Earnings Call Transcript
Apple Inc. (AAPL)
Earnings Call Transcript - AAPL Q1 2021
Tejas Gala, Director of Investor Relations and Corporate Finance
Thank you. Good afternoon and thank you for joining us. Speaking first today is Apple's CEO, Tim Cook, and he'll be followed by CFO, Luca Maestri. After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation and future business outlook, including the potential impact of COVID-19 on the Company's business and results of operations. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. 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 or information, which speak as of their respective dates. I'd now like to turn the call over to Tim for introductory remarks.
Tim Cook, CEO
Thank you, Tejas. Good afternoon, everyone. Thanks for joining the call today. It's with great gratitude for the tireless and innovative work of every Apple team member worldwide that I share the results of a very strong quarter for Apple. We achieved an all-time revenue record of $111.4 billion. We saw strong double-digit growth across every product category, and we achieved all-time revenue records in each of our geographic segments. It is not far from many of our minds that this result caps off the most challenging year any of us can remember. And it is an understatement to say that the challenges it posed to Apple as a business paled in comparison to the challenge it posed to Apple as a community of individuals, to employees, to their families and to the communities we live in and love to call home. While these results show the central role that our products played in helping our users respond to these challenges, we are doubly aware that the work ahead of all of us to navigate the end of this pandemic, to restore normal life and prosperity in our neighborhoods and local economies, and to build back with a sense of justice is profound and urgent. We will speak to these needs and Apple's efforts throughout today's call, but I want to first offer the context of a detailed look at our results this quarter, including why we outperformed our expectations. Let's get started with hardware. We hit a new high watermark for our installed base of active devices, with growth accelerating as we passed 1.65 billion devices worldwide during the December quarter. iPhone grew by 17% year-over-year, driven by strong demand for the iPhone 12 family, and our active installed base of iPhones is now over 1 billion. The customer response to the new iPhone 12 models' unprecedented innovation from world-class cameras to the great and growing potential of 5G has been enthusiastic, even in light of the ongoing COVID-19 impact at retail locations. iPad and Mac grew by 41% and 21%, respectively, reflecting the continuing role these devices have played in our users' lives during the COVID-19 pandemic. During this quarter, availability began for both our new iPad Air as well as the first generation of Macs to feature our groundbreaking M1 chip. The demand for all of these products has been very strong. We have also continued our efforts to bring the latest iPads, enriching content and professional support to educators, students and parents. Educational districts and governments worldwide are continuing major deployments, including the largest iPad deployments ever to schools in Germany and Japan. Wearables, Home and Accessories grew by 30% year-over-year, driven by significant holiday demand for the latest Apple Watch, our entire AirPods lineup, including the new AirPods Max as well as the new HomePod mini. This broad strength across the category led to new revenue records for each of its three subgroups, and we're very excited about the road ahead for these products. Look no further than the great potential of Fitness+, which pairs with Apple Watch to deliver real-time on-screen fitness data alongside world-class workouts by the world's best trainers. There are new sessions added each week, and customers are loving the flexibility, challenge and fun of these classes as well as how the pairing with Apple Watch pushes you to achieve your fitness goals. This deep integration of hardware, software and services has always defined our approach here and it has delivered an all-time quarterly Services record of $15.8 billion. This was the first quarter of the Apple One bundle, which brings together many of our great services into an easy subscription and with new content being added to these services every day, we feel very optimistic about where we are headed. The App Store ecosystem has been so important as individuals, families and businesses worldwide evolve and adapt to the COVID-19 pandemic, and we want to make sure that this unrivaled engine of innovation and opportunity continues. This quarter, we also took a significant new step to help smaller developers continue to experiment, innovate and scale the latest great app ideas. The App Store Small Business Program reduces the commission on the sale of digital goods and services to 15% for small businesses earning less than $1 million a year. The program launched on January 1st and we are already hearing from developers about how this change represents a transformation in their potential to create and grow on the App Store. Tomorrow is International Privacy Day, and we continue to set new standards to protect users' right to privacy, not just for our own products but to be the ripple in the pond that moves the whole industry forward. Most recently, we're in the process of deploying new requirements across the App Store ecosystem that give users more knowledge about and new tools to control the ways that apps gather and share their personal data. The winter holiday season is always a busy time for us and our products, but this year was unique. We had a record number of device activations during the last week of the quarter. And as COVID-19 kept us apart, we saw the highest volume of FaceTime calls ever this Christmas. As always, we could not have made so many holidays special without our talented and dedicated retail teams who helped us achieve a new all-time revenue record for retail, driven by very strong performance in our online store. Particularly, after the events of the last few weeks, we are focused on how we can help a moment of great national need. Because none of us should have any illusions about the challenges we face as we began a new chapter in the American story. Hope for healing, for unity and for progress begins with and depends on addressing the things that continue to wound us. In our communities, we see how every burden from COVID-19, to the resulting economic challenges, to the closure of in-person learning for students, falls heaviest on those who have always faced structural barriers to opportunity and equality. This month, Apple announced major new commitments through a $100 million Racial Equity & Justice Initiative. The Propel Center, launched with a $25 million commitment and with the support of historically black colleges and universities across the country, will help support the next generation of leaders in fields ranging from machine learning to app development to entrepreneurship and design. And our new Apple Developer Academy in Downtown Detroit will be the first of its kind in the United States. Detroit has a vibrant culture of black entrepreneurship, including over 50,000 black-owned businesses. We want to accelerate the potential of the app economy here, knowing there is no shortage of good ideas in such a creative, resilient, and dedicated community. Finally, we're committing $35 million across two investments in Harlem Capital and the Clear Vision Impact Fund that support, accelerate and grow minority-owned businesses in areas of great potential and need. In December, we concluded an unmatched year of giving. Since the inception of the Apple Giving Program in 2011, Apple employees have donated nearly $600 million and volunteered more than 1.6 million hours to over 34,000 organizations of every stripe. Through our partnership with Product Red, we've adapted our 14-year, $250 million effort to support HIV and AIDS work globally to ensure that we can care for COVID. That includes delivering millions of units of personal protective equipment to healthcare providers in Zambia. And here in the United States, even with COVID's effects, we are ahead of schedule on our multiyear commitment to invest $350 billion throughout the American economy. As proud as this makes us, we know there is much more to be done. Looking forward, we continue to contend with the COVID-19 pandemic but we must also now work to imagine what we will inherit on the other side. When a disease recedes, we cannot simply assume that healing follows. Even now, we see the deep scars that this period has left in our communities. Trust has been compromised, opportunities have been lost, entire portions of our lives that we took for granted, schools for children, meetings with our colleagues, small businesses that have endured for generations have simply disappeared. It will take a society-wide effort across the public and private sectors as individuals and communities, every one of us, to ensure that what's ahead of us is not simply the end of a disease, but the beginning of something durable and hopeful for those who gave, suffered, and endured during this time. At Apple, we have every intention to be partners in this effort, and we look forward to working in communities around the world to make it possible. And as this chapter of uncertainty continues, so will our tireless work to help our customers stay safe, connected, and well. With that, I'll hand things over to Luca.
Luca Maestri, CFO
Thank you, Tim. Good afternoon, everyone. We started our fiscal 2021 with exceptional business and financial performance during the December quarter, as we set all-time records for revenue, operating income, net income, earnings per share, and operating cash flow. We are thrilled with the way our teams continued to innovate and execute throughout this period of elevated uncertainty. Our revenue reached an all-time record of $111.4 billion, an increase of nearly $20 billion or 21% from a year ago. We grew strong double digits in each of our product categories, with all-time records for iPhone, Wearables, Home and Accessories, and services as well as a December quarter record for Mac. We also achieved double-digit growth and new all-time records in each of our five geographic segments and in the vast majority of countries that we track. Products revenue was an all-time record of $95.7 billion, up 21% over a year ago. As a consequence of this level of sales performance and the unmatched loyalty of our customers, our installed base of active devices passed 1.65 billion during the December quarter and reached an all-time record in each of our major product categories. Our Services set an all-time record of $15.8 billion, growing 24% year-over-year. We established new all-time records in most service categories and December quarter records in each geographic segment. I'll cover our Services business in more detail later. Company gross margin was 39.8%, up 160 basis points sequentially, thanks to leverage from higher sales and a strong mix. Products gross margin was 35.1%, growing 530 basis points sequentially, driven by leverage and mix. Services gross margin was 68.4%, up 150 basis points sequentially, mainly due to a different mix. Net income, diluted earnings per share, and operating cash flow were all-time records. Net income was $28.8 billion, up $6.5 billion or 29% over last year. Diluted earnings per share were $1.68, up 35% over last year and operating cash flow was $38.8 billion, an improvement of $8.2 billion. Let me get into more detail for each of our revenue categories. iPhone revenue was a record $65.6 billion, growing 17% year-over-year as demand for the iPhone 12 family was very strong despite COVID-19 and social distancing measures, which have impacted store operations in a significant manner. Our active installed base of iPhones reached a new all-time high and has now surpassed 1 billion devices, thanks to the exceptional loyalty of our customer base and the strength of our ecosystem. In fact, in the U.S., the latest survey of consumers from 451 Research indicates iPhone customer satisfaction of 98% for the iPhone 12 family. Turning to Services. As I said, we reached an all-time revenue record of $15.8 billion and set all-time records in App Store, cloud services, Music, advertising, AppleCare, and payment services. Our new service offerings, Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+, as well as the Apple One bundle are also contributing to overall Services growth and continue to add users, content, and features. The key drivers for our Services growth all continue to move in the right direction: first, our installed base growth has accelerated in each major product category; second, the number of both transacting and paid accounts on our digital content stores reached a new all-time high during the December quarter, with paid accounts increasing double digits in each of our geographic segments; third, paid subscriptions continue to grow nicely, and we exceeded our target of 600 million paid subscriptions before the end of calendar 2020. During the December quarter, we added more than 35 million sequentially, and we now have more than 620 million paid subscriptions across the services on our platform, up 140 million from just a year ago. Finally, we continue to improve the breadth and quality of our current Services offerings and are adding new services that we think our customers will love. For example, Apple Music recently released its biggest product update ever with features like Listen Now, all-new Search, personal radio stations, and auto play. 90% of Apple Music users on iOS 14 have already used these new features. In payment services, we continue to expand our coverage, with nearly 90% of stores in the United States now accepting Apple Pay so that customers can easily have a touchless payments experience. Wearables, Home, and Accessories grew 30% year-over-year to $13 billion, setting new all-time revenue records in every geographic segment. As a result of this strong performance, our Wearables business is now the size of a Fortune 120 company. Importantly, Apple Watch continues to extend its reach, with nearly 75% of the customers purchasing Apple Watch during the quarter being new to the product. We're very excited about the future of this category and believe that our integration of hardware, software, and services uniquely positions us to provide a great customer experience in this category. Next, I'd like to talk about Mac. We set a December quarter record for revenue at $8.7 billion, up 21% over last year. We grew strong double digits in each geographic segment and set all-time revenue records in Europe and the rest of Asia-Pacific as well as December quarter records in the Americas, Greater China, and in Japan. This performance was driven by strong demand for the new MacBook Air, MacBook Pro, and Mac mini, all powered by our brand-new M1 chip. iPad performance was also very impressive with revenue of $8.4 billion, up 41%. We grew very strong double digits in every geographic segment, including an all-time record in Japan. During the quarter, the all-new iPad Air became available and customer response has been terrific. Both Mac and iPad are incredibly relevant products for our customers in the current working and learning environments. And we are delighted that the most recent surveys of consumers from 451 Research measured customer satisfaction at 93% for Mac and 94% for iPad. With this level of customer satisfaction and with around half of the customers purchasing Mac and iPad during the quarter being new to that product, the active installed base for both products continues to grow nicely and reached new all-time highs. In the enterprise market, we are seeing many businesses shifting their technology investment in response to COVID. One example is our businesses are handling their hundreds of millions of office desk phones while more employees are working remotely. Last quarter, Mitsubishi UFJ Bank, one of the largest banks in the world, announced that it will be replacing 75% of its fixed phones with iPhones. By doing so, it expects to realize significant cost savings while providing a secure mobile platform to employees. We're also pleased with the rapid adoption of the Mac Employee Choice Program among the world's leading businesses, who are seeing improved productivity, increased employee satisfaction, and talent retention. With the introduction of M1-powered Macs, we're excited to extend these experiences to an even broader range of customers and employees, especially in times of increased remote working. Let me now turn to our cash position. We ended the quarter with almost $196 billion in cash plus marketable securities and retired $1 billion of maturing debt, leaving us with total debt of $112 billion. As a result, net cash was $84 billion at the end of the quarter. We returned over $30 billion to shareholders during the December quarter, including $3.6 billion in dividends and equivalents and $24 billion through open market repurchases of 200 million Apple shares as we continue on our path to reaching a net cash neutral position over time. As we move ahead into the March quarter, I'd like to provide some color on what we are seeing, which includes the types of forward-looking information that Tejas referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we will not be guiding to a specific revenue range. However, we are providing some directional insights, assuming that COVID-related impacts of our business do not worsen from our current assumptions for the quarter. For total company revenue, we believe growth will accelerate on a year-over-year basis and in aggregate follow typical seasonality on a sequential basis. At the product category level, keep in mind two items: first, during the March quarter last year, we saw elevated activity in our digital services as lockdowns occurred around the world, so our Services business faces a tougher year-over-year comparison; second, we believe the year-over-year growth in the Wearables, Home, and Accessories category will decelerate compared to Q1. As you know, we were chasing demand on AirPods last year as we expanded channel inventory from Q1 to Q2. This year, we plan to decrease AirPods channel inventory as is typical after the holiday quarter. We expect gross margin to be similar to the December quarter. We expect OpEx to be between $10.7 billion and $10.9 billion. We expect OI&E to be up around $50 million and our tax rate to be around 17%. Finally, today, our Board of Directors has declared a cash dividend of $0.205 per share of common stock payable on February 11, 2021, to shareholders of record as of February 8, 2021. With that, let's open the call to questions.
Tejas Gala, Director of Investor Relations and Corporate Finance
Thank you, Luca. We ask that you limit yourself to two questions. Operator, may we have the first question, please?
Operator, Operator
We'll go question from Katy Huberty with Morgan Stanley. Please go ahead.
Katy Huberty, Analyst
Congratulations on a really strong quarter. First question for Luca. The gross margin was particularly strong versus your outlook. Can you talk about whether you recognize the full impact of the weaker dollar in the December quarter, given your typical currency hedges? And then how are you thinking about the headwinds and tailwinds on gross margins as you go into the March quarter? And then I have a follow-up for Tim.
Luca Maestri, CFO
Yes, Katy. So yes, the gross margin was strong, was better than we had anticipated at the beginning of the quarter. The reason for that was obviously, we had very strong leverage from higher sales. And the mix was strong, both the mix within products and the mix of services, and that was only partially offset by cost. As you know, we've launched many new products during the fall, and that always comes with new cost structures. So in total, it was very good. And from the FX standpoint, really, at the gross margin level, FX didn't play a role neither sequentially nor on a year-over-year basis for the December quarter, partially because of the hedges that you talked about but also because some currencies are still weaker against the dollar, they're still weaker than a year ago. Look specifically to emerging markets in Latin America, in Russia, in Turkey and so on. Clearly, if the dollar remains weak or continues to weaken, that can become a tailwind for us as we get into the March quarter. At current rates, we expect some level of benefit around 60 to 70 basis points for the March quarter.
Katy Huberty, Analyst
That's great. And Tim, one of the challenges with valuing Apple is just a limited visibility that investors have into the road map and any new categories that you might enter over time. Without, of course, commenting on any given opportunity, can you talk about the framework that you use internally to evaluate new markets that might be attractive and what you believe will determine your success as you look to enter new markets?
Tim Cook, CEO
Thank you, Katy, for your question, and for not asking me for any specifics. The framework we use involves asking ourselves if this is a product or service we would want to use personally. That's a high standard for us. We also consider if the market is substantial enough to enter, unless it's an adjacent product, in which case we focus on the customer experience. There's no fixed method we're following; we're considering all these factors. We particularly enjoy working on projects that require the integration of hardware, software, and services because we believe the true potential lies at that intersection. I hope this offers some insight into our evaluation process. We see promising opportunities ahead, and if you review our current product portfolio, you'll notice we still hold a relatively small share in several large markets. Therefore, we believe there's significant growth potential, and we also see great opportunities in the Services sector, which we have been developing for over a year with several new services launched recently. Thank you.
Operator, Operator
We'll hear next from Wamsi Mohan with Bank of America. Please go ahead.
Wamsi Mohan, Analyst
Luca, the iPhone growth exceeded your expectations despite a late launch. Can you maybe share on the unit side or the ASP side? You referred to very strong mix a couple of times on the call. And how does this change your view on the March quarter? And if you could share any color on if you're still supply constrained, and I have a follow-up for Tim.
Luca Maestri, CFO
Yes. Yes, certainly, iPhone was one of the major factors why we exceeded our own internal expectations at the beginning of the quarter. We have a fantastic product lineup and we know that, and it's been fantastic to see the customer response for new models, particularly the Pro models, the Pro and the Pro Max. So, we've done very, very well both on units and on pricing because of the strong mix. And we've had some level of supply constraints as we went through the quarter, particularly on the Pro and the Pro Max. As you said correctly, we launched these products in the middle of the quarter, two models after four weeks, the other two models after seven weeks. And so obviously, we had a very steep ramp, which fortunately went very, very well. The products are doing very well all around the world. I think you've seen that our performance has been particularly strong in China, where we've seen phenomenal customer response that probably. There was also some level of pent-up demand for 5G iPhones, given that the market is moving very quickly to 5G. And so as we look ahead into the March quarter, we're very optimistic. We believe we're going to be able to be in supply-demand balance for all the models at some point during the quarter. And the product is doing very well all around the world.
Wamsi Mohan, Analyst
Great. And Tim, you mentioned about the strength of the installed base performance, which continues to grow very impressively at this scale. Can you maybe help us think through how the switcher versus upgrade activity has been tracking in recent quarters? I would love to get your thoughts on that.
Tim Cook, CEO
Thank you for the question. In the last quarter, we began selling two of the iPhones four weeks into the quarter and the other two seven weeks in. Therefore, I want to emphasize that we are still in the early stages. However, when examining the iPhone 12 lineup, we observed an increase in both switchers and upgraders compared to the previous year. In fact, we recorded the highest number of upgraders in a single quarter that we have ever seen, and we are very excited about that.
Operator, Operator
We'll go ahead and take our next question from Shannon Cross with Cross Research.
Shannon Cross, Analyst
Tim, can you talk a bit about what you're seeing in China? Clearly, significant sequential growth, which I think has a lot to do with iPhone. But I'm curious, both from an iPhone as well as your other product categories, what you're seeing and how much back to normal you think the Chinese market is? And then I have a follow-up.
Tim Cook, CEO
Yes. China was more than just an iPhone story. The iPhone performed very well there, and similar to the global trend, both switchers and upgraders increased year-over-year. China also reached a record number of upgraders during the quarter, the highest we've seen. Some of this may be due to consumers delaying purchases in the previous quarter in light of iPhone rumors. It's important to note that 5G networks in China are well established, with the majority of phones sold being 5G devices, which likely created anticipation for our 5G iPhone. The iPhone did exceptionally well, but other products also contributed significantly. We couldn't have achieved our performance solely on iPhone sales. The iPad performed extremely well, exceeding the company average, while Mac sales were in line with it. Wearables, Home and Accessories also surpassed the company average, so overall, we had a strong performance across all categories. Regarding COVID, last quarter saw us primarily in the recovery phase, and while there are reports of cases and lockdowns this quarter, we haven't experienced this in our business yet, and those cases are significantly smaller than those in other countries.
Shannon Cross, Analyst
Right. I guess the other thing I was curious about, with regard to the Services business, if we could dig a little bit more, I think this is one of the first times when Luca, you talked about Apple TV+, Arcade, Apple Pay, some of the smaller services actually kind of moving the needle. And then I was also curious, you had a number of stores closed at least later in the quarter, and that typically has impacted some of your AppleCare revenue and yet you outperformed. So, maybe if you could talk about a bit more about the drivers of the Services revenue?
Luca Maestri, CFO
Yes, it's been strong overall. There were two areas during COVID that faced challenges, which we've mentioned before. One is AppleCare, where store closures made it difficult for customers to engage with us. The other is advertising, which is linked to the general economic climate. During the December quarter, in-store traffic improved, and while AppleCare didn't grow as much as the company average, we still reached an all-time record there despite some store closures, especially in the U.S. and Western Europe. Overall, we supported more customers than in previous quarters, and we also experienced growth in advertising, contributing to the overall growth rate. The significant strength came from digital services like the App Store, cloud services, and Music, which performed exceptionally well during the COVID period.
Operator, Operator
We'll hear from Toni Sacconaghi with Bernstein.
Toni Sacconaghi, Analyst
I have a question for Luca and another for Tim. Luca, could we explore the iPhone situation a bit more? You mentioned a decrease in channel inventory last quarter. Our iPhone channel inventory has returned to normal levels as we exit Q1. Should we anticipate growth in iPhone sales above seasonal trends, considering that supply and demand are still not in balance and there were fewer selling days in fiscal Q1? Should we expect above-seasonal growth in iPhone sales as we look towards Q2?
Luca Maestri, CFO
Regarding December's performance, this cycle was quite different as we launched at an unusual time. Initially, we didn't have the new phones available for part of the quarter, and upon launching them, we undertook a channel fill that typically occurs to some degree in September. By the quarter's end, demand was very strong, but we faced constraints, particularly with the Pro models. By the end of December, our iPhone channel inventory was slightly lower than the previous year, and we were still experiencing some supply constraints that we anticipate resolving in the March quarter. Concerning the sequential change, we mentioned during the prepared remarks that we expect the progression to follow a seasonal pattern similar to previous years, noting that last year was atypical due to COVID. Looking back to fiscal years '17, '18, and '19 provides our usual seasonal progression. We also highlighted a few product categories, such as Services and Wearables, where we expect a tougher comparison, which may inform your conclusions regarding the iPhone.
Toni Sacconaghi, Analyst
Okay. And then, Tim, I was wondering if you could just comment more broadly around growth for Apple and sources of growth. The Company this year is going to be well over $300 billion in revenue. Historically, you've issued acquisitions. And I'm wondering if you could comment whether you still feel confident that Apple has organic growth opportunities and that you don't believe acquisitions are an important source of growth? And then I think perhaps most importantly, as you look out, let's say, over the next five years, what do you think is a realistic revenue growth rate for Apple going forward?
Tim Cook, CEO
Yes, Toni. While I can only provide insights on the current quarter and not specific growth rates beyond that, we have a very strong hardware portfolio and a promising product pipeline for both products and services. Our installed base has reached new highs, and we're attracting many switchers and upgraders. We've also set an all-time record in services, which will continue to grow as we enhance our offerings. On the wearables front, we've achieved significant growth, yet we believe we are still in the early phases for those products. If you consider our market share in products like the iPhone, Mac, and iPad, there's substantial room for expansion, especially in emerging markets. For instance, in India, we doubled our business last quarter compared to the previous year, but our current revenue is still relatively low compared to the opportunity available. We see similar potential in other markets as well. Additionally, we've made significant progress in the enterprise sector and are optimistic about our future there. We also have new initiatives in the pipeline that we expect will positively impact the company, similar to past contributions. Overall, we see numerous opportunities ahead. Thank you for your question.
Operator, Operator
We'll hear from Amit Daryanani with Evercore ISI. Please go ahead.
Amit Daryanani, Analyst
I have two questions as well. I guess, starting with you, Luca, I just wanted to go back to the gross margin discussion, and we really haven't seen gross margins at this level, high 39%, I think, since 2016. Could you maybe step back and talk, what has enabled the shift higher? What are the key drivers to get you there? And is commodity tailwind or in-sourcing of some components really a big part of this? So just love to understand the durability of the gross margin at these levels. And what are the big drivers that got us here?
Luca Maestri, CFO
When we experience growth like we did this quarter, at 21%, there are fixed costs associated with our product structures. A high sales level certainly aids in margin expansion, which has likely been the most significant factor. Additionally, we've seen strong performance across all product categories, particularly with the iPhone models like the Pro and Pro Max. The mix of products has contributed positively as well. The commodity environment is quite stable, and while foreign exchange has not provided a boost this time, it also hasn't been a drawback. Historically, foreign exchange has negatively impacted us nearly every quarter for the past five or six years, so this shift is noteworthy and makes a difference.
Amit Daryanani, Analyst
And then Tim, and when I look at the growth rates on Mac and iPads, they've been in the 20% to 40% range for the last three quarters, and I suspect some of this is just folks contending with the pandemic. But love to understand, when you look at these growth rates, how much of this do you think is replacement cycle-driven folks upgrading with at home versus new customers and new folks that are coming into the Apple ecosystem? And do you see, I guess, what sort of growth rates do you think is more durable or predictable as we go forward over here?
Tim Cook, CEO
If you examine the switchers, particularly those new to Mac and iPad, these figures indicate that approximately half of the purchases worldwide are from new customers. This means the installed base is growing with new users for both iPad and Mac. Regarding Mac, the M1 chip is providing us with a new growth path that we haven't experienced before. The excitement surrounding M1-based Macs, especially as Q1 serves as a good indicator, is palpable. We are partly through the transition and have more to accomplish, but we are optimistic about what we've seen thus far. With the launch of the iPad Air, we now have the strongest iPad lineup ever, and it's clear that some users are adopting these devices as laptop replacements while others are using them alongside their desktops. The growth has been remarkable, reflected in a 41% increase. While elements like remote work and learning have contributed to this growth, it's important not to underestimate how much of it can be attributed to the products themselves for both iPad and Mac. Additionally, our market share in the overall personal computer sector is quite small, indicating there is significant potential for further growth.
Operator, Operator
We'll go ahead and take our next question from Samik Chatterjee with JP Morgan.
Samik Chatterjee, Analyst
Congrats on the record quarter from my side as well. I wanted to start off by discussing iPhone sales. It seems that China and North America have a more developed 5G infrastructure. I'm curious about what you're observing regarding customer engagement or sales velocity for the iPhone in Europe, where it appears that service providers have not yet launched strong 5G services. Is this affecting customer interest in the latest lineup in that region? I have a follow-up question as well.
Tim Cook, CEO
If you examine the 5G rollout in Europe, it's clear that the region is far behind both China and the U.S. However, there are other areas with strong 5G coverage, such as Korea. Currently, the global 5G landscape resembles a patchwork, with varying levels of coverage. Some regions offer excellent service, while others may have good coverage within specific areas but not nationwide. There are also places where 5G deployment is just beginning, like Latin America, which presents significant opportunities. In Europe, while 5G implementations exist, I believe most of the growth is still to come.
Samik Chatterjee, Analyst
Got it. As a follow-up, if I can just ask you, I think you mentioned the momentum you're seeing for the Apple One bundle, which I think has been a couple of months now since you launched it. Any metrics to share in terms of what you're seeing for conversion rate of customers or even insights into which services are turning in that bundle, are turning out to be the anchor Services that's driving adoption of that bundle?
Tim Cook, CEO
It's really too early to answer some of those questions. As you know, we just got started into the quarter in Q1 so we have less than a quarter on this right now. What we wanted to accomplish with it, we're clearly accomplishing, which is making our Services very easy to subscribe to. Our customers clearly told us that they wanted to subscribe to several services or, in some cases, all of our services. And so, we've made that very simple, and it's clear from the early going that it's working but we've just gotten started on it.
Operator, Operator
We'll hear from Krish Sankar with Cowen.
Krish Sankar, Analyst
Congrats on the strong results. My first question is for Tim regarding your search and advertising business. How do you view the long-term growth opportunities in advertising? Specifically, how long do you think it can expand at two to three times the App Store growth rate? Additionally, are there applications where your core search technology and AI could be utilized in other areas of the Services business? I have a quick follow-up for Luca after that.
Tim Cook, CEO
The search advertising business is performing well. There is a lot of intent from users, and we approach it in a very private manner, adhering to strong privacy policies. I believe that people notice this and are open to trying it out. We have been experiencing solid growth in this sector, which is part of the advertising area that Luca referenced earlier.
Krish Sankar, Analyst
Got it, got it. And then a follow-up for Luca. When you look at your Services segment in the March quarter, in China, you typically see a bump due to gaming downloads during Chinese New Year. So should see a similar trend this time around? But do you think with a pandemic, and people think for me at home, that kind of seasonal bump might not happen in China for gaming downloads?
Luca Maestri, CFO
Yes, I mentioned this during the prepared remarks. In China, the March quarter is usually our strongest quarter for the Services business and the App Store due to Chinese New Year. Last year, we experienced heightened activity because after Chinese New Year, the entire country went into lockdown for several weeks, resulting in an extended period of increased gaming. Therefore, we anticipate a strong quarter in China, but it's important to remember that we will be comparing it to last year's performance.
Operator, Operator
We'll go ahead and take our next question from Chris Caso with Raymond James. Please go ahead.
Chris Caso, Analyst
The first question is on iPhone ASPs and I know you don't disclose the numbers there, but I wonder if you could speak about it qualitatively. You spoke about the richer mix, but there were also some price differences as compared to a year ago. iPhone 12 came higher price point. The Pro established a new price point. Can you speak to how that the level of benefit that you saw there? And going forward, are you confident that you can continue to improve the next in iPhone going forward?
Luca Maestri, CFO
So, as I said earlier, we grew iPhone revenue 17%. That growth came from both unit sales and ASPs because of the strong mix that I mentioned before. So I think that answers your question for the December quarter. What we've seen so far, it's very early because we launched the new products only a few weeks ago. What we've seen so far is a very high level of interest for the Pro models, the Pro and the Pro Max. We worked very hard to ramp up our supply. We've had some supply constraints during the December quarter. We think we're going to be able to solve them during the March quarter. But so far, the mix has been very strong on iPhone.
Chris Caso, Analyst
Okay. As a follow-up question, if you could talk a bit to the benefit that you may have seen from some of the carrier actions? We've seen very aggressive trade-ins during the quarter. Did that provide a benefit, in your view, on units or mix or perhaps both? And what would be the level of permanence that you would see in some of those actions such that if those subsidies were removed, could that potentially be a headwind going forward?
Tim Cook, CEO
I think, Chris, it's Tim. I think subsidies always help, that anything that reduces the price to the customer is good for the customer and obviously good for the carrier that's doing it and good for us as well. And so, it's a win across the board. I believe that, at least based on what I see right now is that there would be probably continuing to have quite a bit of competition in the market, if you're talking about the U.S. market for customers as the carriers work to get more customers to move to 5G. Outside of the U.S., the subsidies are not used in all geographies, and so it really varies greatly by country. Some of them are separate completely, the handset and the service. And in those areas, we don't have subsidies.
Operator, Operator
We'll go ahead and hear from Jim Suva with Citigroup.
James Suva, Analyst
It's amazing how your company has pivoted and progressed through this uncertain time in society. A lot of the pushback we get on our view on Apple is that everyone around them or that they know developed countries has an iPhone or Apple product and the market is kind of being saturated some. But when I look at other countries like India, I believe statistically, you are materially below that in market share. So are you doing active efforts there? It seems like there's been some news reports of moving supply chain there. Or you recently opened up an Apple Store. How should we think about that? Because it just seems like you're really not full market share equally around the world.
Tim Cook, CEO
Yes. There are several markets where our share is still quite low, and India is one of them. However, we have seen improvement since last year, with our business roughly doubling during that time. We feel very positive about this growth trend. We have implemented various strategies in the region, including launching an online store, which received a great response and contributed to last quarter's results. Additionally, we plan to open retail stores in the future, which we believe will be another successful initiative. We are committed to developing this channel further. There are many opportunities not just in India, but in several other markets where our share is lower than we desire. Furthermore, even in developed markets, many consumers still do not own an iPhone, indicating that we have room for growth in those areas as well. Thank you, Jim. Appreciate that.
Tejas Gala, Director of Investor Relations and Corporate Finance
Thank you. A replay of today's call will be available for two weeks on Apple Podcast, as a webcast on apple.com/investor and via telephone. The numbers for the telephone replay are (888) 203-1112 or (719) 457-0820. Please enter confirmation code 1828830. These replays will be available by approximately 5:00 PM Pacific Time today. Members of the press with additional questions can contact Kristin Huguet at (408) 974-2414. Financial analysts can contact me with additional questions at (669) 227-2402. Thank you again for joining us.
Operator, Operator
Once again, that does conclude today's conference. We do appreciate your participation.