Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q3 2020 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out the awesome charts from Six Colors.
Cook's opening remarks
Tim Cook
Good afternoon, everyone. Thanks for joining the call today. Before we begin, I join the many millions across this country in mourning and memorializing Congressman John Lewis, who was laid to rest earlier today. We've lost a hero who walked among us, a leader in the truest sense, who urged his country to aim higher and be better until the very end. I was humbled and fortunate to know him, and as an Alabama native, his example inspires me still. It now falls to every American to be a living memorial to John Lewis and to carry forward the work and the mission that defined his life. Throughout the call, I'll speak in greater detail about Apple's support for equity and justice, topics of great urgency on a number of fronts. But first, I want to pull the lens back to consider the quarter in-full. In an uncertain environment. Apple saw a quarter of historic results demonstrating the important role our products play in our customers' lives. We set a June quarter record with revenue of $59.7 billion, up 11 percent from a year ago. But products and services set June quarter records and grew double digits, and revenue grew in each of our geographic segments, reflecting the broad base of this success. As always, and especially in times of real adversity, what makes us proud as a company is not merely what we did, but how we did it. As millions marched for justice in big cities and small towns alike, we committed $100 million to launch Apple's Racial Equality and Justice Initiative, as well as new and renewed internal efforts to foster diversity and inclusion at all levels of the company. As COVID-19 continues to represent great risks for individuals and great uncertainty for our communities, care and adaptability are defining how we conduct our work wherever we work. In some places that has met responsibly reopening our operations and retail stores with enhanced health and safety precautions. In others where the virus has reemerged, it's meant taking the challenging but necessary step of closing stores. I'll touch on these topics more and a little bit, but first I want to offer some more context on the quarter's results. Due to the uncertain and ongoing impacts of COVID-19, we did not provide our typical guidance when we reported our results last quarter, but we did provide some color on how we expected the June quarter to play out. I'd like to contextualize our results in terms of that color across each of our product categories, beginning with iPhone. iPhone revenue grew two percent this quarter. In April, we expected year over year performance to worsen, but we saw better than expected demand in May and June. We attribute this increase in demand to several interactive causes, including a strong iPhone SE launch, continued economic stimulus, and potentially some benefit from shelter in place restrictions lifting around the world. We expected iPad and Mac growth to accelerate, and we saw very strong double-digit growth for these devices this quarter. This remarkable performance came in spite of supply constraints on both products. We're working hard to get more iPads and Macs into customers' hands as quickly as possible, recognizing how integral they have become to working and learning from home, providing entertainment, and staying connected with loved ones. Wearables growth decelerated as we expected, but still grew by strong double digits and set a revenue record for a non-holiday quarter. Building on powerful new features built into watchOS 7 and AirPods Pro announced this quarter, we are very excited about the many opportunities in front of us for this product category. These strong results help drive our installed base of active devices to new all-time records across each of our product categories. Reflecting the deep integration of hardware, software, and services, services generated a June quarter record of $13.2 billion, up 15 percent year over year. As we mentioned during our last call, there were two distinct trends we were seeing and they played out as we thought. First, advertising and AppleCare were impacted by the reduced level of economic activity and store closures to a degree that was in line with our expectations. Second, we had strong performance in our digital services with all-time revenue records in the App Store, Apple Music, video, and cloud services, as well as elevated engagement on iMessage, Siri, and FaceTime. Customers are loving new offerings across Apple services like Apple News Today, our new daily audio briefing, and Greyhound, our new summer blockbuster starring Tom Hanks. In fact, Apple TV+ just hit a history-making 95 awards nominations and 25 wins and accolades. Based on these results and our performance over the last four quarters, we are proud to announce that we have achieved our goal of doubling our fiscal 2016 services revenue six months ahead of schedule. We're conscious of the fact that these results stand in stark relief during a time of real economic adversity for businesses large and small and certainly for families. We do not have a zero-sum approach to prosperity. And especially in times like this, we're focused on growing the pie, making sure our success isn't just our success and that everything we make, build or do is geared toward creating opportunities for others. The App Store is a great example. This quarter, a new study by independent economists at The Analysis Group found that the App Store facilitated more than half a trillion in commerce globally in 2019 alone. Especially in a time of COVID-19, you can measure economic resilience in the ways in which the App Store supports remote ordering for restaurants, digital commerce for small businesses, and an enduring entrepreneurial opportunity for creators and visionaries. Keeping learning vibrant and impactful in the time of COVID-19 is a priority everyone shares earlier this month, we announced significant enhancements to the development Swift and Everyone Can Code curricula, and we launched a new professional learning course available exclusively to educators. In just two weeks ago, our Community Education Initiative added 10 more historically black college and university regional coding centers to our roster, bringing the total to 24 locations nationwide, 12 of which are HBCUs, and 21 of which serve majority black and brown student populations. In Apple's backyard, we announced that we're allocating $400 million of our multi-year $2.5 billion affordable housing, commitment to new housing construction, homebuyer assistance programs, and support for those at greatest risk of experiencing homelessness across Silicon Valley. Apple's results this quarter are only possible due to our people and their ongoing ingenuity, flexibility, resilience, and determination during these ever-changing times. I want to thank our AppleCare and retail teams who have paired exceptional service during a time of intense demand with great adaptability during a quarter where stores have reopened in some places and re-closed in others. A dedicated team of specialists and experts has shouldered the task of caring for the well-being of our teams and communities, store by store, location by location, with evidence-driven granularity and agility that is unrivaled anywhere. Innovation from adversity certainly defined this year's Worldwide Developers Conference as well. This is an event where traditionally Apple's worldwide community of developers gathers together to share, celebrate and do big things together. Though we could not be together in person, Apple set a new standard for what online events can achieve with our celebrated all virtual event. The results here speak for themselves. More than 22 million viewers tuned in across all of Apple's streams. For our developers, we distributed more than 72 hours of video content. That's three full days of video. The week saw more than 200 direct video engineering and design sessions and about 4500 person to person appointments with developers across 227 virtual labs. And of course, that's even before you get to this year's announcements. From iOS 14, which boasts a radical redesign to the Home screen, powerful updates to Messages, streamlined and effortless App Clips, and even greater privacy, transparency and controls, to major updates to Apple Pencil, Siri, and calling in iPadOS 14, to much-anticipated sleep tracking new fitness and wellness features and unprecedented customization. in watchOS 7 to the new Mac OS Big Sur, boasting the biggest redesign upgrade to macOS since OS X. No less important for Apple's innovation roadmap is our transition to Apple's Silicon for the Mac. This two year effort will achieve both unprecedented performance for the Mac and a common architecture across all Apple products. Looking forward, we are profoundly optimistic about Apple's future and we recognize that with this success comes a real responsibility to lead with our values because those values helped make that success possible in the first place.Add Speaker00:05:56.210We are just as proud of our announcement this month that Apple will be communities.There are times when things seem to move slowly, when needed progress, economic or social scenes bog down, when the instinct to turn away from the horizon and hold on to what you've got feels inescapable. And then there are times like this, when people of goodwill step forward, when progress unmoors itself, when the insistence of hope forces something new. This is an immensely challenging moment. COVID-19 is still devastating many places, and we have work left to do to care for the health and well-being of the communities in which all of us live and work. But no community of people, whether a company or a country, can afford to miss this call when it comes. At Apple, we never have, and we don't intend to start now. With that, I'll hand things off to Luca.
Luca Maestri provides more detail on the quarter
Luca Maestri
Thank you, Tim. Good afternoon, everyone. Our June quarter was a testament to Apple's ability to innovate and execute during challenging times. Our results speak to the resilience of our business and the relevance of our products and services in our customers lives. Total revenue was $59.7 billion. A new June quarter record up 11 percent from a year ago, despite a 300 basis point headwind from foreign exchange. Our performance was strong across our entire portfolio as we grew revenue in each of our product categories and said June quarter records for Mac, for wearables and for services. Similarly, our results were very strong all around the world, with growth in all geographic segments and new June quarter records in the Americas, in Europe, in Japan, and rest of Asia Pacific. Products revenue was $46.5 billion, up 10 percent, and a June quarter record. iPhone return to growth and we saw very strong double digit growth from iPad, Mac, and wearable. Lockdowns and point of sale closures were widespread during April and impacted our performance. But we saw demand for all products improve significantly in May and June. As a result of our strong performance and the unmatched loyalty of our customers, our installed base of active devices reached an all time high in all of our geographic segments and all major product categories, our services continue to grow strongly, up 15 percent year over year and reach a June quarter record of $13.2 billion. We said all time records in many services categories and June quarter records in each geographic segment. I'll cover this in more detail later. Company gross margin was 38 percent, this was down 40 basis points sequentially due to unfavorable effects of 90 basis points and a different mix of products partially offset by cost savings and services mix. Products gross margin was 29.7 percent, decrease in 60 basis points sequentially due to effects and a different mix partially offset by cost savings. Services gross margin was 67.2 percent, up 180 basis points sequentially, mainly due to mix. Net income was $11.3 billion and earnings per share with $2.58, up 18 percent and a June quarter record. Operating cash flow was also a June quarter record of $16.3 billion, an improvement of $4.6 billion over a year ago. Let me get into more detail for each of our revenue categories, iPhone revenue grew two percent to $26.4 billion, with customer demand improving as the quarter progressed. COVID-19 was most impactful during the first three weeks of April when lockdowns and point-of-sale closures became more widespread in many countries. We saw marked improvement around the world in May and June, which we attribute to an improved level of customer demand, helped by the very successful launch of iPhone SE and economic stimulus packages. Our active installed base of iPhones, again reached an all-time high as a result of the loyalty of our customer base and strength of our ecosystem. In fact, in the U.S., the latest survey of consumers from 451 research indicates iPhone customer satisfaction of 98 percent for iPhone 11, 11 Pro and 11 Pro Max combined. Turning to services, as I said, we had a June quarter record of $13.4 billion of revenue. We had all-time record performance and strong double-digit growth in the App Store, Apple Music, video, and cloud services. Our new services, Apple TV+, Apple Arcade, Apple News+, and Apple Card are also contributing to overall services growth and continue to add users content and features. At the same time, customer engagement in our ecosystem continues to grow at a faster pace and the number of both transacting and paid accounts on our digital content stores reached a new all-time high during the June quarter, with paid accounts increase in double digits in each of our geographic segments. In aggregate, paid subscriptions grew more than 35 million sequentially, and we now have over 550 million paid subscriptions across the services on our platform, up 130 million from a year ago. With this momentum, we remain confident to reach our increased target of 600 million paid subscriptions before the end of calendar 2020. Wearables, home, and accessories establish a new quarter record with revenue of $6.5 billion, up 17 percent year over year. Our wearables business is now the size of a Fortune 140 company and we said June quarter records in the majority of markets we track. Importantly, Apple Watch continues to extend its reach with over 75 percent of the customers purchasing Apple Watch during the quarter are new to the product. Next, I'd like to talk about the impressive performance of Mac revenue of $7.1 billion, up 22 percent over last year, and a June quarter record. We grew double digits each geographic segment and set all-time revenue records in Japan, and the rest of Asia Pacific, as well as June quarter records in the Americas and Europe. Customer response to our new MacBook Air and MacBook Pro launches has been extremely strong. iPad performance was equally impressive, with revenue of $6.6 billion, up 31 percent, and our highest June quarter revenue in eight years, demand was strong around the world with double-digit growth in each of our geographies segments including a June quarter record in Greater China. The launch of our new iPad Pro has been received incredibly well in every region of the world. Both Mac and iPad are extremely relevant products in the new working and learning environments and the most recent surveys of consumers from 451 Research measured customer satisfaction and 96 percent for Mac and 97 percent for iPad. Around half of the customers purchasing Mac and iPad during the quarter were new to that product. And as a result, the active installed base for both products reached a new all-time high. Our retail business had record June quarter revenue thanks to the performance of our online store. We set records in all geographic segments and grew across all major product categories. In June, we launched Apple Card Monthly Installments for more products in our U.S. stores, allowing customers to pay for their devices over time with zero percent interest. We're very pleased with the level of customer interest this new offering has generated. In the enterprise market, we continue to see companies leverage Apple products and offerings to successfully navigate their businesses through COVID-19. In health care. We're seeing rapid acceleration of telehealth to support a more flexible model of patient care. Many hospitals, such as UVA Health, Rush University Medical Center, and UC San Diego Health are using apps on iPad and iPhone to help triage monitoring care for patients who are at home. This helps free up hospital capacity to support patients who need inpatient care while enabling continued care for patients who do not require in-person visits. Since many call center employees are currently working remotely Apple Business Chat has proven an invaluable tool for staying connected with customers. This quarter, HSBC deployed Apple Business Chat in its U.S. and U.K. Connect Centers. Apple Business Chat provides a flexible and secure channel for digital banking assistance through a native Apple experience, improving the efficiency and experience for both customers and agents. We are seeing similar adoption by hundreds of other organizations. Let me now turn to our cash position. We ended the quarter with almost $194 billion in cash plus marketable securities. We issued $8.5 billion of new term debt, retired $7.4 billion of term debt, and increased short term borrowing facilities by $1.1 billion during the quarter, leaving us with total debt of $113 billion. As a result, net cash was $81 billion at the end of the quarter, and we continue on our path to reaching a net cash neutral position over time. We returned over $21 billion to shareholders during the June quarter, including $3.7 billion in dividends and equivalents and $10 billion through open market repurchases of $31.3 million Apple shares. We also began a $6 billion accelerated share repurchase program in May, resulting in the initial delivery and retirement of 15.2 million shares and finally retired an additional 4.8 million shares in the final settlement of our 15th ASR. As we move ahead into the September quarter, I'd like to provide some color on what we are seeing, which includes the types of forward-looking information that Tages referred to at the beginning of the call. Similar to last quarter, given the uncertainty around the world in the near term, we will not be issuing revenue and margin guidance for the coming quarter. However, we will provide some additional insight on our expectations for the September quarter for our categories. On iPhone, we expect to see recent performance continue for our current product lineup, including the strong customer response for iPhone SE. In addition, as you know, last year we started selling new iPhones in late September. This year, we project supply to be available a few weeks later. We expect the rest of our product categories to have a strong year over year performance. For services, we expect the September quarter to have the same trends that we observed during the June quarter, except for Apple care, where during the September quarter, a year ago, we expanded our distribution significantly. As a consequence, we expect a difficult comp for AppleCare, also considering the COVID related point of sale closures this year. For gross margin, keep in mind that we would have a different mix than in prior years, as I just explained, for OpEx, we expect to be between 9.8 and 9.9 billion. We expect the tax rate to be about 16 and a half percent and OINE to be 50 million. Also today, our board of directors has declared a cash dividend of 82 cents per share of common stock payable on August 13, 2020, to shareholders of record as of August 10, 2020. And finally today, we're announcing a four-for-one split of Apple common stock to make our stock more accessible to a broader base of investors. The shareholders of record at the close of business on August 24, 2020, we receive three additional shares for every outstanding share held on the record date, and trading will begin on a split-adjusted basis on August 31st, 2020. With that, let's open the call to questions.
Analysts questions
Katy Huberty, Morgan Stanley
Thank you, good afternoon. Tim, in light of the economic adversity that you talked about in the prepared remarks. Can you just walk us through how Apple's leveraging finance and trade-in programs to make technology more affordable and accessible during this period while also addressing the opportunity to recycle and reuse products and maybe also extend that to how these programs might expand over time?
Tim Cook
As Luca mentioned, in June, we actually rolled out to the overwhelming balance of our other products, the ability to do interest-free financing in our stores with payments. And that's in addition to trade-in, which is becoming a more common trend now, which I think is terrific because it is great for the environment and it acts as a subsidy, if you will, against the price of the new phone. And so when you compound these two things with the financing and the trade-in, it makes the products super affordable. And we're really happy with what we're seeing in that regard.
Katy Huberty And then as a follow up just specifically to iPhone, the category return to growth; as you pointed out, the installed base is larger today. Our math would suggest that replacement cycles in some cases are elongated, and then you have the affordability element that you just discussed. Is all of that combined to build confidence that we're entering a longer period of iPhone revenue growth after what's been six quarters of decline?
Tim Cook
We're very pleased with how we did on iPhone. It was better than we thought, largely because, as we pointed out in the prepared remarks, May and June were much better. If you look at iPhone in totality, the things that get me very optimistic is the size of the active install base. The fact that if you look in the major geographies like the U.S., we had the top two selling smartphones In the U.K. we had three of the top four. In Australia, we had five of the top six. In Japan, we had the top four. Urban China, iPhone 11 was the top-selling smartphone in the country. And so these are some very different geographies with very different competitive situations. And we're doing fairly well. The iPhone SE, it's also clear that from the early data, we're seeing a higher switcher number than we did in the previous year, which we feel very good about. And it also seemed to appeal to some people that were holding onto the device a little longer because they wanted a smaller form factor phone. And so the combination of the smaller form factor and an incredibly affordable price made the iPhone SE very popular. iPhone 11 is still the most popular smartphone, but iPhone SE definitely helped our results. And as Lucas said in his outlook, we do see that continuing into this quarter currently.
Krish Sankar, Cowen & Co.
Hi, thanks for taking my question. First one, Tim; when you look at the services business and in terms of your TV+ content production, have the movement restrictions impacted the content production as such? And along the same path, you know, four years ago, your premonition on services being $50 billion dollar business in 20 and it came sooner than expected. I don't know if you want to make any such forecasts four years out on how you think services revenue is going to be.
Tim Cook
I'm sorry I missed that second question because the audio didn't come through, but I think I got the gist of the first, and that is production has been affected for Apple TV+, as I think it has for most people. We are working to get restarted. I don't have a precise date yet when we will get restarted, but there will be some impact because we shut down in the March time frame and are yet to really restart in a significant way, particularly for those that are shot in the L.A. area, given the current status of the virus, the those and I'm sorry I missed the second part of your question.
Krish Sankar
Yes, Tim. Four years ago you made a good prediction that services is going to be $50 billion dollars by 2020. I was wondering if you have any update to the prediction four years down the road.
Tim Cook
We're not updating today. We feel good it. We want to take the moment and feel good about achieving the doubling six months early and we do have, still hanging out there, as you know, the subscription number that we're shooting for later in the year at 600 million. So we do have that objective out there.
Krish Sankar
This next one is for Luca. With a strong [unclear] for Mac, given the shelter-in-place, do you think the back-to-school season got pulled in by a quarter, or do you expect the momentum to continue? Thank you very much.
Luca Maestri
As I said when I was talking about providing some commentary for the September quarter, we expect all the non-iPhone product categories to have a very strong year over year performance. So we definitely ... I mean, the back to school season is clearly this one, and we are very excited not only for the Mac, but also for the iPad. We got a fantastic lineup of products and we know that these products are incredibly relevant, especially given the current circumstances. So we expect the performance that we've seen for Mac in the June quarter to continue.
Shannon Cross, Cross Research
Thank you very much. Tim, can you talk a bit about what you're seeing in China? I know the revenue was up two percent, and I think Luca talked about record iPad, but I'm just curious as to, given their 5G is a bit ahead, how you're seeing the market play out.
Tim Cook
Shannon, we did see growth in Greater China for the quarter of two percent. Currency affected China a bit more than in other places. It affected 400 basis points. And so in constant currency, we would have grown at six. As I mentioned before, the iPhone 11 has been our best selling phone and has been number one in urban China, and so we're very, very proud of that. iPad was helped in the June quarter there by the work from home and distance learning as it was in other geographies. And the Mac also grew strong, double-digit during the quarter. And services set a new June quarter record there. We also continue to see extremely high new customer rates on Mac and iPad there. To give you a perspective, about three out of four customers that are buying the Mac are new in China and about two out of three that are buying the iPad are new. And so these are numbers that we're super proud of.
Shannon Cross
Great. Then can you talk a little bit more about the decision to bring Mac silicon in-house and the benefits that you expect to see, or you've seen, from vertical integration of acquisitions like the Intel modem business? Thanks.
Tim Cook
Yeah, what we will wind up with is a common architecture across all of our products, which gives us some interesting things that we can do in products that are .. it sort of unleashes another round of innovation. I don't want to say a lot about it other than we're extremely excited about it. It's something that we've worked on quite a while to get to this point. And we're looking forward to shipping the first Mac with Apple Silicon later in the year.
Amit Daryanani, Evercore
Thanks a lot for taking my question, guys. I have one and a follow up as well. Tim, if I think about the trend you see with iPhones right now, do you have a sense in terms of, you know, where is this trend coming from? Is it more replacement cycles getting shorter or is it just getting new customers into the iOS ecosystem? Because clearly these growth rates seem fairly impressive in the context of a pandemic and the upcoming refresh cycle that we have.
Tim Cook
I think it's a combination of a strong launch with iPhone SE probably some pickup because of the economic stimulus that hit different countries at different points in time, and probably some of the reopening that took place across the quarter, particularly in May and June as stores started to reopen. And so it's a combination of all of those. And as you know, we've been having a strong cycle with the iPhone 11 and the 11 Pro. And so when you combine a strong cycle plus an iPhone SE launch, plus the reopening of the stores, et cetera, I think there were a lot of things that were going in the right direction there.
Amit Daryanani
Perfect. That's helpful. Luca, if I could just follow up with you, I'd love to get your perspective on how do we think about the overall 38 percent gross margins. What do you think are the levers to improve this as you go forward? Not really the September quarter, but over the next one or two years. And in that context, you know, do you see a point where the product gross margins start to stabilize because they have been trending somewhat lower for the last couple of quarters now?
Luca Maestri
Yeah, let me start with what we've seen during the June quarter. We were at 38 percent, we were down slightly sequentially, but up the same amount on a year over year basis. And really, the big negative impact that we felt for several quarters now has been the strength of the U.S. dollar. So the foreign exchange impact on a sequential basis was 90 basis points on a year over year basis was 130 basis points. So obviously that is something to keep in mind. And then the other aspect I think is always important to keep in mind is that we sell many different products. They have different margin profiles. And so sometimes a different mix can have an impact on the aggregate level of products' gross margins. And we're very pleased to see the performance of Mac, iPad and wearables. But, obviously, it's a different mix. Going forward, the variables are always the same if the foreign exchange will continue to play an impact, the mix of products that we're going to be selling will have an impact as well. The commodities market has been relatively benign. And we'll see how that plays out over time. As you know, now, for several years, we've been managing gross margin, I would say fairly well, in spite of some difficult situations like the one with the strength of the dollar. And we plan to continue to make good trade-off decisions between revenue and units and margins.
Kyle McNeely, Jefferies
Hi, thanks for the question. Our team in Asia recently did some survey work on smartphones in China. It showed that there's still a high proportion of the installed base that's on [iPhone] 6, 7, and 8 devices. I know you talked about the trade-in programs and promotions that you've been doing there, but I wonder if you can tell us whether there's anything else that you're doing to get these customers into your latest technology. What might those customers be looking for? And how should we think about when an upgrade cycle might come on more strongly there in China? Thanks.
Tim Cook
Customers upgrade at a different pace. I don't have in front of me the exact installed base data from China, but much like in other geographies, the upgrades have extended some. It extended some during the depths, if you will, of the pandemic and in China and the rest of the world, and probably to some degree is happening still at this point. The key things that we can do is, keep innovating, deliver a product that people can't imagine going through life without, and obviously keep rolling out these programs that make the front end purchase be much less. And this is things like the financing and the trade-in programs that you mentioned. And I do feel like those are going quite good in a number of geographies.
Kyle McNeely
OK, great, thanks. And one more, if I may. Congrats again on the strong iPad and Mac results. That's really impressive. I guess the obvious question is, should we ever think about how much of that might be pull-forward and what might do to future upgrades in the next few years? Anything else you can share on how you think about growth from here or whether there's a hangover period, or maybe after the back to school season or holiday season? That would be helpful. Thanks.
Tim Cook
The install base is growing and the new customer numbers that Luca went over in the aggregate are still very high, in the close to 50 percent kind of range, and so that to me bodes well for the future. There's clearly, as we'd indicated, there's some amount of work from home and remote learning that do affect the results of Mac and iPad positively. They probably affect wearables and iPhone the other direction. And but on Mac and iPad, these are productivity tools that that people are using to stay engaged with their work or stay engaged with their schoolwork. And we believe we're going to have a strong back to school season. Sitting here today, it certainly looks like that.
Ben Bollen, Cleveland Research
Good evening, everyone. Thanks for taking the question. Tim, I was hoping you could share a little bit about where you think channel inventory is. You talked about the tightness you saw exiting the June quarter for Mac and iPad. Interested where you think inventory is across the major product categories.
Tim Cook
We've gotten away from talking about channel inventories. But to give you a perspective, sitting here looking at it; on iPhone, the inventory slightly less than it was a year ago. And I'm saying that at a quarter endpoint. So at the end of Q3. Obviously iPad and Mac are constrained. And so both of those are less than they were in the year-ago quarter.
Ben Bollen
OK. And then, Luca, I'm interested, any color you could share about the impact COVID had on OpEx in the quarter for, you know, work from home stipends, less travel, other employee support costs, and also how the company is thinking about the longer-term opportunity of employees working remotely, maybe more permanently, and any considerations on how that could influence future OpEx. Thanks.
Luca Maestri
On the OpEx front, there are being obviously certain things that have been affected in terms of cost reductions, obviously, travel. It is a perfect example, you know, the number of meetings that we had internally, some of those costs are been reduced. We've also invested heavily in initiatives. For example, you know, we really trying to help during very difficult circumstances. We have a program, for example, where we match our employee donations. We made donations directly as a company around the world to many institutions and governments. On a net basis, I would say probably the cost outweighed the savings both during the March and the June quarter. But we think it's absolutely the right thing to do. From an employee perspective, what we said so far, is that, here in the United States, the majority of our population will continue to work from home until the end of the year. And then we'll see. I mean, we taken an approach that we try to understand how the virus is evolving over time. We've taken a very cautious approach both with our corporate facilities and with our retail stores. I think what you've seen with retail stores is that we have reopened in a number of geographies around the world. We have reopened here in the United States. We've had to re-closed some of the stores here in the United States as the number of cases has gone up. And we will continue to track out the virus is doing. And hopefully, at some point we're going to get to a point where there is a vaccine or there is a cure. And so we will make those decisions as we get more information.
Jeriel Ong, Deutsche Bank
Hi, yes, thank you so much. I have two questions. I'd like to focus on the gross margin expansion within the services line, all time record for the quarter, just curious whether you think that will sustain. I understand within services there's a pretty wide range of gross margins by business, and I'm wondering if that should continue to improve.
Luca Maestri
Well, as you've seen, obviously, we've had sequential expansion in gross margin for services, and that was driven primarily by mix, as you said. We have a very broad portfolio and depending on which one of the services does better than we have an impact on services gross margins. We like the services business because it's a recurring type of revenue and the margins are accretive to company margin. We did over 67 percent this quarter. But, we we want to offer very competitive services across the board.
Jeriel Ong
Got it. I really appreciate it. I want to ask a question on the wearable segment. It seems to me that you're categorizing the wearables business as maybe being a little bit impacted by the pandemics similar to the iPhones. And it's the first time that wearables hasn't materially upset in, at least, a while in recent memory, I guess the drivers of wearables being predominantly Watch and AirPods. What are your thoughts going forward on whether there's a little bit of pent up demand perhaps that might resume as we get back to a more normalized environment?
Tim Cook
I think on the Watch, in particular, is, like the iPhone, more affected by store closures, because people some people want to try on the Watch and see what it looks like, look at different band choices and those sorts of things. And so, I think as stores closed, it puts more pressure on that. We did come out, sort of the way we told you last quarter we were going to come out from the color that we gave you. So we knew things would decelerate because of the closures. So we wound up being very pleased with how we did. But the store closures definitely affect the wearables and the iPhone.
Updating live...
Live transcript: Here's what Apple said at its Q3 20 earnings call posted first on http://bestpricesmartphones.blogspot.com
No comments:
Post a Comment