Good afternoon, and welcome to the Apple Q1 Fiscal Year 2025 Earnings Conference Call. My name is Suhasini Chandramouli, Director of Investor Relations. Today's call is being recorded. Speaking first today are Apple CEO, Tim Cook, and he will be followed by CFO, Kevan Parekh. 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 macroeconomic conditions 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. For more information, please refer to the risk factors discussed in Apple's most recently filed annual report on Form 10-K and the Form 8-K filed with the SEC today along with the associated press release. Apple assumes no obligation to update any forward-looking statements, which speak only as of the date they are made. I'd now like to turn the call over to Tim for introductory remarks.

Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call. Before I talk about our results, I'd like to take a moment to acknowledge the devastating wildfires that impacted the Los Angeles area this month. From our retail teams to Apple TV+, Apple Music, Fitness Plus, Beats, and more, LA is home to many of our team members. Our thoughts are with everyone who is beginning the road to recovery. For our part, we are contributing to the relief efforts and we will continue to support our teams and the local community. Now turning to the quarter. Today, Apple is reporting revenue of $124.3 billion for the December quarter, up 4% from a year ago, and an all-time record. EPS also set an all-time record of $2.40, 10% higher year-over-year. We achieved all-time revenue records across the majority of the countries and regions we track, including the Americas, Europe, Japan, and the rest of Asia Pacific. We also continue to see momentum in emerging markets, setting all-time revenue records in a number of markets, including Latin America, the Middle East, and South Asia, among others. In services, we achieved an all-time revenue record, and in the past year, we've seen nearly $100 billion in revenue from our services business. I'm also pleased to announce that we reached a new record for our installed base with over 2.35 billion active devices. In October, we released the first set of Apple Intelligence features in U.S. English for iPhone, iPad, and Mac, and we rolled out more features and expanded to more countries in December. Now users can discover the benefits of these new features in the things they do every day. They can use writing tools to help find just the right words, create fun and unique images with Image Playground and Genmoji, handle daily tasks and seek out information with a more natural and conversational Siri, create movies of their memories with a simple prompt, and touch up their photos with cleanup. We introduced visual intelligence with camera control to help users instantly learn about their surroundings. Users can also seamlessly access chat GPT across iOS, iPadOS, and MacOS. And we were excited to recently begin our international expansion with Apple Intelligence now available in Australia, Canada, New Zealand, South Africa, and the U.K. We're working hard to take Apple Intelligence even further. In April, we're bringing Apple Intelligence to more languages, including French, German, Italian, Portuguese, Spanish, Japanese, Korean, and simplified Chinese, as well as localized English to Singapore and India. And we'll continue to roll out more features in the future, including an even more capable Siri. Apple Intelligence builds on years of innovations we've made across hardware and software to transform how users experience our products. Apple Intelligence also empowers users by delivering personal context that's relevant to them. Importantly, Apple Intelligence is a breakthrough for privacy and AI with innovations like Private Cloud Compute, which extends the industry-leading security and privacy of Apple devices into the cloud. Apple Intelligence opens up an exciting new frontier and is already elevating experiences across iPhone, iPad, and Mac. We're going to keep investing in innovation and in transformative tools that help users in their everyday lives. Let me now turn to our results for the quarter, starting with iPhone. iPhone revenue came in at $69.1 billion, reaching all-time iPhone revenue records in dozens of markets and regions. Our iPhone 16 lineup takes the smartphone experience to the next level in so many ways, and Apple Intelligence is one of many reasons why customers are excited. With the A18 powered iPhone 16 and iPhone 16 Plus, users are getting a significant boost in battery life and incredible camera experiences with camera control. Our amazingly powerful iPhone 16 Pro models go even further with larger-than-ever displays and a pro camera system so advanced it can turn moments into masterpieces. In Mac, revenue was $9 billion for the December quarter, 16% higher year-over-year, driven by significant excitement around the world for our latest Mac lineup. The Mac is more than just a powerful tool. It's a launchpad to enable users to bring their best ideas and boldest creations to life. There are many reasons to choose Mac, from the breathtaking performance of the M4 family of chips to the groundbreaking and growing capabilities of Apple Intelligence. Every product in the Mac lineup offers something extraordinary, whether that's the super portable MacBook Air, the powerhouse MacBook Pro, the world's best all-in-one iMac, or the small wonder that is the Mac Mini, which is not only stunningly capable but is our first carbon neutral Mac. All of this is enabled by the unparalleled power of Apple Silicon. iPad revenue was $8.1 billion, up 15% from a year ago, driven by strong interest in our latest products. We love hearing from customers, who are discovering for the first time the versatility of iPad, from the ultra-portable iPad Mini, built from the ground up for Apple Intelligence, to the powerful M4 iPad Pro in a stunningly thin and light design. iPad is there for our users whenever they need it and wherever they go, and we are pleased to see so much excitement and enthusiasm for our lineup. Wearables, home, and accessories revenue came in at $11.7 billion. With its most advanced display yet and a thinner, more comfortable design, the all-new Apple Watch Series 10 is the perfect companion to help users pursue their health and fitness goals this year. From the powerful Vitals app to more customizable activity rings, users have an ever-increasing set of innovative health tools at their fingertips and watchOS 11. Health innovation has long been a focus for us, and we're committed to continuing to advance this work, because we know how much it matters to our users. We've introduced new hearing health features on AirPods Pro 2, and new sleep apnea notifications on Apple Watch are also helping users learn of a potentially serious condition that's thought to affect up to a billion people worldwide. During the quarter, we also brought Apple Vision Pro to even more countries, enabling more customers to discover the magic of spatial computing. Users are enjoying incredible immersive entertainment experiences and powerful new features and enhancements to Mac virtual display. Vision Pro is also supercharging the creative process and the incredibly talented director John M. Chu recently shared how its extraordinary capabilities helped him bring the movie Wicked to life. Turning to services, we set an all-time revenue record of $26.3 billion for the December quarter, growing 14% from a year ago. We set all-time records in the Americas, Europe, and rest of Asia-Pacific, and a December quarter record in Japan. Five years since launch, Apple TV+ continues to be home to incredible storytelling that viewers love. There's nothing quite like the anticipation that comes when a fan favorite returns, and we were thrilled to debut the second season of Severance earlier this month. We have so much in store for our subscribers this year with new shows like The Studio and Your Friends and Neighbors. We can't wait for the premiere of Formula 1 starring Brad Pitt on June 27, which will take viewers inside the sport in a truly unprecedented way. We're excited that Apple TV+ continues to draw attention and accolades. To-date, Apple TV+ productions have earned more than 2,500 nominations and 538 wins. During the quarter, we were also excited to launch a new Find My Service that can help our users when they lose their luggage. For the first time, if you put an AirTag in your suitcase, you'll be able to share its location information with many major airlines, so they can quickly track down your bags if they get lost. Turning to retail, our teams went above and beyond to help customers find the perfect gift throughout the holiday season. We also celebrated openings of new stores in China, Spain, and the U.S., and we were excited to announce plans to connect with even more customers this year by adding a fifth store in the UAE and bringing our online store to Saudi Arabia this summer. We can't wait to welcome customers to the first of several flagship store locations in Saudi Arabia that we are opening beginning in 2026. I just had the chance to visit both countries last month, and I had a great time meeting with customers and team members. There's an incredible energy and passion for technology in these growing markets. Every day, I get deeply moving notes about the many ways our technology is enriching our users' lives. I recently got a note from a customer who put his watch on his father's wrist when he feared something was wrong with him. The watch alerted them that the father was in AFib, and they were able to get him to the hospital for potentially life-saving treatment. Another user put his new watch on for the first time and within 15 minutes was notified of a low heart rate that led to a necessary pacemaker. There are so many touching notes around the profound impact of our new hearing health feature, like a recent user who told me it had changed her life, allowing her to take part in conversations with her children and grandchildren. These are the kinds of stories that remind us of how profoundly important our work is, and it drives us to innovate each and every day. At Apple, the future is full of promise and potential. We're always searching across a world of possibilities, finding those places where we can do the most good and putting all our energy and ingenuity into making something special. With that, I'll turn it over to Kevan.

Thanks, Tim, and good afternoon everyone. I'm going to cover the results for the first quarter of our fiscal year. We are very pleased to report an all-time high for revenue with December quarter revenue of $124.3 billion, up 4% year-over-year. We achieved all-time revenue records in the Americas, Europe, Japan, and the rest of Asia Pacific and grew in the vast majority of markets we track. Products revenue was $98 billion, up 2% year-over-year, driven by growth from iPad and Mac. Thanks to our incredible customer satisfaction and strong loyalty, our installed base of active devices reached an all-time high across all products and geographic segments and is now over 2.35 billion active devices. Services revenue reached an all-time record of $26.3 billion, up 14% year-over-year. We grew in every geographic segment and achieved all-time records in both developed and emerging markets. Company gross margin was 46.9% at the high-end of our guidance range and up 70 basis points sequentially, primarily driven by favorable mix. Products gross margin was 39.3%, up 300 basis points sequentially, primarily driven by favorable mix and leverage. Services gross margin was 75%, up 100 basis points sequentially, primarily driven by mix. Operating expenses of $15.4 billion landed at the midpoint of our guidance range and were up 7% year-over-year. This strong business performance resulted in all-time records for both net income at $36.3 billion and diluted earnings per share of $2.40, up 10% year-over-year. Operating cash flow was also strong at $29.9 billion, which included the impact of the $11.9 billion we paid during the quarter in connection with the state aid decision. Now, I'm going to provide some more details for each of our revenue categories. iPhone revenue was $69.1 billion, roughly flat to the prior year. We grew in the majority of markets we track and reached all-time revenue records in several developed markets, including Canada, Western Europe, and Japan and in emerging markets like Latin America, the Middle East, and South Asia. The iPhone active installed base grew to an all-time high in total in an average geographic segment. We also set an all-time record for upgraders. According to a recent survey from Kantar during the December quarter, iPhone was a top-selling model in the U.S., Urban China, India, the U.K., France, Australia, and Japan. We continue to see high levels of customer satisfaction in the U.S. at 96% as measured by 451 Research. Mac generated $9 billion in revenue, up 16% year-over-year. We saw strength across our lineup from the new Mac Mini to the latest MacBook Air and MacBook Pro models. This incredible performance was broad-based with double-digit growth in every geographic segment. With our latest advances in Apple Silicon and our fastest neural engine ever, customers are able to take advantage of the full capabilities of AI and Mac. The Mac installed base reached an all-time high, and we saw a double-digit growth for both upgraders and customers new to the Mac. Additionally, customer satisfaction in the U.S. was recently measured at 94%. iPad revenue was $8.1 billion, up 15% year-over-year, driven by the new iPad Mini and latest iPad Air. The iPad installed base reached another all-time high, and over half of the customers who purchased an iPad during the quarter were new to the product. Customer satisfaction was at 96% in the U.S. based on the latest reports from 451 Research. Wearables, home, and accessories revenue was $11.7 billion, down 2% year-over-year. Customers are excited about the new AirPods 4 and the latest hearing health features in AirPods Pro 2. On watch, although we face a difficult compare against the watch Ultra 2 launch last year, the Apple Watch installed base reached a new all-time high, with over half of customers purchasing an Apple Watch during the quarter being new to the product. Customer satisfaction for the watch in the U.S. was reported at 94%. Our services revenue reached an all-time high of $26.3 billion, up 14% year-over-year. Services continues to see strong momentum, and the growth of our installed base of active devices gives us great opportunities for the future. We also see increased customer engagement with our services offerings. Both transacting and paid accounts reached new all-time highs, with paid accounts growing double-digits year-over-year. Paid subscriptions also grew double-digits. We have well over 1 billion paid subscriptions across the services on our platform. We remain focused on improving the breadth and quality of our services offerings, from new games on Apple Arcade to exciting new programming on Fitness Plus, and the continued expansion of features like Tap to Pay, now live in 20 markets. Turning to enterprise, we have seen businesses continue to expand their deployments of our products and services. Deutsche Bank launched its Mac as Choice program for the developers and also issued the latest MacBook Air as a standard computer for their entire mortgage lending division. We're excited to see leading enterprises such as SAP leverage Apple Intelligence in the U.S., with features like writing tools, summarize, and priority notifications to enhance both their employee and customer experiences. We also see strong demand in our emerging markets. For example, Zomato, a leading food ordering and delivery company in India, has deployed 1,000 Macs across their workforce to foster innovation. Vision Pro continues to see more use cases in enterprise, with Cisco's new spatial meetings delivering a fully immersive video conferencing experience for remote collaboration and learning. Let me quickly summarize our cash position and capital return program. We ended the quarter with $141 billion in cash and marketable securities. We repaid $1 billion in maturing debt and decreased commercial paper by $8 billion, resulting in $97 billion in total debt. Therefore, net cash at the end of the quarter was $45 billion. During the quarter, we returned over $30 billion to shareholders. This included $3.9 billion in dividends and equivalents and $23.3 billion through open market repurchases of 100 million Apple shares. As usual, we will provide an update to our capital return program when we report results for the March quarter. As we move ahead into the March quarter, I'd like to review our outlook which includes the types of forward-looking information that Suhasini referred to at the beginning of the call. The color we're providing today assumes that the macroeconomic outlook doesn't worsen from what we're projecting today for the current quarter. As the dollar has strengthened significantly, we expect foreign exchange to be a headwind and to have a negative impact on revenue of about 2.5 percentage points on a year-over-year basis. Despite that headwind, we expect our March quarter total company revenue to grow low to mid-single digits year-over-year. We expect services revenue to grow low-double digits year-over-year. When you remove the negative impact of the foreign exchange headwinds I described earlier, the year-over-year growth rate would be comparable to that of the December quarter. We expect gross margin to be between 46.5% and 47.5%. We expect operating expenses to be between $15.1 billion and $15.3 billion. We expect OI&E to be around negative $300 million, excluding any potential impact from the mark-to-market of minority investments, and our tax rate to be around 16%. Finally, today our Board of Directors has declared a cash dividend of $0.25 per share of common stock payable on February 13, 2025, to shareholders of record as of February 10, 2025. With that, let's open the call for questions.

Thank you, Kevin. We ask that you limit yourself to two questions. Operator, may we have the first question please?

Certainly, we will go ahead and take our first question from Erik Woodring with Morgan Stanley. Please go ahead.

Great, guys, thanks so much for taking my questions. Tim, in your prepared remarks, you had noted that iPhone 16 models are selling better in markets where Apple Intelligence is available? And I'm just wondering if you could elaborate on that comment a bit and share any other details you believe could better help us understand how Apple Intelligence is really impacting iPhone demand and/or what features you find that users are using most often already? And then I just have a quick follow-up. Thank you.

Yes, Erik. Hi, it's Tim. We did see that in the markets where we had rolled out Apple Intelligence, the year-over-year performance on the iPhone 16 family was stronger than those where Apple Intelligence was not available. In terms of the features that people are using, they're using all of the ones that I'd referenced in my opening comments, from writing tools to image playground and Genmoji to visual intelligence and more. Cleanup is another one that is popular, and people love seeing that one demoed in the stores as well. We only had 2 to 2.5 weeks or so during the December quarter of the second release of iOS 18.2, and then we only had the U.K. and the other English language countries for those 2.5 weeks. So we've got just the early indications at the moment, but we were glad...

Okay, that's really helpful.

Yes.

Okay, thank you for that, Tim. It's helpful. And then, you know, if we just touch on China, obviously, in the news fairly frequently, if we set aside China Macro, which I understand is still challenging, can you maybe talk about the headwinds that Apple faces, whether that's shifting preferences for Western technology brands in favor of domestic vendors, or is this just a function of not necessarily having Apple Intelligence available with the iPhone 16, which is not necessarily helping replacement cycles? Just maybe double-clicking on what you think and what you're hearing in China as it relates to the iPhone. Thanks so much.

Yes, sure. If you look at our greater China revenue for the quarter, we were down 11% year-over-year. Over half of the decline that we experienced was driven by a change in channel inventory from the beginning to the end of the quarter. Of course, on the Apple Intelligence side, we have not rolled out in China, and, as we just talked about, we did see better results in the markets where we had rolled out than in markets we hadn't. Of course, it's the most competitive market in the world, and so all of those things are true. In terms of the macro situation, there was a fiscal stimulus or subsidy announced recently in January that did not affect the December quarter. There were some provincial subsidies in the December quarter, but the national program was announced on January 20. It covers categories that we have products in, from smartphones to tablets and PCs and smart watches, up to a certain maximum price point. We do see fiscal stimulus occurring and we'll be glad to talk about what that looks like on the next call.

Great, thanks so much, Tim. Good luck.

Thank you.

Thank you, Eric. Operator, can we have the next question, please?

Our next question is from Ben Reitzes with Melius. Please go ahead.

Thank you for the question. Tim, I wanted to ask you about the perception that you're significantly benefiting from lower compute costs. Could you share your thoughts on the DeepSeek situation and whether there have been any changes in your views regarding the impact on margins and your ability to execute, especially considering the potential for reduced costs? I would really appreciate your perspective on this and then I have a quick follow-up. Thank you.

Sure. In general, I think innovation that drives efficiency is a good thing. That's what you see in that model. Our tight integration of silicon and software, I think, will continue to serve us very well. As you know, we do things on the device, and we do things in the private cloud which mimics, from an architectural point of view, what happens on the device. From a CapEx point of view, we've always taken a very prudent and deliberate approach to our expenditure and we continue to leverage a hybrid model, which I think continues to serve us well.

Thanks, Tim. Regarding the iPhone trajectory, do you believe there is potential for form factor innovation in the future? Or does the current lineup indicate your direction? I'm curious about your thoughts on whether there is still a lot of innovation to come in phones and if you foresee changes in the current market in the next two to three years. Thanks.

I think, Ben, there's a lot more to come and I could not feel more optimistic about our product pipeline. So I think there's a lot of innovation left on the smartphone.

Thanks a lot, Tim.

Yes, thank you.

Thank you, Ben. Operator, could we have the next question, please?

Our next question is from Michael Ng with Goldman Sachs. Please go ahead.

Good afternoon. Thank you for the question. I have two as well. First, it was encouraging to hear about the record for iPhone upgraders, which I think is something you haven't said for about a year now. I was wondering if you could talk a little bit about what you would attribute this upgrade strength to? Has Apple Intelligence played a role in helping upgrades in the markets that you've launched in? Thanks.

Yes, thank you for the question. If you look at iPhone, we did set an all-time record for upgraders, so we've never seen a higher level of upgraders before. The installed base hit a new all-time high as well. If you look at the 16 compared to the 15 from launch, which occurred, as you know, in September, so this is across now two quarters from September to the end of the December fiscal quarter, the 16 outperformed the 15. I think you can conclude from that that there are compelling reasons to upgrade. In the markets where we had launched Apple Intelligence, they outperformed the markets that we did not. So lots of good insights there.

Great, thank you, Tim. That's very clear. And then I had one about the iPad Pro and for the thinner version. I was just wondering if you could talk about that thin form factor for the iPad Pro. How did it help iPad sales overall and what did your consumer research tell you about how consumers valued that thin product form factor? Thank you.

It's a good question. iPad overall grew 15% for the quarter and it was driven more by iPad Air and the entry level iPad than it was the top-level iPad. Overall, we could not be more pleased with the iPad category growing 15%. What's most important is that over half of the sales in the December quarter went to customers who were new to the iPad. That tells us that there's a good amount of customers there to attract.

Thank you very much, Tim.

Yes, thank you.

Thanks, Mike. Operator, could we have the next question, please?

Our next question is from Amit Daryanani from Evercore. Please go ahead.

Good afternoon, everyone. I have two as well. Maybe to start with, you folks are seeing some very robust growth trends in emerging markets right now for Apple products? Can you just add a high level, just talk about the durability of growth that you see in emerging markets? And then do you think the summation of these emerging markets are starting to get big enough or perhaps starting to grow fast enough that it can actually offset some of the China headwinds you're going through?

We have great results in a number of emerging markets. As you know from past calls, I'm particularly keen on India. India set a December quarter record during the quarter. We're opening more stores there. We've announced that we're going to open four new stores there. Additionally, the iPhone was the top-selling model in India for the quarter. It's the second largest smartphone market in the world and the third largest for PCs and tablets, so there's a huge market and we have very modest share in these markets. I think there's lots of upside there, and that's just one of the emerging markets.

Yes, maybe I'll add, Amit, that in emerging markets we're also seeing double-digit growth on the install base, both in total and for the iPhone as well. So that's also an encouraging sign.

Perfect, thank you. And then, you know, just a question on gross margins for the March quarter. You folks are guiding gross margin is flattish on a sequential basis. Typically, I think it tends to be guided up a little bit, 50 basis points, so sequentially. Can we just touch on what are the offsets of the puts and takes you see here on gross margins? And Kevan, maybe you can just talk about its FX having an outsized impact on your margin profile as well in March?

Yes, Amit, let me take that one. You know, as we mentioned in my remarks, we're guiding to 46.5% to 47.5%. We think that's, you know, we're very pleased with that level of guidance. As you mentioned, there's always puts and takes. We do think there's going to be some FX headwinds, which we talked about, that's going to affect our revenue growth as well. It'll have an impact here on the margin, a sequential impact on margins. But we think that's going to be offset by favorable costs and the relative mix of services. Additionally, when we move from Q1 to Q2, especially on the product side, because Q1 is such a large quarter for a products business, we do have a loss of leverage. So there are some puts and takes, and I think we feel good about the range. We think it's a very, very strong guide for gross margin.

Thanks, Amit. Operator, could we get the next question, please?

Our next question is from Wamsi Mohan with Bank of America. Please go ahead.

Yes, thank you so much. Tim, I want to follow up on your comment about channel inventory in China. I was wondering if you could maybe address more broadly if channel inventory across your different product lines and regions? Do you feel they're elevated or out of range in any other regions? Given the clearing event that happened in China, should we think of a more normal progression quarter-on-quarter into the March quarter in China in particular, and I will follow.

Yes, I don't want to project sales for the current quarter by region, but if you look at the channel inventory and look at iPhone in the aggregate, so on a worldwide basis, we're very comfortable with our channel inventory position in China. My point was that our channel inventory reduced from the beginning of the quarter to the end of the quarter, and that was over half of the reduction in the reported results. Part of the reason for that is that our sales were a bit higher than we forecasted them to be toward the end of the quarter, and we ended a little leaner than expected.

Okay, that's very clear. Thank you.

Yes, thank you.

And then maybe as my follow-up, your services growth has been very strong and I know you've been navigating some pretty challenging regulatory burdens on the business globally. So how should investors think about maybe either a top line or margin headwind that you're currently absorbing in your results that could potentially reverse in a more balanced regulatory environment? Thank you so much.

Yes. So I think one, I just wanted to reiterate that, you know, our services business had an all-time record for the December quarter of 14%. That was a strength we saw across all geographic segments and also was very broad-based across all of our services. We have, as you know, a very broad services portfolio. We do see good momentum across the board. Additionally, we continue to see increasing engagement across the customer base, across all of the service offerings, both transacting and paid accounts. We reached new all-time highs, and we have over now 1 billion paid subscriptions across the services platform.

All right. Thanks, Wamsi. Operator, could we get the next question, please?

Our next question is from Samik Chatterjee with JPMorgan. Please go ahead.

Hi, thank you for taking my questions. For my first question, you had an impressive quarter for both Macs and iPads. I'm curious about the sustainability of the double-digit growth in these product lines. There's also talk about Apple Intelligence affecting volumes for iPhones, but I would like to know your thoughts on its impact on Macs, especially with discussions around AI PCs. I have a quick follow-up. Thank you.

Yes. If you look at Mac, it was up 16%, and on iPad, we were up 15%. The Mac was driven by the very strong uptake on our new products during the quarter and the continued success of the MacBook Air. We've launched an M4-based MacBook Pro, an iMac, and a Mac Mini during the quarter. We believe we've got the best AI PC out there for running workloads. The silicon in the Mac is designed by us and is really designed for these workloads. I don't want to project at the category level for the future, but we're incredibly pleased with both the Mac and the iPad for the quarter.

Okay. And Tim, I'm going to use your earlier discussion about India as a strong emerging market to sort of ask you about the supply chain planning there in terms of how much of the supply chain planning there that you're doing is more of a reflection of the growth expectations from that market relative to diversification of the supply chain? How should we think about that strategy in terms of that particular country? Thank you.

Yes. If you look at the manufacturing we do there, we do manufacturing both for the domestic market and we export. Our business needs a certain economy of scale for it to make sense to manufacture in country. That means we're going to be both a user for the domestic market and an export market.

Great. Thank you.

Yes, thanks.

Thank you, Samik. Operator, could we get the next question, please?

Our next question is from David Vogt with UBS. Please go ahead.

Great, thanks, guys, for taking my question. So maybe, Tim, this is for you. I'm trying to think about your commentary around Apple Intelligence being a momentum driver for the iPhone business. But when I think about your framework for the March quarter, it feels like your iPhone revenue for the March quarter is going to be relatively similar to the quarter two years ago and even the quarter last year? So how do we square the momentum versus the iPhone business effectively really unchanged over the last couple of years? And then second, when I think about the gross margin profile of the business, you've done a great job in taking gross margins up. Where do you think we sit in terms of the services side at least, where margins could go? The 75% margin has been incredibly successful this quarter. I'm just trying to get a sense for where you think this number could go over the intermediate term. Thank you.

Yes. If you look at Apple Intelligence, my point earlier was that markets where we rolled out Apple Intelligence during the Q1 period performed better on a year-over-year basis than markets where we had not. Those are positive indicators that we were pleased with. There are compelling reasons to upgrade. I also believe that if you analyze it from launch to the end of the December quarter, the 16 family is outperforming the 15 family. Those are two good data points. Our next round of language rollouts will be in April, during our Q3 quarter.

Hi, David. How are you? On the Services gross margin, stepping back a second, the services business in general is accretive to the company margin. Our services portfolio has different margin profiles, which plays a big role in their performance. Scale businesses like payment services, iCloud are actually growing, and when we add incremental users, those end up being accretive to margins as well. We saw nice momentum across the entire services business that allowed us to deliver that 75% margin at the services level. Our guidance takes into consideration what we think we're going to land from a company standpoint of 46.5% to 47.5%, which we think is a strong guide.

Great, thanks, guys.

All right, thank you, David. Operator, could we have the next question, please?

Our next question is from Krish Sankar with TD Cowen. Please go ahead.

Yes, thanks for taking my question. I also had two of them. One, the first one for Tim. You had very strong Mac growth, 16% year-over-year last quarter. Just wondering how much of that was driven by some of the Mac silicon innovation versus a replacement cycle for Macs?

I don't know the answer to your question precisely, but I think it is a combination of these products being so compelling that it's driving both upgrades at double-digit levels and driving switchers at double-digit levels. We're seeing both come out, and I think it's just because of the compelling products.

Got it. Got it. Thanks for that, Tim. And then a follow-up for Kevan on the gross margin. I want to ask you on the product side. Last quarter, you had 39.3%, which is very strong, similar to a year-ago period. I'm curious how many more levels do you have on the product side to improve the gross margin? Or do you think with some of the new AI-related devices, there's more upside to gross margin from here on the product hardware side?

Yes. Thanks, Krish, for the question. On the product side, we had strong sequential improvement, 300 basis points for the December quarter. That was driven by favorable mix and leverage. Q1 is a launch quarter for many products, and we benefit from the leverage of that higher volume. Our gross margin on products is driven by several factors, including various product launches, as different products have different margin profiles. Many customers are gravitating toward our Pro products, which have favorable gross margins. Additionally, we're in a favorable commodity environment from a cost standpoint. We will have a foreign exchange headwind heading into the March quarter, but that's contemplated in the guidance range we provided, 46.5% to 47.5%.

Thanks, Kevan. Thanks, Tim.

Thank you, Krish. Operator, could we get the next question, please?

Our next question is from Richard Kramer with Arete Research. Please go ahead.

Thanks very much. My first question is for Tim. I'd like to ask about what might accelerate the pace of Apple Intelligence adoption. Do you see this simply as a question of time, to launch more markets and languages, or increase the percentage of installed base devices that can support it? Or is it a question of money, shifting R&D or marketing spend towards AI? Based on other prior Apple services, do you expect a sort of tipping point where adoption will go mainstream? Thanks.

I do believe it will go mainstream. I'm getting feedback from people using different features today. Keep in mind that on the iPhone side of our business, you either have to have an iPhone 15 Pro or iPhone 16 to use Apple Intelligence. As that base grows, I think the usage will continue to grow. I know from my own experience that once you start using the features, you can't imagine not using them anymore. I get hundreds of emails a day, and the summarization function is essential. It will be a combination of that. In April, we roll out a whole series of new languages, which will further expand the user base.

Okay, thank you. And then, Kevan, one of Luca's legacies was getting Apple to record margin levels and also maintaining very consistent pricing across the product range. But taking the current high levels of profitability as fairly stable, what observations might you share about price sensitivity of users and whether having a wider range of pricing across the products might unlock potentially further market share gains or boost overall product growth?

Yes, it's a good question. I don't think we're going to really depart from what has served us well to now. We always take it into consideration while comparing short-term and long-term. We have seen a pretty disciplined pricing strategy that has served us well, and I think we'll continue to stick with that.

Thank you, Richard. Operator, could we get the next question, please?

Our last question is from Atif Malik with Citi. Please go ahead.

Hi, thank you for taking my question. How do you guys see the potential tariff impact to your products for consumer demand under Trump 2.0 you guys did find under Trump 1.0?

We are monitoring the situation and don't have anything more to add than that.

Great. And Tim, as a follow-up, there is a lot of discussion on agentic AI, the use of agents. Do you see the upgraded Siri expected in April as something that will, let's say, be the killer application among the suite of features that you have announced in Apple Intelligence?

I think the killer feature is different for different people. For most, they're going to find that they're going to use many of the features every day. Certainly, one of those is Siri, and that will be coming over the next several months.

All right. Thank you, Atif. Operator, could we please get the last question?

Our last question is from Ben Bollin from Cleveland Research Company. Please go ahead.

Good evening, everyone. Thanks for taking the question. Tim, I'm interested in your thoughts on how you would have us think about the average useful life of these devices in the wild. I'm curious if you look at the strength you saw in fiscal ‘21, how that might support accelerated refresh opportunity into the future?

Yes, Ben, I think it's different for different types of users. You have very early adopter users that quickly jump on the latest technology and upgrade frequently. Then you have people on the opposite side of that spectrum. Most people are between those two points. There were lots of units sold during the COVID period, and it's a huge opportunity for us to increase sales in multiple product categories. Thank you.

A replay of today's call will be available for two weeks on Apple Podcasts or as a webcast on apple.com/investor and via telephone. The number for the telephone replay is 866-583-1035. Please enter confirmation code 7398532 followed by the pound sign. These replays will be available by approximately 5 p.m. at Pacific Time today. Members of the press with additional questions can contact Josh Rosenstock at 408-862-1142. Financial analysts can contact me, Suhasini Chandramouli, with additional questions at 408-974-3123. Thanks again for joining us here today.

Once again, this does conclude today's conference. We do appreciate your participation.