Apple today announced financial results for the first fiscal quarter of 2023, which corresponds to the fourth calendar quarter of 2022.
For the quarter, Apple posted revenue of $117.2 billion and net quarterly profit of $30.0 billion, or $1.88 per diluted share, compared to revenue of $123.9 billion and net quarterly profit of $34.6 billion, or $2.10 per diluted share, in the year-ago quarter.
Apple’s revenue was down approximately 5% year-over-year, a steeper decline than had been expected by analysts as Apple grappled with iPhone supply issues in particular but which also saw declines in Mac and wearables.
Gross margin for the quarter was 43.0 percent, compared to 43.8 percent in the year-ago quarter. Apple also declared a quarterly dividend payment of $0.23 per share, payable on February 16 to shareholders of record as of February 13.
“As we all continue to navigate a challenging environment, we are proud to have our best lineup of products and services ever, and as always, we remain focused on the long term and are leading with our values in everything we do,” said Tim Cook, Apple’s CEO. “During the December quarter, we achieved a major milestone and are excited to report that we now have more than 2 billion active devices as part of our growing installed base.”
As has been the case for over two years now, Apple is once again not issuing guidance for the current quarter ending in March.
Apple will provide live streaming of its fiscal Q1 2023 financial results conference call at 2:00 pm Pacific, and MacRumors will update this story with coverage of the conference call highlights.
Conference call recap ahead…
1:39 pm: After rising almost 4% in regular trading today, Apple’s stock has given up almost all of those gains in after-hours trading following the earnings release, currently down around 3.5%.
1:42 pm: After four straight quarters of Services revenue in the $19 billion range, Apple finally broke through the $20 billion mark with an all-time record of $20.8 billion. iPad performance was also strong at nearly $9.4 billion in revenue, up from $7.2 billion in the year-ago quarter. But that wasn’t enough to offset a decline in iPhone revenue from $71.6 billion to $65.8 billion. Mac revenue also saw a significant decline from $10.9 billion to $7.7 billion as Apple didn’t release any updated Macs during the quarter.
2:01 pm: The call is beginning. Apple CEO Tim Cook and CFO Luca Maestri are on the call.
2:01 pm: Apple is reminding that the December quarter, as happens once every 6 years, has 14 weeks to align Apple’s fiscal calendar year with the actual calendar year.
2:02 pm: Tim Cook is on for the prepared remarks.
2:03 pm: He’s touting records set in a number of geographic segments, noting that revenue is down 5% year over year, but he is “incredibly confident” in his team and the work they do every day.
2:03 pm: Three factors affected revenue performance: Foreign Exchange (FX) headwinds had an incredible 800 basis point impact. Without that, they would have grown year over year.
2:04 pm: iPhone 14 Pro and Pro Max units were supply constrained thanks to covid-related issues in China.
2:04 pm: “Production is now back where we want it to be.”
2:04 pm: Third factor was a challenging macroeconomic environment, including inflation, war in Eastern Europe, and the enduring impacts of the pandemic. “Whatever conditions we face, our approach is always the same. We are thoughtful and deliberate.”
2:05 pm: What we saw across our product categories… iPhone down 8% year over year. On constant currency basis, revenue was roughly flat.
2:06 pm: On Mac, difficult compare thanks to extremely successful launch of M1 MacBook Pros in 2021, plus FX and other headwinds.
2:06 pm: Touting new M2 machines introduced in January.
2:07 pm: iPad revenue grew 30%, due in part to favorable compare to year ago December quarter (experienced supply constraints in 2021). New lineup has versatility, iPad Pro powered by M2, or new iPad 10th generation.
2:07 pm: Wearables, Home, and Accessories was down 8% year over year, driven by FX headwinds and a challenging macroeconomic environment.
2:09 pm: Now touting Emergency SOS via Satellite. “A feature we hope our users will never need” but he gets emails talking about the life-saving impact these new features have had.
2:10 pm: “We have achieved a truly incredibly milestone. Thanks to our deep commitment to innovation, incredible customer loyalty and satisfaction, we now have more than 2 billion active devices in our install base, double what it was just seven years ago.”
2:10 pm: Double-digit revenue growth from app store subscriptions. Apple has more than 935 million paid subscriptions.
2:11 pm: Begun a historic 10-year partnership with Major League Soccer. Access to every live MLS regular season game, plus playoffs and MLS Cup, all with no blackouts. Apple TV+ showcases powerful characters and moving storytelling.
2:11 pm: Ted Lasso Season 3 coming this Spring!
2:12 pm: Celebrated 25 years of the Apple Online Store, and opened a few new stores including one in Vancouver and another in New Jersey.
2:14 pm: We remain ever-focused on the environmental commitments we set for the end of the decade. The latest Mac mini and MacBook Pro models use 100% recycled aluminum in the enclosure, and recycled rare earth elements in all magnets. In HomePod, using 100% recycled gold in the printing of circuit boards.
2:15 pm: Cook is “more confident about the future of Apple” than he has ever been.
2:15 pm: CFO Luca Maestri is coming on to discuss the results in more detail.
2:16 pm: Revenue was down 5% year over year, including a very difficult foreign exchange environment that affected performance by almost 800bp. Grew revenue on constant currency basis across the vast majority of markets.
2:16 pm: Significant supply shortages for iPhone 14 Pro and Pro Max in November and through December. Offset by impact of 14th week of the quarter.
2:16 pm: Product revenue down by 8% due to factors mentioned. Install base of active devices grew double digits and set all time records in each category and geographic segment. More than 2 billion active devices.
2:17 pm: Extremely strong levels of customer satisfaction and loyalty and a high number of new users.
2:17 pm: Services set all-time revenue record, up 6% year over year. 700bp of negative FX. All-time records in Americas, Europe, and Asia Pac. Revenue records for Cloud, Payments, Music.
2:18 pm: OpEx of $14.3 billion were significantly below guidance, grew at slower pace than in the past, as the company took actions to respond to the negative macro environment. Strong operating cash flow of $34 billion.
2:19 pm: iPhone revenue was $65.8b, despite FX headwinds and supply constraints, and challenging macro environment. All-time iPhone records in Canada, Italy, and Spain. Strong growth in several emerging markets including all-time record for India and Vietnam.
2:19 pm: All-time high of installed base of iPhones across all geographic segments. Double-digit growth and record switches in India and Mexico.
2:20 pm: Latest survey of US consumers from 451 Research at 98% satisfaction for the iPhone 14 family.
2:20 pm: Mac sales down, thanks to challenging compare vs last year’s new MacBook Pro. Macro environment. Significant FX headwinds. However, installed base of active Macs reached an all-time high across all geographic segments.
2:20 pm: 96% customer sat on Macs according to 451 Research.
2:21 pm: iPad revenue up 30% year over year, driven by constraints in 2021 vs 2022 with ample supply, new iPad Pro powered by M2 chip. iPad install base reached an all-time high. High number of new customers. Over half of new iPad customers were new to the product.
2:22 pm: Wearables/Home/Accessories was $13.5b, down 8% YoY. FX headwinds and challenging macro environment, but install base set a new all-time record, thanks to largest number of customers new to a smartwatch ever in the quarter.
2:23 pm: Record for Services and across most services offerings. FX and macro headwinds affected mobile gaming and digital advertising. Continue to observe several trends that reflect the strength of our ecosystem. Increased customer engagement with services, both transacting accounts and paid accounts grew double digits setting new alltime records. Paid subs grew nicely, with more than 935 million paid subs across services on platform, up 150 million during the last 12 months. Nearly 4x what we had 5 years ago.
2:23 pm: Reach and quality continue to improve, Apple Pay is available to millions of merchants in 70 countries and regions, record purchases during the holiday season. 2 billion active devices represents a great foundation for future expansion of the ecosystem. Continues to grow even during difficult macro conditions.
2:24 pm: Growth is coming from every major product category and geographic segment, with strong growth in emerging markets.
2:24 pm: Enterprise, seeing continued adoption of services for business.
2:25 pm: Cash position, returned $25 billion to shareholders. $3.8 billion in dividends and $19 billion through open-market repurchases of 133-million AAPL shares. $165 billion in cash and securities, with total debt of $111 billion. Net cash of $54 billion at the end of the quarter.
2:26 pm: Looking forward to March, Apple is not providing revenue guidance but sharing directional insights based on assumption that macro outlook and COVID impact does not worsen from current projects. March quarter YoY to be similar to December quarter. Acceleration in underlying business performance as December benefitted from an extra week. FX will be a headwind, and expect YoY impact of 5%. Services will grow YoY but face macro headwinds in digital ads and mobile gaming.
2:27 pm: Mac and iPad to decline double digits YoY because of challenging compares and macro headwinds. GM to be between 43.5 and 44.5%, OpEx between $13.7 and $13.9 billion, tax rate around 16%. Cash dividend of $0.23/share.
2:27 pm: The call is being opened to questions from analysts.
2:30 pm: Q: Talked about supply chain returning back to normal, we’re still seeing disruptions across tech products in enterprise or consumer. What do you need to do to insulate your business from these episodic disruptions and how does that affect margin and balance sheet?
A: From supply point of view, saw disruption from early November through most of December, and from a supply chain point of view, we’re now at a point where production is what we need it to be. The problem is behind us, but in terms of going forward and the supply chain, we build our products everywhere. There are component parts coming from many parts of the world and final assembly coming from 3 countries on just iPhone. Continue to optimize it over time and change it to continue to improve, but I think when you zoom out and back up from it, the last three years have been a pretty difficult time between COVID and silicon shortages and the like. We’ve had a resilient supply chain in the aggregate.
In terms of supply for this quarter, I think we’re in decent supply on most products for the quarter currently.
2:32 pm: Q: Dig into commentary on gross margins, especially guidance of 43.5-44.5 is quite strong. What’s helping you out there? How should we think about currency and hedges looking forward?
A: We’ve had good margin for Dec quarter, 43%, December we have benefit of leverage thanks to seasonality, but favorable mix across the board. FX is an issue right now. In December, sequential 110bp negative, and YoY 300bp, so FX has changed a lot during the last 12 months. For March, we see margin expansion, 43.5-44.5, doing a lot of work around cost. Mix will continue to help, both within categories and Services as we move away from the holiday season, but doing a lot of work on the cost structure. FX is still a negative, about 50bp sequentially, but it’s mitigating the last couple of weeks the dollar has weakened a bit, hopefully things will improve but for now we are in a good position on margins.
2:34 pm: Q: Can you talk about China? What you’re seeing, issues with production but I mean on the demand side. Into Chinese new year and the reopening, are you seeing the Chinese consumer come back and what are they buying?
A: Declined by 7% last quarter, but grew on constant currency basis and despite significant supply constraints. Obviously the covid restrictions throughout China that happened in different places also impacted demand during the quarter. Look at the opening that started in December, we saw a marked change in traffic in our stores as compared in November and that followed to demand as well. I don’t want to get into January, Jan is included in color that Luca provided earlier, but we did see a marked change from December compared to November.
2:35 pm: Q: That 2 billion device installed base figure, up 200m units YoY, suggests strongest growth in new devices as far back as you provide data points. Can you provide install base for iPhone? Anything you see in new cohort of users that might look similar or different to past cohorts?
A: Install base is now over 2 billion active devices, and we set records across each geographic segment and product category, so broad-based change. To correct one thing, it’s up 150m year over year. Last report we said was 1.85 billion. Up 150 which we’re very proud of. Strong double-digit in several emerging markets, which is very important to us. India and Brazil as two examples. Very strong and obviously it bodes well for the future.
2:38 pm: Q: The Dec quarter was impacted by production challenges, can you unpack where channel levels are today across the iPhone broadly and what data is telling you about iPhone demand deferral vs destruction, and pushing upgrades into later of the year vs March.
A: Channel inventory on iPhone, we obviously ended the December quarter below our target range given the supply challenges on iPhone 14 Pro and iPhone 14 Pro Max. Keep in mind, a year ago, we exited December below our target inventory range because of supply challenges in the year ago quarter, but not the same issue, just as a point. That hopefully gives you some flavor.
In January, we’ve included in our color, hard to estimate the recapture because you have to know what would have happened and how many people bought down and it takes a while to get those reports in during the quarter. We’ve made our best guess at it, in terms of sizing of the constraint in Q1, what we estimate (not with precision), we believe iPhone would have grown during the quarter had it not been for the supply shortages.
2:39 pm: Q: Talk more about guidance? What’s that include re component pricing?
A: Capture every bit of cost structure and components are a part of that. Sequential negative on FX is 50bp, vs a year ago is 270bp, with the US dollar moving a lot over the last 12 months. Need to find offsets and more to negative FX in order to provide this kind of guidance and components are a big part of that.
2:40 pm: Q: How do you think about the role of AI particularly in services. Expand monetization in base, how do you implement it strategically?
A: It’s incredible in terms of how it can enrich customer lives, and look no further than some of the things we announced in the fall with crash detection and fall detection, or back aways with ECG. These things have saved peoples lives. Enormous potential to affect everything we do. Horizontal technology not vertical, so it will affect every product and service that we have.
2:42 pm: Q: iPhone would have grown ex of production, tough to see what happens this time around, but historically with production issues, what has the consumer behavior been typically? DO they go to lower end model or do they defer, from a historical production?
A: It’s very hard to estimate is the real answer, because you need a lot of data and it’s only in hindsight that you have a more reasonable view of it. We put our best views in the color that Luca provided. That’s kind of what I would say.
2:44 pm: Q: Think about services going forward, really good growth over the last several years. What do you think drives the growth of expansion of install base vs ARPU going forward?
A: A number of things, the first step is always the install base. It’s the engine for services growth. Growing nicely in emerging markets and growing faster, gives us a larger addressable pool of customers. Seeing that the level of engagement for customers already in our ecosystem continues to grow. Both transacting accounts and paid accounts grew double digits, so that bodes very well for the future. A lot of transacting accounts that move to paid accounts over time. Other aspect is to continue to improve the reach and quality of our services. Gave example of Apple Pay, it’s a great example, started in the US, taken to 70 markets, millions of merchants, payment services set new highs for us. As you’ve seen for us over hte last few years, we launch new services over time. We’re very excited and when we look at the behavior of our install base we think it’s promising for our services business.
2:46 pm: Q: Question on emerging markets, lot of strides in India. Wanted to understand share in China and India, and what would be aspirational but achievable share in those territories?
A: Set quarterly revenue record in India and grew strong double digits year over year. Feel very good about how we performed and that’s despite headwinds. India is a hugely exciting market for us and is a major focus. We brought the online store there in 2020, we will soon bring Apple Retail there, and putting a lot of emphasis on the market. A lot done from financing and trade-ins to make products more affordable and give people more options to buy. A lot going on there, we’re in essence taking what we learned in China years ago and how we scaled China and bringing that to bear and I don’t have the exact market shares in front of me, but you would see that from a share point of view, we grew around the world last quarter on iPhone despite challenges on the supply side. I wouldn’t expect to have a difference in those two markets.
2:47 pm: Q: Theoretical question on pricing. Manufacturing in the US and other territories that might be more expensive than where you’re building now, have you studied the elasticity of demand relative to small price increases in products?
A: We have experience in that, but I wouldn’t necessarily draw the same conclusion in terms of the cost of the product. We don’t know what the impact will be at this point, we’re all in in terms of being the largest customer for TSMC in Arizona and we’re very proud to take part in that. That’s what I would say about that.
2:50 pm: Q: How do we compare this cycle for iPhones for Pro vs non-Pro over last several years? Is move to higher ASP sustainable or does it reverse in tighter spending environment?
A: 14 Pro and 14 Pro Max have done extremely well up to the point where we had a supply shortage and couldn’t provide the total of the demand. It’s definitely a strong Pro cycle. I think there are a number of reasons, but the important one is the product. The innovation is the product and they speak for themselves and we feel very good about the product we announced in September and are happy that we’re at a point where we’re shipping to the demand.
Q: Is the move to higher ASP, is that sustainable in this tough macro environment?
A: I wouldn’t want to predict, but I would say that the smartphone, for us the iPhone, has become so integral into people’s lives, it contains their contacts and health information and banking information and smart home and so many different parts of their lives. Payment vehicle for many people. I think people are willing to really stretch to get the best they can afford in that category.
2:51 pm: Q: Emphasizing the focus and importance of the install base, think about growth of install base from 1 to 2 billion, how should we think about the penetration of services and paying customers on services over that time frame? How fast is that growing vs the install base?
A: We keep track of that, very important for us. Over the last 7 years as we’ve doubled the install base, we’ve seen a growing engagement of our customers on that platform. That happens by customers transacting on the platform and then moving to paid accounts, starting to pay for some of the services. That percentage of paid accounts tends to grow over time. We see it in developed and emerging markets. We made it easier for our customers to get engaged on the platform, we have multiple payment methods in many countries and we’ve made it easier to explore for more services, we’ve add a lot of services on the platform over the last 7 years. Higher engagemenet means higher percentage of paid accounts, over time.
2:54 pm: Q: You mentioned earlier on the call about India. Are we now entering a situation of more opportunity exiting COVID, India building out higher-speed transmissions and you’re underrepresented there. Diversifying operational risk not specific to a country, opening up stores, is it more primed for opportunity now than ever?
A: We actually did fairly well through covid in India and I’m more bullish now that we’re hopefully on the other side of it. That’s why we’re investing there with retail and the online store. Putting a significant amount of energy there, I’m very bullish on India.
2:55 pm: Q: Services overall were better than expected. What surprised you to the upside on services?
A: Primarily the level of engagement that we saw, which reflects into the paid subscriptions. Saw very good results in cloud services, payment services, Music was very strong. We had a number of categories that set new all time records, and did a bit better than we were expecting at the beginning of the quarter. Tim mentioned it during his prepared remarks, when you look at it in constant currency we grew Services double digits and that was on top of 24% increase a year ago. Sustained growth that we’re seeing.
2:56 pm: Q: Mentioned how the macro had an impact, when you look across hardware products and services, where do you see biggest and smallest impact from softening macro?
A: Some impact across products and services, probably the ones that we saw the most impact on were Mac and Wearables, you can see that in those numbers. Probably least was iPhone.
2:57 pm: Q: PC industry is expecting a decline in shipments, how does Mac as a whole match that and is there any color?
A: The industry is challenged as you say. Industry is contracting, I don’t want to predict the year. We have a reasonable sized, big market. We have a low share and we have a competitive advantage with Apple Silicon, so strategically we are well positioned within the market albeit I think it will be a little rough in the short term.
2:58 pm: The call is ending.