Apple conference call: "Very open" attitude towards AI acquisitions, tariffs stimulate consumption contributing to 10% growth

Apple delivered impressive results this quarter, with revenue surpassing expectations, increasing nearly 10% year-on-year to $94.04 billion, marking the highest growth rate in three and a half years; revenue from the iPhone, a key product, recorded double-digit growth; gross margin fell to 46.5% but remained at the high end of the guidance range, with guidance for this quarter set at 46%-47%.

In a later earnings call, Apple CEO Tim Cook elaborated on the company's performance this quarter and emphasized that AI is "one of the most profound technologies of our time," and that the company will continue to "significantly increase investment" in this area.

When discussing the hot topic of capital expenditure in the AI race, Apple CFO Kevan Parekh stated that the significant increase in capital expenditure is primarily driven by AI-related investments. The company is adopting a hybrid strategy, investing in both first-party data centers and utilizing third-party infrastructure; investors should expect capital expenditures to increase, but "will not grow exponentially."

Regarding the highly anticipated Siri update roadmap, Cook responded that good progress has been made in "more personalized Siri development," and stated that these features will be released next year.

Cook also mentioned a "very open" attitude towards AI acquisitions, stating that if a company can help accelerate their roadmap, then Apple would be interested.

Strong Performance of iPhone and Mac Drives Product Revenue Growth

Apple's revenue growth this quarter was primarily driven by sales of the iPhone and Mac.

Kevan Parekh pointed out during the call that the company achieved iPhone growth in every geographic region, with double-digit growth in many emerging markets. According to Worldpanel research, the iPhone is the best-selling model in the United States, urban areas of China, the United Kingdom, Australia, and Japan, with customer satisfaction in the U.S. reaching 98%.

The Mac business also performed well, with revenue of $8 billion, a year-on-year increase of 15%, mainly due to the strong performance of the M4 MacBook Air. The company set a record for Mac upgrades in the June quarter, achieving strong double-digit revenue growth in emerging markets.

Cook stated that the company continues to benefit from the transition to Apple Silicon, which will play a key role in performance.

Very Open Attitude Towards AI Acquisitions

Cook stated that he holds a very open attitude towards "acquisitions that can accelerate our roadmap," and will not be constrained by the company's field, size, etc., when considering AI acquisition targets.

He said, "If a company can help us accelerate our roadmap, then we are interested."

He also added that Apple has acquired about seven companies this year, equivalent to one acquisition every few weeks, and these companies come from various industries, not all from the AI field.

Personalized Siri "Making Good Progress," Will Continue to Increase AI Investment

Cook stated that Apple is "significantly increasing" its investment in artificial intelligence and is "very willing to accelerate our development roadmap through acquisitions."

Cook revealed that progress is being made on a more personalized Siri, with these features expected to be released next year.

According to him, Apple has currently launched over 20 Apple Intelligence features, including visual intelligence, cleaning tools, and powerful writing tools.

Tariff-induced consumption contributed to 10% growth

When asked about concerns over high tariffs leading to stimulated advance consumption demand, Cook disclosed that this demand accounted for about 1 percentage point of the company's overall 10 percentage point year-on-year growth.

Cook further added that this portion of consumption is mainly concentrated in the iPhone and Mac categories, particularly evident in the U.S. market.

Below is the transcript of Apple's earnings call (translated with AI tools):

Apple Q3 2025 Earnings Call

Date of the meeting: July 31, 2025

Company name: Apple

Meeting description: Q3 2025 earnings call

Speaking segment

Director of Investor Relations Suhasini Chandramouli:

Good afternoon, and welcome to Apple Inc.'s Q3 2025 earnings call. I am Suhasini Chandramouli, the Director of Investor Relations. Today's call will be recorded. First to speak today is Apple Inc. CEO Tim Cook, followed by CFO Kevan Parekh.

After that, we will open the call for analyst questions. Please note that some of the information you hear in today's discussion will contain forward-looking statements, including but not limited to statements regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecasts, including risks related to macroeconomic conditions, tariffs and other measures, and the potential impact of legal and regulatory proceedings on the company's business and operating performance. For more information, please refer to the risk factors discussed in Apple's most recent 10-Q and 10-K reports, as well as the 8-K form and press release submitted to the SEC today.

More information will also be included in our upcoming 10-Q report for the quarter ending June 28, 2025, which we will submit tomorrow, as well as in other reports and documents we submit to the SEC. Apple Inc. does not undertake any obligation to update any forward-looking statements, which are only valid as of the date made. Now I will turn the call over to Tim for his opening remarks.

CEO Tim Cook:

Thank you, Suhasini. Good afternoon, everyone, and thank you for joining this call.

Today, we are proud to announce that revenue for the June quarter reached a record $94 billion, a 10% year-on-year increase, exceeding our expectations. Earnings per share reached a record for the June quarter at $1.57, a 12% year-on-year increase We see that the growth of the global market is accelerating, including Greater China and many emerging markets. We set revenue records for the June quarter in over twenty countries and regions, including the United States, Canada, Latin America, Western Europe, the Middle East, India, and South Asia. These achievements are attributed to double-digit growth in iPhone, Mac, and services. We set a record for iPhone revenue in the June quarter, with a strong year-on-year growth of 13%. We see growth in iPhone across every geographic region, with double-digit growth in emerging markets, including India, the Middle East, South Asia, and Brazil.

Mac continues to perform well, with a year-on-year revenue growth of 15%. We set another historical revenue record in our services business, growing by 13%, with double-digit growth in both developed and emerging markets. Last month, we held WWDC, a major event for the developer community, with millions participating online and over 1,000 developers attending in person at Apple Park. We shared some exciting updates, including a stunning new design made from a material we call Liquid Glass.

This design is both beautiful and expressive, and it is our first unified design across all platforms. We can't wait for users around the world to experience it this fall. We are pleased to share some progress on AI work. We announced more features coming later this year, including real-time translation and fitness partners.

In addition to these new features, we also announced new support for multiple languages and opened access to the core model of Apple Intelligence on device, enabling developers to build new experiences for users. It is great to see the strong momentum of our platform; iOS 26, macOS 26, and iPadOS 26 are the most popular developer betas to date. Stepping back, we believe AI is one of the most profound technologies of our time. We are embedding it into our devices, platforms, and the entire company.

We are also significantly increasing our investments. Apple is committed to adopting cutting-edge technology to make it easy for everyone to use and access, which is at the core of our AI strategy. Through Apple Intelligence, we integrate AI capabilities into the platform in a deeply personalized, private, and seamless way that perfectly meets user needs. We have released over 20 Apple Intelligence features, including visual intelligence, cleaning tools, and powerful writing tools. We are making good progress on a more personalized Siri, and as mentioned, we expect to release these features next year. Apple Silicon is at the heart of all these experiences, enabling powerful Apple Intelligence features to run directly on the device. For more advanced tasks, our Apple Silicon-powered servers provide even more robust capabilities through a private cloud computing architecture while protecting user privacy. We believe our platform offers the best way for users to experience the full potential of generative AI. With the exceptional performance of our systems, users can run generative AI models directly on Mac, iPad, and iPhone

We are excited about the work in this field, and it is very gratifying to see strong development momentum. Now let me detail the performance for this quarter, starting with the iPhone. iPhone revenue was $44.6 billion, a year-on-year increase of 13%, and we set a record for upgraders in the June quarter. This strong broad performance is attributed to the tremendous popularity of the iPhone 16 series, achieving strong double-digit year-on-year growth compared to the 15 series.

We have also recently reached an important milestone. Since its launch in 2007, we have shipped the 3 billionth iPhone. From the Pro models equipped with the powerful A18 Pro and innovative professional camera features to the iPhone 16e with breakthrough battery life and a dual-camera system, users have found many reasons to love our best iPhone lineup ever. iOS 26 will further enhance this experience.

In addition to the beautiful new design and powerful Apple Intelligence features, it introduces a range of meaningful updates, such as real-time call screening and call waiting assistance in the phone app, smarter messaging tools, and new real-time translation capabilities. All of these together create a smarter, more personalized iPhone experience that we can't wait for users around the world to enjoy this fall. On the Mac side, we had another strong quarter, with revenue of $8 billion, a year-on-year increase of 15%, primarily driven by the strong performance of the M4 MacBook Air. We set a record for Mac upgraders in the June quarter, performing well in emerging markets, with revenue achieving strong double-digit growth, and both upgraders and new Mac users also experiencing strong double-digit growth. As the world's most popular laptop, the MacBook Air has opened up a new level of performance with the powerful M4. Meanwhile, MacBook Pro customers continue to be attracted by its amazing performance and the longest battery life in our Mac products. Customers also love the latest Mac Studio, which is the most powerful Mac we have ever made, capable of handling the most demanding AI workflows. At the same time, the Mac Mini continues to win customer favor by integrating so much performance into an ultra-compact design.

In macOS Tahoe 26, from the phone app to live activities, to the largest Spotlight update ever, users across our entire Mac product line will discover delightful new ways to stay connected and enhance productivity.

For the iPad, revenue for the June quarter was $6.6 billion. Our feature-rich iPad lineup has unprecedentedly combined powerful performance with portability, and users are excited about the upcoming iPadOS 26—the largest iPad software update ever. It starts with a very intuitive new window system, providing users with unprecedented control over their iPad experience.

The enhanced Files app makes it easier than ever to stay organized. All of these are built on a beautiful new software design that brings these updates to life

Turning to wearables, home, and accessories, revenue reached $7.4 billion, and we saw Apple Watch upgrade users set a record for the June quarter. In this quarter, we celebrated the 10th anniversary of the Apple Watch, marking a decade of helping users navigate their health and fitness journeys. With watchOS 26, the Apple Watch will be smarter than ever, featuring intelligent updates for fitness apps and smart stacks, along with a brand new design that is both dynamic and personalized.

We are also excited about the upcoming launch of VisionOS 26 on Apple Vision Pro, which introduces spatial widgets that allow users to customize their digital space, more realistic character representations, and new enterprise APIs that enable businesses to build their own spatial experiences. This fall, the new features in our latest AirPods product line will unlock more possibilities, from studio-quality audio recording to using AirPods as a camera remote, providing users with powerful new ways to capture content and stay connected.

As we innovate across our product lines, we are particularly proud of the work we are doing to help users lead healthier lives. Since we first introduced hearing health features for AirPods Pro 2, I have received many messages from people who are thrilled to connect more deeply with their loved ones.

Whether through AirPods Pro 2, Apple Watch, or iPhone, it is truly amazing to see the impact of our health and safety features—from hearing tests to fall detection alerts to irregular heart rhythm notifications.

Turning to our services business. Revenue for the June quarter was $27.4 billion, a year-over-year increase of 13%, setting a new record. Apple TV+ received 81 nominations, a record for the platform, covering nearly every eligible category at this year's Emmy Awards.

"Severance" led all Emmy nominees with 27 nominations, followed closely by "The Studio" with 23 nominations, surpassing any other newcomer comedy series. It is truly astonishing to see how these and other Apple TV shows have captured the public's imagination. To date, Apple TV+ has received over 2,700 award nominations and 585 wins, thanks to the highest-rated original content among all streaming networks. We continued to see very positive trends in the June quarter, with TV+ viewership growing strongly in double digits year-over-year.

In June, we were also thrilled to release "F1" in theaters worldwide, one of the most memorable blockbusters of the summer. In this quarter, we celebrated the 10th anniversary of Apple Music. To commemorate this occasion, we launched a brand new studio space in Los Angeles for artists to create content and connect with fans. Later this year, we will bring more beloved features to Apple Music users, from the enhanced listening experience brought by AutoMix—mixing songs like a DJ—to lyric translations and more

At the same time, the App Store continues to be the best place to discover the latest apps from developers around the world in a safe and trustworthy manner. App Store revenue grew by double digits year-over-year, setting a record for the June quarter.

In retail, we continue to seek opportunities to connect with more customers in emerging markets. We recently launched the Apple Store online store in Saudi Arabia, and we are very excited about opening new stores later this year in the UAE and India.

We are also pleased to welcome Japanese customers at our new store in downtown Osaka. In everything Apple does, we showcase ourselves by practicing our values. We firmly believe that the benefits of technology should be shared by everyone. That’s why we create technology for everyone.

In May, to commemorate Global Accessibility Awareness Day, we announced updates to help users learn, connect, and interact with the world, including a Mac version of the magnifier, a brand new Braille experience, and an accessibility reader—a new system-level reading mode that makes understanding content easier. We are proud to introduce accessibility nutrition labels that inform users about accessibility features before downloading apps, while also helping developers educate people about the features their apps support.

This month, we also announced a $500 million commitment with MP Materials to strengthen the supply of critical recycled rare earth materials in the U.S. and support American industry. In August, we will open a brand new Apple Manufacturing Academy in Detroit to train and support American manufacturers. These investments are part of Apple’s largest spending commitment ever, which we announced earlier this year. Over the next four years, Apple will invest $500 billion in the U.S. to drive innovation and create jobs in cutting-edge fields such as advanced manufacturing, silicon engineering, and artificial intelligence. We are proud of this work and everything we do to unlock American innovation and bring the best technology experiences to users around the world.

We continue to look for further opportunities to do more.

Finally, the tariff situation is changing, so let me provide some clarifications. In the June quarter, we incurred approximately $800 million in tariff-related costs. For the September quarter, assuming that current global tariff rates, policies, and applications do not change and no new tariffs are introduced for the remainder of this quarter, we estimate the impact will be an increase in our costs of approximately $1.1 billion.

This estimate should not be used to forecast future quarters, as many factors may change, including tariff rates. We are very proud of our performance in the June quarter, and I want to thank our teams and customers. In everything we do, we are driven by transformative innovation, delivering the most outstanding products and services we have ever created, and we are particularly excited about the road ahead.

Now, I will hand it over to Kevan.

Kevan Parekh, Senior Vice President and Chief Financial Officer:

Thank you, Tim, and good afternoon, everyone. Our revenue was $94 billion, a 10% year-over-year increase, setting a new record for the June quarter. We achieved growth in every geographic region and in the vast majority of markets we track Product revenue was $66.6 billion, an increase of 8% year-over-year, driven by growth in iPhone and Mac.

Due to our high customer satisfaction and strong loyalty, the active device install base across all product categories and geographic regions reached a new historical high. Service revenue was $27.4 billion, an increase of 13% year-over-year, setting a record. We performed strongly worldwide, achieving double-digit growth in most markets. The company's gross margin was 46.5%, at the high end of our guidance range, down 60 basis points quarter-over-quarter, primarily driven by approximately $800 million in tariff-related costs mentioned earlier by Tim.

Product gross margin was 34.5%, down 140 basis points quarter-over-quarter, affected by product mix and tariff-related costs, partially offset by cost savings. Service gross margin was 75.6%, down 10 basis points quarter-over-quarter. Operating expenses were $15.5 billion, an increase of 8% year-over-year. This strong business performance led to record net income and diluted earnings per share for the June quarter, with net income at $23.4 billion and diluted earnings per share at $1.57, an increase of 12% year-over-year. Operating cash flow was also strong at $27.9 billion.

Now, I will provide more details for each revenue category.

iPhone revenue was $44.6 billion, an increase of 13% year-over-year, driven by the iPhone 16 series. As Tim mentioned, we achieved iPhone growth in every geographic region, with double-digit growth in many emerging markets.

The overall active install base for iPhone grew to a historical high across all geographic regions, and our number of upgrade users reached a record for the June quarter. According to a recent survey by Worldpanel (formerly Kantar), the iPhone was the best-selling model in the U.S., urban areas of China, the U.K., Australia, and Japan during the June quarter, and we continue to see very high customer satisfaction in the U.S., measured at 98% by 451 Research.

Mac revenue was $8 billion, an increase of 15% year-over-year, driven by the continued strong performance of the entire product lineup, including MacBook Air, Mac Mini, and MacBook Pro. We achieved growth in every geographic region, with double-digit growth in Europe, Greater China, and other Asia-Pacific regions. The Mac install base reached a historical high, and our number of upgrade users set a record for the June quarter. In the U.S., customer satisfaction was recently measured at 97%. iPad revenue was $6.6 billion, a decrease of 8% year-over-year, which was expected due to a difficult comparison with the launch of iPad Air and iPad Pro in the same quarter last year. Meanwhile, the iPad install base reached another historical high, with over half of the customers purchasing iPads this quarter being new users of the product. According to the latest report from 451 Research, customer satisfaction in the U.S. was 98%. Revenue from wearables, home, and accessories was $7.4 billion, a decrease of 9% year-over-year.

This is due to the difficulties in comparing parts with the previous year's iPad launch. The installed base of Apple Watch has reached a new historical high, with over half of the customers purchasing Apple Watch this quarter being new users of the product. We also set a quarterly record for Apple Watch upgrade users, with the latest customer satisfaction report for Watch in the U.S. at 97%. Our service revenue reached a historical high of $27.4 billion, a year-on-year increase of 13%.

The performance in the June quarter was comprehensive. We saw sequential acceleration in most categories, including cloud services, where we reached a historical revenue record driven by year-on-year growth in iCloud paid accounts. We saw strong momentum in the June quarter, and the growth of our active device installed base provides significant opportunities for the future. Customer engagement in our service products continues to grow.

Both transaction accounts and paid accounts reached new historical highs, with paid accounts achieving double-digit year-on-year growth. Paid subscriptions also saw double-digit growth. We have over 1 billion paid subscriptions in our platform services. We continue to improve the quality and breadth of our service products, from the new Apple Games app to the ongoing expansion of tap-to-pay and Wallet.

Turning to the enterprise side. Organizations continue to invest in Apple products to drive employee innovation and enhance productivity. With companies like PayPal and Roche deploying more Macs for their workforce, we experienced the best June quarter ever for Macs and enterprise business. In Thailand, Siam Commercial Bank, one of the largest banks in Thailand, deployed thousands of iPads in its branches to improve the quality and efficiency of banking services, from loan services to wealth management.

CAE, as a leader in pilot training and simulation technology, is using Apple Vision Pro to help pilots better familiarize themselves with aircraft procedures, resulting in more efficient on-site flight simulator training outcomes. Let’s turn to our cash position and capital return plan. We ended the quarter with $133 billion in cash and marketable securities. We have $5.7 billion in debt maturing, issued $4.5 billion in new debt, and increased commercial paper by $4 billion, bringing total debt to $102 billion. Therefore, at the end of the quarter, net cash was $31 billion. This quarter, we returned over $27 billion to shareholders. This includes $3.9 billion in dividends and equivalents, as well as $21 billion through the repurchase of 104 million shares of Apple stock in the open market. As we enter the September quarter, I want to review our outlook, which includes the forward-looking information types mentioned by Suhasini.

Importantly, the expected assumptions we provide regarding global tariff rates, policies, and applicability remain valid at the time of this call, the global macroeconomic outlook is not expected to worsen from today, and the current revenue-sharing agreement with Google continues to be effective. **We expect total company revenue for the September quarter to grow in the mid to high single digits year-on-year. We expect service revenue to grow at a similar year-on-year growth rate as reported in the June quarter. We expect gross margin to be between 46% and 47%, which includes the estimated impact of $1.1 billion in tariff-related costs mentioned earlier by Tim **

We expect operating expenses to be between $15.6 billion and $15.8 billion. We anticipate other income and expenses to be approximately negative $25 million, excluding any potential impact from minority equity investments measured at fair value, and our tax rate to be around 17%. Finally, today our board announced a cash dividend of $0.26 per share of common stock, payable on August 14, 2025, to shareholders of record as of August 11, 2025. Now let's begin the Q&A session.

Q&A Session

Operator:

Certainly, we will take the first question from Michael Ng at Goldman Sachs. Please go ahead.

Michael Ng:

Good afternoon. Thank you for the opportunity to ask a question. I have a question about the upgrade rate and a question about capital expenditures. First, regarding the upgrade rate. It's encouraging to see record performance from the iPhone, Mac, and Watch. I wonder if you are seeing strong growth in the upgrade rate, or are these records more due to the growing install base? What does your research show is making upgrades particularly attractive this year? For example, is it product features, demand pull-forward, or Apple Intelligence? Then I will follow up with a question about capital expenditures.

Regarding capital expenditures. There has been significant growth year-to-date; could you comment on your capital expenditure plans for this year and next, and provide some qualitative analysis on the factors driving this growth? For instance, is it related to AI or supply chain diversification? Thank you.

Kevan Parekh, Senior Vice President and Chief Financial Officer:

Yes, Mike. It's a combination of multiple factors. I would say a significant driver, as Tim mentioned, is that we are substantially increasing our investments in AI. That is indeed one of the components. As you know, we have been investing in private cloud computing, which is also in our first-party data centers. On the other hand, as you know, we do have a hybrid strategy where we use third parties for capital investments in some cases, and we also invest in our own projects. So you will see an increase in capital expenditures. We will also make other investments in facilities and tools from time to time. But I would say a large part of the growth you are seeing now is indeed driven by some of our AI-related investments.

Tim Cook, Chief Executive Officer:

Regarding upgrades, Michael, if you look at the iPhone, the 16 series achieved double-digit growth compared to the 15 series in the same quarter last year. So we did set upgrade records. I believe this is directly due to the strength of the products. The Mac also set records in upgrades, and I think we continue to see the transition to Apple Silicon. The performance of Apple Silicon plays a very critical role. This has been an incredible quarter. Regarding whether you want to know about demand pull-forward, **we estimate that demand specifically pulled forward to April accounts for about 1 percentage point of that 10 percentage points, which is due to people purchasing because of discussions around tariffs **

Operator:

The next question comes from Erik Woodring of Morgan Stanley. Please go ahead.

Erik Woodring:

Good afternoon. Thank you very much for taking my question. I have two questions as well. First, shortly after the release of the March quarterly earnings report, there were reports that Safari search volume declined for the first time in April, which I believe is the first time in over twenty years. From your 13% service growth this quarter, it doesn’t seem to indicate that the trend in April continued into the rest of the June quarter. So, I would like to understand more about the performance for the remainder of this quarter. And do you think that as AI platforms become more valuable, more popular, or their strategic value continues to increase, Apple products as a search access point are losing their strategic value, or is the strategic value increasing? Then I will follow up. Thank you.

CEO Tim Cook:

I think they are still very valuable. I think consumer behavior is evolving, and we are closely monitoring it.

Erik Woodring:

Okay. Thank you for that information. Thank you, Tim. My second question is, I hope you can elaborate on the situation in China. I believe you mentioned some promotional activities driving demand in an interview earlier this afternoon. But from a broader perspective, if we step back and look at the Chinese market, how do you assess the demand and interest in the iPhone 16 and some of the other products? Is this changing? Or are some of the trends from the June quarter more of a one-time and unique nature? Thank you very much.

CEO Tim Cook:

We grew 4% in Greater China this quarter compared to the previous quarter. This was driven by accelerated growth in iPhone, although we also saw significant growth year-over-year in Mac. As you know, the government provided some subsidies that affected some of our products, not all, but some. I think this had some effect. This is the first full quarter of the subsidy policy implementation. It started to be implemented for part of the previous quarter. I would also say that the installed base in Greater China reached a record high. We set a historical record for the iPhone installed base. The number of iPhone upgraders in mainland China set a record in the June quarter. According to Worldpanel (formerly Kantar), the three iPhone models ranked in the top three in the urban market in China, which is an extraordinary achievement. Additionally, if you look at other products, most of the customers purchasing Mac, iPad, and Watch in mainland China are new users of those products. So there are many positive aspects. I would also point out an interesting point: the MacBook Air is the best-selling laptop model in all of China, and the Mac Mini is the best-selling desktop model in all of China. Overall, it was a positive, very positive quarter

Operator:

The next question comes from Ben Reitzes of Melius Research. Please go ahead.

Ben Reitzes:

Okay, thank you. I want to ask about Siri, Tim, and the overall AI investment situation. There is a belief that Siri will help drive other new products that may require voice functionality more. I want to know how confident you are about launching this feature next year? Has the company taken any measures internally to enhance this confidence? Is this related to investment? I think everyone is eager to learn more about your confidence and progress. Then I have a follow-up question. Thank you.

Tim Cook, CEO:

Okay, thank you for your question. We are making good progress on a more personalized Siri, and as we mentioned before, we do expect to release these features next year. From an AI perspective, our focus is on deploying deeply personalized, private, and seamlessly integrated AI features on the platform. Of course, so far we have launched over 20 Apple Intelligence features, from Visual Intelligence to Clean Up, to writing tools, and so on. We are significantly increasing our investment. We increased investment in the June quarter and will do so again in the September quarter. I don’t want to provide specific numbers at this time, but you can see from the guidance that investment is increasing. We are also reallocating quite a bit of personnel internally to focus on AI features; we have an excellent team that is fully committed. Regarding products—about other products, I don’t want to comment on specific other products, but we have an exciting roadmap, and I am very optimistic about it.

Ben Reitzes:

Great, Tim. Thank you for your clarification. Regarding my second question, it’s about the overall revenue guidance. I understand that you will provide the best guidance based on what you can see, but I want to challenge it from another angle. If the services business maintains a steady growth of 13%, why would it slow down? Is there a conservatism at play here? I think the exchange rates are even more favorable. So why would it slow down from this quarter to high single-digit growth, or is it just a conservative estimate? If there are indeed certain businesses slowing down or there are base comparison issues, could you point them out? Thank you.

Kevan Parekh, Senior Vice President and Chief Financial Officer:

Okay, Ben, this is Kevan. Thank you for your question. When you look at the change from the growth in the third quarter to the mid-high single-digit guidance, I think you need to consider two factors. First is the impact of the demand pull-forward related to tariffs that Tim mentioned earlier; we estimate this accounts for about 1 percentage point of the 10 percentage points growth in the third quarter. Then you need to consider another factor, which is that in last year’s September quarter, we enjoyed the full-quarter impact of the iPad launch, which also led to a higher comparison base this year. These two factors are what you need to consider when looking at the change from the third quarter to the fourth quarter What I want to say is that from the third quarter to the fourth quarter, foreign exchange is a very slight tailwind, so it is not a major factor.

Operator:

The next question comes from Wamsi Mohan of Bank of America. Please go ahead.

Wamsi Mohan:

Hello, thank you. Tim, I know you mentioned that the services business would see similar growth, which is predicated on Google continuing to pay. Is there any way we can quantify this, or conceptually discuss what actions Apple could take if the opposite were to happen and payments were somehow not allowed, considering this is an important component of profitability? I will follow up on this question.

Tim Cook, CEO:

Yes, Wamsi, I really don’t want to speculate on the court's ruling and how they will rule, nor do I want to speculate on what actions we would take as a result.

Wamsi Mohan:

Okay, I think we will wait for the ruling. Also, Tim, at a high level, when you see some concerns that are considered related to new form factors and the way people interact with devices, there are some worries that, given some developments in artificial intelligence, there may be a world where reliance on screen-based devices significantly decreases. I’m curious if you think that scenario will happen, how fast and at what pace, and how you think Apple is preparing for that?

Tim Cook, CEO:

When you think about all the things the iPhone can do, from connecting people to bringing app and game experiences to life, to taking photos and videos, to helping users explore the world, manage their financial lives, and make payments, etc. It’s hard to see a world without the iPhone. That doesn’t mean we’re not thinking about other things, but I think these devices may be complementary devices rather than substitutes.

Operator:

The next question comes from Amit Daryanani of Evercore. Please go ahead.

Amit Daryanani:

Good afternoon. First, Tim, regarding the $1.1 billion impact from tariffs in the September quarter, I understand the upward trend you mentioned, but could you talk about how you ultimately consider offsetting this adverse impact on the P&L if tariffs remain at these levels or even continue to evolve under Section 232? When would you decide to implement measures to offset this adverse impact rather than letting it affect your bottom line?

Tim Cook, CEO:

Right now, we are just estimating costs. The quarter-over-quarter increase is due to our sales increasing quarter-over-quarter. And there was some pre-building in the last quarter. That’s the main reason for the increase. In terms of the mitigation measures we are taking, we are clearly trying to optimize the supply chain. Ultimately, we will do more in the U.S. We have committed to investing $500 billion in the U.S. over the next four years. We are already manufacturing chips in Arizona. In fact, we are producing semiconductors in 24 factories across 12 states, with many other projects under construction You may have seen the investment in MP Materials last week. We continue to explore these matters, looking for more opportunities, and I believe that is ultimately our goal.

Amit Daryanani:

Understood, very helpful. I find your service growth of 13% quite impressive, especially considering all the concerns people have. Could you talk about whether you have seen any significant impact from the Epic case and the subsequent guidance dynamics? Perhaps discuss what the appeals process has been like for you? Thank you.

Kevan Parekh, Senior Vice President and Chief Financial Officer:

This is Kevan, let me take that question. Overall, I want to remind you that, as you just mentioned, our services business performed very strongly this quarter. We set a new record, reaching $27.4 billion, a growth of 13%.

I also want to point out that our services business performance is broad-based. We saw strong growth in both developed and emerging markets, with both regions achieving double-digit growth. We also saw most business categories experience sequential acceleration, including cloud services, as I mentioned in my prepared remarks, where we set a record for revenue.

Regarding the Epic ruling, keep in mind that we just introduced the court-mandated changes in the June quarter. As you know, we do not provide specifics, but overall, I want to say it is very, very good. In the U.S., our U.S. App Store achieved double-digit growth and set a record.

Therefore, we will continue to monitor the impact on our business, but we will continue to innovate to ensure the App Store provides the best experience for users and maintains good business opportunities for developers.

Operator:

The next question comes from David Vogt of UBS, please go ahead.

David Vogt:

Great, thank you all. I have two questions as well. Perhaps, Tim, regarding the supply chain strategy, I know you mentioned last quarter about shifting production or assembly focus to India. I just wanted to get your latest thoughts on the overall strategy, considering that tariff rates in India may be higher than anyone expected.

I know you mentioned some U.S. investments, but we would love to hear your views on the future development of China compared to other regions in Southeast Asia and India. Then I will give you my second question. So, Kevan, I just wanted to understand more about the demand drivers for the iPhone this quarter, as clearly the iPhone 16 has been on the market for some time. I know there have been some promotions, but seasonally, you typically wouldn’t see such strong performance in the June quarter.

Perhaps you can help us understand what other drivers, aside from promotions, led to what appears to be quite significant outperformance in the June quarter? Thank you.

Tim Cook, CEO:

Regarding tariff situations and countries of origin, I want to remind everyone that the vast majority of our products fall under the scope of Section 232 investigations.

As for the countries of origin, there has been no change from what I mentioned last quarter, which is that for iPhones sold in the United States, the majority, or I should say most, of the country of origin is India. The vast majority of other products, such as Mac, iPad, and watches, have their country of origin as Vietnam when sold in the United States.

However, for products from other international countries, the vast majority still come from China. I hope this gives you an understanding of the situation. But I want to emphasize again that we have done a lot in this country, and we have committed $500 billion, and we are always looking to do more. You can see this from recent announcements, whether it’s MP Materials or the manufacturing academy we will establish in Detroit in a few weeks.

Therefore, we will do more in this country, not including the approximately 19 billion chips currently produced in the United States; we will do more. Of course, there are also the glass for iPhones and Face ID modules. So, there are many different things being manufactured in the United States.

Kevan Parekh, Senior Vice President and Chief Financial Officer:

Then, David, regarding the iPhone activity. You asked if there were any unique features this quarter. I just want to say, as Tim outlined, we really believe that the strong upgrade performance (which is a record for the June quarter) is truly driven by the strength of the product lineup. The iPhone 16 series has performed exceptionally well compared to the iPhone 15 series.

As you remember, we also recently launched the 16E, which continues to impact the success of the entire iPhone 16 product line.

Operator:

The next question comes from Krish Sankar of TD Cowen.

Krish Sankar:

Hello, Tim. The first question is for Kevan. Regarding the previous question, do you think there was an early pull-in of iPhone sales in the June quarter that contributed to some of the outperformance? How do you view the channel inventory for the June quarter and the situation related to seasonal trends in the September quarter? Then there’s a long-term question for Tim.

Tim Cook, Chief Executive Officer:

Let me see if I can address the channel inventory question, or what I perceive to be the channel inventory question. If you look at the iPhone channel inventory from the beginning of the quarter to the end of the quarter, we reduced inventory, and the end-of-quarter inventory is at the low end of our target range. That’s the answer regarding inventory.

Kevan Parekh, Senior Vice President and Chief Financial Officer:

Yes, I think you also asked about the impact of the early pull-in. We have mentioned this issue before. To clarify what we observed in the June quarter, we did see some clear signs of early pull-in, primarily occurring in the April timeframe, related to the tariff discussions in the market. From what we observed, this contributed about 1 percentage point to the overall 10 percent growth of the company This is the limited impact we truly observed in the quarter.

Krish Sankar:

Understood. Very helpful. I have a long-term question for Tim. Tim, I'm curious about your views on AI at the edge. Some people believe that LLMs may become commoditized products in the future. Do you think LLMs will become a core part of iOS, or is SLM the direction of development? How do you see the evolution of edge devices in the future AI world? Will smartphones be the preferred devices? I'm curious about your broad perspective on this issue. Thank you.

Tim Cook, CEO:

Our view on AI is that it is one of the most profound technologies of our time. I believe it will impact all devices in significant ways. As for which parts of the supply chain will be commoditized and which will not, I don't want to go into detail today, as that would reveal some aspects of our strategy. But I think it's a good question.

Operator:

The next question comes from Samik Chatterjee at JP Morgan. Please go ahead.

Samik Chatterjee:

Hello. Thank you for taking my question. Tim, regarding your comment about the pull-forward contributing about 1 percentage point to revenue, could you share the basis for that estimate? Is the pull-forward you observed primarily in iPhones, or is it across the entire product line? Is it mainly in the U.S., or does it span multiple regions? Any relevant information would help understand how you arrived at this assumption, and I have follow-up questions.

Tim Cook, CEO:

It is primarily in iPhone and Mac, with clear evidence. This is an unusual purchasing pattern, mainly occurring in the early part of the quarter in April, and we believe it is primarily in the U.S.

Samik Chatterjee:

Okay, understood. Regarding tariffs, you estimated $900 million last quarter, but it was actually $800 million, and you did emphasize that there were some special factors in that quarter. Now you expect $1.1 billion for the September quarter. As we start to think about December, are there any special circumstances in regional sourcing for the December quarter that would uniquely impact December? Given that you emphasized there are special circumstances between quarters, I'm curious if December will be significantly different from September due to special factors?

Tim Cook, CEO:

I would advise caution in forecasting based on Q2 and Q3 numbers, because first, we are uncertain about what the tax rate will be, and the tax rate may change. Second, especially in the last quarter, we had some pre-established inventory within the company and the supply chain, which are somewhat special. Additionally, you should know from tracking us long-term that Q1 is typically a higher sales quarter, and tariffs currently have a linear relationship with sales.

Operator:

The next question comes from Aaron Rakers of Wells Fargo. Please go ahead.

Aaron Rakers:

Yes, thank you for taking my question. I have two questions, and I’ll ask them together. The first question is more foundational. Kevan, when we consider the impact of exchange rates, how much benefit did exchange rates bring this quarter? I’d like to understand the situation across the entire business, particularly in the services segment. On a year-over-year basis, how should we think about the exchange rate benefits included in the September quarter guidance? The second quick question is that capital expenditures are clearly on the rise. I know you won’t provide specific guidance on that number, but qualitatively, as you invest more in AI, should we really start to see capital expenditures grow significantly, currently annualizing around $4 billion? Any relevant information would be helpful. Thank you.

Kevan Parekh, Senior Vice President and Chief Financial Officer:

Great, Aaron. Thank you for the questions. Let me first address the one about foreign exchange. For the third quarter, we actually had no impact from foreign exchange on a year-over-year basis. So when we look at revenue growth and gross margins, foreign exchange had essentially no impact. As we look from the third quarter, which is the June quarter, to the September quarter, as I mentioned earlier, from a foreign exchange perspective, there is very little tailwind for both revenue and gross margins from the third quarter to the fourth quarter.

Then regarding the second question on capital expenditures, I think the fact we discussed is that Tim also mentioned we are significantly increasing our investments in AI. You will continue to see our capital expenditures grow. This won’t be exponential growth, but it will be substantial growth. This is largely a result of our investments in AI. As we mentioned, we have other projects in this category, facilities, and some of our retail startup projects will continue to see exponential growth. Some of our retail store investments, but I want to say a lot of the growth is indeed driven by AI. I want to remind you that we do have a hybrid model, and we also leverage third-party infrastructure in addition to investing in our own first-party infrastructure.

Operator:

The next question comes from Atif Malik of Cit. Please go ahead.

Suhasini Chandramouli, Director of Investor Relations:

Hello, thank you for taking my question. Tim, earlier this quarter at WWDC, you showcased impressive updates for Vision Pro, including new ways to use widgets, spatial scenes, character roles, and content creation. Peers like Meta and Gemini have seen strong momentum with their AI glasses. So, is the focus of Vision Pro still on enterprise applications, or are you considering expanding use cases, perhaps linking it to more of your devices? What are your thoughts on Vision Pro, as it didn’t get enough time in the prepared remarks?

Tim Cook, CEO:

Yes, thank you for bringing up this question. I am excited about the Vision OS 26 released by the team. It includes many features, such as spatial widgets, allowing users to customize their digital space. The character avatars have seen significant improvements. They are more realistic. Of course, there are also new enterprise APIs aimed at companies. As Kevan mentioned in his opening remarks, we see these features resonating with CAE and other customers. Therefore, we continue to be very focused on this. I don't want to go into the roadmap, but this is an area we truly believe in.

Suhasini Chandramouli, Director of Investor Relations:

Great. Kevan, historically you haven't done many large acquisitions. Do you feel the need to accelerate the AI roadmap, or maintain a focus on organic growth?

Tim Cook, CEO:

Let me answer this question as well. We have acquired about seven companies this year. These companies come from various industries, not all focused on AI. So we are doing, you could say, one every few weeks. We are very open to acquisitions that can accelerate our roadmap. We are not fixated on a certain size of company, although the companies we have acquired so far this year are essentially small. But we basically ask ourselves whether a company can help us accelerate the roadmap. If it can, then we are interested, but we don't have anything specific to share today