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Apple, Inc. (NASDAQ: AAPL) Call for Q4 2018 results from November 1, 2018 at 5 pm ET
managerial staff
Nancy Paxton – Apple, Inc.
Timothy Donald Cook – Apple, Inc.
Luca Maestri – Apple, Inc.
Analysts
Wamsi Mohan – Merrill Lynch from Bank of America
Shannon S. Cross – Cross Research LLC
Mike J. Olson – Piper Jaffray & Co.
Kathryn Lynn Huberty – Morgan Stanley & Co. LLC
Jim Suva – Citigroup Global Markets, Inc.
Operator
Hello and welcome to the fourth quarter teleconference of fiscal year 2018 from Apple Incorporated. The call of today is being recorded.
At this point, for opening remarks and presentations, I would like to give the floor to Nancy Paxton, Senior Director, Investor Relations. Please go from the front.
Nancy Paxton – Apple, Inc.
Thank you. Good afternoon and thank you all for your presence. Apple's chief executive, Tim Cook, will be the first to speak today. He will be followed by CFO Luca Maestri. We will then go to the questions of the analysts.
Please note that some of the information you will hear during our discussion today will be consistent with the forward-looking statements, including those regarding products, gross margin, operating expenses, other income and expenses, taxes, capital allocation and future business prospects. . Actual results or trends may differ materially from our expectations.
For more information, please refer to the risk factors described in Apple's latest periodic reports on Forms 10-K and 10-Q, and Form 8-K filed with the SEC. today, as well as in the Associated Press Release. Apple assumes no obligation to update forward-looking statements or information, which are valid as of the date of their publication.
I would now like to give Tim the floor for his opening remarks.
Timothy Donald Cook – Apple, Inc.
Thank you Nancy. Hello everyone and thank you for joining us. I have just returned from Brooklyn, where we celebrated our fourth major launch event of the year. In addition to being a great time, he put an exclamation point at the end of a remarkable fiscal year of 2018. This year we shipped our 2 billionth iOS device, celebrated the 10th anniversary of the App Store , and directed the history of Apple.
During the 2018 fiscal year, our revenues increased by $ 36.4 billion. This equates to a Fortune 100 business in a single year and we close with the best quarter of September of our history. Revenues were $ 62.9 billion, ahead of expectations. This represents an increase of 20% over last year and our highest growth rate in three years. We also generated record fourth-quarter earnings, with EPS growth of 41% over the previous year. The record results of the iPhone, services and wearables have fueled our momentum and we have generated strong double-digit revenue growth across all our geographic segments.
It was a great year and a big quarter for iPhone. Fourth-quarter revenue increased 29% over the previous year, up more than $ 8 billion from a new September record, fueled by the continued strength of the iPhone 8, 8 Plus and X and by the very successful launch of iPhone XS and iPhone XS Max.
These latest devices are our most advanced iPhones ever designed with the industry 's first 7 – nanometer Bionic A12 chip with an 8 – core neural engine designed by Apple, capable of running 5,000 billion operations per second. The A12 Bionic has taken many years and is a huge leap forward in technology.
It differentiates the iPhone experience from the competition using real-time machine learning to transform the way we experience photos, games, augmented reality, and so on. It takes full advantage of the dual camera system that takes portrait shots with Smart HDR, with dynamic depth of field and even faster face recognition.
The answer was powerful. As one reviewer put it, iPhone XS and XS Max combine design and craftsmanship with a perfectly intuitive user experience. We have not finished yet.
Just last week, we started shipping iPhone XR, bringing the latest iPhone advancements to even more users. With a fully glass and aluminum design and the most advanced LCD screen of the smartphone, product reviews have been extremely positive.
iOS 12 had an incredible start. It has been installed on more systems during its first month than any version of iOS. iOS 12 provides system-wide performance improvements, Siri shortcuts, and new tools that help users reduce downtime and manage the amount of time they spend in front of their screen and their kids' screens.
Siri Shortcuts, in particular, is already deeply integrated with some of the most popular apps. Whether you're following your workouts or rushing to catch a flight, you can be sure that all of your most relevant applications work with Siri at the wheel.
iOS 12 also includes ARKit 2, a major upgrade to our augmented reality engine. ARKit 2 allows simultaneous multi-user experiences and the incorporation of objects into the real world. Our developer community really uses this technology. From gambling to shopping, we see new cases of use emerge. IOS devices offer the best AR experiences of any product on the market today. With the announcement of our new iPad Pro this week, we have further widened this gap.
More powerful than the vast majority of PC laptops, the new iPad Pro is unmatched in terms of versatility and performance. Combined with the superbly refined Apple pencil and sleek new smart keyboard, the iPad Pro will become a tool of ultimate creativity and productivity. And finally, this week alone, we've provided the much-anticipated feature of Group FaceTime to all FaceTime-enabled devices.
For services, this is the best quarter of our history with a turnover of $ 10 billion. Excluding the impact of a favorable one-time accounting adjustment of $ 640 million a year ago, growth in our services was 27%.
We set new T4 records in all our geographic areas and new revenue records for the App Store, cloud services, AppleCare, Apple Music and Apple Pay. We also continued to see strong growth in paid subscriptions, reaching more than 330 million euros in our ecosystem.
I want to highlight the outstanding performance of Apple Pay, which is by far the world's first contactless mobile payment service. The volume of transactions tripled compared to the previous year. And to put that in perspective, Apple Pay has generated far more transactions than PayPal even with a growth rate more than 4 times higher.
Reflecting the acceleration of US growth, Costco completed the deployment of Apple Pay in more than 500 US warehouses in the last quarter, while Neiman Marcus now accepts Apple Pay in more than 40 stores across the country. . With these additions, 71 of the top 100 merchants and 60% of all US retailers support Apple Pay.
We continue to invest in our strategy to replace the portfolio with the recent launch of student ID cards at several major US universities. And 10 months after launch, Apple Pay Cash is Consumer Reports' highest rated peer-to-peer mobile service, based on exceptional payment authentication and data privacy.
We set a record quarterly record for Mac revenue, thanks to the strong performance of MacBook Pro and the impact of back to school. In September, we delivered macOS Mojave, bringing powerful new features to Mac, such as Dark Mode, Stacks and a completely redesigned Mac App Store. MacOS Mojave tells a powerful story about the seamless integration of world-class hardware, software and services that define the Apple ecosystem.
As I mentioned at the beginning of the call, we announced earlier this week interesting updates from the Mac lineup. The all-new MacBook Air features a beautiful Retina display, a Touch ID, the latest processors and an even more portable design of the world's best laptop.
We've also unveiled the biggest Mac mini update, the small, muscular computer that rules everything from music to the sound effects of Broadway shows, to developers building some of the most popular apps in the world. the App Store. The new Mac mini displays incredible performance 5 times faster than before.
With revenue growth of more than 50%, wearables were another record quarter, including Apple Watch, AirPods and Beats. With the greatest customer satisfaction in the industry, Apple Watch has become an essential part of people's lives. Customers' response to the Apple Watch Series 4 has been overwhelmingly positive, driven by its all-new design, larger screen, faster performance, fall detection, improved cell reception and electric heart rate sensor.
Later this year, the ECG app will be available to Apple Watch Series 4 customers in the US, giving them the opportunity to take an electrocardiogram at any time, right from their wrist. And for US customers with Apple Watch Series 1 and later, WatchOS will soon allow periodic checks of irregular heartbeats that might suggest AFib. These are unprecedented, life-changing features that show how Apple Watch is not only an indispensable companion to communication and fitness, but also a smart guardian of your health. More generally, we see this as yet another example of the kind of contribution we can make in the area of health and we look forward to doing more in the future.
We are proud to bring HomePod to new customers. I was in Spain last week when HomePod became available locally and in Mexico. HomePod offers the highest fidelity audio quality and works with an Apple Music subscription to broadcast over 50 million songs in any room in your home.
Our retail team posted record results for the fourth quarter, closing its largest year ever. They are transforming our stores into places where customers come to connect, learn and inspire people in their community. Our Today at Apple sessions are a great example of what this looks like in practice. This past quarter, we hosted more than 250,000 Today at Apple sessions, connecting budding creators with local photographers, illustrators, and other experts who can help them get the most out of their devices. Apple Stores also welcomed 74,000 children at Apple Camp.
Apple's relationship with customers is not limited to a purchase. With the recent addition of superb new stores in Italy, Japan, China and in a few weeks in Thailand, we will have 506 stores where we can strengthen these relationships, nearly half of which are outside the United States.
Before making the call to Luca, I would like to touch on two points that may not appear in our financial statements, but are just as much an integral part of Apple's mission and our commitment to make the world better.
Early education, more than 5,000 schools, community colleges and technical colleges around the world now use Everyone Can Code, our free programming program. Ideas, creativity and passion for the potential of technology are not limited by postal code or country, and we do not think the opportunity should be either.
We are also delighted that educators from more than 350 schools around the world have started working with Everyone Can Create, the free collection of tools and project guides we introduced this spring, designed to help release the children's creativity throughout their school day with the help of iPad.
Next is the environment. It was a pivotal year for Apple's commitment to our planet. In April, we announced that 100% of our global business is powered by renewable energy. We have also moved in the same direction in our supply chain. And this week again, we announced that new product enclosures such as MacBook Air and iPad Pro would be made from 100% recycled aluminum, a new solid, durable and aesthetically pleasing alloy designed by Apple.
This is an excellent example of how the determination to properly address important issues can lead to previously unimaginable innovation, new ways of addressing old problems, and beautiful solutions that set us apart.
I would like to thank all our employees, customers, developers and business partners for helping us achieve outstanding results throughout our 2018 fiscal year. We are heading to the holidays with our strongest product lineup ever, and we do not could be more optimistic about the future of Apple.
And now, Luca has more details to share with you on the September quarter. Luca?
Luca Maestri – Apple, Inc.
Thank you, Tim Hello everyone.
We are extremely pleased to announce record results for our September quarter, culminating in a highly successful 2018 fiscal year, a year in which we achieved double-digit revenue growth across all geographic segments and established new revenue and earnings records for each quarter.
In the fourth quarter, revenue amounted to $ 62.9 billion, up 20% and over $ 10 billion from last year, with strong growth double digit in each of our geographic segments and fourth-quarter record sales in America, Europe, Japan and the rest of the world. Asia Pacific. In fact, we set new revenue records in almost every market we follow, with particularly strong growth in Germany, Italy, Sweden, Switzerland, Japan and Korea, all major markets where income was greater than or equal to 25%. We are also setting new business records for the fourth quarter for the iPhone and apparel appliances, as well as new historical records for services and Macs.
Gross margin stood at 38.3%, stable as at the beginning of the period, in line with our expectations, as the leverage effect of higher revenues offset the seasonal transition costs.
We set new September quarterly records in terms of net earnings, EPS and cash flow from operations. Net income was $ 14.1 billion, up $ 3.4 billion or 32% from last year. Diluted earnings per share is $ 2.91, up 41%. Cash flow from operations was $ 19.5 billion, up $ 3.8 billion from the prior year.
The iPhone business turnover grew by 29%, with growth of more than 20% in all geographic areas. The iPhone ASP cost $ 793, against $ 618 a year ago, thanks to the good performance of iPhone X, 8 and 8 Plus, and the successful launch of iPhone XS and XS Max in September this year, while that we were launching iPhone X in the December quarter last year.
We sold 46.9 million iPhones during the quarter, growing 20% or more in several markets including Japan, Australia, New Zealand, Sweden, Norway, Chile and In Vietnam.
Customer satisfaction with the iPhone continues to be exceptional and is the highest in the industry. The latest survey of US consumers among 451 Research shows a 98% customer satisfaction rate for the iPhone X, 8 and 8 Plus combined. And of the professional buyers who plan to buy a smartphone in the December quarter, 80% are considering buying an iPhone.
In terms of services, this is the best quarter of our history and virtually every market in the world, with $ 10 billion in revenue. A year ago, we had a one-time favorable impact of $ 640 million on service revenues due to an accounting adjustment. And, considering this, the growth of our services in the fourth quarter of this year was 27%. As Tim has mentioned, we have reached unprecedented new quarterly revenue records for many service categories, and we are on track to reach our goal of doubling our revenue from the services of the year. 2016 from here 2020.
We now have more than 330 million paid subscriptions on our platform, an increase of more than 50% compared to a year ago. We are very excited not only about the growth, but also the scale of our subscription activities. In fact, 30,000 third-party subscription apps are available on the App Store today, and the largest of them accounts for less than 0.3% of our sales figure. total business related to services.
Then I would like to talk about the Mac. The new MacBook Pro models we launched in July were very well received, with strong double-digit revenue growth generating a record quarterly record for Mac revenue. We are particularly pleased with the Mac dynamic in emerging markets, with strong growth in Latin America, India, the Middle East and Africa, as well as Central and Eastern Europe.
With over 100 million units, our installed Mac assets park is at its highest level and the majority of customers buying Macs during the September quarter were new to Mac.
We sold 9.7 million iPad during the quarter, gaining market share in almost every market we follow, according to the latest IDC estimates. We have generated iPad growth in several key regions of the world, including Latin America, Europe, Japan, India and Southeast Asia. Of the worldwide customers who bought iPads during the quarter, almost half of them were new, and our installed iPad fleet has reached a new high.
According to NDP, iPad occupied 58% of the US tablet market in September, compared to 54% a year ago. Finally, the most recent survey conducted by 451 Research with consumers measured the customer satisfaction rate of iPad 96%, iPad and iPad Pro. And among business customers planning to buy tablets in the December quarter, 74% plan to buy an iPad.
Revenue from other products increased 31% over the previous year, up more than $ 1 billion from the previous year, driven by more than 50% growth in technology. clothing and the strong performance of Apple TV, as well as the introduction of HomePod earlier this year. .
With regard to the 2018 fiscal year, we have made significant progress in the business market, where iOS is transforming the way in which activities take place in multiple industries. In fact, more than 450 airlines and 47 of the world's 50 largest companies have adopted iOS to help pilots save money, more efficient flights, and many airlines are also using iOS to deliver a better customer experience and improve customer experience. maintenance operations.
We are also making great strides in the retail sector, where 9 of the top 10 global retailers use iOS devices to transform the experience of their customers and their employees. We are seeing the adoption of iOS by thousands of retailers, from neighborhood boutiques to the world's largest known retailers. The deployment of iOS devices continues to grow as retailers replace their traditional POS systems and use custom iOS apps on iPhone and iPad to deliver highly personalized shopping experiences.
Our corporate success is built on our key partnerships. Since the launch of our first strategic partnership with IBM, 240 major customers have signed MobileFirst for iOS. In addition, at the beginning of the year, we launched two new technology offerings. IBM Watson Services for Core ML and IBM Cloud Developer Console for Apple enable organizations to combine machine learning and cloud for a new generation of dynamic intelligent applications designed for iOS. More than 60 new signatures in many sectors have been added since the launch of these new tools.
In our new partnership with Salesforce, we are excited to bring together the world's leading CRM and iOS platform. In collaboration with Apple, Salesforce redefines its applications to adopt a native mobile platform with new exclusive features on iOS. The companies will also provide tools and resources to millions of Salesforce developers to build their own native apps with a new Salesforce Mobile SDK for iOS.
Finally, we recently announced Apple Business Manager, a new way for IT teams to deploy large-scale Apple devices. The reaction of companies around the world has been great: more than 40,000 companies are currently registered.
Let me now talk about our cash position. We ended the quarter with $ 237.1 billion in cash and marketable securities. We also had $ 102.5 billion in term debt and $ 12 billion in outstanding commercial paper for net cash of $ 122.6 billion. As we explained earlier this year, we expect to achieve a net cash neutral position over time. As part of this plan, we returned more than $ 23 billion to investors during the quarter. We bought back 92.5 million Apple shares for $ 19.4 billion in free market trading, and we paid $ 3.5 billion in dividends and equivalents .
For our 2018 fiscal year, revenues increased by more than $ 36 billion to $ 265.6 billion, an all time record. Each geographic segment recorded double-digit growth with new records in America, Europe, Japan and the rest of the Asia-Pacific region. We also set new historical records in terms of net income, up 23% over last year, and EPS up 29%. And we returned close to $ 90 billion to our investors during the year, including nearly $ 14 billion in dividends and equivalents and more than $ 73 billion in share buybacks.
Before discussing our outlook for the December quarter, I would like to describe a number of changes in our financial reporting that we are implementing as we move into our new fiscal year. First, given the growing importance of our service activities and to increase the transparency of our financial results, we will begin to publish revenues and cost of sales for total products and services starting this quarter. .
Secondly, starting in December, we are adopting the new FASB standard for revenue recognition. This will not result in any changes to our total products, but will affect how we present the classification of products between products and services. In particular, the products corresponding to the amortization of the deferred value of bundled services such as Maps, Siri and iCloud free services were previously accounted for in the products. After the adoption of the new standard, these products will now be recognized in service revenues. The classification change between products and services will also apply to the costs associated with the provision of these bundled services.
Once we have filed our 10-K, we will issue an appendix on our Investor Relations website, which will indicate the reclassification of revenue-generated 2018 products to services as part of the Adoption of the new standard. The amount of this reclassification represents less than 1% of the total business turnover of the company. And for clarity, this reclassification has not been considered in our goal of doubling our FY16 service revenues by 2020. This goal remains unchanged and excludes the revenues that are now passing products to services during this period.
Third, starting in the December quarter, we will no longer provide unit sales data for iPhone, iPad and Mac. As we have said many times, our goal is to create quality products and services that enrich people's lives and provide an unmatched customer experience so our users are very satisfied, loyal and engaged.
As we achieve these goals, we achieve strong financial results. As evidenced by our financial performance in recent years, the number of units sold over a 90-day period is not necessarily indicative of the underlying strength of our business. In addition, a sales unit is less relevant to us today than in the past, given the extent of our portfolio and the greater dispersion of selling prices within a company. given product range.
Fourth, starting in the December quarter, we will rename the category of other products into apparel, household equipment and accessories to provide a more accurate description of the items included in this product category.
As we move into the December quarter, I would like to review our outlook, which includes the types of forward-looking information mentioned by Nancy at the start of the call. We have the strongest lineup of all time in this early holiday season and we expect a turnover of between 89 and 93 billion dollars, a new record.
This interval reflects a number of factors to consider. First, we examined the impact on quarters 4 and 1 of the launch schedule of our new iPhone this year compared to last year. Secondly, we expect opposite headwinds of nearly $ 2 billion. Thirdly, we have an unprecedented number of products in strong growth and, even though our ramps work quite well, we have uncertainties about the balance between supply and demand. And fourth, we are also facing macroeconomic uncertainty, especially in emerging markets.
We expect a gross margin of between 38% and 38.5%. We expect operating expenses to be in the range of $ 8.7 billion to $ 8.8 billion. We expect approximately $ 300 million from IO & E and a tax rate of approximately 16.5% before separate items.
Également aujourd'hui, notre conseil d'administration a déclaré un dividende en espèces de 0,73 $ par action ordinaire, payable le 15 novembre 2018 aux actionnaires inscrits au 12 novembre 2018.
Sur ce, je voudrais ouvrir l’appel aux questions.
Nancy Paxton – Apple, Inc.
Merci Luca et nous aimerions vous demander de vous limiter à deux questions. Opérateur, pouvons-nous poser la première question, s'il vous plaît?
Séance de questions et réponses
Opérateur
Certainement. Notre première question viendra de Wamsi Mohan de Bank of America Merrill Lynch.
Wamsi Mohan – Merrill Lynch de la Bank of America
Yes. Thank you. Tim, certains de ces marchés émergents ont connu une décélération réelle, due en partie à certaines préoccupations relatives à certaines règles envisagées par l'administration et à des facteurs plus spécifiques à la Chine, par exemple certaines réglementations relatives à les jeux. Alors pouvez-vous nous dire comment vous voyez la trajectoire de l'entreprise et ce que vous pensez des initiatives de sociétés telles que Netflix et Fortnite qui tentent de contourner l'App Store autour des abonnements et j'en ai un suivi.
Timothy Donald Cook – Apple, Inc.
Sure. Excellente question. À commencer par les marchés émergents. Les marchés émergents sur lesquels nous constatons des pressions sont des marchés comme la Turquie, l’Inde, le Brésil et la Russie. Ce sont des marchés où les devises se sont affaiblies au cours de la période récente. Dans certains cas, cela a entraîné une hausse des prix et ces marchés ne se développent pas comme nous le souhaiterions.
Pour vous donner une idée des détails, notre activité en Inde au quatrième trimestre a été stagnante. De toute évidence, nous aimerions que cette croissance soit énorme. Le Brésil était en légère baisse par rapport à l'année précédente. Et donc je pense, ou du moins la façon dont je vois les choses, est que chacun des marchés émergents a une histoire quelque peu différente, et je ne la vois pas comme une sorte de problème commun entre ceux des plus partie.
En ce qui concerne la Chine en particulier, je ne mettrais pas la Chine dans cette catégorie. Notre activité en Chine a été très forte au dernier trimestre. Nous avons augmenté de 16%, ce dont nous sommes très heureux. L'iPhone en particulier a été très fort, avec une très forte croissance à deux chiffres. Notre catégorie des autres produits était également plus forte, en fait, un peu plus forte que le nombre total de sociétés.
L'App Store en Chine a connu un ralentissement ou un moratoire, pour être plus précis, sur les approbations de nouveaux jeux. Il y a une nouvelle réglementation en Chine et les choses ne bougent pas comme elles le faisaient auparavant. Nous avons vu quelques jeux approuvés récemment, mais c'est très loin du rythme historique. Et comme vous l'avez probablement déjà vu, certaines des plus grandes sociétés du secteur public en ont parlé puisqu'elles ont également annoncé leurs bénéfices. Nous ne savons pas exactement quand cela se produira – les approbations reviendront à un rythme normal, je ne voudrais donc pas prédire cela.
Je ne vois pas – juste pour éviter le doute ici, je ne pense pas que cette question a quelque chose à voir avec les discussions commerciales entre les pays. Je pense que c'est strictement un problème domestique en Chine.
En ce qui concerne les grands développeurs, si vous prenez du recul et examinez la proposition de valeur pour les utilisateurs de l'App Store, il existe deux groupes clés dans cette équation. Il y a l'utilisateur et le développeur.
Si vous commencez avec l'utilisateur, ce que l'App Store fournit aux utilisateurs est le meilleur endroit et le plus sûr pour les utilisateurs pour obtenir des applications. Et nous avons un processus et une infrastructure formidables pour y parvenir. Et là où ce n'est pas parfait, nous finissons par examiner plus de 100 000 applications par semaine entre les nouvelles applications et les mises à jour des applications existantes, puis nous travaillons rapidement avec les développeurs pour résoudre les problèmes. Et nous fournissons également à l'utilisateur un modèle à paiement unique pour l'achat d'applications, d'abonnements, d'achats intégrés, etc., afin qu'il ne soit pas en position de devoir partager ses informations personnelles entre de nombreuses entreprises. Et c'est donc la proposition de l'utilisateur.
Pour le développeur, nous fournissons évidemment aux développeurs une énorme quantité d’outils de développement, de programmes, de compilateurs, de langages, bien sûr du système d’exploitation, d’API, de kits de développement logiciel (SDK) et nous disposons d’une énorme équipe de relations avec les développeurs. Et nous faisons énormément de marketing pour les développeurs, y compris le nouvel éditorial Today que nous venons de lancer ces derniers mois, des recommandations personnelles, des outils de recherche, etc.
Et donc il y aura – il ne fait aucun doute dans mon esprit que de grands développeurs ont déjà conclu qu'ils pouvaient faire quelque chose par eux-mêmes. Nous sommes d'accord avec ça. Je pense que Luca a mentionné dans ses commentaires que le plus gros – si je regarde le plus gros développeur, ils représentent moins de 0,3% du chiffre d’affaires des services, il est donc probablement bon de penser à cela dans ce contexte, et il y a des millions d’apps sur le magasin évidemment, et environ 30 000 applications d'abonnement.
Ainsi, le marché des abonnements est presque aussi vaste que celui de l'App Store, ce qui en fait une proposition de valeur. Je pense que la grande majorité des gens en sont très satisfaits, y compris les personnes les plus importantes, l’utilisateur.
Wamsi Mohan – Merrill Lynch de la Bank of America
Merci, Tim J'apprécie la réponse.
Timothy Donald Cook – Apple, Inc.
Yeah.
Wamsi Mohan – Merrill Lynch de la Bank of America
Si je pouvais simplement vous poser une question très rapidement sur le rôle d’Apple dans le secteur de la santé, il a considérablement augmenté depuis l’introduction de la Watch, puis des divers kits destinés aux développeurs, notamment HealthKit, CareKit, etc. Et lorsque vous combinez cela avec votre ardent plaidoyer en faveur de la confidentialité, je vois que Apple pourrait devenir une très grande force de désintermédiation dans toutes les frictions du secteur des soins de santé dans la manière dont les informations médicales sont partagées et distribuées. Est-ce ainsi que vous envisagez l'avenir d'Apple dans le secteur de la santé? Et voyez-vous un moyen de développer également votre activité de services grâce aux offres de soins de santé susceptibles de devenir des abonnements pour vos clients? Thank you.
Timothy Donald Cook – Apple, Inc.
Je pense que Apple a une énorme opportunité en matière de santé. Et vous pouvez voir au cours des dernières années que nous avons un intérêt intense pour l’espace et que nous ajoutons jusqu’à présent des produits et services, des services non monétisés. Et je ne veux pas parler de l'avenir parce que je ne veux pas donner ce que nous faisons, mais c'est un domaine qui nous intéresse beaucoup. Thank you.
Nancy Paxton – Apple, Inc.
Merci Wamsi. Pourrions-nous avoir la prochaine question, s'il vous plaît?
Opérateur
Shannon Cross de Cross Research a la question suivante.
Shannon S. Cross – recherche croisée LLC
Merci beaucoup d'avoir pris la question. Compte tenu de la fourchette de revenus de 4 milliards de dollars que vous donnez pour le trimestre et de tout ce qui se passe actuellement dans le monde, pouvez-vous donner un peu de détail sur les variables que vous avez prises en compte lorsque ce? Commerce géopolitique, macro, coûts des composants, je ne sais pas si vous pouvez simplement nous donner quelques idées sur les options de vente. Thank you.
Luca Maestri – Apple, Inc.
Oui, Shannon, je vais prendre celui-ci. At the revenue level, we started from the fact that we are very, very excited about the lineup of products and services that we have getting into the holiday season. It's the strongest lineup that we've ever had. And our guidance range, by the way, represents a new all-time quarterly revenue record.
As I explained in my prepared remarks, there are a number of things that need to be considered as part of this guidance range. The first one is the fact that the launch timing of the new iPhones this year is essentially in reverse order versus last year, and that has had an effect on Q4 and will have an effect on Q1.
Last year, we launched the top end of our iPhone lineup, which was iPhone X, during Q1 and placed the entirety of the channel fill for iPhone X in Q1. This year, we launched the top end of the lineup, which is the XS and the XS Max during Q4. Obviously, this resulted in more pronounced ASP growth in Q4 of 2018 and obviously a tougher compare for Q1. So I think it's important to keep that in mind as you look at the revenue guidance that we provided.
The second point that needs to be kept in mind, it is a fact of life and we dealt with it for a number of years now, is the fact that when I look at currencies around the world, virtually every foreign currency has depreciated against the U.S. dollar in the last 12 months. And when we look at the impact of foreign exchange on our revenue for the December quarter, we're looking at 200 basis points of headwinds which translates, given our the size of our business, to almost $2 billion of headwind to our revenue.
The third point that I think it's important to keep in mind, and Tim has talked about this, we are launching, in the last six weeks, we've launched an unprecedented number of new products. They're all ramping right now. The ramps are going fairly well, but obviously we have some uncertainty around supply/demand balance for some of these products.
And then finally, the last point that we've taken into account is what Tim's talked about in terms of some level of uncertainty at the macroeconomic level in some emerging markets where clearly consumer confidence is not as high as it was 12 months ago. So take that into account and that's how we got to the range.
Shannon S. Cross – Cross Research LLC
D'accord. Thank you. And then, I just want to talk a little bit about the pullback in terms of guidance from a unit perspective. I understand you don't want to give guidance because of 90 days is a short period of time and it can fluctuate, but what kind of qualitative commentary do you think you'll be able to provide? Because it's obviously investors have spent the last however many years going P times Q. So, how should we think about what we can expect and sort of how are you going to manage this process as we go through? I know it's all our job to forecast, but.
Luca Maestri – Apple, Inc.
Yes. Let me walk you through the rationale that we've used and then I'll talk about this qualitative commentary that you were mentioning. As I said, right, our objective is to make great products, provide the best customer experience, and get our customer satisfied, engaged and loyal to our ecosystem.
When you look at our financial performance in recent years, take the last three years, for example, the number of units sold during any quarter has not been necessarily representative of the underlying strength of our business. If you look at our revenue, given the last three years, if you look at our net income during the last three years, if you look at our stock price here in the last three years, there's no correlation to the units sold in any given period.
As you know very well, in addition, our product ranges for all the major product categories have become wider over time and therefore, a unit of sale is less relevant for us at this point compared to the past, because we got this much wider sales price dispersion, so unit of sale per se becomes less relevant.
As I know you're aware, by the way, our top competitors in smartphones, in tablets, in computers, do not provide quarterly unit sales information either. But of course we understand that this is something of interest and when we believe that providing qualitative commentary on unit sales offers additional relevant information to investors, we will do so.
Timothy Donald Cook – Apple, Inc.
Looking at one additional point there just for clarity is, Shannon, our intention is to continue to give revenue guidance at the company level and gross margin guidance in the other categories that we've been providing and so that our guidance isn't changing. It's the actual report that changes.
Nancy Paxton – Apple, Inc.
Thank you, Shannon. Could we have the next question please?
Operator
Our next question comes from Mike Olson with Piper Jaffray.
Mike J. Olson – Piper Jaffray & Co.
Thanks very much and good afternoon. With the staggered iPhone launch, were you able to discern any impact on the XS and XS Max from buyers potentially waiting for the XR, and what if anything can we take away from the December quarter guidance related to what you're seeing for early demand of the XR? And then I have a follow-up, thanks.
Timothy Donald Cook – Apple, Inc.
Mike, it's Tim. The XS and XS Max got off to a really great start and we've only been selling for a few weeks. The XR, we've only had out there for I guess five days or so at this point, and so we have very, very little data there. Usually there is some amount of wait until another product shows up and look, but in looking at the data, on the sales data for XS and XS Max, there's not obvious evidence of that in the data, as I see it.
Mike J. Olson – Piper Jaffray & Co.
Got it, and you mentioned record levels for various components of the services business. As we look forward, if growth of services is to maintain something close to the recent pace, what are the components of services that you're particularly excited about that could drive that and be the strongest drivers? And maybe an offshoot to that, it seems like the news flow around augmented reality has slowed a little bit in recent months. Is that potentially a materially contributor to services in the near future? Thank you.
Luca Maestri – Apple, Inc.
Mike, as we said, during the September quarter, we set new records for many, many services categories, right, from Apple Music to cloud services to the App Store to AppleCare and Apple Pay really has an exponential trajectory right now.
When we look at our services business, we think about the fact that we have a very large and growing installed base. The installed base of all our major product categories is at an all-time high and has been growing over the last several quarters, so the opportunity for us to monetize our services business continues to grow over time.
Of course, we're also improving the quality of the services that we provide and if you look back during the last three years, we've added new services to our portfolio. We added Apple Pay, we added Apple Music. We added this advertising business on our App Store. And clearly, we will want to continue to offer new services over time, so there are a number of vectors that allow us to continue to grow the business over time.
We have stated that we want to double the size of the services business from the level that we had in fiscal 2016 by 2020. We are well on pace to achieve that, and we feel very, very confident about the future and the opportunities that we have in the services space.
Timothy Donald Cook – Apple, Inc.
Mike, in terms of your question on AR, I have a different view than you do on this one. Just a year ago, practically a year ago, we came out with ARKit 1. Six months or so after that we came out with 1.5. We then recently came out with ARKit 2. The number of things that you can do are growing significantly. The number of developers that either have done something, or even more the case, that are working on things that I've seen are growing tremendously.
There's a lot of interest out there and the number of categories that I'm seeing from gaming to shopping, to I was in China a few weeks ago and saw AR in an art sense, in an art exhibit. I was in Berlin last week and saw it being used in a historical educational kind of sense. I'm seeing it sort of everywhere I go now, and so I think we are in the early days, and it'll keep getting better and better, but I'm really happy with where things are at the moment.
Nancy Paxton – Apple, Inc.
Thank you, Mike. Can we have the next question please?
Operator
Next we'll go to Katy Huberty with Morgan Stanley.
Kathryn Lynn Huberty – Morgan Stanley & Co. LLC
Thank you. Tim, given the current trade negotiations and broader geopolitical risk, do you have any plans to consider diversifying the supply chain? And if you were to do that, either on your own or sort of forced, do you think it would have significant impact on the business or profitability?
Timothy Donald Cook – Apple, Inc.
Katy, if you look at the products that we have created and are manufacturing, they're really manufactured everywhere. We have significant content from the U.S. market. We have content from Japan to Korea to many countries, and we have great content from China as well, and so there are many hands in the products. The vast majority or almost all of the R&D is in the United States, as well as a lot of the support organizations.
And so, I think that that basic model where you look around the world and find the best in different areas, I don't expect that model to go out of style, so to speak. I think there's a reason why things have developed in that way and I think it's great for all countries and citizens of countries that are involved in that.
And I'm still of the mindset that I feel very optimistic and positive that the discussions that are going will be fruitful. These relationships, these trade relationships are big and complex, and they clearly do need a level of focus and a level of updating and modernization. And so I'm optimistic that the countries, the U.S. and China and the U.S. and Europe and so forth, can work these things out and work for the benefit of everyone.
Kathryn Lynn Huberty – Morgan Stanley & Co. LLC
That's helpful color. And, Luca, as a follow-up, NAND prices fell significantly during the September quarter. Why aren't we seeing that flow through to margin expansion for the overall company?
Luca Maestri – Apple, Inc.
You're referring to the guidance that we provided for Q1, I imagine.
Kathryn Lynn Huberty – Morgan Stanley & Co. LLC
Yes.
Luca Maestri – Apple, Inc.
Let me give you the puts and takes, Katy. You're correct. We are going to be getting some benefits from commodities in general and memory in particular. Memory on a sequential basis is about 30 basis points favorable for us going into the December quarter. And obviously, we're going to be benefiting from the leverage, which is typical of our seasonality in the December quarter.
On the other hand, as I mentioned before, currencies have weakened against the U.S. dollar, and the impact that we expect at the gross margin level from foreign exchange is a 90 basis points headwind sequentially. And of course, at this point in the cycle, we also have higher cost structures because, as I said, we've launched so many new products in the last six weeks. So those are the puts and takes, leverage and commodity savings on one side and FX and the new products on the other side.
Nancy Paxton – Apple, Inc.
Thank you, Katy. Could we have the next question, please?
Operator
Next, we'll go to Jim Suva with Citigroup.
Jim Suva – Citigroup Global Markets, Inc.
Thank you very much, a question for Tim and a question for Luca, and I'll ask them at the same time, so you can decide who wants to go first or second. But operationally, Tim, I think your company is at a disadvantage relative to others in India, giving where items are produced versus shipped versus taxed versus installed as well as ability to own stores. So can you help us address that? Is India going to potentially be a big area, as I think you got about only about 1% market share, but it sounded like things may be softer there?
And then for Luca, there will probably be a lot of pushback about not giving iPhone unit data. It sounds like you're still going to give revenue data, if I heard that correctly, but some people may fear that this now means that the iPhone units are going to start going negative year over year because it's easier to talk about great things and not show the details of things that aren't so great. So thank you very much, gentlemen.
Timothy Donald Cook – Apple, Inc.
Okay, I'll start with India. We've had really great productive discussions with the Indian government, and I fully expect that at some point, they will agree to allow us to bring our stores into the country. We've been in discussions with them, and the discussions are going quite well.
As you point out, there are import duties in some or most of the product categories that we're in. In some cases, they compound, and this is an area that we're giving lots of feedback on. We do manufacture some of the entry iPhones in India, and that project has gone well. I am a big believer in India. I am very bullish on the country and the people and our ability to do well there.
The currency weakness has been part of our challenge there, as you can tell from just looking at the currency trends, but I view these as speed bumps along a very long journey, though. And the long term I think is very, very strong there. There's a huge number of people that will move into the middle class. The government has really focused on reform in a major way and made some very bold moves. And I applaud them for doing that and I can't wait for the future there.
Luca Maestri – Apple, Inc.
And, Jim, let me take the question on units. First of all, as Tim said, our approach to guidance, providing guidance doesn't change at all. We continue to provide the same metrics that we were providing before.
In terms of reporting results, one of the things that we are doing, and it's new and it's in addition to the information that we provide to investors because we've heard some significant level of interest around this, is starting with the December quarter, for the first time we're going to be providing information on revenue and cost of sales, and therefore gross margins for both products and services. And this will be the first time that we're going to provide gross margin information for our services business, which we believe is an important metric for our investors to follow.
Given the rationale on why we do not believe that providing unit sales is particularly relevant for our company at this point, I can reassure you that it is our objective to grow unit sales for every product category that we have. But as I said earlier, a unit of sale is less relevant today than it was in the past.
To give you an example, the unit sales of iPhone at the top end of the line have been very strong during the September quarter, and that's very important because we're attracting customers to the most recent technologies and features and innovation that we bring into the lineup, but you don't necessarily see that in the number that is reported.
And so therefore, we will, as I said, we'll provide qualitative commentary when it is important and relevant. But at the end of the day, we make our decisions from a financial standpoint to try and optimize our revenue and our gross margin dollars, and that we think is the focus that is in the best interest of our investors.
Timothy Donald Cook – Apple, Inc.
Jim, let me just add a couple things to that for color. Our installed base is growing at double digit, and that's probably a much more significant metric for us from an ecosystem point of view and the customer loyalty, et cetera. The second thing is this is a little bit like if you go to the market and you push your cart up to the cashier and she says, or he says how many units you have in there? It doesn't matter a lot how many units there are in there in terms of the overall value of what's in the cart.
Nancy Paxton – Apple, Inc.
Thank you, Jim. A replay of today's call will be available for two weeks on Apple Podcast, as a webcast on apple.com/investor and via telephone and the numbers for the telephone replay are 888-203-1112 or 719-457-0820 and please enter confirmation code 3699080. These replays will be available by approximately 5:00 PM Pacific Time today.
Members of the press with additional questions can contact Kristin Huguet at 408-974-2414 and financial analysts can contact Matt Blake or me with additional questions. Matt is at 408-974-7406 and I'm at 408-974-5420. Thanks again for joining us.
Operator
That does conclude our conference for today. Thank you for your participation.
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