On January 29, Apple Inc. (AAPL.US) reported its financial results for the first quarter of fiscal year 2026 (ended December 27, 2025), revealing that key metrics including total revenue, iPhone revenue, and Services revenue all reached historic highs. Against the backdrop of global tech stocks betting on the "AI + hardware replacement" cycle, market focus on Apple's holiday quarter results centered on three key areas: whether the iPhone 17's replacement cycle strength could be sustained, whether demand in China had genuinely recovered, and whether Apple could maintain its profit margins and supply cadence amidst rising memory prices and tight supply of advanced process nodes. More notably, CEO Tim Cook announced during the earnings call that Apple is collaborating with Google to develop the next-generation Apple Foundation Models, which will power a more personalized Siri set to launch later this year. This partnership marks a significant strategic shift for Apple in AI. Cook stated, "We believe Google's AI technology provides the most capable foundation for the Apple Foundation Models, and we are confident this collaboration will unlock a multitude of experiences and enable innovation in key ways."
The biggest surprise this quarter came from the iPhone. The product line generated revenue of $85.3 billion, a staggering 23% year-over-year increase, setting a new record. Cook described user enthusiasm for the iPhone 17 series as "staggering" and "extraordinary" during the call. Particularly, the ultra-thin iPhone Air and the performance-centric 17 Pro series directly contributed to record revenue across all geographic regions. The iPhone 17 series has become the strongest and most popular product line in Apple's history. According to a 451 Research survey, customer satisfaction for the iPhone 17 series reached 99% in the United States. Cook specifically highlighted the product's multifaceted appeal: "It's the perfect combination of performance, battery life, camera system, and design." The robust demand led to supply chain constraints. Cook candidly admitted that due to the astonishing December quarter performance which far exceeded expectations, the company's channel inventory is exceptionally lean. "We are in a supply catch-up mode to meet exceptionally high customer demand. It is currently difficult to predict when supply and demand will balance."
The performance in Greater China, a region of significant market concern previously, turned out to be the quarter's biggest positive surprise. Revenue in Greater China surged 38% year-over-year, completely dispelling earlier concerns about weak demand in the Chinese market. Cook revealed that this was the best quarter ever for the iPhone in China, with record upgrades and double-digit growth in "switchers" from the Android ecosystem. Offline store traffic surged dramatically, and iPhones captured the top three spots in smartphone sales in urban China. This data strongly reaffirms Apple's continued dominance in the premium market segment.
In the highly watched field of AI, Apple finally played a major card. Cook formally confirmed during the call that Apple is collaborating with Google on the development of the next-generation "Apple Foundation Models." This collaboration will directly support a more personalized Siri launching later this year. Cook stated that Google's AI technology will provide the most powerful foundation for Apple's foundational models, a statement that also ends market speculation about whether Apple would go it alone or leverage partnerships in the generative AI space. Following this news, market confidence in Apple's AI monetization path increased significantly.
Despite the stellar performance, Apple also faces "high-class problems." Chief Financial Officer Kevan Parekh pointed out that due to demand far exceeding expectations, the iPhone is currently in a state of significant supply constraints, which are expected to persist into the next quarter. Cook explained that the bottlenecks primarily stem from insufficient capacity at the advanced 3nm process nodes used for producing the latest SoC chips. Additionally, management warned of substantial price increases for memory chips. While the impact on Q1 FY2026 gross margin is limited, it is expected to have a more noticeable effect in Q2. However, bolstered by a higher mix of premium models and scale benefits, Apple still provided a strong Q2 gross margin guidance of 48%-49%.
Event Date: 2026/01/29 Company Name: Apple Event Description: Q1 FY2026 Earnings Call Source: Apple
Presentation Suhasini Chandramouli, Investor Relations: Good afternoon, everyone, and welcome to Apple's fiscal 2026 first quarter earnings conference call. I'm Suhasini Chandramouli, Senior Director of Investor Relations. Today's call is being recorded. Speaking first today is Apple's CEO, Tim Cook; he'll be followed by CFO, Kevan Parekh. After that, we'll open the call for questions from analysts. Please note that certain information discussed in this call today will include forward-looking statements, including without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation, and business outlook. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast, including risks associated with macroeconomic conditions, tariffs and other measures, and the potential impact of legal and regulatory proceedings on our business and operating results. For more information, please refer to the risk factors discussed in Apple's most recent Form 10-Q and 10-K, and the Form 8-K and attached press release we filed today with the SEC. More information will also be contained in our Form 10-Q for the quarter ended December 27, 2025, which we'll file tomorrow, and our other reports filed with the SEC. Apple assumes no obligation to update any forward-looking statements; these statements are made only as of their date. Now I'll turn the call over to Tim for introductory remarks.
Tim Cook, CEO: Thank you, Suhasini. Good afternoon, everyone, and thanks for joining us. I'm proud to say we just finished a quarter for the history books. We reported the best quarter in our company's history: revenue of $143.8 billion, up 16 percent year over year, and ahead of our expectations. Demand for iPhone was simply staggering, with revenue up 23 percent and reaching record levels in every geographic segment. Services also set an all-time revenue record, growing 14 percent; and EPS reached a record $2.84, growing a strong 19 percent. We set December quarter revenue records in the Americas, Europe, Japan, and Rest of Asia Pacific, and grew in the vast majority of markets we track. We continue to build momentum in emerging markets, including India, where we grew revenue at a strong double-digit rate. Greater China revenue grew 38 percent, driven by iPhone; we set a record for upgrades on iPhone and grew switchers at a double-digit rate. Apple's December quarter performance reflects our steadfast commitment to innovation, to serving our customers, and to our mission of making the best products and services in the world. Let me take a deeper look at our performance across our product lines, starting with iPhone. As I mentioned earlier, iPhone had a tremendous quarter: revenue reached a record $85.3 billion, up 23 percent. This is our strongest iPhone lineup ever and the most popular generation to date. Throughout the quarter, customer enthusiasm for iPhone was extraordinary. Users are excited about everything it can do. iPhone 17 Pro and 17 Pro Max deliver the ultimate iPhone experience: the best performance and battery life in iPhone history, the most advanced camera system, and a striking design. iPhone Air is our thinnest and lightest smartphone ever, packing powerful capability into an incredibly thin and fluid design; and iPhone 17 is a truly fantastic upgrade at an incredible value. Moving to Mac. Mac revenue was $8.4 billion in the December quarter. We're thrilled to see the Mac installed base reach another all-time high; nearly half of the customers buying a Mac were new to the product. The 14-inch MacBook Pro with M5 delivers a giant leap in AI performance, thanks to a next-generation GPU architecture and a faster Neural Engine. From MacBook Air, the world's most popular laptop for consumers and businesses, to the small-yet-mighty Mac mini, every Mac we make delivers unique value to our users. And with the recent launch of Apple Creator Studio across Mac, iPad, and iPhone, creators have more tools than ever to make brilliant music or turn their device into a video production studio. Meanwhile, iPad revenue was $8.6 billion in the December quarter, up 6 percent, with a record number of upgrades. We're proud of our strongest iPad lineup ever: from the incredibly popular iPad with A16, to the amazingly versatile iPad Air, to the unbelievably powerful iPad Pro with M5 and an incredibly thin and light design. It's no wonder iPad continues to be the world's most popular tablet. In Wearables, Home and Accessories, revenue was $11.5 billion. With Apple Watch Ultra 3 and Apple Watch Series 11, users are taking advantage of a full suite of health and wellness features that help them reach their wellness goals. In a recent survey, we saw a growing number of users saying they wear their watch to sleep, allowing them to see their sleep score each morning and find ways to improve their sleep quality. And alerts from Apple Watch have prompted important conversations with doctors, for example, about potential signs of high blood pressure. These are just some of the many ways Apple Watch helps people live healthier lives. The response to AirPods Pro 3 has been fantastic. Customers are raving about the rich, immersive sound quality, the unmatched level of Active Noise Cancellation, and the noticeably improved, almost imperceptible comfort. And features like Live Translate are transforming how people communicate: helping users connect across languages in real time, making everyday conversations more natural and easier to use. All of these innovations come together to create an experience that is both powerful and personal; and the enthusiasm we're seeing reflects how strongly AirPods Pro 3 is resonating with customers. Across our product categories, we're seeing very high customer satisfaction, and we're proud to report that our installed base reached another record, with more than 2.5 billion active devices. This quarter, we were also thrilled to see that the majority of users on supported iPhones are actively using the capabilities of Apple Intelligence. Since the launch of Apple Intelligence, we've introduced dozens of features, including writing tools and Clean Up, and made them available in 15 languages. These AI experiences are personalized, private, seamlessly integrated across our platforms, and relevant to what users do every day. We're building intelligence into more of the experiences people already love, making every experience more powerful and effortless. One of our most popular features is Visual Intelligence, which helps users learn and do more based on what's on their iPhone screen, making it faster to search across apps, take action, and get answers. As I mentioned earlier, we're also hearing many inspiring stories of people using Live Translate to communicate seamlessly across languages. These are just some of the many powerful AI features helping users do extraordinary things with our products; our products are the world's best AI platform by far. This is due in large part to the incredible computational power and performance of Apple silicon. Building on our efforts in AI, we're also collaborating with Google on the next-generation Apple Foundation Models. This will help power future Apple Intelligence features, including a more personalized Siri coming this year. We're incredibly excited about the many new experiences this will unlock. Moving to Services. We achieved a record $30 billion in revenue, up 14 percent year over year. Services also set all-time revenue records in both developed and emerging markets. Apple TV+ momentum is very strong: viewership in December was up 36 percent year over year. This is no surprise, as series like Pluribus are creating cultural moments that audiences love. And anticipation continues to build for upcoming new titles, like Cape Fear from Steven Spielberg and Martin Scorsese. We're also excited to announce that Ted Lasso will return for a fourth season this summer. Six years in, we're thrilled by the growing audience passion for Apple TV+ and grateful for the accolades that have followed, including recently at the Critics Choice and Golden Globe Awards. To date, Apple TV+ titles have earned more than 650 awards and over 3,200 nominations, including the recently announced Oscar nomination for Best Picture for the film, F1, the Movie. Speaking of F1, we're also looking forward to the new F1 season; for F1 fans in the U.S., Apple TV+ is the place to watch every practice, qualifying, sprint, and Grand Prix. MLS fans will also be able to watch every regular season and playoff match this year with an Apple TV+ subscription, and we look forward to the season kicking off in the coming weeks. Looking back, 2025 was a fantastic year for Services: we launched amazing new features and broke numerous records. Apple Music listening and new subscriptions climbed to all-time highs. Apple Pay helped our partners avoid over $1 billion in fraud losses last year, and we brought it to more markets than ever before. Last year, we welcomed more than 850 million visitors to the App Store each week on average — the world's safest and most innovative app marketplace. And since 2008, developers have earned more than $550 billion on our platform. In Retail, we continue to deliver magical experiences for customers around the world, and we were thrilled to deliver the best quarter ever for our Retail business. We opened our fifth store in India in December, and we plan to open another new store in Mumbai soon. Wherever we are, we see ourselves as part of something larger. So we bring our values to everything we do: That means working with partners in places like Vietnam to bring cleaner water to rural communities; celebrating a new class of innovators graduating from Developer Academies in Brazil, Indonesia, Korea, and more; using recycled materials to 3D print titanium Apple Watch cases that are better for the environment without sacrificing quality; and so much more. We're especially proud of the work we're doing to support American innovation. Last year, we committed to invest $600 billion over four years in critical industries like advanced manufacturing, silicon engineering, and artificial intelligence. As we continue to build on our long-term investment in the U.S., we support nearly half a million jobs through thousands of suppliers across all 50 states. We've made a lot of progress in the year since we made our initial commitment. Today, we're shipping servers that power Apple Intelligence from a new manufacturing facility in Houston. Through our Advanced Manufacturing Fund, we're working with Corning in Kentucky to produce 100 percent of the front glass for iPhone and Apple Watch. We're working with Micron, which has broken ground on a new advanced packaging and test facility; and we continue to drive an end-to-end silicon supply chain in the U.S., purchasing $20 billion of U.S. chips in 2025. And through the Apple Manufacturing Academy in Detroit, we're already training American businesses and innovators on the latest smart manufacturing and AI technologies. The Academy is just six months old and is already having an incredibly positive impact: businesses are working side-by-side with Apple engineers to drive productivity, efficiency, and quality improvements in their supply chains. As I said at the top, by many measures, this was an extraordinary quarter for Apple. We're excited about the unprecedented opportunities for innovation we'll bring in the year ahead, and we'll continue to enrich users' lives one step at a time. There's so much to look forward to in the weeks and months ahead, and I'm very confident our best work is still ahead of us. Now I'll turn the call over to Kevan.
Kevan Parekh, Senior Vice President and CFO: Thank you, Tim. Good afternoon, everyone. Our revenue for the quarter was $143.8 billion, up 16 percent year over year, making this the best quarter in our history. We set all-time revenue records in both developed and emerging markets around the world. We grew double digits year over year in the majority of markets we track, including the U.S., Latin America, Western Europe, Greater China, India, and South Asia. Product revenue was $113.7 billion, up 16 percent, driven by double-digit growth in iPhone and setting a new record. As Tim mentioned, our active installed base of devices surpassed 2.5 billion, reaching new all-time highs across all product categories and geographic segments, thanks to our strong customer loyalty and satisfaction. Services revenue was $30 billion, up 14 percent. The performance was again broad-based, with double-digit growth in nearly every market we track. We set all-time revenue records in Advertising, Cloud Services, Music, and Payment Services, and the App Store and Video also set December quarter records. Company gross margin was 48.2 percent, above the high end of our guidance range and up 100 basis points sequentially, driven by favorable product mix and leverage. Product gross margin was 40.7 percent, up 450 basis points sequentially, also driven by favorable product mix and leverage. Services gross margin was 76.5 percent, up 120 basis points sequentially, driven primarily by structural factors. Operating expenses were $18.4 billion, up 19 percent, within the range we provided, driven by increased investment in R&D. Net income was $42.1 billion, and diluted earnings per share were $2.84, up 19 percent. Both net income and diluted EPS reached all-time records. These exceptionally strong business results also drove record operating cash flow of $53.9 billion. Let me now provide more detail for each revenue category. iPhone revenue was $85.3 billion, up 23 percent, driven by the iPhone 17 family. iPhone was strong around the world, setting all-time revenue records in several markets we track, including the U.S., Greater China, Latin America, Western Europe, the Middle East, Australia, and South Asia, and setting a December quarter record in India. The active installed base for iPhone grew to a new all-time high, setting records for upgrades both overall and in several countries, including the U.S., mainland China, Japan, and India. According to a recent survey from Worldpanel, iPhone was the bestselling smartphone in the U.S., Tier 1 cities in China, the U.K., Australia, and Japan. Customers love the latest iPhone lineup. According to measurement by 451 Research, the latest U.S. customer satisfaction score for the iPhone 17 family is 99 percent. Mac revenue was $8.4 billion, down 7 percent. As we mentioned on our last call, we faced a very difficult compare from the year-ago launch of the M4 MacBook Pro, Mac mini, and iMac. Despite this, we continued to grow in several emerging markets, including Brazil, India, Malaysia, Vietnam, and more. As Tim mentioned earlier, the Mac installed base reached another all-time high, and nearly half of the customers buying a Mac were new to the product. In the U.S., customer satisfaction for Mac is 97 percent. iPad revenue was $8.6 billion, up 6 percent, driven by the iPad Pro with M5 and the iPad with A16. We continue to attract new users. In fact, more than half of the customers buying an iPad this quarter were new to the product. This drove the iPad installed base to a new all-time high, along with a record number of upgrades. According to the latest report from 451 Research, U.S. customer satisfaction for iPad is 98 percent. Wearables, Home and Accessories revenue was $11.5 billion, down 2 percent. We faced supply constraints on AirPods Pro 3 during the quarter, and we believe the category would have grown overall absent these constraints. The installed base for Wearables reached a new all-time high, and more than half of the customers buying an Apple Watch this quarter were new to the product. In the U.S., customer satisfaction is 96 percent. Services revenue reached an all-time high of $30 billion, up 14 percent. As mentioned, we set all-time revenue records in Advertising, Music, Payment Services, and Cloud Services, with paid subscriptions growing double digits. We remain very confident in the future of our Services business. With an installed base of over 2.5 billion active devices, we have an incredibly strong foundation for new growth. This quarter, we set new all-time highs for both transacting and paid accounts, and customer engagement continues to increase. We're also continuing to enhance the quality and breadth of our services. From the digital ID feature in Wallet, which allows users to create an ID using their U.S. passport information and store it in their wallet, to new ad placements in App Store Search, giving advertisers more ways to drive downloads through search. Moving to enterprise. Businesses continue to scale their Apple device fleets to increase productivity while maintaining security. Snowflake has deployed more than 9,000 Macs company-wide, establishing Mac as the primary laptop across all business units, leading to improved performance and fewer support tickets. AstraZeneca is deploying more than 5,000 iPad Pros with M5 for its pharmaceutical sales team to take full advantage of AI capabilities, including Apple Intelligence, during daily meetings with clinicians. And in Mexico, Coppel, the country's largest retailer, recently added MacBook Air and now has an iPad fleet of over 10,000 devices. Turning to our cash position and capital return program. We ended the quarter with $145 billion in cash and marketable securities. We repaid $2.2 billion of maturing debt and reduced commercial paper by $6 billion, resulting in total debt of $91 billion. Net cash was therefore $54 billion at quarter end. We returned nearly $32 billion to shareholders during the quarter, including $3.9 billion in dividends and equivalents, and $25 billion through the open market repurchase of 93 million Apple shares. Looking ahead to the March quarter, I'll review our guidance, which includes forward-looking information. It's important to emphasize that our assumptions include no change to global tariff rates, policies, and application as of the date of this call, and no further deterioration in the global macroeconomic outlook. We expect March quarter total company revenue to grow between 13 percent and 16 percent year over year. This guidance incorporates our best estimate of iPhone supply constraints. We expect Services revenue growth to be similar to the December quarter. We expect gross margin to be between 48 percent and 49 percent. We expect operating expenses to be between $18.4 billion and $18.7 billion, similar to the December quarter, with the year-over-year increase driven primarily by higher R&D. We expect OI&E to be about $100 million, excluding the impact of mark-to-market adjustments of minority investments, and our tax rate to be about 17.5 percent. Finally, our Board of Directors has declared a cash dividend of $0.26 per share, payable on February 12, 2026, to shareholders of record as of February 9.
Questions and Answers Operator: Certainly. We'll take our first question from Amit Daryanani from Evercore. Amit Daryanani, Analyst: Okay, I have two. First, there's a lot of focus right now on memory for handset vendors. I was hoping you could talk about, as you raise your March quarter gross margin guide for the first time: One, how confident are you in securing the memory you need for your shipments? And two, how will memory price increases flow through Apple's cost model over time? Tim Cook, CEO: Yeah, Amit, hi, it's Tim. Let me step back and address your two questions together, starting with the supply constraints Kevan mentioned and the memory issue. First, we're thrilled with the customer response to the latest iPhone lineup, which frankly was well ahead of our expectations, with iPhone growing 23 percent. That resulted in us exiting the December quarter with very low channel inventory because the demand level was just staggering. Based on that, we're currently in a supply catch-up mode to meet very high customer demand. We are currently supply constrained, and at this stage, it's difficult to predict when supply and demand will balance. The constraints are primarily around capacity availability for the advanced nodes used in our SoCs. We have less flexibility in the supply chain than normal, partly due to the demand significantly exceeding our expectations, as I mentioned. From a memory perspective, to answer your question, the impact on Q1, the December quarter gross margin, was very limited. We do expect memory to have a more noticeable impact on gross margin in Q2, and that is incorporated in the 48 percent to 49 percent guide Kevan provided earlier. Beyond Q2, we obviously don't guide beyond the current quarter, but we are seeing memory pricing in the market increase significantly. As always, we evaluate a range of options. Hope that gives you a complete picture. Amit Daryanani, Analyst: Great, thanks, Tim, that's very clear. My second one is on the strength in China. It's getting very close to your all-time high revenue there. What's driving that? And is the growth rate seen in the December quarter sustainable? Thanks. Tim Cook, CEO: Sure. Greater China grew 38 percent, driven by iPhone, where we set an all-time record for iPhone revenue; it was the best iPhone quarter ever in Greater China. It was entirely driven by customer enthusiasm for the iPhone 17 lineup. I would also tell you that retail store traffic in China was up a strong double digits year over year during the quarter. It was a terrific quarter. Our installed base set a new all-time high in both Greater China and mainland China, we set a record for upgrades, and we grew switchers at a strong double-digit rate. According to a Worldpanel survey, iPhone was a top-three smartphone in Tier 1 cities in China during the quarter. Overall, it's really driven by product strength and customer response to the product. Additionally, outside of iPhone, the majority of customers buying a Mac, iPad, and Apple Watch were still new to those products, which is very positive. According to the same survey, iPad was the bestselling tablet in Tier 1 cities in China. According to Counterpoint, MacBook Air was the bestselling laptop model in the December quarter, and Mac mini was the bestselling desktop. So, overall, a terrific quarter in China, and we're thrilled with it. Suhasini Chandramouli, Investor Relations: Great. Thank you, Amit. Operator, next question please. Operator: Next question comes from Erik Woodring from Morgan Stanley. Erik Woodring, Analyst: Very good, thanks for taking my question. Tim, congrats on the Google partnership announcement, we're all looking forward to the products later this year. As I think about your AI strategy, clearly there's incremental cost, we're seeing that in opex. Can you help us understand the revenue upside potential from AI? Many of your competitors have integrated AI into devices, but it's not clear how much incremental monetization AI is driving. Apple has been very disciplined on investment, you have differentiated products, so how do you monetize AI? And what's the timeline for ROI? And then I have a quick follow-up. Tim Cook, CEO: I would say we're building intelligence into more of the experiences people love, and integrating it throughout the OS in a personal and private way. I think that creates tremendous value and opens up a range of opportunities for our products and services. And we're also very happy with the Google partnership. Erik Woodring, Analyst: Very helpful. Tim Cook, CEO: We—we're very happy with it. Erik Woodring, Analyst: Okay, thank you, Tim. So my follow-up then is, now that you have more time and data to assess this cycle, can you talk about the key drivers of iPhone strength? If you had to pick one or two most critical factors, what are they? And how sustainable do you think those factors are? Tim Cook, CEO: I think it's different for different user groups, depending on what device they're coming from. But it's always a combination: the display, the camera, the performance, the new front camera, the design—the design is loved by users. It's the combination of all those things at once that makes for a very strong cycle, which is reflected in our December quarter. Erik Woodring, Analyst: Great, thank you, Tim, best of luck. Tim Cook, CEO: Thanks. Suhasini Chandramouli, Investor Relations: Great. Thank you, Erik. Operator, next question please. Operator: Next question comes from Michael Ng from Goldman Sachs. Go ahead. Michael Ng, Analyst: Very good, afternoon. Thanks for taking my question. I have two as well. First, the 13%–16% revenue growth guide for the March quarter is encouraging to hear. I wanted to understand, as we think about the product categories, are there any particular year-ago compares to call out? I know last year you launched the M4 MacBook Air, iPhone 16E, the A16 iPad, and the iPad Air with M3. Wondering if those create tougher comps or if it's less noticeable in the current new product cycle? Thanks. Kevan Parekh, Senior Vice President and CFO: Yeah, Mike, it's Kevan. How are you? Thanks for the question. I wouldn't say there are any particular compares to call out. As you recall, last quarter we called out a very difficult compare for Mac, but nothing reaches that level that we're highlighting in our guide now. So I think it's just a continuation of the strong product cycle we're seeing, obviously impacted by the supply constraints I mentioned in my prepared remarks and Tim mentioned earlier. Michael Ng, Analyst: Great. And my second one is on Services. Advertising was strong in the quarter. I wanted to ask about new growth opportunities in advertising. I know you added new ad placements in App Store Search. Can you talk a bit more about that direction? And are there plans to expand ads into other products like Maps or TV? Thanks. Tim Cook, CEO: Sure, Michael. If I take a step back, as we said, we saw very good, broad-based performance across Services, spanning Advertising, Music, Payment Services, and Cloud Services, all setting revenue records. So I think we see good opportunities across multiple service categories, and we continue to launch new service capabilities. We mentioned the new digital ID in Wallet, you mentioned the new ad placements in App Store Search, which we're excited about, it gives advertisers more ways to be discovered. So I think we'll continue to look for opportunities that add value for users and also create more opportunities for Apple. As we said, hitting the 2.5 billion active device milestone provides a very exciting opportunity for our Services business. Michael Ng, Analyst: Great, thanks for the color, Kevan. Kevan Parekh, Senior Vice President and CFO: Okay, thanks. Suhasini Chandramouli, Investor Relations: Thank you, Mike. Operator, next question please. Operator: Next question comes from Ben Reitzes from Melius. Go ahead. Ben Reitzes, Analyst: Hey, guys, how are you? Tim Cook, CEO: Hi, Ben. Ben Reitzes, Analyst: Hi, Tim. My first question is back on the Google partnership. I wanted to understand the decision-making process, particularly around AI and Siri. Is there a potential for a revenue share opportunity similar to search? Thanks. Tim Cook, CEO: We basically believe that Google's AI technology provides the most capable foundation for the Apple Foundation Models. We believe that through this collaboration, we can unlock a multitude of experiences and innovate in important ways. We will continue to run on-device and run in private cloud compute, while maintaining our industry-leading privacy standards. Regarding the specific terms of the arrangement with Google, we're not disclosing those details. Ben Reitzes, Analyst: Ah, okay, I figured you'd say that. My second question is on gross margin. I've got to say, I'm really stunned. Tim, hats off to you, 48%–49%. How are you doing that with NAND and memory prices going up? Is it mix improvement, higher Services mix, higher Services margin? How are you sustaining 48%–49% in that backdrop? Kevan Parekh, Senior Vice President and CFO: Yeah, Ben, it's Kevan. How are you? Let me start with Q1 gross margin. We delivered 48.2% in Q1, slightly above the high end of our guide, up 100 basis points sequentially. If you look at that performance, we mentioned it was driven by favorable product mix. You know, when we have a strong product cycle and iPhone pricing is good, that typically leads to a more favorable mix and leverage. We're in a strong iPhone cycle, as Tim described, and that's reflected in product gross margin, which was up 450 basis points sequentially. Services continue to contribute as well, that business is growing double digits, so that's a factor. On the guide, the range is similar to the December quarter, with some puts and takes. We expect the Services mix to continue to increase, which it typically does from Q1 to Q2, but that will be partially offset by seasonal deleverage. All in, we feel good about the 48%–49% guide. Ben Reitzes, Analyst: Amazing. Thanks. Suhasini Chandramouli, Investor Relations: Okay, thank you, Ben. Operator, next question please. Operator: Next question comes from David Vogt from UBS. David Vogt, Analyst: Very good, thanks for taking my question. Tim or Kevan, if we take a step back, can you help us understand how you're thinking about overall smartphone demand, particularly in the context of memory pricing trends? We're hearing concerns from other OEMs and component suppliers, including component availability issues, and whether pricing actions to offset cost increases could dampen demand. I know you don't give full-year guidance, but how are you weighing those different factors and what they might mean for overall smartphone market demand for the rest of the year, and ultimately for iPhone demand? Tim Cook, CEO: On the supply side, I've already made some comments on the supply constraints for Q2, which are reflected in Kevan's earlier revenue guide. As I mentioned, those constraints are around capacity for the advanced nodes, essentially a function of Q1 iPhone growing 23%, well ahead of our internal expectations, and having less flexibility in the supply chain for a period of time. Beyond Q2, I'm reluctant to comment on supply, as it's a function of many moving parts in the industry. On memory pricing, I've already commented. On the demand side, we believe we gained share in the December quarter based on the information we have. Clearly, the overall market didn't grow 23%, so we feel good about that. But I wouldn't want to predict how the market will react going forward, it's very difficult. David Vogt, Analyst: Understood. And if I can just follow up quickly, you mentioned you'd consider a range of options on memory. How should we think about the role of LTAs in the current market? Is that a viable option or is it more spot purchasing? Just trying to better understand the dynamics. Kevan Parekh, Senior Vice President and CFO: It's a range. We won't get more specific than that. There are different levers, and it depends on the effectiveness, but there is a range of options. David Vogt, Analyst: Okay, thank you both. Kevan Parekh, Senior Vice President and CFO: Mhm. Suhasini Chandramouli, Investor Relations: Good, thank you, David. Operator, next question please. Operator: Next question comes from Wamsi Mohan from Bank of America. Wamsi Mohan, Analyst: No problem, thanks. Tim, on Services, you did 14% growth, and you mentioned the App Store had a record December quarter. But third-party data suggests App Store growth slowed significantly, maybe to 7%, which is a discrepancy from your 14%. Can you confirm that? If so, what are the drivers? And what might you do to reverse that trend? I have a follow-up. Kevan Parekh, Senior Vice President and CFO: Wamsi, it's Kevan. We'd reiterate that the App Store had a record quarter this quarter. As you know, we don't provide performance for individual services. But looking at the overall business, we saw broad-based growth across service categories and geographies, setting records in both developed and emerging markets, all growing double digits. So we won't provide more specifics at the sub-service level. Wamsi Mohan, Analyst: Okay, thank you, Kevan. Back to memory pricing. Historically, Apple has rarely used pricing as a lever unless there's extreme FX moves. But in this unprecedented memory price increase backdrop, is pricing a lever you'd be willing to consider? Tim Cook, CEO: I don't want to speculate on that. Wamsi Mohan, Analyst: Okay, thanks. Tim Cook, CEO: Mhm. Suhasini Chandramouli, Investor Relations: Thank you, Wamsi. Operator, next question please. Operator: Next question comes from Samik Chatterjee from JPMorgan. Samik Chatterjee, Analyst: Hi, thanks for taking my question. First question is on your Q1 CapEx, which slowed down versus last quarter. I wanted to understand if the collaboration with Google on Gemini and the next-gen Apple Foundation Models has any near-term impact on your plans for using Apple private cloud compute? I know you've emphasized the importance of private cloud long term, does this collaboration change that? I have a follow-up. Kevan Parekh, Senior Vice President and CFO: Sure, it's Kevan. As Tim said, we're not providing further details on the Google partnership. On CapEx, as you know, we use a hybrid model, so CapEx can be volatile and doesn't always correlate directly with business performance. CapEx includes several things, including tooling, facilities, retail investment, and data centers. We use a combination of owned and third-party capacity for data centers. So it's difficult to draw conclusions from a single quarter's CapEx. We did build out for the private cloud compute environment last year, which was reflected in the December quarter. Samik Chatterjee, Analyst: Got it. My follow-up is on product gross margin. You mentioned the improvement was largely mix. Can you specify the mix difference for iPhone 17 versus 16? Did tariffs play a role? And your expectation for tariffs next quarter? Kevan Parekh, Senior Vice President and CFO: There are a couple of things here. First, on overall product gross margin, we mentioned it was driven by favorable product mix and leverage. Given the strength of the current iPhone cycle, that favorability is likely higher than in previous cycles. Second, Q1 typically sees the impact of new product cost structures, but here we saw mix and leverage offsetting that. On tariffs, our previous guide for the December quarter was about $1.4 billion impact, and the actual result was roughly in line. Samik Chatterjee, Analyst: Thanks. Suhasini Chandramouli, Investor Relations: Very good, thank you, Samik. Operator, next question please. Operator: Next question comes from Krish Sankar from TD Cowen. Krish Sankar, Analyst: Hi, thanks for taking the questions. First one for Tim. You mentioned the collaboration between Gemini and Apple Foundation Models. How should we think about the functional split between Apple's own models and third-party models? Will Apple Foundation Models evolve into different tiers within the AI software stack? I have a follow-up. Tim Cook, CEO: You should think of it as a collaboration. We'll continue our own work independently, but the more personalized Siri will be powered by the collaboration with Google. Krish Sankar, Analyst: Understood. My follow-up is, given the memory shortage is affecting both smartphones and PCs, and Apple has stronger purchasing power, do you see this as an opportunity to gain share in iPhone and Mac, squeezing competitors? Tim Cook, CEO: I don't want to comment further on that. We mentioned iPhone gained share in the December quarter, and for full-year 2025, we believe Mac gained share as well. We feel very good about our positioning. Krish Sankar, Analyst: Thanks, Tim. Tim Cook, CEO: Mhm. Suhasini Chandramouli, Investor Relations: Thank you, Krish. Operator, next question please. Operator: Next question comes from Atif Malik from Citi. Atif Malik, Analyst: Hi, thanks for taking my question. First one for Tim. Some industry watchers are comparing the iPhone 17 upgrade cycle to 2020–2021, when iPhone 12 users started upgrading. Do you agree with that view? And what has been the impact of Apple Intelligence on upgrade rates? Tim Cook, CEO: I think every iPhone cycle is unique, and I wouldn't compare it to any specific one. The iPhone 17 family is a unique product, combining many highly attractive features, and it's performing exceptionally well. Kevan Parekh, Senior Vice President and CFO: I'll add that we have a large and diverse installed base, and this product is resonating strongly across multiple user cohorts. Atif Malik, Analyst: Thanks. A quick follow-up on the supply constraints. You typically get priority at foundries, so a bit surprised by the advanced packaging constraints. How long could these last? And to what extent are they limiting your ability to meet true demand? Tim Cook, CEO: It's difficult to accurately gauge true demand when you can't fulfill all of it. To be clear, the constraints are primarily around advanced nodes like 3 nanometer, which is the core reason for Q2 supply constraints. This is a direct result of Q1's 23% growth being well ahead of expectations and having limited supply chain flexibility in the short term. I don't want to predict when supply and demand will balance. Atif Malik, Analyst: Very helpful, thanks. Suhasini Chandramouli, Investor Relations: Thank you, Atif. Operator, next question please. Operator: Next question comes from Aaron Rakers from Wells Fargo. Aaron Rakers, Analyst: Thanks. First question is on India. You mentioned strength in China, but also called out India. Can you talk about the iPhone development in India and the opportunity you see in that huge market? Tim Cook, CEO: We set a December quarter record in India, with quarterly records for iPhone, Mac, and iPad, and Services also set a record. India is the second-largest smartphone market and the fourth-largest PC market globally, and our share is still relatively low, so the opportunity is huge. The majority of customers buying Apple products there are still new to the product. Kevan Parekh, Senior Vice President and CFO: Our installed base in India also grew at a strong double-digit rate. Aaron Rakers, Analyst: Follow-up on custom silicon. Do you view deepening custom silicon capabilities as an underappreciated gross margin lever? Will you further internalize more silicon capabilities going forward? Tim Cook, CEO: Apple Silicon is a huge transformative advantage. Kevan Parekh, Senior Vice President and CFO: Custom silicon provides not only cost benefits but also differentiation and roadmap control, which positively impacts gross margin. Aaron Rakers, Analyst: Thanks. Suhasini Chandramouli, Investor Relations: Great, thank you. Operator, last question please. Operator: Our last question comes from Richard Kramer from Arete Research. Richard Kramer, Analyst: Tim, how do you see the evolution of AI between on-device and the cloud? And do you have sufficient data center capacity to support a broad rollout of Siri without a significant CapEx increase? Tim Cook, CEO: We see both on-device and private cloud compute as equally important; it's one of our differentiators. On capacity, we've done our best to plan and build. Richard Kramer, Analyst: You mentioned 2.5 billion active devices, but Apple Intelligence only supports from iPhone 15 Pro onwards. Can you give a rough idea of the percentage of the installed base that is AI-capable today? Has that impacted the pace of the AI rollout? Kevan Parekh, Senior Vice President and CFO: We don't provide specific numbers, but it's a growing percentage. Richard Kramer, Analyst: Okay, had to try. Thanks. Suhasini Chandramouli, Senior Director of Investor Relations: Okay. Thanks, Richard. A replay of today's call will be available for two weeks on Apple Podcasts and as a webcast on apple.com/investor, and also available by telephone. The telephone replay number is 866-583-1035. Please enter the confirmation code 890-2968, then press the pound key. These replays will be available by approximately 5:00 p.m. Pacific Time this evening. Media members with additional questions can contact Josh Rosenstock at 408-862-1142, and financial analysts can contact me, Suhasini Chandramouli, at 408-974-3123. Thanks again for joining us today. Operator: That does conclude today's conference call. We thank you for your participation.
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