Apple Inc. (AAPL) on Q3 2021 Results - Earnings Call Transcript
Operator: Good day, and welcome to the Apple Q3 FY 2021 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I'd like to turn the call over to Tejas Gala, Director, Investor Relations and Corporate Finance. Please go ahead. Tejas Gala: Thank you. Good afternoon, and thank you for joining us. Speaking first today is Apple's CEO, Tim Cook, and he'll be followed by CFO, Luca Maestri. After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation and future business outlook, including the potential impact of COVID-19 on the Company's business and results of operations. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. Tim Cook: Thanks, Tejas. Good afternoon, everyone. Today, Apple is reporting a very strong quarter with double digit revenue growth across our product and services categories, and in every geographic segment. We set a new June quarter revenue record of $81.4 billion, up 36% from last year, and the vast majority of markets we tracked grew double digits, with especially strong growth in emerging markets including India, Latin America, and Vietnam. Total retail sales also set a June quarter record, and almost all of our retail stores have now opened their doors. This quarter saw a growing sense of optimism from consumers in the United States and around the world, driving renewed hope for a better future and for all the innovation can make possible. But as the last 18-months had demonstrated many times before, progress made is not progress guaranteed. An uneven recovery to the pandemic and a Delta variant surging in many countries around the world have shown us once again, that the road to recovery will be a winding one. In the midst of that enduring adversity, we are especially humbled that our technology has continued to play a key role in keeping our customers connected. Just last month, it was great to be back with our teams and customers for the opening of our newest retail store in Los Angeles, our Apple Tower Theater. It was a hopeful reminder of the energy and sense of community, shared spaces brain and how appreciative we all are now of the simple privilege of talking to one another face to face. As we look forward to more in-person interactions in the future, we're doubling down on innovation, and doing all we can to help chart a course to a healthier and more equitable world. I'll have more to say about our work in those areas a bit later on. But first, let's turn to our product and services categories. For iPhone, this quarter saw very strong double digit growth in each geographic segment, and we continue to be heartened by our customer's response to the iPhone 12 lineup. We're only in the early innings of 5G, but already it's incredible performance and speed have made a significant impact on how people can get the most out of our technology. Luca Maestri: Thank you, Tim. Good afternoon, everyone. We're very pleased to report record June quarter financial results, which reflect the importance of our products and services in our customers lives and our strong underlying operating performance. Our revenue reached a June quarter record of $81.4 billion, an increase of nearly $22 billion or 36% from a year ago. We grew double digits in each of our product categories, with an all-time record for services, and June quarter records for iPhone, Mac, and Wearables, Home and Accessories. We also set new June quarter records in every geographic segment with very strong double digit growth in each one of them. Products revenue was a June quarter record of $63.9 billion, up 37% over a year ago. This level of sales performance, combined with the unmatched loyalty of our customers drove our installed base of active devices to a new all-time record. Our services set an all-time revenue record of $17.5 billion up 33% over a year ago, with June quarter records in each geographic segment. Company gross margin was 43.3%, up 80 basis points from last quarter driven by cost savings and a higher mix of services, partially offset by seasonal loss of leverage. Tim Cook: Thank you, Luca. We ask that you limit yourself to two questions. Operator, may we have the first question, please. Operator: Thank you. Our first question comes from Katy Huberty from Morgan Stanley. Please go ahead. Katy, your line is open. Please check your mute function. We'll take our next question from Chris Caso with Raymond James. Chris Caso: Thank you. Good morning. Just dig into the commentary on guidance a little bit. Just starting with the fact that last year, obviously there was a later launch of iPhone, and we're typically seeing in other years. Could you talk us through that, and perhaps some of the other products, what may be different as compared to last year? Luca Maestri: Well, as I explained that, first of all, we are expecting to grow very strong double digits, that's I think Chris the starting point here. We expect this very strong level of growth that we've experienced during the course of the year, to continue into the September quarter. We said that the growth rate is going to be below 36%. And I've listed three factors. The first factor is that the dollar continues to be favorable on a year-over-year basis in the sense that it's weakened against most currencies on a year-over-year basis. But that benefit is going to be about three points less in the September quarter than what we've experienced during the June quarter, because the dollar strengthened against most currencies in recent weeks. Second, I mentioned that the services growth rate that we've experienced in the June quarter 33%, that's significantly higher than what we've had in recent history. And that was due to the fact that there were a couple of services categories, namely, our advertising business and Apple Care, that were significantly impacted a year ago, because of the COVID lock downs. And therefore, they're relatively easy compared in the June quarter. So we don't expect that to continue into the September quarter. And so we expect to see significant growth in services, but not to the level that we've seen in June. And then I mentioned that the supply constraints that we've seen in the June quarter will be higher during the September quarter. Back in when we talked here three months ago, we said that we were expecting supply constraints for the June quarter between $3 billion and $4 billion, primarily iPad and Mac. We were able to mitigate some of those constraints during the June quarter, and so we came in at a number that was slightly below the low-end of that range that we accorded at the beginning of the quarter. But we expect that number to be higher for the September quarter. And so when you put all that together, again, very strong double digit growth for September, with this caveat, that I just mentioned. Chris Caso: Thank you. If I could follow-up with regard to the supply constraints, and do you expect those supply constraints to persist through the December quarter as well? What effect will that have on the holiday selling season? And then, in conjunction with that, what additional costs are you absorbing because of the supply constraints? Is that having an effect on gross margins or just product costs in general, as you perhaps pay a little more to get more supply? Tim Cook: Chris, it's Tim. In terms of the cost, we're paying more for freight than I would like to pay. But component costs continue in the aggregate to decline. In terms of supply constraints, and how long they will last, I don't want to predict that today. We're going to take it sort of one quarter at a time. And as you would guess we'll do everything we can to mitigate whatever set of circumstances were dealt. Luca Maestri: And Chris, on the cost side, as I mentioned during my comments, our results for gross margins for the June quarter 43.3%, we really saw some really nice cost savings during the quarter. And I think you've seen that we provided guidance for 41.5% to 42.5% for September, which is obviously a level that we are very pleased with. Chris Caso: Right. Thank you. Tejas Gala: Thank you, Chris. Can we have the next question please? Operator: Thank you. We'll take our next question from Jim Suva with Citigroup Investment Research. Please go ahead. Jim Suva: Thank you very much, and congratulations to you and your global team for great operations during a challenging time. Tim and Luca, I just have one question and either of you or both of you could figure out who's best to answer it. But we look at a world of pretty unprecedented whether it be COVID, the Delta variant, China floods, supply chain components. Just wondering for your, like R&D and innovation, is it being materially impacted by that such where a normal cadence is unfair? Or, is it kind of happening during a slow time of year where you're able to empower people to work remotely, and still have the typical innovations and product launches that you've had historically in the past? Tim Cook: Jim, the company has been incredibly resilient. The employees are really doing double duty. And I could not be more pleased with the cadence that we're coming out with new things. As you can see from the software announcements that we made at WWDC, and the corresponding launches of the software that we plan on in the fall, and then all of the products that we've been able to bring out over the last 12 to 18-months, it's amazing. So I'm very pleased with it. Tejas Gala: Thanks, Jim. Can we please the next question please? Jim Suva: Thank you. Congratulations again. Tim Cook: Thank you. Operator: Thank you. We'll take our next question from Shannon Cross with Cross Research. Shannon Cross: Thank you very much, Tim, I'm curious, what have you learned from this iPhone cycle regarding customer preferences and pricing and maybe subscriptions and that? And if there's a difference, if you could talk about on a geographic basis. Thanks. Tim Cook: If you look at our results in Q3, Shannon, we had strong double digit growth for switchers and for upgraders. And, in fact, it was our largest upgrade quarter for Q3 ever. And so we feel really, really great about both categories. And as Luca kind of said, during the preamble or opening comments, our results are really strong for iPhone around the world. And so it's been a very, very strong cycle. And yet we're -- the penetration on 5G is obviously still very, very low. And so we feel really good about the future of the iPhone. Shannon Cross: Okay. And maybe if you can talk a bit about China, up 58%, where are you seeing the growth? What are you hearing from customers there? Obviously 58% is not sustainable, but how sustainable is the strength? Thank you. Tim Cook: It was an incredibly strong quarter, it set a June quarter revenue record for Greater China for us. And so we're very proud of that. And, doing the best job we can to serve customers there. We had a particularly strong response to the 12 Pro and the 12 Pro Max. Those results were particularly strong. But if you look at the balance of our products, we also set June quarter records for Wearables, Home and Accessories, for Mac and for services. So it was sort of an across the board strength. And we're seeing plenty of new customers come to the market. For example, Mac and iPad, about two-thirds of the customers who bought in the last quarter were new to that product. For the Apple Watch that number was 85%. And so, we could not be happier with the results. Shannon Cross: Was 85% China or overall? Tim Cook: 85% was China. I was talking about specifically the numbers of reference were specifically for China. Luca Maestri: And then Shannon, for the world with the Watch 75%. Shannon Cross: Right. Great. Thank you so much. Tejas Gala: Thanks, Shannon. Can we have the next question, please? Operator: Thank you. We'll take our next question from Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Perfect. Thanks a lot for taking my question, I have two, as well. I guess first off Luca, I was hoping you could maybe talk a little bit more about the gross margins and maybe the expectations you laid out for September, I think sequentially implies down 100 basis points or so. So can you just touch on what are the puts and takes that would be helpful, because I think historically, September tends to be a flattish maybe even up a little bit gross margin number people? Luca Maestri: Yeah, I think it's important to go back to the Q3 results, it's 43.3%. And one of the things that I mentioned is that in addition to getting really good cost savings on a sequential basis, we also had a very high mix of services as part of the total. And particularly with advertising doing really, really well, because of the rebound that we saw from COVID lockdowns a year ago. So as we move forward sequentially, we do expect a different mix and so that that drives the guidance that we provided which again, as you know, is significantly higher than just a year ago, for example. A year ago, we were at 38.2%, so almost 400 basis points of expansion on a year-over-year basis. And so, I think it's important to take that into account, just a different mix. Amit Daryanani: Got it. No, absolutely. I don't think anyone expected gross margins to be north of 40 this quickly for you folks. So that is impressive. As a follow-up on services, and I know you've called out the 33% growth this quarter, as a bit of an aberration that compares easier. But if you look at your services growth rate over the last four quarters, let's just say, what do you think is enabling this growth? Is it you're able to have a higher ARPU more monetization of the installed base? Or, is the installed base growing and choose which one's bigger? And then over time, how do you think those two components stack up for you? Luca Maestri: It's a combination of multiple factors. Obviously, the fact that our installed base continues to grow, and it sets new all-time highs all the time, obviously, it gives us a larger opportunity all the time. And second, we have more and more people that are engaged in our ecosystem, both transacting for free, which is a very large number, and people that are willing to pay for some of the services. And that percentage of people that are paying for our services continues to grow nicely. I mentioned, we grew double digits again this quarter. So that obviously helps on the revenue side. And of course, we continue to increase both the quality and the quantity of the services. As you know, during the last few years, we've launched a lot of new services from Apple TV+, Fitness+, Apple Arcade, News+, of course, the Apple Card. And so these are businesses that we are scaling right now, and so all that additional revenue helps. And I think it flows through our growth rates, as you said, during the last four quarters we are well into the mid-20s. So I think it's obviously very nice for us to see. Amit Daryanani: Perfect. Thank you. Tejas Gala: Thanks, Amit. Can we have the next question, please? Operator: Thank you. We’ll hear next from Katy Huberty with Morgan Stanley. Please go ahead. Katy Huberty: Thank you. Good afternoon. Can you hear me okay? Luca Maestri: Yes, we can. Katy Huberty: Okay, good. So first question, there's a debate in the market around how much Apple benefited from the pandemic, given increased spend in areas like Mac and App Store. But of course, you've mentioned over the past several quarters that there are other areas that were limited by the pandemic, and store closures and less foot traffic. When you net out all the puts and takes was your business helped? Or, was it hindered by the pandemic? Luca Maestri: Well, of course, Katy, we don't have the crystal ball that tells us exactly what these different variables, how they impacted our business. We do know that I would say on the positive side of the ledger, obviously, especially during the periods of extreme lockdowns, digital services did very well because entertainment options were limited. And so obviously, our digital services did really, really well. Obviously with more people working from home, more people studying from home, we know that iPad and Mac demand was very, very strong. On the other side we add certain services like advertising because of the reduced economic activity, Apple Care because our stores were closed, they were affected negatively. And certain products like the iPhone or the Watch that are may be more complex types of sales because of the complexity of the transaction. They were also affected because so many points of sale were closed all around the world, not only our stores but also our partner stores. It’s difficult for us to gauge because we've been constrained for quite a long period of time. And the reality is that maybe the new normal after we exit COVID may be different from the past. For example, maybe there's going to be hybrid models around work, for example. And so, it's difficult to tell you on a net basis what that is. Clearly, and this is very fluid because it tends to change over time. I can certainly tell you that we're all looking forward to a COVID free world, I think that would be very good for us and for our customers as well. Katy Huberty: And just to follow-up on iPhones, specifically, if you look historically, after a really strong product cycle, which you've experienced this year with iPhone 12. iPhone revenues come under pressure, because the upgrade rate slows, the mix often shifts to the lower end of the portfolio. Is it fair to assume a similar trend will play out over the next year? Or if not, time… Tim Cook: Katy, it's Tim. We're not predicting the next cycle. But I would point out a few things. One is we have a very large and growing installed base. As you know with the iPhones passed a billion active devices earlier this year. Two, we have loyal and satisfied customers. The customer set we're seeing on the new iPhones are just amazing. It's just jaw dropping. And the geographic response is pervasive across the world. In the U.S., we have the top three selling models. In the UK, we have four out of the top five. In Australia, we have the top two. In Japan, we have the top three. In urban China, we have the top two. And so the response from customers all around had been great. Obviously, the product itself is amazing. The 12 lineup was a huge leap that introduced 5G and have A14 Bionic and a number of other fantastic features that customers love. The next thing I think to consider is that we're in the very early innings of 5G. If you look at our 5G penetration around the world there's only a couple of countries that are in the double digits yet. And so that's an amazing thing, nine months or so into this. And the last thing is we're going to continue to deliver great products. We're going to continue to do what we do best is integrate hardware, software and services together into an amazing experience. And so those are the things that I would consider if I were coming up with forecast. Katy Huberty: That's great color. Thank you. Tejas Gala: Thanks, Katy. Can we have the next question, please? Operator: Thank you. We'll take our next question from Harsh Kumar with Piper Sandler. Harsh Kumar: Yeah. Hey, guys, first of all, congratulations, fantastic execution that resulted in consistency for your results. Tim, this is actually perfect timing for this question. You talked about your installed base of a billion odd units. I was curious if you could help us understand how all of that installed base is? And the reason that I'm asking this question is we're clearly seeing people upgrade to 5G phones. That's the case and that continues, that could be a larger force than most other forces for your revenues to continue to grow as people migrate to the 5G family of phones. So I was curious, if you can shed light on how the upgrades are happening and then also, how old that base is? Tim Cook: Yeah, what I would tell you is first of all, it's difficult to answer your question precisely. But what I would tell you is on both switchers and upgraders, we did extremely well in Q3. Both were up strong double digit, and the geographic representation of iPhone year-over-year comps looks extremely well. And so we're really pleased with it. I would remind you that the billion number that I quoted also was iPhone, where we quoted a number earlier in the year in the January call, I believe, of 1.65 billion devices is the total active devices just for clarification. And so the net is very strong switchers, very strong upgraders, best upgrade quarter for the June quarter that we've seen. And we feel really great about the momentum. But at the same time, we recognize that the 5G penetration is quite low around the world. And, they're very, very low. We're at the front end of this. Harsh Kumar: Fair enough. For my follow-up, Apple's probably one of the largest semiconductor companies in the world. How does Apple determine what's strategic, and something that Apple wants to make itself versus non-strategic? And also was curious, there's a lot of -- well, it's public news now the Arm is getting acquired by Nvidia. And I was just curious how Apple views that? Is that something that's beneficial to Apple or not meaningful or negative? Tim Cook: I think that acquisition has lots of questions that people are asking, and I'll sort of leave that up to everyone else. And in terms of us and how we decide to make silicon, we ask ourselves, if we can do something better, if we can deliver a better product, if we can buy something in the market. And it's great, and it's as good as what we could do, we're going to buy it. We will only enter where we believe we have a ability to do something better, and therefore make a better product for the user. And so the M1 is a great example of that. We have the ability within our silicon team to deliver product that we feel is appreciably better than we could buy. And so, we've taken our great hardware and software expertise, and combine those and have brought the M1 out. And the response to the M1 has been unbelievable. It's powering Mac sales that are constrained, it's powering now iPad, which also has constraints on it. And so, that's how we look at whether we should enter into a market or not. Harsh Kumar: Thank you. Tim Cook: Thanks for the question. Tejas Gala: Thank you. Can we have the next question, please? Operator: Certainly, we will take our next question from Krish Sankar with Cowen & Company. Please go ahead. Krish Sankar: Hi, thanks for taking my question, and congrats on the strong results. First one for Luca, you mentioned services growth should normalize in the September quarter. And I understand the last few quarters' services business was strong, driven by work from home, et cetera. So what is the normalized growth rate for the services business as folks return back to the office in this post-COVID world? And then I have a follow-up. Luca Maestri: Well, I think, you can go back several quarters and try to do a bit of an average and that's what we were talking about. Of course, there's always a bit of variability around results, right. But certainly, we haven't done 33% in years and so that was a bit of an anomaly. And again, I explained it's around a couple of the businesses that had a relatively easy compare during the June quarter. So our services growth has been for many, many quarters in strong double digits and we feel confident around that level. Krish Sankar: Got it. And then just a follow-up for Tim or Luca. I think, Tim, you mentioned in your prepared comments that in September quarter, there's going to be greater impact on supply constraints on the iPhone and iPad. So I'm kind of curious, this is the first time I heard you talk about component shortages impacting the iPhone. Can you be more specific? Is it display drivers? Or, what exactly is the choke point on the supply? Tim Cook: The majority of constraints we're seeing are of the variety that I think others are saying that are I would classify as industry shortage. We do have some shortages, in addition to that, that are where the demand has been so great and so beyond our own expectation that it's difficult to get the entire set of parts within the lead times that we try to get those. So it's a little bit of that as well. As I said before, I think probably maybe with the basis of your question, sort of the latest nodes, which we use in several of our products have not been as much of an issue. The legacy nodes are where the supply constraints have been on the silicon. Krish Sankar: Thanks, Tim. Tim Cook: Yeah. Tejas Gala: Thanks, Krish. Can we have the next question, please? Operator: Thank you. We’ll hear the next question from David Vogt with UBS. David Vogt: Great. Thank you guys for the question. So maybe just a point of clarification. So based on the data and the comments about upgraders and switchers being strong, as well as emerging markets were relatively strong in the quarter. What does that specific set of data points strength mean for the iPhone portfolio? And I guess my question around that is, when you think about switchers and price points, I think last year, you launched the SE2 to really address maybe some of the lower price point markets like the emerging markets. So does that mean thinking about the portfolio going forward, there's less of a need for a lower priced product going forward, and the current portfolio and the new cycle going forward would be more high-end in nature, as we currently have today? And then I have a follow-up. Tim Cook: David, we had an incredible quarter for the emerging markets in Q3. We set June quarter records in Mexico, and Brazil, and Chile, in Turkey, and UAE, and Poland and Czech Republic, India. Obviously, in China, as I've talked about before, Thailand, Malaysia, Vietnam, Cambodia, Indonesia, I could go on in the name a few more, it's a very long list. And so those results are for the entire line of products that we have. And keep in mind, we still do have SE in the line, we launched it a year ago, but it's still in the line today. And it’s sort of our entry price point. And so, I'm pleased with how all of them are doing. And I think we need to sort of that range of price points to accommodate the types of people that we want to accommodate. So we've put something for the entry buyer who really wants to get into an iPhone, and then something for the pro buyer who wants the very best iPhone that they can buy. And I think that's true in the emerging markets as good as it's true in the United States or other developed markets. David Vogt: No, that's helpful. I appreciate that, Tim. So does that mean sort of the emerging market buyer that wants to get into the iPhone is looking for a device that has 5G capability as well? Obviously, we're early innings in a lot of markets, or how do we think about that over the intermediate to longer-term in terms of consumer preference for 5G in those markets, if available from an infrastructure perspective? Tim Cook: In most of the markets I read, it is really, really, really early on 5G, really early. But I think the top end buyer is buying for the future as well, because they may hold their phone for two years or longer in some cases. So, 5G becomes an important part of their buying decision. David Vogt: Great. Thank you very much. Tejas Gala: Thank you. Can we have the next question, please? Operator: Thank you. We'll take our next question from Ben Bollin with Cleveland Research Company. Ben Bollin: Good evening, everyone. Thanks for taking the question. I wanted to start Luca or Tim, could you walk us through a little bit about how you think Apple One bundles are influencing the trajectory of services and the economics? And then a second part on services, I'm curious how you think IDFA is developing and influencing the trajectory of the advertising business within services? Tim Cook: In terms of Apple One as you know, we're offering Apple One because it makes enjoying our subscription services easier than ever before, including Apple Music and Apple TV+ and Apple Arcade and iCloud and more. And so we really put the customer at the center of that and have recently began to remind people about Apple One in a way that we probably waited a few months before doing that. And so, I'm very pleased with what we're seeing on Apple One right now. I think it's a great ramp for the future services. And more importantly, it's a great customer benefit because many of our customers like to try out more than one of these services, and it allows them to do that with one easy bundle and subscription service. In terms of IDFA or the advertising in general, I take it your question is around ATT. With ATT we've been getting quite a bit of customer positive reaction to being able to make the decision on a transparent basis about whether to be tracked or not. And it seems to be going very well from a user point of view. Tejas Gala: Thank you. Can we have a question, please? Operator: Thank you. We'll take our next question from Wamsi Mohan with Bank of America. Wamsi Mohan: Yes, thank you, I have two as well. To begin with Luca, you noted significant product revenue deleverage but yet your product gross margins were roughly flat, you know that cost savings. Can you maybe talk about whether these are tactical in nature, or more structural like vertical integration that will continue to drive benefits to product gross margins? And on services side, you noted several times about the strength in ad growth, which is obviously very high margin contributor, but the sequential trajectory on services margins was flat. So what were some of the offsets there? And I’ve a follow-up for Tim. Luca Maestri: Yeah. On the product side, I talked about cost savings. Tim mentioned that, maybe on the freight side, we're seeing some level of cost pressure that is a bit out of the norm, at this point in the cycle. For everything else, for all the major commodities and components, we continue to see a very typical cycle where we are getting good cost savings on a sequential basis. And so far, it's been very good as you can tell from the absolute level of gross margins, because on the product side, we're up more than 600 basis points on a year-over-year basis. So it feels something that we've been able to accomplish, and we were able to maintain, at least in the near-term, nothing that was abnormal during the quarter or a one-off in nature. It was pretty structural. On the services side, again, up a lot on a year-over-year basis. So, the baseline has gone up a lot. The sequential decline, as you said, it was very, very small. And as I mentioned several times in the past, we have a very large services portfolio with very different margin profiles in our services. And so even a slight change in mix can drive some sequential differences, and this was the case this quarter, just a different mix. I mentioned for example, that Apple Care has rebounded. And so the relative success of our services in the marketplace can drive some slight changes in gross margins. Again, step back for a second, 69.8% gross margin we're very, very happy with where we are with the services margin trajectory. Wamsi Mohan: Okay. Thanks, Luca. And Tim, there is increasing regulatory focus in China in particular on some of the Chinese companies. It's not a direct impact of Apple, but how should investors handicap the indirect impact, given some of these companies are pretty large contributors to Apple's App Store revenues? And also, is there -- are you seeing any impact at all from these? And is the limiting of the usage of some of these apps influencing how people are either interacting with your devices, or is there any other ancillary impact that you're seeing? Thank you. Tim Cook: For the quarter, as you can see we grew 58% so it was a strong quarter. And embedded in that was a quarterly record for services, which includes the App Store world. So, we're seeing strength in China. The economy has really bounced back there fairly quickly from COVID. In terms of the regulatory focus, what we are focusing on from our angle is to serve users there and make sure that they're very satisfied with the products and services that we’re showing. And we work with a lot of different companies to ensure that. So that's our focus. Tejas Gala: Thank you, Wamsi. A replay of today's call will be available for two weeks on Apple Podcasts as a webcast on apple.com/investor and via telephone. The numbers for the telephone replay are 888-203-1112 or 719-457-0820. Please enter a confirmation code 9766068. These replays will be available by approximately 5 PM Pacific Time today. Members of the press with additional questions can contact Josh Rosenstock at 408-862-1142. Financial Analysts can contact me with additional questions at 669-227-2402. Thank you again for joining us. Operator: Thank you. That does conclude today's conference. Thank you for your participation.
UBS Stays Neutral on Apple as iPhone Demand Surge Seen as Temporary
UBS is holding its Neutral rating on Apple Inc. (NASDAQ:AAPL) with a $210 price target, noting that while recent iPhone sales data shows a strong start to the June quarter, the boost is likely short-lived and not indicative of a lasting trend.
According to supply chain insights and early sales estimates from Counterpoint, global iPhone sell-through for April and May is tracking in the mid-teens percentage growth year-over-year. UBS attributes this jump—similar to April’s 14% increase—to consumer concerns about potential iPhone price hikes driven by U.S. tariffs on Chinese and Southeast Asian imports, which may have pulled forward some demand.
iPhone sell-through is currently estimated to be around 4 million units higher than the same period last year. While that offers a temporary lift, UBS notes that these gains occurred during what are typically slower months for sales. With the June quarter typically averaging about 45 million iPhone units, the recent strength may not be sustainable.
Furthermore, the firm points to underwhelming announcements at Apple's WWDC and subdued purchase intent observed in its latest UBS Evidence Lab survey as reasons to expect a cooling in demand ahead. In UBS’s view, the market is unlikely to project this early-quarter momentum into future quarters without stronger product catalysts or demand drivers.
KeyBanc Sticks to Neutral View on Apple, Citing Solid iPhone Trends But Limited Upside
KeyBanc reiterated its Sector Weight rating on Apple (NASDAQ:AAPL), maintaining a neutral stance despite signs of continued hardware strength, particularly in iPhone sales.
According to May KFLD data cited by the firm, indexed spending fell 1% month-over-month—better than the typical three-year average decline of 2%—and remained up 22% year-over-year, though decelerating from April’s 38% growth. KeyBanc attributes the May performance to a demand pull-forward seen earlier in the spring, with spending levels elevated from a stronger starting point.
The firm believes current trends suggest resilience in Apple’s hardware segment, especially iPhones, and noted that carrier data on upgrade rates and new customer additions reinforces a stable demand environment. As a result, KeyBanc is holding its current estimates but considers them conservative.
Despite this, analysts don't see compelling valuation upside, citing Apple’s forward 2026 EV/EBITDA multiple of ~19.7x—slightly below its three-year average of ~21x—as still expensive in the context of the company’s expected growth.
Needham Downgrades Apple to Hold, Citing Growth Concerns and Valuation Pressures
Needham cut its rating on Apple (NASDAQ:AAPL) from Buy to Hold, flagging a mix of fundamental, competitive, and valuation headwinds that may limit upside in the near term.
The firm trimmed its earnings and revenue forecasts, citing slowing growth prospects and intensifying competition. Major tech rivals are targeting Apple’s lucrative platform fees, while advancements in generative AI could spur hardware innovations that threaten Apple’s device ecosystem.
Valuation was another sticking point. Apple is currently trading at over 26 times projected 2026 earnings—a level Needham considers elevated, especially without a clear catalyst to drive near-term acceleration.
The firm said a major iPhone upgrade cycle would be necessary to reignite momentum, but does not expect one within the next year. Analysts suggested a more attractive entry point would be in the $170 to $180 range. However, they also noted that if Apple were to aggressively develop a new advertising revenue stream, it could meaningfully boost both top- and bottom-line growth.
Apple Inc. (NASDAQ:AAPL) Faces Tariff Challenges but Maintains Strong Growth Prospects
- UBS maintains a "Buy" rating for Apple Inc. (NASDAQ:AAPL) despite a 20% decline in stock price, indicating confidence in long-term growth.
- Apple's potential tariff challenges could impact gross margins, yet its services business continues to grow, showcasing adaptability.
- The company's market capitalization stands at approximately $3 trillion, with a current stock price of $200.85, reflecting resilience amidst competition and market fluctuations.
Apple Inc. (NASDAQ:AAPL) is a leading technology company known for its innovative products, including the iPhone, iPad, and Mac computers. The company has built a strong ecosystem with approximately 2.3 billion Apple devices worldwide. Despite its success, Apple faces challenges, such as the recent decline in its stock price and increased competition from companies like Nvidia and Microsoft.
On June 1, 2025, UBS maintained its "Buy" rating for Apple, with the stock priced at $200.85. Despite a 20% decline in Apple's stock this year, UBS's decision to hold the current position suggests confidence in the company's long-term potential. Apple's market capitalization now stands at $3 trillion, trailing behind Nvidia and Microsoft, with the possibility of soon falling behind Amazon.
A significant factor contributing to Apple's stock decline is President Trump's plan to impose a 25% tariff on iPhones manufactured outside the United States. This tariff could severely impact Apple's gross margins, affecting its profitability. Despite this challenge, Apple's iPhone has been a key driver of its success, with no significant stumbles since its launch in 2007.
Apple's stock price currently stands at $200.85, reflecting a 0.45% increase with a change of $0.9. The stock has fluctuated between a low of $196.78 and a high of $201.94 today. Over the past year, AAPL has reached a high of $260.1 and a low of $169.21. The company's market capitalization is approximately $2.999 trillion, with a trading volume of 70.8 million shares on the NASDAQ.
Despite the recent decline, Apple's services business, particularly its App Store, continues to grow, fueled by the vast ecosystem of Apple devices. This growth highlights the company's ability to adapt and innovate, even in the face of challenges. As highlighted by Benzinga, Apple's stock performance may lag behind peers, but Wall Street remains optimistic about its future prospects.
Scotiabank Downgrades Apple (NASDAQ:AAPL) Stock to "Perform"
On May 2, 2025, Scotiabank downgraded Apple's stock (NASDAQ:AAPL) to a "Perform" rating. At that time, the stock price was $205.35. Apple, a leading technology company known for its innovative products like the iPhone and Mac, faces competition from other tech giants such as Samsung and Google. Despite this, Apple remains a dominant player in the tech industry.
Apple is experiencing a challenging year, as noted by Nabila Popal, senior director at IDC. Despite these challenges, Popal believes Apple's long-term outlook is strong. The stock price reflects a decrease of 3.74%, or $7.97, from its previous value. During the trading day, the stock fluctuated between a low of $202.16 and a high of $206.99.
Over the past year, Apple's stock has seen significant fluctuations, with a low of $169.21 and a high of $260.10. This volatility indicates the market's reaction to various factors affecting the company. Despite these fluctuations, Apple's market capitalization remains robust at approximately $3.08 trillion, highlighting its strong position in the market.
Today's trading volume for Apple is 91.85 million shares on the NASDAQ exchange. This high trading volume suggests active investor interest and engagement with the stock. As Apple navigates its current challenges, investors continue to closely monitor its performance and future prospects.
Scotiabank Downgrades Apple (NASDAQ:AAPL) Stock to "Perform"
On May 2, 2025, Scotiabank downgraded Apple's stock (NASDAQ:AAPL) to a "Perform" rating. At that time, the stock price was $205.35. Apple, a leading technology company known for its innovative products like the iPhone and Mac, faces competition from other tech giants such as Samsung and Google. Despite this, Apple remains a dominant player in the tech industry.
Apple is experiencing a challenging year, as noted by Nabila Popal, senior director at IDC. Despite these challenges, Popal believes Apple's long-term outlook is strong. The stock price reflects a decrease of 3.74%, or $7.97, from its previous value. During the trading day, the stock fluctuated between a low of $202.16 and a high of $206.99.
Over the past year, Apple's stock has seen significant fluctuations, with a low of $169.21 and a high of $260.10. This volatility indicates the market's reaction to various factors affecting the company. Despite these fluctuations, Apple's market capitalization remains robust at approximately $3.08 trillion, highlighting its strong position in the market.
Today's trading volume for Apple is 91.85 million shares on the NASDAQ exchange. This high trading volume suggests active investor interest and engagement with the stock. As Apple navigates its current challenges, investors continue to closely monitor its performance and future prospects.
Raymond James Cuts Apple Target to $230 on Tariff Risks, Still Sees Long-Term Upside
Raymond James lowered its price target on Apple (NASDAQ:AAPL) from $250 to $230 while maintaining an Outperform rating, citing growing concerns over tariff-related headwinds that could pressure earnings in the coming years.
The firm trimmed its 2025 and 2026 earnings forecasts, projecting that ongoing import tariffs could cut Apple’s EPS by 8% to 10% if fully applied. Although Apple has ramped up manufacturing outside of China—enough to meet roughly half of U.S. iPhone demand—the future tariff treatment of imports from India and Vietnam remains uncertain after a temporary 90-day exemption pause.
Raymond James now assumes a 15% blended tariff rate on all Apple imports, reflecting a cautious base-case scenario where Apple responds by raising U.S. prices, which could in turn dampen demand and compress earnings.
For the March 2025 quarter, the firm raised its estimates to $96.3 billion in revenue and $1.65 in EPS, up from $94.5 billion and $1.62, driven by strong iPhone 16e demand and consumer pull-forward ahead of potential tariff increases. However, the forecast for June was lowered slightly to reflect expected cost pressures, with EPS revised down from $1.50 to $1.44 and gross margins expected to decline by about 100 basis points.
Apple is expected to begin implementing price hikes in the September quarter to mitigate the impact, but overall, Raymond James reduced its 2025 EPS estimate from $7.31 to $7.15 and 2026 from $8.20 to $7.70.
Despite near-term volatility, the firm views any pullback as a buying opportunity, highlighting Apple’s dominant ecosystem, sustained double-digit growth in Services, and long-term potential from on-device AI capabilities.
