Good afternoon, and welcome to the Apple Q3 Fiscal Year 2025 Earnings Conference Call. My name is Suhasini Chandramouli, Director of Investor Relations. Today's call is being recorded. Speaking first today is Apple's CEO, Tim Cook, and he'll 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. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast, including risks related to the potential impact to the company's business and results of operations from macroeconomic conditions, tariffs, and other measures and legal and regulatory proceedings. For more information, please refer to the risk factors discussed in Apple's most recently filed reports on Form 10-Q and Form 10-K and the Form 8-K filed with the SEC today, along with the associated press release. Additional information will also be in our report on Form 10-Q for the quarter ended June 28, 2025, to be filed tomorrow and in other reports and filings we make with the SEC. 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. Today, we are proud to report a June quarter revenue record of $94 billion, up 10% from a year ago, which was better than we expected. EPS set a June quarter record of $1.57, up 12% year-over-year. We saw an acceleration of growth around the world in the vast majority of markets we track, including Greater China and many emerging markets. And we had June quarter revenue records in more than two dozen countries and regions, including the U.S., Canada, Latin America, Western Europe, the Middle East, India, and South Asia. These results were driven by double-digit growth across iPhone, Mac, and Services. We set a June quarter record for iPhone, which grew a strong 13% year-over-year. We saw iPhone growth in every geographic segment and double-digit growth in emerging markets, including India, the Middle East, South Asia, and Brazil. Mac continued to see excellent results with revenue up 15% year-over-year. And we set another all-time revenue record in Services, which grew 13% with double-digit growth in both developed and emerging markets. Last month, we hosted WWDC, an incredible event for our developer community with millions joining us online and more than 1,000 developers here in person at Apple Park. We shared some truly exciting updates, including a stunning new design crafted from a material we call Liquid Glass, it's both beautiful and expressive. And for the first time ever, this design extends across all of our platforms. We can't wait for users everywhere to experience it this fall. And we were excited to share some updates across our AI work. We announced even more capabilities coming later this year, including live translation and Workout Buddy. In addition to those new features, we announced new support for a number of languages, and we opened up access to the on-device foundation models at the core of Apple Intelligence, enabling developers to build a whole new experience for our users. It's wonderful to see great momentum building for our platforms. iOS 26, macOS 26, and iPadOS 26 are by far the most popular developer betas we've had. Taking a step back, we see AI as one of the most profound technologies of our lifetime. We are embedding it across our devices and platforms and across the company. We are also significantly growing our investments. Apple has always been about taking the most advanced technologies and making them easy to use and accessible for everyone. And that's at the heart of our AI strategy. With Apple Intelligence, we're integrating AI features across our platforms in a way that is deeply personal, private, and seamless, right where users need them. We've already released more than 20 Apple Intelligence features, including visual intelligence, cleanup, and powerful writing tools. We're making good progress on a more personalized Siri, and as we've said before, we expect to release these features next year. Apple silicon is at the heart of all of these experiences, enabling powerful Apple Intelligence features to run directly on device. For more advanced tasks, our servers, also powered by Apple silicon, deliver even greater capabilities while preserving user privacy through our private cloud compute architecture. We believe our platforms offer the best way for users to experience the full potential of generative AI. Thanks to the exceptional performance of our systems, our users are able to run generative AI models right on their Mac, iPad, and iPhone. We're excited about the work we're doing in this space, and it's incredibly rewarding to see the strong momentum building. Now let me turn to more details about our results for the quarter, starting with iPhone. iPhone revenue was $44.6 billion, up 13% from a year ago, and we set a June quarter record for upgraders. This strong broad-based performance was driven by the incredible popularity of the iPhone 16 family, which was up strong double digits year-over-year as compared to the 15 family. We also recently marked a significant milestone. We shipped the 3 billionth iPhone since its launch in 2007. From the Pro models with the powerhouse A18 Pro and innovative Pro camera features to the iPhone 16e with breakthrough battery life and a 2-in-1 camera system, users are finding so many reasons to love the best iPhone lineup we've ever created. And iOS 26 will take that experience even further. In addition to the beautiful new design and powerful Apple Intelligence features, it introduces a range of meaningful updates like real-time call screening and hold assist in the phone app, smarter messaging tools, and new live translation features. It all adds up to a smarter, more personal iPhone experience that we can't wait for users everywhere to enjoy this fall. In Mac, we had another strong quarter with revenue of $8 billion, up 15% year-over-year, largely driven by the strength of the M4 MacBook Air. We set a June quarter record for upgraders on Mac, and we saw great performance in emerging markets with strong double-digit revenue growth as well as strong double-digit growth on both upgraders and customers new to Mac. MacBook Air, the world's most popular laptop, unlocks a whole new level of performance with the power of M4. MacBook Pro customers meanwhile continue to be drawn to its incredible power and the longest battery life we've ever had on a Mac. Customers are also loving the newest Mac Studio, which is the most powerful Mac we've ever made with next-level capabilities to tackle even the most demanding AI workflows. At the same time, Mac mini continues to win over customers by packing so much performance into an ultracompact design. And with fantastic new updates in macOS Tahoe 26, from the phone app to live activities to our biggest ever update to Spotlight, Mac users across our entire lineup are going to find delightful new ways to stay connected and productive. For iPad, June quarter revenue was $6.6 billion. Our incredibly versatile iPad lineup brings together power and portability like never before. And users are already excited for our biggest iPad software update ever with the upcoming release of iPadOS 26. It starts with a new windowing system that's remarkably intuitive, giving users more control than ever of their iPad experience. An enhanced files app makes it easier than ever to stay organized. And that's all on top of a beautiful new software design that brings these updates to life. Turning to Wearables, Home, and Accessories. Revenue was $7.4 billion, and we saw a June quarter record for upgraders to Apple Watch. During the quarter, we marked the 10-year anniversary of Apple Watch, celebrating a decade of helping users navigate their health and fitness journeys. And with watchOS 26, Apple Watch will be more intelligent than ever with smart updates to the workout app and Smart Stack, along with a fresh new design that feels both dynamic and personal. We're also thrilled about what's coming to Apple Vision Pro with visionOS 26 introducing spatial widgets that let users customize their digital space, more lifelike personas, and new enterprise APIs that empower companies to build their own spatial experiences. This fall, new features for our latest AirPods lineup will unlock even more possibilities from studio-quality audio recording to using AirPods as a camera remote, giving users powerful new ways to capture content and stay connected. As we're innovating across our lineup, we're especially proud of the work we're doing to help our users live healthier lives. Since we first launched our hearing health features for AirPods Pro 2, I've received notes from people who are delighted to be able to connect more deeply with loved ones. Whether it's with AirPods Pro 2 or Apple Watch or iPhone, it's amazing to see the power of our health and safety features from hearing tests to fall detection alerts to irregular rhythm notifications having such a profound impact. Turning to Services. Revenue for the June quarter was $27.4 billion, up 13% from a year ago, and an all-time record. Apple TV+ scored 81 nominations, a record for the platform across nearly every eligible category for this year's Emmy Awards. Severance leads all Emmy nominees with 27 nominations and The Studio follows close behind with 23 nominations, more than any other freshman comedy series ever. It's amazing to see how these and other Apple TV shows have captured the popular imagination. To date, Apple TV+ has earned more than 2,700 award nominations and 585 wins on the strength of the highest-rated original content of any streaming network. And we continue to see very positive trends in the June quarter with TV+ viewership up strong double digits year-over-year. In June, we were also thrilled to release F1 in theaters around the world, one of the summer's most unforgettable blockbusters. During the quarter, we celebrated a big anniversary with 10 years of Apple Music. To mark the occasion, we launched an all-new studio space in Los Angeles for artists to create content and connect with fans. And later this year, we're bringing Apple Music users even more to love from an enhanced listening experience with AutoMix, which mixes songs like a DJ, to lyrics translation and more. The App Store meanwhile continues to be the very best place to discover the latest apps from developers around the world in a safe and trusted way and App Store revenue grew double digits year-over-year, setting a June quarter record. In retail, we continue to find opportunities in emerging markets to connect with even more customers. We recently launched the Apple Store online in Saudi Arabia, and we couldn't be more excited to open new stores in the UAE and India later this year. We were also delighted to welcome customers in Japan to a new location in the heart of Osaka. Across everything we do at Apple, we show up by leading with our values. We feel strongly that the benefits of technology should be shared by everyone. That's why we make technology for everyone. In May, to mark Global Accessibility Awareness Day, we announced updates to help users learn, connect, and interact with their worlds, including a magnifier for Mac, a new braille experience, and accessibility reader, a new system-wide reading mode to make it easier to understand content. And we're proud to introduce accessibility nutrition labels, giving users an understanding of accessibility features before they download an app while helping developers educate people on features their app supports. This month, we also announced a $0.5 billion commitment with MP Materials to strengthen the supply of vital recycled rare earth materials in the U.S. and support American industry. And in August, we're opening our all-new Apple Manufacturing Academy in Detroit to train and support American manufacturers. These investments are part of Apple's largest-ever spend commitment, which we announced earlier this year. Over the next 4 years, Apple is investing $500 billion in the U.S., driving innovation and creating jobs in cutting-edge fields like advanced manufacturing, silicon engineering, and artificial intelligence. We're proud of this work and all that we're doing to tap into American innovation and bring the best technology experiences to users across the globe. And we continue to look for further opportunities to do even more. Finally, the situation around tariffs is evolving, so let me provide some color there. For the June quarter, we incurred approximately $800 million of tariff-related costs. For the September quarter, assuming the current global tariff rates, policies, and applications do not change for the balance of the quarter and no new tariffs are added, we estimate the impact to add about $1.1 billion to our costs. This estimate should not be used to make projections for future quarters as there are many factors that could change, including tariff rates. We're really proud of our results for the June quarter, and I want to thank our teams and our customers. In everything we do, we're driven by transformative innovation, delivering the most exceptional products and services we've ever created, and we're especially excited about what's ahead. With that, I'll turn it over to Kevan.

Thanks, Tim, and good afternoon, everyone. Our revenue of $94 billion was up 10% year-over-year and is a new June quarter record. We grew in every geographic segment and in the vast majority of the markets we track. Products revenue was $66.6 billion, up 8% year-over-year, driven by growth across iPhone and Mac. And thanks to our high levels of customer satisfaction and strong loyalty, our installed base of active devices reached another all-time high across all product categories and geographic segments. Services revenue was $27.4 billion, up 13% year-over-year and an all-time record. We saw strength across the world with double-digit growth in the majority of our markets. Company gross margin was 46.5% at the high end of our guidance range and down 60 basis points sequentially, primarily driven by approximately $800 million in tariff-related costs that Tim mentioned earlier. Products gross margin was 34.5%, down 140 basis points sequentially, driven by mix and tariff-related costs, partly offset by cost savings. Services gross margin was 75.6%, down 10 basis points sequentially. Operating expenses landed at $15.5 billion, up 8% year-over-year. This strong business performance led to June quarter records for both net income at $23.4 billion and diluted earnings per share of $1.57, which was up 12% year-over-year. Operating cash flow was also strong at $27.9 billion. Now I'm going to provide some more details for each of our revenue categories. iPhone revenue was $44.6 billion, up 13% year-over-year, driven by the iPhone 16 family. As Tim noted, we saw iPhone growth in every geographic segment and double-digit growth in many emerging markets. The iPhone active installed base grew to an all-time high in total and in every geographic segment, and we reached a June quarter record for upgraders. According to a recent survey from Worldpanel, formerly of Kantar, iPhone was a top-selling model in the U.S., Urban China, the U.K., Australia, and Japan during the June quarter. And we continue to see very high levels of customer satisfaction in the U.S. at 98% as measured by 451 Research. Mac revenue was $8 billion, up 15% year-over-year, driven by continued strength across the portfolio, including MacBook Air, Mac mini, and MacBook Pro. We grew in every geographic segment and saw double-digit growth in Europe, Greater China, and the rest of Asia Pacific. The Mac installed base reached an all-time high, and we hit a June quarter record for upgraders. In the U.S., customer satisfaction was recently measured at 97%. iPad revenue was $6.6 billion, down 8% year-over-year, which was expected given the difficult compare against the launch of the iPad Air and iPad Pro in the year-ago quarter. At the same time, 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. And based on the latest reports from 451 Research, customer satisfaction was 98% in the U.S. Wearables, Home, and Accessories revenue was $7.4 billion, down 9% year-over-year. This was driven by a difficult compare on accessories due to the prior year's iPad launches that I just referred to. 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. We also set a quarterly record for upgraders on Apple Watch and the latest customer satisfaction for Watch in the U.S. was reported at 97%. Our Services revenue reached an all-time high of $27.4 billion, up 13% year-over-year. The performance in the June quarter was broad-based. We saw a sequential acceleration across the majority of the categories, including cloud services, where we reached an all-time revenue record, driven by the year-over-year growth of iCloud paying accounts. We saw strong momentum during the June quarter and the growth of our installed base of active devices gives us great opportunities for the future. Customer engagement across our Services offerings also continued to grow. 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 continue to improve the quality and breadth of our Service offerings from the new Apple Games app to a continued expansion of Tap to Pay and Wallet. Turning to enterprise. Organizations are continuing to invest in Apple products to drive employee innovation and productivity. With companies like PayPal and Roche deploying more Macs for their workforce, we had the best June quarter ever for Mac in enterprise. In Thailand, Siam Commercial Bank, one of the largest Thai banks, has deployed thousands of iPads across their branches to enhance the quality and efficiency of their banking operations from loan services to wealth management. CAE, a leader in pilot training and simulation technology, is using Apple Vision Pro to enable pilots to become more familiar with aircraft procedures, leading to more productive in-person flight simulator training outcomes. Let's turn to our cash position and capital return program. We ended the quarter with $133 billion in cash and marketable securities. We had $5.7 billion of debt maturities, issued $4.5 billion of new debt, and increased commercial paper by $4 billion, resulting in $102 billion in total debt. Therefore, at the end of the quarter, net cash was $31 billion. During the quarter, we returned over $27 billion to shareholders. This included $3.9 billion in dividends and equivalents and $21 billion through open market repurchases of 104 million Apple shares. As we move into the September quarter, I'd like to review our outlook, which includes the types of forward-looking information that Suhasini referred to. Importantly, the color we're providing assumes that the global tariff rates, policies, and application remain in effect as of this call, the global macroeconomic outlook does not worsen from today, and the current revenue share agreement with Google continues. We expect our September quarter total company revenue to grow mid- to high single digits year-over-year. We expect Services revenue to grow at a year-over-year rate similar to what we reported in the June quarter. We expect gross margin to be between 46% and 47%, which includes the estimated impact of the $1.1 billion tariff-related costs that Tim referred to earlier. We expect operating expenses to be between $15.6 billion and $15.8 billion. We expect OI&E to be around negative $25 million, excluding any potential impact from the mark-to-market of minority investments, and our tax rate to be around 17%. Finally, today, our Board of Directors has declared a cash dividend of $0.26 per share of common stock payable on August 14, 2025, to shareholders of record as of August 11, 2025. With that, let's open the call to questions.

Thank you, Kevan. Operator, may we have the first question, please?

Certainly, we'll go ahead and take our first question from Michael Ng with Goldman Sachs.

I just have one on upgrade rates and one on CapEx. First, on the upgrade rates, it's encouraging to see the records on iPhone, Mac, and Watch. I was wondering if you're seeing strength in the upgrade rates? Or are the records more a function of the growing installed base? What is your research showing that made upgrades particularly compelling this year? For example, is it product features, tariff pull forward, perhaps Apple Intelligence? And then I'll give my follow-up on CapEx.

You'll do CapEx first.

Yes, I'll do CapEx first.

Just on CapEx, it's up notably year-to-date. Could you just comment on your capital spending plan this year and next and provide some qualitative color in terms of what's driving that growth? Is it AI-related or supply chain diversification, for instance?

Yes, Mike, it's a combination of factors. I would say, a pretty significant driver as Tim talked about, is the fact we are increasing our investment significantly in AI. So that is certainly a component of it. As you know, we've been investing in private cloud compute, which is also in our first-party data centers. The other piece, as you know, is we do have a hybrid strategy where in cases we do use third parties to make capital investments, and we also invest in our own. So you are going to see an increase in CapEx. We also, from time to time, have other investments in facilities, in tooling, but I would say a significant portion of the driver of growth that you're seeing now is really driven by some of our AI-related investments.

On the upgrades, Michael, the iPhone 16 family grew double digits compared to the 15 family from the same quarter last year, setting a new upgrade record. This is largely due to the strength of the product. The Mac also set records for upgrades, and the continued shift to Apple silicon, along with its strong performance, played a crucial role. Overall, it was an incredible quarter. If you’re curious about the pull-forward effect, we estimate that about 1 point out of the 10 points in demand during April was influenced by discussions regarding tariffs.

Our next question is from Erik Woodring with Morgan Stanley.

I have two as well. Tim maybe starting with you, shortly after March quarter earnings, there were some reports about searches on Safari declining in April for the first time, I think, in over 2 decades. Judging by your 13% Services growth this quarter, it doesn't seem to indicate that April trends necessarily played out through the remainder of the June quarter. And so I'm really just looking for a little bit more color on really how the rest of the quarter played out. And if you believe Apple products as kind of search access points are losing their strategic value as AI platforms become more valuable, popular, or increasing in strategic value. And then I have a follow-up.

I think they continue to be very valuable. I think that consumers' behaviors are evolving, and we're monitoring it very closely.

Okay. I appreciate that color. And then maybe second to that, I'd love if you could maybe elaborate a bit on what you're seeing in China. I think in an interview earlier this afternoon, you alluded to some of the promotions being tailwinds. But just bigger picture, if we take a step back in China, how would you characterize demand interest in the iPhone 16 and some of your other products? Is that shifting or maybe were some of the trends in the June quarter maybe a bit more onetime and unique in nature?

We saw a 4% growth in Greater China during the quarter compared to the previous quarter, primarily driven by an increase in iPhone sales, along with significant year-over-year growth for the Mac. It's worth noting that the government has implemented certain subsidies that impact some of our products, which may have had an effect, especially since this was the first full quarter following the introduction of those subsidies. Additionally, the installed base reached a record high in Greater China, setting an all-time record for the iPhone installed base. The number of iPhone upgraders in Mainland China also reached a record for the June quarter. According to Worldpanel, iPhone models claimed the top three spots in Urban China, which is remarkable. Furthermore, for other products like Mac, iPad, and Watch, most customers purchasing in Mainland China were new to these products. Notably, the MacBook Air was the best-selling laptop model in China, while the Mac mini was the top-selling desktop model. Overall, it was a very positive quarter.

Our next question is from Ben Reitzes with Melius Research.

I really appreciate it. I wanted to ask about Siri, Tim, and just overall AI investment. There's a perception that Siri is going to help drive other new products potentially that maybe where voice is quite needed. And just wondering how's your confidence towards launching that next year? Is there anything that's been done internally to increase that confidence? Is it tied to the investment? I just think folks would love to know a little bit more about your confidence in how that's going? And then I have a follow-up.

Thanks for the question. We're making good progress on a more personalized Siri and we expect to release the features next year. Our focus on AI is to integrate deeply personal and private features across the platform. So far, we've implemented more than 20 Apple Intelligence features, including visual intelligence, cleanup, and writing tools. We're significantly increasing our investment, which we did during the June quarter and will continue in the September quarter. While I won't provide specific numbers now, the guidance indicates an upward trend. We're also reallocating many team members to concentrate on AI features. We have a strong team and are committed to this effort. Regarding other products, I prefer not to comment specifically, but we have an exciting roadmap ahead, and I'm very enthusiastic about it.

That's great, Tim. Regarding my second question about the overall revenue guidance, I appreciate your efforts in providing the best insight possible. However, I want to approach this from another angle. Why would the revenue decelerate if Services remains stable at 13%? Is there an element of conservatism in your estimate? I would think that currency effects are either favorable or even more favorable now. So, what accounts for the projected deceleration to the higher single digits compared to last quarter? Or is it solely a conservative estimate? If there are factors causing the deceleration or any comparisons to be aware of, could you please highlight those?

Yes, Ben, this is Kevan. Thanks for the question. I think when you look at the growth from Q3, we just reported to the mid- to high single-digit guide. I think you have to keep in mind two components. The first is the effect of the tariff-related pull-ahead in demand that Tim referenced earlier, which we estimated to be about 1 point of the 10 points that we ended up doing in Q3. And then the other factor that I think you have to take into consideration is the fact that in the September quarter a year ago, we had the full quarter impact of the iPad launches, which also leads to a difficult compare this year. So those two components are things you have to take into consideration as you think about the move from Q3 to Q4. I would say foreign exchange is a very minor tailwind going from Q3 to Q4, so not really a major factor.

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

Tim, you mentioned similar growth in Services, which depends on Google payments continuing. Can we discuss possible scenarios or options if that were to change and payments were restricted in some way? What actions could Apple take, considering this is a significant part of our profitability? I have a follow-up as well.

Yes, Wamsi, I don't really want to speculate on the court ruling and how they would rule and what we would do as a consequence of it.

Okay. Okay. I guess we'll wait for that ruling to come out. I guess, separately, Tim, at a high level, when you look at some of what is perceived fears of new form factors and ways to interact with devices. There was some worry that given some of the developments in AI that there could be a world where dependence on screen-based devices significantly diminishes. And I'm kind of curious to get your thoughts on if do you think that would happen and rate and pace in which? And how do you think Apple is preparing in that case?

When you think about all the things an iPhone can do from connecting people to bringing app and game experiences to life to taking photos and videos to helping users explore the world and conduct their financial lives and pay for things and so much more. It's difficult to see a world where the iPhone is not living in it. And that doesn't mean that we are not thinking about other things as well. But I think that, that the devices are likely to be complementary devices, not substitution.

Our next question is from Amit Daryanani with Evercore.

To start with Tim, regarding the tariff assumption of $1.1 billion in the September quarter, I understand the increase you're discussing. Could you talk about how you plan to address this challenge to your profit and loss if tariffs remain at these levels or change under Section 232? When do you determine the right time to implement strategies to mitigate this headwind instead of just letting it impact your bottom line?

Right now, we're estimating the cost, which has increased quarter-over-quarter due to a rise in volume. Additionally, some of this was accounted for in the previous quarter. This is the main reason for the increase. To address this, we are working to optimize our supply chain and will focus more on operations in the United States. We have committed to a $500 billion investment in the U.S. over the next four years and are currently constructing chips in Arizona. In fact, we are establishing semiconductor facilities across 12 states in 24 factories and have many other projects underway. Recently, you might have seen the investment in MP Materials. We are continually seeking such opportunities to further our goals.

Got it. Super helpful. And then your Services growth, I think, was extremely impressive at 13%, especially given all the fears folks had. Can you just touch on, did you see any impact that was notable from the Epic case and the steering dynamics that came after that? And maybe just touch on what does that appeal process look like for you as you go forward?

Yes, this is Kevan. I'll take that question. Overall, we had an exceptional quarter in Services, achieving a record of $27.4 billion, which is a 13% increase. I want to emphasize that our services performance was widespread, with strong growth in both developed and emerging markets, both experiencing double-digit increases. We also noticed a sequential acceleration in most of our categories, particularly in cloud services, where we reached an all-time revenue high. Regarding the EPIC decision, it's important to note that we only recently implemented the changes mandated by the court in the June quarter. We typically don’t disclose extensive details, but generally speaking, we experienced double-digit growth in the U.S. App Store, reaching a record high. We will keep monitoring the impact on our business while continuing to innovate and ensure that the App Store provides an excellent experience for users and remains a valuable opportunity for developers.

Our next question is from David Vogt with UBS.

I have two questions. First, Tim, about the supply chain strategy. Last quarter, you mentioned focusing production and assembly in India. I'd like an update on your overall strategy, especially considering the tariff rates in India might be higher than initially expected. You mentioned some investments in the U.S. Could you share your perspective on how you view China compared to the rest of Southeast Asia and India moving forward? For my second question, Kevan, I'm trying to gain a better understanding of the demand drivers for the iPhone during the quarter. The iPhone 16 has been available for a while, and while there was some promotional activity, we typically don’t see this level of strength in the June quarter. Can you explain what other factors contributed to this significant above-seasonal performance in the June quarter statistics?

Yes. Regarding the tariff situation and country of origin, I want to remind everyone that most of our products fall under the Section 232 investigation. In the last quarter, the majority of tariffs we paid were the IEEPA tariffs related to China that were implemented earlier this year. This context is important as we calculated the $1.1 billion projection mentioned in our outlook. As for the country of origin, there hasn't been any change from what I mentioned last quarter. The majority of iPhones sold in the U.S. originate from India, while most other products like the Mac, iPad, and Watch come from Vietnam. However, most products for other international markets still come from China. I'm emphasizing that we are doing a lot in the U.S. We’ve committed $500 billion and are always seeking to do more. Recent announcements, such as our collaboration with MP Materials and establishing a manufacturing academy in Detroit in a few weeks, reflect this commitment. We are increasing our presence in the U.S., which includes around 19 billion chips being produced here along with various components like glass for iPhones and the Face ID module. There are numerous activities taking place in the United States.

And then, David, as...

And then on the iPhone activity?

Yes. So I was going to mention the iPhone activity. You asked if there's any kind of unique characteristics this quarter? I would just say, as Tim outlined, we really believe that the strong upgrade performance, which was a June quarter record was really driven by the strength of the product lineup. The iPhone 16 family has done incredibly well compared to the iPhone 15 family. And we also, as you recall, recently introduced the 16e as well, which also continued to impact the success of the overall iPhone 16 lineup.

Our next question is from Krish Sankar with TD Cowen.

I have two of them. The first one is for Kevan, this was a previous question, do you think there was any pull-in of iPhones in the June quarter that led to some of the upside? And how to think about channel inventory in June quarter? And how it looks in September relative to seasonal trends? And then I had a longer-term follow-up for Tim.

Let me see if I can answer the channel inventory question or what I think is the channel inventory question. If you look at iPhone channel inventory from the beginning of the quarter to the end of the quarter, we reduced it, and it ended toward the low end of our targeted range. And so that's the answer on the inventory piece of it.

And then I think you also asked about the pull-ahead impact. I think we referenced that earlier. Just to be clear on what we believe we saw in the June quarter, we did see some obvious signs of pull-ahead really in the April timeframe around the tariff-related discussions that were out in the marketplace. And so we felt that, that was from what we saw about a 1 point impact of the 10 points at a total company level of growth. And so that was the limited impact that we believe we saw for the quarter.

Got it. Very helpful. I have a long-term follow-up for Tim. Tim, I'm curious about your thoughts on AI for edge devices. Some people believe that LLM could become a commodity in the future. Do you envision a scenario where LLMs could be a core part of your iOS, or do you think SLM is the better approach? How should we think about the evolution of edge devices in a future with AI, and will smartphones remain the preferred choice of device? Just curious about your broad thoughts on this.

The way that we look at AI is that it's one of the most profound technologies of our lifetime. And I think it will affect all devices in a significant way. What pieces of the chain are commoditized and not commoditized, I wouldn't want to really talk about today because that gives away some things on our strategy. But I think it's a good question.

Our next question is from Samik Chatterjee with JPMorgan.

Tim, could you elaborate on your comments regarding the pull-ahead being about a 1 percentage point benefit? Specifically, I'm interested in what factors contribute to that estimate— is it mostly related to iPhones, or does it extend to other products as well? Also, is this primarily observed in the U.S., or is it happening in multiple regions? Any insights you can provide to clarify your assumption would be appreciated. I have a follow-up question as well.

The unusual buying pattern we observed was primarily in iPhone and Mac, mostly occurring in April at the start of the quarter. We believe this was largely driven by the United States.

Our next question is from Aaron Rakers from Wells Fargo.

I have two questions that I'll ask together. First, regarding currency impact, how much of a benefit did we see this quarter, particularly in the Services segment, and what should we consider for year-on-year currency benefits in the guidance for the September quarter? My second question is about CapEx, which is clearly increasing. Although you don’t provide specific guidance on that, as you focus more on AI, should we expect CapEx, currently around $4 billion annualized, to rise significantly? Any insights on this would be appreciated.

Thanks for the questions, Aaron. To address the first one regarding foreign exchange, for the third quarter, we did not experience any significant impact from foreign exchange concerns on our year-over-year results. Therefore, when analyzing revenue growth and gross margin, foreign exchange had almost no effect. As we transition from the third quarter to the June and September quarters, we anticipate a very slight benefit from foreign exchange related to both revenue and gross margin. Regarding your second question about capital expenditures, we previously mentioned that we are significantly increasing our investments in AI, which will lead to growth in our CapEx. While it's not expected to grow exponentially, it will rise notably, primarily driven by our AI initiatives. Additionally, we have other expenses in that category, including facilities and retail store investments. It's important to note that we maintain a hybrid model, leveraging third-party infrastructure alongside our own investments in first-party infrastructure.

Our next question is from Atif Malik with Citi.

Tim, at the WWDC earlier in the quarter, you showed impressive updates on Vision Pro with the use of widgets, spatial scenes, persona, and new ways to create content. Appears like Meta and Xiaomi are seeing strong momentum on their AI glasses. So is the focus still around enterprises on Vision Pro? Or are you thinking of broadening the use cases and maybe tying it to more of your devices? Any thoughts on Vision Pro as they did not get enough airtime in the prepared remarks.

Yes. Thanks for bringing it up. I was thrilled with the release from the team on visionOS 26. It includes many things in it like spatial widgets to enable users to customize their digital space. The personas took a huge increase. They're much more lifelike. And of course, there's new enterprise APIs for companies as well. And we're seeing, as Kevan talked about in his opening remarks, we're seeing those things resonate out with CAE and other customers. And so we continue to be very focused on it. And I don't want to get into the roadmap on it, but this is an area that we really believe in.

Yes, this is Kevan. The historical pattern of M&A in the company has been relatively low. We are known to do a significant amount of internal development. We're always evaluating opportunities, and we look at acquisitions that can lead to a competitive edge in AI.

Let me take that one as well. We've acquired around seven companies this year. And that's companies from all walks of life, not all AI oriented. And so we're doing one, think of it as one every several weeks. We're very open to M&A that accelerates our roadmap. We are not stuck on a certain size company, although the ones that we have acquired thus far this year are small in nature. But we basically ask ourselves whether a company can help us accelerate a roadmap. If they do, then we're interested, but we don't have anything to share specifically today.

All right. Thank you, Atif. A replay of today's call will be available for 2 weeks on Apple Podcasts, as a webcast on apple.com/investor and via telephone. The number for the telephone replay is (866) 583-1035. Please enter confirmation code 6287473 followed by the pound sign. These replays will be available by approximately 5 p.m. Pacific Time today. Members of the press with additional questions can contact Josh Rosenstock at (408) 862-1142. And financial analysts can contact me, Suhasini Chandramouli with additional questions at (408) 974-3123. Thanks again for joining us today.

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