nearly 10 percentage points of negative year-over-year impact from foreign exchange in the December quarter

    • Mac revenue expected to decline substantially year-over-year in the December quarter due to challenging compare and FX headwinds

    • iPad revenue down 13% year-over-year to $7.2 billion due to significant negative foreign exchange and challenging compare

    • Services growth impacted by macroeconomic headwinds, including foreign exchange, digital advertising, and gaming softness

    • iPhone 14 Pro and Pro Max supply constrained, working hard to fulfill demand

    Guidance & targets

    8
    CategoryTargetConfidence
    Total company year-over-year revenue performance
    Decelerate during the December quarter as compared to the September quarter
    high materiality
    Medium
    Negative year-over-year impact from foreign exchange
    Nearly 10 percentage points
    high materiality
    High
    Mac revenue
    Decline substantially year-over-year
    high materiality
    High
    Services growth
    Grow but to be impacted by the macroeconomic environment
    medium materiality
    Medium
    Gross margin
    Between 42.5% and 43.5%
    high materiality
    High
    Operating expenses (OpEx)
    Between $14.7 billion and $14.9 billion
    medium materiality
    High
    Other income and expense (O&E)
    Around negative $300 million
    low materiality
    High
    Tax rate
    Around 16.5%
    low materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    iPhone
    Achieved a September quarter record despite significant foreign exchange headwinds. Strong performance in emerging markets, with India setting an all-time revenue record and Thailand, Vietnam, Indonesia, and Mexico more than doubling year-over-year. Active installed base reached a new all-time high.
    Customer satisfaction (U.S. consumers from 451 Research): 98%Quarterly record for upgraders: statedSwitchers grew double digits: stated
    		$42.6B10%——
    Mac
    Achieved an all-time revenue record, driven by the launch of new MacBook Air and MacBook Pro with M2 chip, satisfying pent-up demand from June quarter supply constraints, and channel fill. Installed base reached an all-time high.
    Quarterly record for upgraders: statedCustomers new to Mac: nearly half
    		$11.5B25%——
    iPad
    Revenue declined due to significant negative foreign exchange and a challenging compare against new iPad launches a year ago. Despite this, the installed base reached a new all-time high.
    Customers new to iPad: over half
    		$7.2B-13%——
    Wearables, Home and Accessories
    Revenue grew, driven by the launch of Apple Watch and new AirPods Pro. The installed base of devices in this category reached a new all-time record. Apple Watch Ultra was supply-constrained.
    Customers purchasing Apple Watch new to product: 2/3
    		$9.7B10%——
    Services
    Set a September quarter record despite very large foreign exchange headwinds. Achieved double-digit constant currency growth. Certain services, like digital advertising and gaming, were impacted by macroeconomic headwinds. Cloud services and payment services achieved all-time revenue records.
    Paid subscriptions: >900MPaid subscriptions growth (last 12 months): >155MTransacting accounts growth: double digitsPaid accounts growth: double digits
    		$19.2B5%—70.5%

    Operational metrics

    29
    Total revenue
    $90.1B8% YoY
    Q4 FY22

    September quarter record, better than anticipated despite stronger-than-expected foreign currency headwinds.

    Total revenue (FY22)
    $394B8% YoY
    FY22

    Annual revenue record.

    Products revenue
    $71B9% YoY
    Q4 FY22

    September quarter record despite FX headwinds.

    Company gross margin
    42.3%-100 bps QoQ
    Q4 FY22

    September quarter record.

    Products gross margin
    34.6%10 bps QoQ
    Q4 FY22

    Sequentially up.

    Services gross margin
    70.5%-100 bps QoQ
    Q4 FY22

    Sequentially down.

    Net income
    $20.7B
    Q4 FY22

    September quarter record.

    Diluted earnings per share
    $1.29
    Q4 FY22

    September quarter record.

    Services revenue (FY22)
    $78B14% YoY
    FY22

    New record for Services, nearly doubled in the last 4 years.

    Diluted earnings per share (FY22)
    9% YoY growth
    FY22

    Growth for the fiscal year.

    Capital returned to shareholders
    $29B
    Q4 FY22

    During the September quarter.

    Dividends and equivalents
    $3.7B
    Q4 FY22

    Part of capital returned to shareholders.

    Open market share repurchases
    $25.2B
    Q4 FY22

    Part of capital returned to shareholders.

    Cash and marketable securities
    $169B
    Q4 FY22

    Ended the quarter with this balance.

    Maturing debt repaid
    $2.8B
    Q4 FY22

    During the quarter.

    Commercial paper decreased
    $1B
    Q4 FY22

    During the quarter.

    New debt issued
    $5.5B
    Q4 FY22

    During the quarter.

    Total debt
    $120B
    Q4 FY22

    At the end of the quarter.

    Net cash
    $49B
    Q4 FY22

    At the end of the quarter, progressing towards net-cash neutral goal.

    Cash dividend per share
    $0.23
    Q1 FY23

    Declared by Board of Directors.

    Installed base of active devices
    All-time high
    Q4 FY22

    Reached for all major product categories and geographic segments.

    Transacting accounts
    Double digits
    Q4 FY22

    Set a new all-time record.

    Paid accounts
    Double digits
    Q4 FY22

    Set a new all-time record, growing faster than transacting accounts.

    Acquisitions (FY22)
    1 per month
    FY22

    Average rate, focused on synergistic opportunities.

    FX impact on December quarter revenue
    Nearly 10 percentage points negativeYoY
    Q1 FY23

    Expected impact on year-over-year revenue performance.

    FX impact on Q4 gross margin (sequential)
    -70 bpsQoQ
    Q4 FY22

    Unfavorable impact.

    FX impact on Q4 gross margin (year-over-year)
    -170 bpsYoY
    Q4 FY22

    Unfavorable impact.

    FX impact on Q1 gross margin (year-over-year)
    -330 bpsYoY
    Q1 FY23

    Unfavorable impact.

    FX impact on Q1 gross margin (sequential)
    -120 bpsQoQ
    Q1 FY23

    Unfavorable impact.

    Industry KPIs

    7
    MetricValueDetails
    Capital return FCF$29BUSD
    Gross margin drivers42.3%%
    Company specific kpis98%%
    Market share commentary—
    Component supply constraintsNot significant
    Installed base refresh runwayAll-time high
    Revenue mix by end market segment$90.1BUSD

    Product announcements

    6
    ProductTypeDetails
    10th generation iPadlaunch
    iPad Pro with M2 chiplaunch
    Apple TV 4Klaunch
    Fitness+expansion
    High-yield savings account for Apple Cardlaunch
    Clean Energy charging feature for iPhonelaunch

    Deals & partnerships

    1
    Major League SoccerGlobal partnership

    Starting next season, fans can stream every single MLS match through the Apple TV app.

    Risks & headwinds

    5
    Foreign exchange impact on revenueQ4 FY22 and Q1 FY23

    Over 600 basis points negative impact in Q4 FY22; nearly 10 percentage points negative year-over-year impact expected in December quarter

    Mitigation: Hedging exposures, adjusting international pricing for new products

    Challenging macroeconomic environmentQ4 FY22 and Q1 FY23

    Impacted Services, particularly digital advertising and gaming softness

    Mitigation: Focus on strong ecosystem fundamentals and long-term potential of Services business

    Supply constraints for iPhone 14 Pro and Pro MaxQ4 FY22 and Q1 FY23

    Constrained since launch and continue to be constrained

    Mitigation: Working hard to fulfill demand

    Challenging compare for Mac revenueQ1 FY23

    Expected to decline substantially year-over-year in December quarter

    Mitigation: Not explicitly stated, but Q4 FY22 benefited from satisfying pent-up demand and channel fill

    Inflationary pressuresOngoing

    Wage inflation, logistics costs, certain silicon components

    Mitigation: Factored into gross margin guidance, focused on competitive compensation for teams

    Q&A highlights

    7

    How is Apple thinking about iPhone demand given higher prices and macro concerns, and what are initial observations on the iPhone 14 generation?

    iPhone demand was strong and better than anticipated, growing 10% in Q4 FY22. The iPhone 14 Pro and Pro Max are currently supply-constrained, making it difficult to determine the exact mix until demand can be fully met. Customer satisfaction remains high at 98%.

    “But since the beginning, we've been constrained on the 14 Pro and the 14 Pro Max and we continue to be constrained today. And so we're working very hard to fulfill the demand.”

    asked by Shannon Cross · answered by Timothy Cook

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Product Performance and Innovation

    Apple reported record revenue of $90.1 billion for the September quarter, exceeding expectations despite significant foreign currency headwinds🌐. This was driven by an all-time revenue record for Mac and September quarter records for iPhone and Wearables, Home and Accessories. The company highlighted strong customer demand for the iPhone 14 lineup, particularly the Pro models, which remain supply-constrained. New product launches across Mac, iPad, and Apple Watch, including the M2-powered MacBook Air and MacBook Pro, the 10th generation iPad, iPad Pro with M2, Apple Watch Series 8, SE, and Ultra, and second-generation AirPods Pro, contributed to this performance.

    02

    Services Ecosystem Expansion

    Services revenue reached a September quarter record of $19.2 billion, despite over 600 basis points of negative foreign exchange impact🌐. The installed base of active devices achieved an all-time high, providing a strong foundation for future Services growth. Apple reported more than 900 million paid subscriptions across its platform, an increase of over 155 million in the last 12 months. The company continues to invest in new content and features, including sports titles for Apple Arcade and a global partnership with Major League Soccer for Apple TV+.

    03

    Geographic Strength and Emerging Markets

    Apple achieved new revenue records across nearly every geographic segment for the quarter, including the Americas, Europe, Greater China, and rest of Asia Pacific. Emerging markets showed particularly strong double-digit growth in India, Southeast Asia, and Latin America, with India setting an all-time revenue record. This broad-based geographic strength underscores the global appeal and penetration of Apple's products and services, even amidst a challenging macroeconomic environment.

    04

    Capital Allocation and Cash Position

    The company generated $24.1 billion in operating cash flow and returned over $29 billion to shareholders during the September quarter, including $3.7 billion in dividends and $25.2 billion through open market share repurchases of 160 million shares. Apple ended the quarter with $169 billion in cash and marketable securities and a net cash position of $49 billion, continuing its progress toward becoming net-cash neutral over time⏳. The company also noted its consistent acquisition strategy, averaging about one per month in FY22, focusing on synergistic opportunities.

    05

    Inflationary Pressures and FX Headwinds

    Management acknowledged ongoing inflationary pressures, particularly in wages, logistics, and certain silicon components. These factors were considered in the gross margin guidance for the December quarter. Foreign exchange was highlighted as a significant headwind, with an expected nearly 10 percentage points of negative year-over-year impact on revenue in the December quarter. The company uses hedging strategies and, in some international markets, adjusts pricing for new products to mitigate FX effects.

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