Earnings Call Transcript
Apple Inc. (AAPL)
Earnings Call Transcript - AAPL Q4 2024
Suhasini Chandramouli, Director of Investor Relations
Good afternoon, and welcome to the Apple Q4 Fiscal Year 2024 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 CFO, Luca Maestri, and they'll be joined by Kevan Parekh, Vice President of Financial Planning and Analysis. 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. Additionally, today's discussion will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures in our fourth quarter and full year 2024 earnings release, which is available on our Investor Relations website. I'd now like to turn the call over to Tim for introductory remarks.
Tim Cook, CEO
Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call. Today, Apple is reporting revenue of $94.9 billion, a September quarter record and up 6% from a year ago. iPhone grew in every geographic segment, marking a new September quarter revenue record for the category, and Services set an all-time revenue record, up 12% year-over-year. We also set September quarter segment revenue records in the Americas, Europe, and the Rest of Asia Pacific, as well as in a large number of countries, including the United States, Brazil, Mexico, France, the UK, Korea, Malaysia, Thailand, Saudi Arabia, and the UAE. And we continue to be excited by the enthusiasm we're seeing in India, where we set an all-time revenue record. This has been an extraordinary year of innovation at Apple. We brought the revolutionary Apple Vision Pro to customers in February, which brings users tomorrow's technology today. And in June, we announced Apple Intelligence, a remarkable personal intelligence system that combines the power of generative models with personal context to deliver intelligence that is incredibly useful and relevant. Apple Intelligence marks the beginning of a new chapter for Apple innovation and redefines privacy and AI by extending our groundbreaking approach to privacy into the cloud with Private Cloud Compute. Earlier this week, we made the first set of Apple Intelligence features available in US English for iPhone, iPad, and Mac users, with systemwide Writing Tools that help you refine your writing, a more natural and conversational Siri, a more intelligent Photos app, including the ability to create movies simply by typing a description, and new ways to prioritize and stay in the moment with notification summaries and priority messages. And we look forward to additional intelligence features in December, with even more powerful Writing Tools, a new visual intelligence experience that builds on Apple Intelligence, and ChatGPT integration, as well as localized English in several countries, including the UK, Australia, and Canada. These features have already been provided to developers and we're getting great feedback. More features will be rolling out in the coming months, as well as support for more languages, and this is just the beginning. Now, I'll turn to our results for the quarter, beginning with iPhone. iPhone revenues set a September quarter record of $46.2 billion, up 6% from a year ago, with growth in every geographic segment. With the introduction of Apple Intelligence, we're beginning a new era for iPhone. iPhone 16, powered by A18, is equipped with an incredible new 48-megapixel Fusion camera, fantastic photo experiences, and the addition of the action button and camera control. An iPhone 16 Pro is the most advanced iPhone we've ever made, powered by A18 Pro and featuring even larger displays, an industry-leading pro camera system with camera control, and studio quality mics, all with a huge leap in battery life. Turning to Mac, revenue was $7.7 billion, up 2% from a year ago. Just this week, we brought a new generation of Apple Silicon to Mac, M4, M4 Pro, and M4 Max. From blazing fast performance to Apple's most advanced neural engine yet, our latest chips can easily tackle incredibly complex workflows, and they ensure our newest Macs will be the best personal computers for AI the instant they hit stores. With the newest additions to our Mac lineup, customers can choose the Mac that's just right for them, whether that's iMac, the world's best and most beautiful all-in-one; MacBook Air, the world's most popular laptop now with double the starting memory; MacBook Pro, the best Pro notebook anywhere; or the incredible, mighty new Mac mini, our first-ever carbon-neutral Mac. iPad revenue was $7 billion, 8% higher year-over-year. iPad is unlike any other product on the market today, and it's become an essential device in homes, schools, and businesses of all sizes. Recently, we were thrilled to introduce the newest iPad mini, featuring an ultra-compact design built for Apple Intelligence with support for Apple Pencil Pro. It's been a big year for iPad. iPad Air was popular with students and teachers as they got back to school this year, while creators are pushing the boundaries of what's possible with the M4-powered iPad Pro. In Wearables, Home, and Accessories, revenue was $9 billion, down 3% from a year ago. During the quarter, we launched the all-new Apple Watch Series 10, bringing a beautiful new design and new capabilities to the world's most popular watch that make it even more powerful, intelligent, and sophisticated. It's the thinnest Apple Watch yet, making it more comfortable than ever, while offering the biggest, most advanced display. watchOS 11 brings some huge new health and fitness insights to users, including sleep apnea notifications, which help to alert people with a potentially serious but often undiagnosed condition. We're proud of the impact we make through our health innovations on watch, and I'm grateful for every note I receive about the importance of watch in people's lives. With AirPods 4, we broke new ground in comfort and design with our best-ever open-ear headphones available for the first time with active noise cancellation. And we were especially pleased to unveil revolutionary end-to-end hearing health capabilities for AirPods Pro 2 with hearing protection, hearing tests, and hearing aid features. These just became available in a software update this week, and we believe this will make a meaningful difference in our users' lives. I've already started getting notes from customers calling the experience life-changing. And Apple Vision Pro continues to deliver spatial experiences that weren't possible before, including immersive entertainment like the new short film, Submerged, which gives people a view into the unique storytelling power made possible by spatial computing. Vision Pro has more than 2,500 native spatial apps and 1.5 million compatible apps for visionOS 2, as well as applications companies are building to reimagine how they work. Vision Pro continues to inspire awe in its users, and we're just scratching the surface of what's possible. And just yesterday, we announced we're bringing Vision Pro to Korea and the UAE. As I mentioned earlier, Services achieved an all-time revenue record of $25 billion, up 12% from a year ago, and with all-time revenue records across most of our categories. With Apple TV+, we love celebrating the craft of great storytellers who know how to put on a show. Audiences love to discover new movies like Wolfs, explore acclaimed new series like Disclaimer, and dive back into returning favorites like Slow Horses and Shrinking. Apple TV+ productions have become fixtures at award shows, earning more than 2,300 nominations and more than 500 wins today. Apple also offers a live sports experience in a league of its own with MLS Season Pass, and subscribers have been cheering on their favorite teams in the MLS Cup playoffs. This month, we also marked 10 years of Apple Pay. There's always something magical about being able to buy groceries or pay for movie tickets seamlessly with your Apple device. Today, users choose Apple Pay for purchases across tens of millions of retailers worldwide. And we're excited to make the Apple Pay experience even better, with the option to redeem rewards and access loans from credit cards, debit cards, and other lenders right at checkout. Whenever we celebrate big moments, Apple Stores are the best places to share them with customers. I had an incredible time during launch day in September alongside our team at Apple Fifth Avenue, where energy and enthusiasm filled the air. And in stores all over the world, customers are eager to get a closer look at our latest innovations. We also opened two new stores during the quarter and we can't wait to bring four new stores to customers in India. We're passionate about education and believe technology has a vital role to play in both helping teachers to inspire their students and students to learn about the world around them. In honor of World Teachers' Day, Apple was proud to share new resources for teachers to engage their students in ways that aim to make learning easy and fun. Additionally, we've expanded our education grant program into 100 new schools and communities, helping with everything from access to technology, to educator resources, to scholarships and financial support. As we near the end of the year, we're proud of the progress we've made in our efforts to be carbon-neutral across our entire footprint by the end of the decade. As I mentioned earlier, we were thrilled to introduce our first-ever carbon-neutral Mac with the latest Mac mini. And in another milestone, customers can choose a carbon-neutral option of any Apple Watch. These achievements are amazing for all of us at Apple, and we are determined to reach our 2030 goal. At Apple, across everything we do, we manage for the long term, because we're always thinking about what comes next, the next great challenge, the next innovative idea, the next big breakthrough. As we close out the year, we have the best lineup we've ever had going into the holiday season, including Apple Intelligence, which marks the start of a new chapter for our products. This is just the beginning of what we believe generative AI can do, and I couldn't be more excited for what's to come. Before I hand it over to Luca, with Luca transitioning to a new role with Apple, this will be the final time he's joining our call. So, I just wanted to take a moment to recognize his extraordinary service as Apple's CFO and to thank him for his partnership. I am deeply grateful. In his 10 years in the role, Luca has done truly exceptional work in shaping Apple as we know it today. He has helped manage Apple for the long term, thoughtfully and deliberately. He has helped us enrich the lives of so many around the world, and he has been a leader that people look up to and have learned so much from. I have incredible confidence in our incoming CFO, Kevan Parekh, and we look forward to more of you meeting and working with him going forward. With that, I'll turn it over to Luca.
Luca Maestri, CFO
Good afternoon, everyone. And thank you, Tim, for the very kind words. Serving as Apple's CFO has been a real privilege and an amazing journey, and I've greatly appreciated the support from our investors and the analyst community over the years. Kevan is exceptional, and I know you will enjoy interacting with him going forward. Let me now turn to the results for the fourth quarter of our fiscal year. We're very pleased to report a new September quarter revenue record of $94.9 billion, up 6% year-over-year. We grew in the vast majority of the markets we track and achieved September quarter revenue records in the Americas, Europe, and Rest of Asia Pacific. Products revenue was $70 billion, up 4% year-over-year, driven by growth in iPhone, iPad, and Mac. Our installed base of active devices reached an all-time high across all products and geographic segments, thanks to very high levels of customer satisfaction and loyalty and a large number of customers who are new to our products. Services revenue reached an all-time record of $25 billion, up 12% year-over-year. We saw broad-based strength around the world, reaching all-time records in both developed and emerging markets with double-digit growth and record results across most services categories. Company gross margin was 46.2%, near the high end of our guidance range. Products gross margin was 36.3%, up 100 basis points sequentially, primarily driven by favorable mix. Services gross margin was 74%, unchanged from the prior quarter. Operating expenses of $14.3 billion were at the midpoint of the guidance range we provided at the beginning of the quarter and up 6% year-over-year. During the quarter, we recorded a one-time income tax charge of $10.2 billion, which relates to the impact of the reversal of the European General Court's State Aid decision. When we exclude this one-time charge, net income was $25 billion and diluted earnings per share were $1.64, up 12% year-over-year and a September quarter record. Operating cash flow was very strong at $26.8 billion, a new September quarter record. Let me now get into more detail for each of our revenue categories. iPhone revenue was $46.2 billion, up 6% year-over-year, and a September quarter record in total and across several markets, including the US, the Middle East, Korea, and South Asia. The iPhone active installed base grew to a new all-time high in total and in every geographic segment. During the September quarter, many iPhone models were among the top-selling smartphones around the world. In fact, according to a survey from Kantar, iPhone was the top-selling model in the US, Urban China, the UK, Australia, and Japan. We continue to see high levels of customer satisfaction for the iPhone 15 family, with 451 Research recently measuring it at 98% in the US. Mac revenue was $7.7 billion, up 2% year-over-year, driven by the strength in MacBook Air. Customers have been loving the performance of Apple Silicon on Mac, and we are very excited to bring the latest M4 family of chips to the lineup. The Mac installed base reached an all-time high, with about half of customers in the quarter being new to Mac. And in the latest reports from 451 Research, customer satisfaction was 95% in the US. iPad generated $7 billion in revenue, up 8% year-over-year. In addition to growth in developed markets, we also saw strong performance in many emerging markets, with double-digit growth in Mexico, Brazil, the Middle East, India, and South Asia. The iPad installed base reached another all-time high, and over half of the customers who purchased iPads during the quarter were new to the product. Also, customer satisfaction was recently measured at 97% in the US. Wearables, Home, and Accessories revenue was $9 billion, down 3% year-over-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. And the latest reports from 451 Research indicated customer satisfaction of 96% for watch in the US. Our Services revenue reached an all-time record of $25 billion, growing 12% year-over-year. Services continue to see strong momentum with the growth of our installed base of active devices setting a solid foundation for the future expansion of our ecosystem. And we see increased customer engagement with our services offerings. Both transacting accounts and paid accounts reached a new all-time high, 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, more than double the number we had only four years ago. And as always, we remain focused on improving the breadth and quality of our services from new games on Apple Arcade to new features like Tap to Cash and to pay with installments using Apple Pay to many successful new and returning shows on Apple TV+. This past quarter, we celebrated the five-year anniversary of Apple Card, which was ranked #1 in customer satisfaction among co-branded credit cards by J.D. Power for the fourth year in a row. Turning to enterprise, we continue to see strong demand across our products and services. NVIDIA launched its Mac as a choice program supported by AppleCare for Enterprise and Apple Professional Services with over 10,000 Macs deployed worldwide. And Novartis, a leading global pharmaceutical company, recently chose iPhone 16 as the standard mobile device for all employees. We also see continued momentum with Apple Vision Pro in the enterprise space. UC San Diego Health is the first hospital in the world to test spatial computing apps on Apple Vision Pro in clinical trials for patient surgery in the operating room. Let me now turn to our cash position and capital return program. We ended the quarter with $157 billion in cash and marketable securities. We repaid $2.6 billion in maturing debt and increased commercial paper by $7 billion, leaving us with total debt of $107 billion. As a result, net cash was $50 billion at the end of the quarter. During the quarter, we returned over $29 billion to shareholders, including $3.8 billion in dividends and equivalents and $25 billion through open market repurchases of 112 million Apple shares. As we move ahead into the December 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 are projecting today for the current quarter. We expect our December quarter total company revenue to grow low- to mid-single digits year-over-year. We expect Services revenue to grow double-digits at a rate similar to what we reported in the fiscal year 2024. We expect gross margin to be between 46% and 47%. We expect OpEx to be between $15.3 billion and $15.5 billion. We expect OI&E to be around negative $250 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 November 14, 2024, to shareholders of record as of November 11, 2024. With that, let us open the call to questions.
Suhasini Chandramouli, Director of Investor Relations
Thank you, Luca. We ask that you limit yourself to two questions. Operator, may we have the first question, please?
Operator, Operator
Certainly. We will go ahead and take our first question from Michael Ng with Goldman Sachs. Please go ahead.
Michael Ng, Analyst
Hey, good afternoon. I just have two. The first one is for Tim on Apple Intelligence. I was wondering if you could just expand a little bit on some of the early feedback to Apple Intelligence both for iOS 18.1, but also the developer beta so far, and whether you would attribute Apple Intelligence to any of the strong iPhone performance that we've seen to date. Thanks.
Tim Cook, CEO
Thanks, Michael. As I noted in my comments, just this week on Monday, we made the first set of Apple Intelligence features available in US English for iPhone, iPad, and Mac. This includes things like systemwide Writing Tools that help you refine your writing, a more natural conversational Siri, a more intelligent Photos app, including the ability to create movies simply by typing a description, which is really cool, and new ways to prioritize and stay in the moment with notification summaries and priority messages. There's also email summaries and email priority. We're getting a lot of positive feedback from developers and customers. And in fact, if you just look at the first three days, which is all we have obviously from Monday, the 18.1 adoption is twice as fast as the 17.1 adoption was in the year-ago quarter. And so, there's definitely interest out there for Apple Intelligence. Carrying on in the quarter, we are looking forward to bringing even more features in December, and this will include even more powerful Writing Tools and visual intelligence experiences that build on Apple Intelligence, and ChatGPT integration in addition to other features, as well as we'll bring localized English to several countries that include the UK, Australia, and Canada. So, it's going to be quite a software quarter between the release on Monday and the release in December. And then, as we turn the corner to '25, we'll have more languages rolling out, starting in April as well and more features as well. And so, it's a very strong drumbeat, and we couldn't be more excited about it.
Michael Ng, Analyst
Great. Thank you very much. And my second one just for Luca. First, congratulations again, Luca, on the new role and it's been a real privilege being able to spend some time with you. A question that I think will overlap with your new role as well. Could you just talk a little bit about the CapEx outlook and whether investments in things like Private Cloud Compute could change the historical CapEx range of roughly $10 billion a year? Thank you very much.
Luca Maestri, CFO
Thank you, Michael. Regarding CapEx, I've mentioned before that we have a hybrid model for our data centers. We use both our own data centers and third-party providers, which means our CapEx figures might not be directly comparable to others. However, we are currently rolling out the Apple Intelligence features and ensuring we have sufficient capacity for them. You can find the CapEx amounts we've incurred in fiscal '24 in our 10-K, and in fiscal '25, we will continue making all necessary investments, including those related to AI.
Suhasini Chandramouli, Director of Investor Relations
All right. Thanks, Mike. Can we have the next question, please?
Operator, Operator
Our next question is from Erik Woodring with Morgan Stanley. Please go ahead.
Erik Woodring, Analyst
Great. Thanks so much for taking my questions. I have two as well. Tim, maybe if we start with you, I think each of the last four years you've exited the December quarter with iPhone demand outpacing supply. As we look to this quarter in the iPhone 16 cycle, lead times are relatively short. There are no known supply shortages. And I'm just curious whether you've been able to maybe get a better read on early cycle iPhone demand this year relative to past years. And if so, what you've learned about upgrade rates, switching rates, trade-ups versus trading down and being more price sensitive? And overall, any impact that Apple Intelligence may have on iPhone 16 sales? And then, I have a follow-up. Thank you.
Tim Cook, CEO
There's a lot to cover. Regarding Apple Intelligence, we see it as a strong reason for upgrades. We just launched it three days ago, and the data shows that version 18.1 has double the adoption rate of 17.1, indicating strong interest. About exiting the December quarter with demand exceeding supply, I don't remember that happening in all four of the past years. We did experience disruptions during COVID that affected our supply, but in a normal environment without extreme circumstances, we aim to balance supply and demand as quickly as possible. We don't want customers to wait for products. This year, we quickly achieved balance with the iPhone 16 and the 16 Pro models. Although we had constraints in October, we believe those issues will be resolved soon, which is encouraging for us. It's important to note that this situation is influenced by both supply and demand, and we have been preparing for this quarter for quite some time.
Erik Woodring, Analyst
Okay. That's really helpful. Thank you, Tim. And then, Luca, if I just turn to you, obviously, it's been a pleasure working with you, and we wish you all the best in the next role. There's plenty of debate in the market right now about input costs and commodity prices, and the impact that will have on gross margins. Historically, you do guide gross margins up 50 basis points sequentially, which you just told us about for the December quarter. So, can you maybe just help us understand your view of component prices and broadly whether you still see those as tailwinds to gross margins and how sustainable that tailwind might be, or whether that should become a headwind as we look forward? Thanks so much.
Luca Maestri, CFO
Yes, Erik. As you know, our gross margins are a factor of many, many variables. Commodities, of course, are important. They're not the only factor. But specifically on commodities, I can tell you that both for the September quarter and what we expect for the December quarter, most commodities are going to move down in price, while NAND and DRAM increased during the course of the September quarter and we expect them to increase during the December quarter. We are very pleased with the level of gross margins that we've reported during the course of the year. The entire fiscal year of '24, they’re really, for our company, record levels of gross margin, and obviously guiding to 46% to 47% for the December quarter with all the new technologies that we've included in the products and with all the new features that Tim has talked about, a lot of new products across the board, I think it's a very good sign.
Suhasini Chandramouli, Director of Investor Relations
Thank you, Erik. Can we have the next question, please?
Operator, Operator
Our next question is from Ben Reitzes from Melius. Please go ahead.
Ben Reitzes, Analyst
Thank you very much. I want to reiterate what was said about Luca. I wish you well. My first question pertains to the iPhone, specifically regarding the fourth calendar quarter, which is your first quarter. When you anticipate mid- to low-single-digit revenue growth, do you foresee the iPhone experiencing faster growth? Additionally, what are your thoughts on this in relation to China, which continues to show improvement each quarter? Thank you again. I also have a follow-up.
Luca Maestri, CFO
Ben, we are not providing that level of color today. Yes, we've said that we expect total company revenue to grow low- to mid-single digits. Keep in mind, Apple Intelligence, as Tim said, is rolling out over time, both features and languages. And we just had a number of exciting launches just this week from the Apple Intelligence feature to the new Mac. So, we leave it at that. We've given you the total for the company and some pretty good direction on Services, which we expect to continue to grow at a similar rate than what we've seen in fiscal '24.
Ben Reitzes, Analyst
Thanks, Luca. Tim, I'd like to ask about the current concerns surrounding builds and lead times, especially since you are projecting mid- to low-single-digit growth. This doesn’t seem to indicate any major issues based on what you might be hearing. I recognize you are focused on running the business, but with your extensive experience, what do you think people are overlooking? It appears your outlook is quite measured, and the revenue guidance suggests stability. Additionally, you have a strong product cycle. What excites you, and what do you believe people are missing? Thank you, Tim.
Tim Cook, CEO
Ben, I couldn't be more excited about Apple Intelligence and the upcoming rollout. I'm actively working on future releases, and it's transforming my daily life. I'm really enthusiastic about the health features we're introducing. The number of emails I'm receiving from customers who have taken a hearing test and are using their AirPods Pro 2 as hearing aids is incredible and heartwarming. I'm also very pleased about the sleep apnea notifications that we'll offer through the watch. This week is particularly exciting for us as we've launched three different Macs, including desktops and laptops. We have a lot planned, and it's certainly the strongest lineup we've ever had heading into the holiday season. As for the noise, I just tune it out because otherwise, it would be overwhelming. That's what I do; I can't comment for others, but that's my approach.
Ben Reitzes, Analyst
Thanks a lot, Tim. Appreciate it.
Suhasini Chandramouli, Director of Investor Relations
Thank you, Ben. Can we have the next question, please?
Operator, Operator
Our next question is from Amit Daryanani with Evercore. Please go ahead.
Amit Daryanani, Analyst
Good afternoon. Thanks for taking my questions. I have two as well. And Luca, best of luck in the future. It's been a pleasure working with you. I guess the first one I have is, away from iPhones, on the Services side, you're adding $100 billion run rate with Services today, which is a phenomenal achievement by itself. As you look at the Services portfolio today, can you just talk about how much of this business do you think is recurring versus transactional? And are the growth rates different between the subscription portfolio over here versus transactional portfolio?
Luca Maestri, CFO
Yes, Amit, I'll take this one. We are very happy with this important milestone of reaching a $100 billion run rate. Looking back a few years, the growth has been phenomenal, and we are pleased with our diversified portfolio of services. The recurring revenue has grown and is increasing at a faster rate than the transactional revenue. Currently, we have over 1 billion paid subscriptions on our platform, including our own services and third-party services, and that number continues to grow in strong double digits. Overall, we feel very confident, and yes, the recurring portion is indeed growing faster than the transactional one.
Amit Daryanani, Analyst
Got it. If I can just follow-up, if I look at the growth rates across the different geographies, there's always concern around China when it comes to iPhone demand, I feel, but the performance in September looks fairly good. I wonder if you just touch on, what are you seeing from a demand perspective in China? If the recent stimulus plan in China could essentially be a catalyst for iPhone? And then, EMEA really stood out with double-digit growth. Maybe you can just flush that out as well for us. Thank you.
Tim Cook, CEO
Sure, I'll address the question about China. Looking at our performance for the quarter, we remained relatively stable compared to last year. A significant factor contributing to this improvement was a sequential rise in foreign exchange rates, which has been a challenge for us for some time. Additionally, our active device installed base reached a record high. We also had the top two selling smartphones in Urban China, according to Kantar. More than 50% of new customers are purchasing products like Mac and iPad, and over 75% of watch buyers are new to the product. These are some positive indicators. Regarding the stimulus, our team is focused on it, but I’m not an economist, so I prefer not to speculate on its impact.
Luca Maestri, CFO
On the Europe side, Amit, a number of things. As you see from our results during the quarter, Europe grew double-digits, 11%, and really, it was really good growth across the board, the different segments. They all did well. Keep in mind, our definition of Europe in our segment reporting includes a number of emerging markets, like Turkey, where we've grown very strongly, the Middle East. Tim mentioned a number of records in Saudi, in UAE, and we also include India where we set an all-time revenue record during the September quarter. But I have to say also Western Europe grew nicely. So, we've seen very good results for us in the entire segment.
Amit Daryanani, Analyst
Great. Thank you very much.
Suhasini Chandramouli, Director of Investor Relations
Thanks, Amit. Can we have the next question, please?
Operator, Operator
Our next question is from David Vogt with UBS. Please go ahead.
David Vogt, Analyst
Great. Thanks everyone for taking my question, and congratulations, Luca. I know Luca, and I know Tim, you don't want to give a lot of granularity, but if I just try to pull together your comments about what the demand environment looks like, are we to assume based on sort of the commentary that there is a risk that maybe the product revenue portfolio could be down in the December quarter if I take your numbers at face value? And if that's the risk, is that more iPhone-related, Mac-related, given the strength that you've seen in iPad related? Just trying to get a handle on kind of what potentially is giving you that degree of, I don't want to say caution, but maybe balanced for you going into the December quarter. And then, I have a follow-up.
Luca Maestri, CFO
As I said, David, we're not providing that level of color. We're giving you some data on services. I would repeat what I said earlier. We're very early in the cycle, very early in the cycle with a lot of new products and features that we are launching. And we're very excited about them, but it's early. And the Apple Intelligence rollout is going to happen over time, not across the world as normally we do with software releases.
David Vogt, Analyst
Right. Okay. So maybe a follow-up for, Tim. When you think about to Luca's point about the rollout being staged over the next several quarters across the world, do you think that has any impact on sort of the normal historical demand cadence across different regions? So, should we see something different, let's say, in the December quarter, the March quarter, the June quarter, etc., relative to history, given the timing of the rollout and where customers are probably waiting for the devices to be enabled to have the operating system? Would just love to kind of get your perspective on how we think about the demand cadence, how it might be different than maybe historically? Thank you.
Tim Cook, CEO
Yes, David. It's obviously a different pace than what we typically do. As we mentioned at WWDC, our goal was to provide a comprehensive vision of Apple Intelligence, and we indicated that it would be rolled out gradually. We are on track with what we stated at WWDC, and our execution is going well. Regarding the demand curve, we believe there is a strong motivation for upgrading. This is reflected in my personal experience and the feedback I'm receiving. We'll see how it unfolds. However, we are not providing projections beyond the current quarter. That's not something we do.
David Vogt, Analyst
Great. Thanks, Tim, and best of luck, Luca.
Luca Maestri, CFO
Thank you very much.
Suhasini Chandramouli, Director of Investor Relations
Thank you, David. We'll take the next question, please.
Operator, Operator
Our next question is from Wamsi Mohan with Bank of America. Please go ahead.
Wamsi Mohan, Analyst
Yes, thank you so much. Luca, we will miss you on these calls. Tim, maybe for you, as you think about this staggered rollout of Apple Intelligence, can you help us think through potentially how much of the global installed base of phones will have access to Apple Intelligence in their native language, in their region within the next year or maybe in the next two years? And what are some of the gating factors in the rollout? And I have a follow-up.
Tim Cook, CEO
If you look at our schedule, we began with US English on Monday. There's another release coming that will introduce additional features I mentioned in December, which will be available not only in US English but also localized for the UK, Australia, Canada, Ireland, and New Zealand. We plan to add more languages in April, although we haven't finalized the specifics yet. We'll continue to expand language options throughout the year. We're progressing as quickly as we can while ensuring quality. That's our approach.
Wamsi Mohan, Analyst
Okay. Thanks, Tim. And then, as a follow-up, maybe this is a little premature, but how is Apple at a high level prepared to potentially deal with any tariffs that might come post the selection cycle? And if not exactly how, perhaps you can just help investors think about some of the things Apple has done already to try to insulate from some of these impacts, potential impacts?
Tim Cook, CEO
I wouldn't want to speculate about those sorts of things. And so, I'm going to punt on that one.
Wamsi Mohan, Analyst
Okay. Thank you, Tim.
Tim Cook, CEO
Yeah. Thank you.
Suhasini Chandramouli, Director of Investor Relations
Thank you, Wamsi. May we have the next question, please?
Operator, Operator
Our next question comes from Krish Sankar from TD Cowen. Please go ahead.
Krish Sankar, Analyst
Yeah. Hi, thanks for taking my question. And again, thanks Luca for all your help with analysts and investors. My first question is on R&D. Given how much your tech peers are spending on AI, does this new era of Apple Intelligence actually require Apple to invest more in R&D beyond your current 7% to 8% of sales to capture this opportunity? And then, I had a follow-up.
Luca Maestri, CFO
Krish, as you know, we've been investing heavily in R&D over the last several years. Our R&D growth has been significant during the last several years. And obviously, as we move through the course of fiscal '24, we've also reallocated some of the existing resources to this new technology to AI. And so, the level of intensity that we're putting into AI has increased a lot, and you maybe don't see the full extent of it because we've also had some internal reallocation of the base of engineering resources that we have within the company.
Krish Sankar, Analyst
Got it. Thanks for that, Luca. I have a quick follow-up. I know Apple Intelligence is currently a feature on the phone, but do you think it could potentially contribute to the growth of the services business in the future, or are those areas too different to assess? Thank you.
Tim Cook, CEO
I think it's important to note that Apple Intelligence is available on the Mac for the M-series products and on certain models of iPad, in addition to the iPhone. So, it's present on all three devices. What was your follow-up question? Keep in mind that we were have released a lot of APIs and developers will be taking advantage of those APIs. That release has occurred as well and of course more are coming. And so I, definitely believe that a lot of developers will be taking advantage of Apple Intelligence in a big way. And what that does to Services, I'll not forecast, but I would say that from an ecosystem point of view, I think it will be great for the user and the user experience.
Krish Sankar, Analyst
Got it. Thanks, Tim.
Suhasini Chandramouli, Director of Investor Relations
All right. Thank you, Krish. Can we have the next question, please?
Operator, Operator
Our next question comes from Samik Chatterjee with JPMorgan. Please go ahead.
Samik Chatterjee, Analyst
Great. Thank you. Thanks for taking my questions. And Luca, congrats on the new role and pleasure working with you these years. I guess, if I could, for my first one, start with mix on the iPhone side? And what I'm really curious about if you have any thoughts given that Apple Intelligence is now going to be a consistent feature set across all the four sort of iPhones on the iPhone 16 series that you launched and going back to iPhone 15 Pro and Pro Max. Are you seeing any change in behavior from a consumer perspective in terms of which sort of on the mix front within the iPhone series where consumer adoption is given that there's more consistency of the features when it comes to Apple Intelligence across the board? And I have a follow-up. Thank you.
Tim Cook, CEO
It's tough to answer your question, because we've been constrained in October on the Pro and the Pro Max. And so, it's really too early in the curve to call the precise mix on the consumer versus the Pro. So, we'll see.
Samik Chatterjee, Analyst
Okay. And for my follow-up, Tim, during the quarter, I think over the last 90 days, we had the quotes come out in relation to the DOJ relative to the Google sort of revenue-sharing agreement that you have with them. How do you sort of look at it going forward in terms of emphasizing the role that Apple has in that ecosystem with Safari and sort of the potential outcomes that you're looking at? Thank you.
Tim Cook, CEO
I don't want to speculate on that from a legal point of view. It's an ongoing case, and I will save that for another day.
Samik Chatterjee, Analyst
Okay. Thank you. I'll leave it there. Thank you.
Suhasini Chandramouli, Director of Investor Relations
All right. Thank you, Samik. Operator, may we have the next question, please?
Operator, Operator
Our last question comes from Richard Kramer with Arete Research. Please go ahead.
Richard Kramer, Analyst
Thank you very much. My first question is for Tim. I would like to ask about some components in Services. Despite your installed base, certain parts of the Apple One bundle, such as Music, News, Arcade, and Fitness, do not seem to be leading the market. What changes might occur to improve that, and which other services are experiencing faster growth or have expanding addressable markets, similar to what we've observed in pay or advertising?
Tim Cook, CEO
I see a lot of opportunities in this area. There are many customers we can engage to capitalize on these offerings, and we will keep investing in Services while adding new features. Whether it's News+, Music, or Arcade, that's our plan. It's important to note that our focus is on being the best rather than the biggest. In some instances, many of the services you've mentioned are not cross-platform. We develop them specifically for our customers, which may affect who ends up selling the most, but our goal remains to deliver the best quality.
Luca Maestri, CFO
Our operating expenses have increased over the years, and at the same time, we've experienced a significant improvement in gross margin, which I might not have anticipated a few years ago. We've managed to excel in several areas. Each time we plan for the upcoming year, we consider various ways to allocate our resources to support business growth. Looking at our long-term performance, we've done quite well. Our core philosophy is to prioritize the business, and if we have surplus cash, we will keep returning it to our shareholders, a strategy that has been quite effective so far.
Suhasini Chandramouli, Director of Investor Relations
Thank you, Richard. We'll take our last question, please, operator?
Operator, Operator
Our last question comes from Atif Malik with Citi. Please go ahead.
Atif Malik, Analyst
Thank you for squeezing me in. It seems to us that the spec differentiation between iPhone 16 Pro and base model isn't as big as prior years. All iPhones have new A18, A18 Pro chips and there wasn't an increase in ASPs versus last year. Can you share with us if there is a shift in your strategy in terms of...
Suhasini Chandramouli, Director of Investor Relations
All right. Sorry, Atif. We'll connect offline. Thank you, everybody. 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 number for the telephone replay is 866-583-1035. Please enter confirmation code 0331536 followed by the pound sign. These replays will be available by approximately 5 pm Pacific 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 Thank you again for joining us.
Operator, Operator
Once again, this does conclude today's conference. We do appreciate your participation.