Apple's new CEO delivered a record-breaking September quarter revenue result, but disappointing Greater China performance, holiday-quarter margin pressure, and an imbalanced foldable supply-demand picture dampened Wall Street's optimism.
Apple reported fiscal fourth-quarter revenue of $114.477 billion, up 11.7% year over year, surpassing the roughly $113.47 billion expected by Wall Street and exceeding the company's prior growth guidance range of 9% to 11%.
Revenue beat analyst expectations, but weak Greater China sales and a holiday-quarter outlook below some optimistic forecasts weighed on the stock, which fell about 4% in after-hours trading.
New CEO John Ternus then made his first appearance on the earnings call, characterizing the China market as having "a lot of momentum" and saying the production ramp for the foldable iPhone Duo was progressing smoothly, though supply constraints would continue to pressure the current quarter.
Memory pricing pressure was the recurring central theme of the call. Management said current memory price trends are "unprecedented," noting the company has raised prices across Mac, iPad, and iPhone to partially offset costs, while manufacturing purchase obligations increased by $33 billion from the June quarter to the September quarter.
The December quarter gross margin guidance range of 45% to 46% represents a notable decline from the September quarter's 47.9%, which management attributed primarily to higher memory costs and cloud inference expenses tied to the Siri AI rollout.
Additionally, Ternus articulated the monetization path for Siri AI for the first time. He revealed that server-dependent features, including Siri AI and intelligent photo editing, will have usage caps in the future, with users needing higher capacity able to purchase expanded access, folded into the iCloud+ subscription framework.
Mixed Results: Record Total Revenue, Greater China Falls Short
On the whole, Apple delivered a strong quarter.
Total fourth-quarter revenue reached $114.5 billion, up 12% year over year, exceeding Wall Street's prior estimate of $113.47 billion. iPhone revenue reached $57.58 billion, also beating the $56.49 billion consensus.
Worldpanel survey data showed iPhone ranked among the best-selling models in the U.S., urban China, India, the U.K., Germany, Australia, and Japan. In assessing the results, new CEO Ternus was generous with praise, saying Apple was proud to report a record September quarter revenue of $114.5 billion, up 12% year over year, calling it a perfect finish to the company's best fiscal year ever and noting Apple was closing the year with its most ambitious product lineup to date.
However, market attention quickly shifted to Greater China performance. Data showed Apple's fourth-quarter Greater China revenue was $17.54 billion, nearly $1 billion short of the $18.75 billion consensus estimate.
Pressed by analysts on the China market, Ternus gave an optimistic response, saying the company was very pleased with its performance in Greater China, driven primarily by iPhone and Mac.
He also mentioned a recent trip by the executive team to China, emphasizing there is "a lot of momentum there." But Bloomberg analysis noted that the Greater China shortfall was largely because the highly anticipated foldable iPhone Duo could not be fully supplied during the reporting period.
AI Monetization Path Emerges: Usage Caps and the "Dream Siri"
On the AI strategy that the market is watching closely, CEO John Ternus called the latest AI-powered Siri a "new chapter" for the company, repeatedly emphasizing on the call that this was the Siri "we always wanted."
For investors wondering how AI will generate revenue, Apple laid out a clear path: cloud AI limits will become a services driver.
Ternus reiterated that certain server-based AI features will have usage caps. The direct aim of this strategy is to push heavy users who want to exceed default usage limits toward subscribing to iCloud+.
However, Wall Street did not seem entirely convinced by Apple's AI narrative. When asked whether AI agents might disrupt Apple's services business in the future and when Apple could launch an agent beyond simple Q&A, Ternus chose to sidestep. He said only that Siri is currently request-based but that Apple sees opportunities to expand its capabilities over time, and that the most important thing is protecting people's data.
On services, Apple reported fourth-quarter services revenue of $31.57 billion, up about 10% year over year, roughly in line with expectations. But CFO Kevan Parekh guided next-quarter services revenue growth of only "8% to 9% year over year," which analysts interpreted as a signal that growth in this high-margin business is slowing.
Supply Chain Pressure and Forward Guidance: Memory Costs "Unprecedented," Foldable Ramp Still Underway
For the upcoming December holiday quarter, Apple issued relatively positive overall revenue guidance. CFO Parekh said the company expects total December-quarter revenue to grow 7% to 10% year over year, reflecting its best estimate amid supply constraints, and that this should be the highest-revenue quarter in company history.
CFO Kevan Parekh further noted that Siri AI's cloud inference costs will be recorded in cost of services sales, using the same deferred recognition method as Maps, Siri, and iCloud, amortized over the device usage cycle after sale, which will drag somewhat on December-quarter hardware gross margin.
Parekh warned that December-quarter gross margin would be between 45% and 46%, below the 47% analysts expected and significantly below the over-50% level in the June quarter.
The core pain points pressuring gross margin are costs and supply chain. Ternus said on the call that rising memory costs are "unprecedented" and warned that the December quarter will face even greater memory cost pressure.
To cope, Apple's purchase obligations increased by $33 billion over the past few months. COO Sabih Khan, participating in the earnings Q&A for the first time, added that supply chain constraints will continue to ease as Apple transitions more product lines to 2-nanometer chips.
Regarding the hotly demanded foldable iPhone Duo, management acknowledged the supply-demand imbalance. COO Sabih Khan said Apple was excited by the initial market response and that the Duo ramp is "progressing well," but candidly admitted that at this moment it is hard to predict when supply and demand will come into balance.
Capital Returns Remain Steady, Cash Policy More Flexible
Apple reported fourth-quarter net income of $30.7 billion and diluted earnings per share of $2.10, up 14% year over year, including a $0.05 favorable impact from tariff refunds. Operating cash flow was $28.1 billion.
At quarter end, Apple held $137 billion in cash and marketable securities, with total debt of $80 billion. The company returned $28 billion to shareholders during the quarter, including $3.9 billion in dividends and equivalents and $24 billion in share repurchases.
The board declared a cash dividend of $0.27 per share, payable on November 16, 2026, to shareholders of record as of November 12.
Kevan Parekh reiterated that Apple no longer targets net cash neutrality, instead evaluating cash and debt positions independently to maintain flexibility. The company's capital allocation principles remain prioritizing investment in the business and returning excess cash to shareholders.
Analysts suggest that for investors, the key variables ahead will be the pace of iPhone Duo supply improvement, memory cost trends, and whether Siri AI can translate costs into upgrade and services revenue growth.
Full Transcript of Apple's Q4 Earnings Call (AI-Assisted Translation)
Director of Investor Relations Suhasini Chandramouli: Good afternoon, and welcome to Apple's fiscal 2026 fourth-quarter earnings conference call. I'm Suhasini Chandramouli, head of Investor Relations. This call is being recorded.
Today, Apple CEO John Ternus will speak first, followed by CFO Kevan Parekh. After that, we will open the call for analyst questions.
Please note that today's discussion will include forward-looking statements, including but not limited to revenue, gross margin, operating expenses, other income and expense, taxes, and future business outlook. These statements involve risks and uncertainties that could cause actual results or trends to differ materially, including macroeconomic conditions, tariffs and other measures, and legal and regulatory proceedings affecting the company's business and operating results.
For more information, please refer to the risk factors discussed in Apple's most recent Form 10-Q and Form 10-K filings, as well as the Form 8-K filed with the SEC today alongside the related press release. More information will also be included in our Annual Report on Form 10-K for the fiscal year ended September 26, 2026, which we will file tomorrow, and other reports and filings with the SEC. Apple assumes no obligation to update any forward-looking statements, which speak only as of the date they are made.
With that, I'll hand the call over to John for his opening remarks.
CEO John Ternus: Thank you, Suhasini. Good afternoon, everyone, and thank you for joining us. This is my first time meeting all of you as Apple's CEO, and it is a great honor. I am privileged to represent our teams and the work they do every day.
Apple is pleased to report September quarter revenue of $114.5 billion, up 12% year over year, a September quarter record. This helped Apple deliver its best fiscal year ever for revenue and earnings per share. This is an exciting moment in Apple's history. We just completed one of the busiest product launch periods in the company's history, with remarkable innovation across every product line.
One of the most notable achievements is the all-new iPhone Duo, the most transformative iPhone since the original. We are equally excited about iPhone 18 Pro and 18 Pro Max, which deliver major leaps in camera, battery life, and performance, the features users value most.
At the same time, touch came to the Mac for the first time, on the all-new MacBook Pro. We were also pleased to launch the new iMac and 14-inch MacBook Pro. The new iPad mini features a stunning OLED display, bringing an ultra-thin design to the smallest member of the iPad family.
Apple Watch now gives users an unprecedented window into heart health. We introduced AirPods 5, delivering industry-leading active noise cancellation in an open design. We also laid the foundation for a smarter smart home experience with the new HomeView, Apple TV 4K, and HomePod mini.
In addition, we are unlocking more powerful AI experiences across our entire product line, including the all-new Siri AI, a powerful, deeply personalized assistant seamlessly integrated across our platforms. Like all our products, Siri AI has privacy protections built in, so no one can access user data, including Apple itself.
We launched the Siri AI beta for U.S. English users in September and expanded it to French, Japanese, Korean, Portuguese, and Spanish users in October. We are very excited about these innovations, and there is much more to come.
Looking ahead, I am confident in Apple's opportunities, from our product roadmap and broad services lineup to promising areas like health, emerging markets, enterprise, and education.
One concrete example: we recently reached Apple's largest ever education Mac agreement with the Philippine Department of Education, deploying 170,000 MacBook Neo devices for teachers and staff. Opportunities like this bring more users into our ecosystem and drive overall business growth.
Apple is the greatest company in the world. We have outstanding people, top engineers, designers, developers, and experts across supply chain, retail stores, and every area of the business. Every day, we bring together the best people and the best ideas to build products and services that change lives, guided by a set of core values and the belief that the best technology should make the world a better place.
We live this belief by building products that are powerful, intuitive, and meet Apple's rigorous standards for quality, performance, design, and durability. That is the Apple experience users love. With our latest lineup, people have more reasons than ever to upgrade or switch to Apple.
At the same time, Apple services amplify the value of every device, helping people work, play, listen, watch, and connect with the world around them. I am very pleased with where the services business stands and where it is headed. With an installed base of over 2.5 billion active devices, I look forward to expanding our services offerings and improving lives around the world.
We also see a huge opportunity in AI. Siri AI marks a new chapter for Apple in AI. It is a completely rebuilt assistant, powerful, personalized, privacy-focused, and deeply relevant to users' daily lives. Siri AI can capture user-relevant information, understand what is on screen, and hold natural conversations to help users handle everyday tasks. This is the Siri we always wanted. We are very pleased with the reviews and feedback, and excited that more and more users can experience it.
iPhone remains at the core of our strategy as an intelligent personal hub that stays with users, understands their personal context, from messages, photos, notes to apps, and delivers powerful intelligent services exactly when needed.
Mac is also entering its own AI era. Mac is the product that brought me to Apple, and it has opened a world of possibilities for me over the years. More than 40 years after the first Mac, this product line is enjoying its greatest moment, with every Mac in our latest lineup a powerful AI platform. Mac mini and Mac Studio especially push the boundaries of local private AI, letting users achieve things previously unimaginable.
From Mac to iPhone to iPad, we are proud that our products are the industry's best AI platforms, whether for first-party or third-party apps, and we are excited about the opportunities this brings.
Everything Apple does ultimately comes back to our users. The success of every innovation is ultimately measured by its impact on people's lives. That is what drives us to keep building great products and delivering them to users around the world.
Now let's take a deeper look at the quarter's results. As I said, Apple performed well this quarter. Along with record September quarter and fiscal year total revenue, iPhone set a September quarter revenue record, capping its best fiscal year ever.
Services also set an all-time record this quarter, adding to our best ever services fiscal year. We grew in the vast majority of markets we track, setting September quarter revenue records in the Americas, Europe, Greater China, and the rest of Asia Pacific. We also set September quarter records in both developed and emerging markets, and an all-time record in India.
iPhone:
iPhone revenue was $57.6 billion this quarter, up 17% year over year, despite supply constraints and foreign exchange headwinds. We achieved strong double-digit growth in the U.S. and Greater China, reaching September quarter revenue records. Global upgrade users also set a record this quarter, with all-time highs in the U.S., mainland China, and India, helping us deliver our best ever fiscal year for global upgrades.
At the September launch, we introduced the all-new iPhone Duo. From the start, we knew exactly what we wanted to build: a foldable device with a larger display and an iPad-like natural, intuitive form factor. We co-designed hardware and software so it looks unmistakably like an iPhone while pioneering entirely new ways to use it. The result is a set of remarkable innovations that we believe will redefine the boundaries of foldable phones.
We are deeply proud of what the team achieved. Developers are quickly adapting to this new form factor, and more apps are being optimized for iPhone Duo, which is exciting. Early feedback from reviewers and users is encouraging, and we are working hard to get iPhone Duo into more consumers' hands as quickly as possible.
We are equally pleased with the market response to iPhone 18 Pro and Pro Max. The reasons consumers love them are obvious. Our latest models feature a significantly upgraded camera system with breakthrough improvements like variable aperture and new photographic styles. The A20 Pro chip combined with a next-generation vapor chamber delivers the highest sustained performance ever in an iPhone. iPhone 18 Pro Max also achieves the largest battery life improvement in iPhone history. The A20 Pro also features a new dual 16-core neural engine, accelerating on-device AI and computational photography.
Mac:
Mac revenue was $10.8 billion this quarter, up 24% year over year, also despite supply constraints. We achieved double-digit growth in most markets we track, with particularly strong performance in emerging markets, setting a September quarter revenue record. New Mac buyers also reached a September quarter high.
According to IDC, we gained global market share both in the quarter and for the full fiscal year. Mac unit sales also hit an all-time high this fiscal year, the strongest testament to these outstanding products.
Last week, we introduced a new way to experience Mac: the all-new MacBook Pro with a PROLED XDR display brings touch to the Mac for the first time, along with our best ever pro notebook display, all-day battery life, and the most immersive notebook audio experience, all in a thinner, lighter design.
We also brought the power of the M6 chip to the new 14-inch MacBook Pro and new iMac. The latest generation of Apple silicon features the world's fastest CPU cores to accelerate everyday tasks, plus a dual 16-core neural engine for local private AI workloads.
iPad:
iPad revenue was $6.2 billion this quarter. Last week, we introduced the all-new iPad mini with a stunning OLED display, ultra-thin design, and the A20 Pro chip. With this new addition, our iPad lineup is stronger and more diverse than ever. Wherever users are, iPad delivers unique value, whether helping students explore the world in the classroom or giving artists and creatives expansive space in the design studio.
Wearables, Home and Accessories:
Revenue was $8.3 billion this quarter. Apple Watch makes the simple act of wearing a watch a powerful way to care for your health. We were excited to introduce the new health sensing system to help users get the most out of health tracking. Paired with Apple's most powerful wearable chip, the S11, the health sensing system delivers the most accurate heart rate monitoring in any wearable.
We also introduced new features like Health Age and Readiness, plus a redesigned Health app to help users decide when to push harder and when to rest. We also look forward to audio intelligence features arriving through future software updates, helping users capture moments that might otherwise be forgotten.
Apple Watch Series 12 packs all of this into a light, beautiful design, while Apple Watch Ultra 4 goes further with longer battery life than the previous generation and the most accurate on-device GPS in a sports watch.
AirPods 5 offers the best open-design active noise cancellation in its class at an excellent price, with improvements in sound quality, battery life, and durability. Combined with iPhone and Apple Intelligence, including Siri AI, AirPods lets users do remarkable things, such as communicating with people who speak different languages through live translation, or getting answers to a broad range of world knowledge completely hands-free.
Just a few weeks ago, we introduced a new generation of home hardware. This includes Apple HomeView, designed for the heart of the home while accommodating each family member's personal needs, bringing entertainment, connectivity, and home management together in one place.
We also released the new Apple TV 4K, now smarter with Apple Intelligence, the all-new HomePod mini, and Apple Home Collection, a new program that extends Apple Home beyond our own products through deep collaboration with key partners. All of this, as always, is built on Apple's privacy principles.
Services:
Services revenue was $31.6 billion, up 10% year over year, an all-time record. We achieved double-digit growth in most markets we track, with all-time revenue records in the Americas and Europe and a September quarter high in the rest of Asia Pacific.
The 78th Primetime Emmy Awards were an unforgettable highlight for Apple TV+, with our shows winning more awards than any other television network. The year's hottest series, Widow's Bay, set an all-time record for the most awards won by a single comedy in a single year with 14 wins. We are excited about our content slate, from fan favorites like Slow Horses and Ted Lasso to the upcoming film Being Heumann. To date, Apple TV+ productions have earned over 900 awards and more than 3,800 nominations.
On Apple Pay, we recently launched with Axis Bank in India, bringing convenient, secure payments to one of the world's largest markets. Apple Pay is now available in over 90 markets, giving users around the world built-in peace of mind with every transaction.
Apple Music's mission is to bring artists and fans closer together. With the opening of Apple Music Hall, we now have a new, exquisite performance venue that further closes the distance. To celebrate the London venue's opening, we hosted an unforgettable Elton John performance.
People love Apple products and services because they make life easier and better in countless ways. People also rely on Apple to create technology responsibly, to do the right thing rather than take shortcuts. That means using more recycled materials in products and asking less of the planet; it means building more durable products that last longer.
It means developing intelligent features like Sound Recognition on Apple Watch to alert users who are deaf or hard of hearing to what is happening around them; it means designing privacy protections like on-device processing so personal data stays on the user's device; and it means introducing new child safety features that make it easier for parents to manage when and how their kids use devices.
We are also pleased to expand manufacturing in the U.S. Through our American Manufacturing Program, we are deepening partnerships with suppliers across the country, including Perryman, which provides titanium for iPhone Duo, and Qnity Electronics, which provides camera technology for iPhone 18 Pro's new variable aperture system. Nearly 100 components in our latest generation iPhone come from U.S. companies across more than a dozen states.
In total, Apple supports more than 450,000 U.S. jobs across all 50 states through thousands of suppliers and partners. All of this is part of our commitment to invest $600 billion in American innovation and advanced manufacturing over four years.
I am proud of what we achieved this quarter and excited about the future. We have everything we need to achieve excellence. With this team, this vision, this mission, and these values, I am confident we will deliver.
Now I'll hand the call over to Kevan.
CFO Kevan Parekh: Thank you, John. Good afternoon, everyone. Here is a brief overview of our key financial metrics.
September quarter revenue was $114.5 billion, up 12% year over year, a September quarter record. This strong performance came despite nearly 2 points of sequential foreign exchange headwinds and supply constraints on iPhone, Mac, and iPad.
Products revenue was $82.9 billion, up 12% year over year, driven primarily by strong double-digit growth in iPhone and Mac. Our installed base of over 2.5 billion active devices reached another all-time high, with records across all major product categories and regions. Services revenue was $31.6 billion, up 10% year over year. Several services categories performed strongly, with video, cloud services, payments, and advertising all setting all-time records, and music setting a September quarter high.
Company gross margin was 47.9%, and product gross margin was 37.2%. Both benefited from tariff refunds, which had a roughly 1 percentage point positive impact on September quarter gross margin. Excluding the impact of tariff refunds from both the June and September quarters, company and product gross margins would have declined about 1 percentage point sequentially, driven primarily by higher memory costs. As of the September quarter, we have received the vast majority of tariff refunds paid. Services gross margin was 76%, up 40 basis points sequentially. Operating expenses were $19.2 billion, up 21% year over year, reflecting continued investment in research and development.
Net income was $30.7 billion. Diluted earnings per share was $2.10, up 14% year over year, including a $0.05 favorable impact from tariff refunds. Even excluding the tariff refund contribution, net income and earnings per share set September quarter records. Operating cash flow was also strong at $28.1 billion.
This performance caps our best fiscal year yet: full-year revenue of $478.8 billion, up 15% year over year; fiscal year earnings per share of $8.98, an all-time high, up 20% year over year.
Now I'll provide more detail on each revenue category.
iPhone: Revenue was $57.6 billion, up 17% year over year, despite supply constraints. We achieved double-digit growth in most markets we track, setting September quarter revenue records in both developed and emerging markets. As John noted, both the company and iPhone had their best fiscal year ever, across every region globally. The iPhone active installed base reached an all-time high, and iPhone upgrade users set annual records globally and in multiple markets, including the U.S., mainland China, India, and Japan. According to a recent Worldpanel survey, iPhone was the best-selling model in the U.S., urban China, India, the U.K., Germany, Australia, and Japan.
Mac: Revenue was $10.8 billion, up 24% year over year, despite supply constraints. Growth was driven primarily by strong performance from MacBook Neo and MacBook Pro. We achieved double-digit growth in both developed and emerging markets, with all-time records in markets like India and Southeast Asia. Mac continues to perform well in emerging markets, delivering its best fiscal year in emerging markets, driven by record upgrades and record new Mac buyers.
iPad: Revenue was $6.2 billion, down 10% year over year, primarily due to supply constraints, as well as continued comparison pressure against the prior year's launch of the A16-powered iPad. The iPad installed base reached an all-time high this quarter, with more than half of iPad buyers purchasing the product for the first time.
Wearables, Home and Accessories: Revenue was $8.3 billion, down 8% year over year, primarily facing comparison pressure against last year's launches of Watch SE 3 and AirPods Pro 3. The wearables installed base reached an all-time high, and more than half of Apple Watch buyers this quarter were first-time purchasers.
Services: Revenue reached an all-time record of $31.6 billion, up 10% year over year, despite more than 1.5 points of sequential foreign exchange headwinds. We set all-time revenue records in most markets we track, including several emerging markets like Latin America and India. We remain optimistic about the long-term prospects for services. With an installed base of over 2.5 billion active devices, we have an incredibly strong foundation for future growth.
Our services continue to attract more users, with paid transaction accounts and paid accounts both setting records this quarter. Paid subscriptions also grew double digits, surpassing 1.5 billion, another all-time high. We are also continually improving and expanding our services offerings. For example, we have upgraded iCloud+ plans in over 100 countries and regions to include Apple TV and Apple Arcade, and launched Apple Maps advertising in the U.S. and Canada, giving local merchants a new way to reach users while protecting their privacy.
Enterprise:
Enterprises continue to expand Apple device deployments to transform operations and boost productivity. Duke University Health System used Apple Vision Pro and Stryker's FDA-cleared app to complete its first hip arthroscopy surgical procedure. American Airlines is deploying more than 37,000 iPhone 17 devices to flight attendants for Tap to Pay purchases on board, while equipping pilots and mechanics with 25,000 iPads.
More enterprises are also choosing Mac for a broader range of use cases, including on-device AI applications. For example, Gap Inc. is using Mac mini in hundreds of stores to run AI entirely locally for loss prevention, eliminating cloud token costs; Christie's is running local models on Mac Studio to improve core productivity workflows such as valuations.
Cash Position and Capital Returns:
At quarter end, we held $137 billion in cash and marketable securities, with total debt of $80 billion. We returned $28 billion to shareholders during the quarter, including $3.9 billion in dividends and equivalents and $24 billion in share repurchases.
December Quarter Outlook:
Looking ahead to the December quarter, the following outlook includes the forward-looking information Suhasini mentioned earlier. It is particularly important to note that our forecast assumes global tariff rates, policies, and enforcement remain in the same state as at the time of this call, and that the global macroeconomic environment does not worsen from today.
We expect December quarter total company revenue to grow 7% to 10% year over year, reflecting our best estimate amid supply constraints. We expect this to be the highest-revenue quarter in company history.
We expect December quarter services revenue to grow 8% to 9% year over year, primarily reflecting sequential headwinds from third-party licensing and foreign exchange.
We expect gross margin between 45% and 46%, primarily due to higher memory costs and certain costs related to the Siri AI rollout. We expect operating expenses between $20.4 billion and $20.8 billion. We expect OI&E of about $300 million, excluding potential mark-to-market impacts from minority investments; the tax rate is expected to be about 17%.
Finally, the board today declared a cash dividend of $0.27 per common share, payable on November 16, 2026, to shareholders of record as of November 12, 2026.
Now I'll hand the call back to John.
CEO John Ternus: Thank you, Kevan. Before we move to Q&A, I'd like to introduce Apple's Chief Operating Officer, Sabih Khan.
I'm sure you are all familiar with Sabih's work in global operations and supply chain. He has long led many important functions at Apple, including manufacturing, AppleCare, environmental efforts, and global supplier relationship management.
Sabih and his team are the backbone that enables us to build and deliver products at unmatched scale and quality. Today, I've asked Sabih to join me and Kevan in answering your questions.
Director of Investor Relations Suhasini Chandramouli: Thank you, John. Please limit yourselves to two questions. Operator, please open the line for the first question.
Q&A Session
Question 1: Goldman Sachs analyst Michael Ng
Michael Ng: Good afternoon, and thank you for the opportunity. I have two questions.
First, on iPhone 18: the standard version was not included in the September launch lineup. Could you explain why, whether it relates to supply constraints or component considerations, or whether it is related to the Duo launch? Any information would be welcome.
John Ternus:
We were pleased to launch iPhone Duo and iPhone 18 Pro in September, while iPhone 17, iPhone Air, and iPhone 17E will continue to round out our strong holiday lineup. We do not comment on future product roadmaps, but we are pleased with our current product lineup.
Michael Ng:
OK, thank you. Second question on iCloud+. It seems to be becoming a more strategic product, with the home security integration and potential Apple Intelligence monetization opportunities worth watching. How is iCloud+ performing, especially given higher iPhone storage option prices and the company's continued push into home products? Are you seeing any improvement in attach rates?
John Ternus:
In the September quarter, our cloud services revenue set an all-time record. iCloud+ is a product we are very bullish on. Currently, iCloud+ plans include Apple TV and Apple Arcade in over 100 countries and regions, and we believe this will help us reach a large number of potential new subscribers.
Additionally, as you mentioned, we see a good opportunity for Apple Intelligence monetization. For features that rely on server-side models, including Siri AI and intelligent photo editing, usage limits will be set, and users with higher needs will be able to purchase expanded access in the future. In some ways, iCloud's tiering originally centered mainly on storage capacity, but we have continually added more features and capabilities.
Question 2: Morgan Stanley analyst Erik Woodring
Erik Woodring: Thank you, John, and congratulations on your first quarter as CEO. As AI evolves from chatbots to consumer agents, both the opportunities and risks for Apple appear to be increasing. What role do you want Apple and Siri AI to play in the consumer AI agent ecosystem? How do you view the potential risk that some AI agents could pose a threat to Apple's services business? And I have a follow-up.
John Ternus:
We are very excited to introduce Siri AI alongside our latest generation of Apple Intelligence features. Siri has long been loved by users, handling over 2.5 billion requests per day. Siri AI truly delivers the Siri we always wanted. Currently, it is primarily request-driven, but as we introduced at WWDC, it is built on a modern orchestrator-driven architecture that gives us ample room to expand its capabilities in the future.
Regarding agent capabilities, we see them as promising tools for users. We want to ensure users understand what access they are granting and that this is done in a way that protects security and privacy. We have put a lot of work into this with Siri AI, and we also firmly believe Apple devices are the best platform for experiencing all kinds of AI applications.
Erik Woodring:
OK, thank you. As a follow-up, from a macro perspective, how should we think about the sustainability of services growth? The September quarter was 10%, and the December quarter is slightly below that. As the search landscape evolves and regulatory changes affect App Store monetization, are there new services categories that could significantly offset pressure on these historically important revenue sources?
Kevan Parekh:
In the September quarter, services grew 10% year over year. Compared with the June quarter, foreign exchange was the primary driver of the change in year-over-year growth. In the September quarter, we continued to see strong performance across multiple services categories, with video, cloud services, payments, and advertising, including Apple's own advertising, all setting all-time records, and music setting a September quarter record.
It is also important to look at the trajectory of services over the past several quarters from a broader perspective. On the last call, we expected foreign exchange to be the biggest driver of the change in year-over-year growth from the March to September quarters, and it ultimately created a significant headwind of about 4 percentage points. Entering the December quarter, services is expected to face an additional sequential foreign exchange headwind of about 0.5 percentage points.
In addition, App Store performance was affected by several factors. In the September quarter, App Store performance was roughly in line with the prior year, paid subscriptions set an all-time high, and paid subscriptions for third-party apps on the App Store grew double digits. At the same time, we saw the mobile gaming headwinds previously mentioned, and we expect this trend to continue into the December quarter. It is worth noting that we have adjusted the App Store business model in some countries, and in the U.S., we continue to operate under the court ruling affecting external link transactions.
Looking ahead, we expect December quarter services growth of 8% to 9%. This forecast takes into account our best estimate of third-party licensing and about 0.5 percentage points of foreign exchange headwinds. I'll now ask John to add some longer-term perspective.
John Ternus:
Fundamentally, we are very optimistic about the long-term growth opportunity in services. Our installed base of over 2.5 billion active devices continues to grow, which is the fundamental foundation for future growth, and it will continue to expand as more users experience our products and services.
For example, in the September quarter, the App Store averaged nearly 1 billion weekly visitors, an all-time record; the number of users paying for at least one service also reached an all-time high. In addition, we launched Apple Pay in India with Axis Bank, bringing convenient, secure payments to one of the world's largest markets. On top of that, as mentioned, we believe Apple Intelligence will also bring new growth opportunities. Overall, we are very confident in the long-term direction.
Question 3: Evercore analyst Amit Daryanani
Amit Daryanani: Thank you, and congratulations, John, on your first earnings call. John, in your opening remarks you described iPhone as an "intelligent personal hub." As personal AI agents become more widespread, do you think users' primary relationship center could shift from the device to the agent? Given Apple's deep integration of chip, hardware, and software, where do you see the biggest opportunity in fusing elements like personal context and screen awareness into an agent that goes beyond Q&A? How is Siri progressing in integrating these elements?
John Ternus:
We do view iPhone as an intelligent personal hub. A great deal of users' personal data is stored on iPhone, including contacts, communications, health data, financial data, and more. Siri can access this data to help users get the information they need in a secure, private way, and no third party can access it, including Apple itself.
We believe this is a core differentiating advantage for Apple, and we will continue to deepen our work in this direction. This is an area we are very confident in.
Amit Daryanani:
Understood. Kevan, on December quarter gross margin, I'd like you to walk through it in more detail. If you exclude all tariff refunds, the sequential gross margin decline is about 140 basis points. Can you break down the respective contributions from memory commodity inflation, product mix, and Siri AI operating memory costs? I'd like to understand the various factors driving the sequential gross margin change.
Kevan Parekh:
As you noted, December quarter gross margin is forecast at 45% to 46%. After excluding the impact of September quarter tariff refunds, the midpoint of the range does reflect the sequential decline you mentioned. We expect most of the decline to be driven by higher memory costs. Let John provide the macro perspective first, and then I'll address the rest.
John Ternus:
Current memory pricing trends are unprecedented. In the September quarter, we did see memory costs rise from the June quarter, but this was partially offset by the cost advantage of carried-over inventory and lower costs for certain non-memory components.
Entering the December quarter, we expect memory costs to rise further, but several factors will partially offset this: we implemented price adjustments for Mac and iPad at the end of June and for iPhone in September, and those price increases provide some offset; we also expect to benefit from carried-over inventory in the December quarter; and costs for certain non-memory components are also expected to decline.
Looking beyond the December quarter, we see memory purchase prices continuing to rise. As mentioned, the cost benefit from carried-over inventory will gradually diminish over time.
One more point worth adding: to improve supply, our manufacturing purchase obligations increased by $33 billion from the June quarter to the September quarter, and the specific figure will be reflected in tomorrow's annual report.
Kevan Parekh:
Regarding Siri AI, as we continue rolling it out to more users, the related cloud costs will be recorded in cost of services sales. Consistent with how we have always handled services bundled with devices sold, such as Maps, Siri, and iCloud, we defer a portion of revenue and recognize it over the device's useful life. Therefore, December quarter hardware deferrals will reflect the new Siri AI portion. Both of these will affect gross margin.
But as always, we are committed to making the necessary investments to support the business. At the same time, we also see AI contributing to revenue growth in multiple ways: at the product level, AI gives users ample reason to upgrade or switch to Apple's latest products; we also see opportunities at the third-party app and partner level; and, as John mentioned earlier, opportunities in our own business, such as expanding access to server-side Siri AI and Apple Intelligence features.
Question 4: Melius Research analyst Ben Reitzes
Ben Reitzes: John, my first question is about the net cash neutral policy. On the previous call, you mentioned it is no longer a target. Under your leadership, what does that specifically mean? Does it mean potentially taking a net debt position for buybacks or M&A, or the opposite, rebuilding cash reserves?
Kevan Parekh:
As you know, we have indeed stopped targeting net cash neutrality. As explained on the last call, we believe it is more reasonable to evaluate cash and debt positions independently so we can optimize both and preserve appropriate flexibility for the company.
We remain committed to our capital allocation principles: investing all necessary funds in the business and returning excess cash to shareholders. Removing the net cash neutral target is precisely to give us more room for optimization, so we can make the right investment decisions for the company.
Ben Reitzes:
Thank you. My second question is about services. I know you only provide single-quarter guidance, but on an 8% to 9% base, longer term, do you think growth could accelerate? Could AI help you launch new services we haven't anticipated that would lift overall growth?
Kevan Parekh:
You just heard the many long-term favorable factors John outlined, which keep us optimistic about the long-term opportunity in services. We again mentioned the installed base of over 2.5 billion active devices, record weekly App Store visitors in the September quarter, both paid transaction users and paid accounts reaching all-time highs, good momentum in emerging markets such as the Apple Pay launch in India, and double-digit services growth in emerging markets.
Looking further out, we remain strongly optimistic across the board. As John said, we will continue to improve the features and reach of existing services and develop new ones. The expansion of iCloud plans to include Apple TV and Arcade is a typical example, reaching a large number of potential new subscribers. AppleCare One Family is another example. We will continue to look for growth opportunities in services.
Question 5: Bank of America analyst Wamsi Mohan
Wamsi Mohan: Thank you, John, and it's good to have you on the call as CEO. On memory, Apple is competing with companies that are well capitalized and have signed long-term agreements. Is Apple changing its memory procurement approach? How do you view long-term memory price trends? If memory costs remain a headwind, will pricing also remain dynamic and potentially continue to rise? And I have a follow-up.
Sabih Khan:
We have worked with many suppliers for decades and deeply value these long-term relationships. Without them, our products simply would not be possible. We look forward to deepening our partnerships and continuing our efforts to improve supply. As John said, our manufacturing purchase obligations increased by $33 billion from the June quarter to the September quarter.
Kevan Parekh:
On pricing management, we are addressing this through several measures: continuing to pursue cost optimization for non-memory components; leveraging the cost advantage of carried-over inventory; and making necessary price adjustments for iPad and Mac in June and for iPhone in September.
The core of our assessment is to measure from the combined perspective of unit volume, revenue, and margin, carefully weighing short-term and long-term considerations to achieve the best balance.
Wamsi Mohan:
OK, thank you. My follow-up is about Siri AI. In the early rollout phase, can you share what proportion of Siri AI-related token consumption comes from on-device processing, private cloud compute, and GCP? Are you starting to see an acceleration in usage? If global usage accelerates rapidly, would that change your expectations for the compute resources you need to invest?
Kevan Parekh:
We expect Siri AI queries to be handled through both on-device processing and private cloud compute, and the specific proportions are still at a very early stage and difficult to predict precisely. On-device processing is extremely efficient with almost no additional cost, while the server side incurs certain inference costs, which is exactly the Siri AI-related expense I mentioned in my prepared remarks that will be recorded in cost of services sales.
Since we have just launched and are opening it up to more users, we are still at a very early stage of understanding the mix of these two cost categories and future potential compute resource needs.
Question 6: J.P. Morgan analyst Samik Chatterjee
Samik Chatterjee:
On iPhone Duo, can you share early lessons from the launch and the demand you are seeing? What supply chain issues need to be resolved? Can you provide more visibility on when Duo supply and demand will come into balance? And I have a follow-up.
Sabih Khan:
We are very pleased with the initial market response to iPhone Duo. iPhone Duo is currently supply constrained. The production ramp is progressing smoothly, and we are working hard to get this revolutionary new product into consumers' hands as quickly as possible. But it is indeed difficult to predict when supply and demand will come into balance.
Samik Chatterjee:
OK. Kevan, you mentioned supply chain constraints affected the September quarter and will continue into the December quarter. Can you help us understand whether, overall, supply constraints are worsening or easing relative to the revenue impact? Are you willing to quantify the specific impact for the September and December quarters?
Sabih Khan:
In the September quarter, we experienced supply constraints across iPhone, Mac, and iPad, driven primarily by high demand, while supply chain flexibility was also below normal levels. Fourth-quarter constraints were driven primarily by the availability of the advanced process nodes used for our SoCs. As we complete the transition of more product lines to the latest 2-nanometer process node, advanced node constraints are easing. Entering the December quarter, we expect Mac and iPad supply constraints to be driven primarily by memory, as demand exceeded our prior expectations.
Question 7: TD Cowen analyst Krish Sankar
Krish Sankar:
On memory price inflation, is the gross margin impact roughly 1 to 1.5 to 2 percentage points? Also, is there an availability issue with memory? Are you signing long-term agreements with memory suppliers to secure supply, even if price may still be a subsequent issue? And I have a follow-up.
Sabih Khan:
We are continuously working to improve supply, and manufacturing purchase obligations increased by $33 billion from the June to September quarter, a figure that will be reflected in our report.
Krish Sankar:
Understood. Kevan, any comment on the future gross margin impact?
Kevan Parekh:
After excluding the tariff impact from both quarters, gross margin declined about 1 percentage point sequentially from June to September, entirely driven by memory. The actual memory impact on gross margin was greater than that figure, but as John said earlier, the cost advantage of carried-over inventory, lower non-memory costs, and price adjustments together provided some offset.
Looking ahead to the December quarter, memory costs will continue to pose a challenge. The current guidance takes this into account. At the midpoint, most of the expected sequential gross margin decline in the December quarter will be driven by higher memory costs.
Krish Sankar:
Thank you, John, and congratulations again on your first call. Competition in the consumer AI agent space is intensifying, with multiple app-based options emerging. How do you see the competitive landscape evolving between Siri agent capabilities integrated into the operating system platform and AI agents confined within app architectures?
John Ternus:
Siri is currently primarily request-driven, and as mentioned, it is built on a modern orchestrator-driven architecture that provides room to expand capabilities in the future. Our core focus is providing users with private and secure capabilities that truly protect their data.
Question 8: UBS analyst David Vogt
David Vogt:
Kevan, given the supply chain commentary and the December quarter outlook, can you help us understand the difference or incremental relationship between volume and price across the product line? iPhone and Mac growth still looks set to be double digits, and price inflation in the PC/Mac space is quite evident, and you also mentioned necessary price adjustments. What is driving this market specifically? And I have a follow-up.
Kevan Parekh:
We typically do not provide detailed analysis of the outlook, but as mentioned, our year-over-year growth guidance for the December quarter is 7% to 10%, and keep in mind this is on top of an outstanding prior December quarter, when revenue grew 16%.
It is still too early to judge price elasticity. iPad and Mac have been supply constrained since the price adjustments, and the iPhone price adjustment was made only recently, so it is indeed too early to assess elasticity impacts at this stage.
David Vogt:
OK. My follow-up is about the investment cycle, whether related to agentic Siri or overall R&D spending. From the FY27 first-quarter commentary, spending appears to have narrowed slightly. Can you walk through the factors driving this pace of spending, particularly on the operating expense side?
Kevan Parekh:
We do not break down the outlook in detail, but to reiterate one point: in the December quarter, we expect capital expenditures to grow 11% to 13% year over year, driven primarily by continued increased investment in R&D, especially in AI. Growth is moderating from FY26, but as mentioned, we are still significantly increasing overall AI investment while continuing to invest in the product roadmap. The December quarter guidance continues to reflect this strategy.
John Ternus:
I would add that we are confident the current level of investment is sufficient to support us in delivering our roadmap.
Question 9: Arete Research analyst Richard Kramer
Richard Kramer:
John, the latest MacBook Pro added iOS features like touch and Dynamic Island, as well as Siri AI. Should we expect deeper integration between macOS and iOS features, or even a unified operating system at some point, whether for simplification or cost reduction? And I have a follow-up.
John Ternus:
We are deeply proud of both Mac and iPad. For years, we have enjoyed bringing features and capabilities across the ecosystem, such as Handoff between iPhone, Mac, and iPad, and these cross-product experiences are impressive.
When designing products, we always think about how to make each product the best it can be. With last week's MacBook Pro, we achieved a major overall upgrade, and the product surpasses its predecessor in every way, which we are proud of. We currently have no plans for any fundamental architectural changes, and even if we did, we would not disclose them here.
Richard Kramer:
OK, thank you. We have seen China revenue decline for two consecutive years, while Apple achieved strong 28% growth in FY26. Can you analyze what drove this recovery and whether Greater China can sustain its current high growth rate, which leads the company at the regional level?
John Ternus:
We are very pleased with Greater China performance. September quarter revenue grew 21% year over year, a quarterly record, driven primarily by strong iPhone and Mac performance, with Mac delivering excellent double-digit growth. For the full year, Greater China grew 28%.
Tim and Sabih just visited China to meet with customers, developers, and partners, and consumer response to our latest product lineup, including iPhone Duo, was encouraging. The active installed base reached an all-time high, and iPhone upgrades in mainland China also set an annual record.
According to Worldpanel survey data, iPhone models took the top three best-selling smartphone spots in urban China, and we believe we gained share in both iPhone and Mac. On Mac, both upgrades and first-time buyers set records. According to Counterpoint Research, MacBook Air and MacBook Neo were the two best-selling notebook models in the September quarter, while Mac mini was the best-selling desktop model.
In short, I believe the root of this success is that we have truly outstanding products.
Question 10: Cleveland Research analyst Benjamin Bollin
Benjamin Bollin:
John, given higher device prices, how do you view the role of affordability programs, including trade-in subsidies, in driving unit sales? What more can Apple do independently to promote such programs?
John Ternus:
In building products and setting pricing strategy, we always aim to create the world's best products and services and deliver outstanding value to users. As mentioned, current memory prices are at unprecedented highs, which puts pressure on our pricing. But encouragingly, the products have received a good market response. We have been investing in programs like the Apple Upgrade Program, which is an important way to improve affordability. Affordability programs are indeed an important consideration for us.
Benjamin Bollin: One last question: on the overall supply-demand balance, can you describe where you actually stand now, what you hope to achieve, and how you are thinking about reaching that goal across the product line?
Sabih Khan: In the December quarter, we expect Mac and iPad supply constraints to continue, mainly because demand exceeded our prior expectations, and we do not provide outlook beyond that quarter.
Director of Investor Relations Suhasini Chandramouli: Thank you, everyone. A replay of today's call will be available on Apple Podcasts and at apple.com/investor. Thank you again for joining us today.
Operator: This concludes the call. Thank you all for participating.
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