Good day, and welcome to the Apple Q1 FY 2022 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Tejas Gala, Director of Investor Relations and Corporate Finance. Please go ahead..

Thank you. Good afternoon, and thank you for joining us. Speaking today first 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 like to now turn the call over to Tim for introductory remarks..

Apple will continue to [innovate] every day and in every way to deliver on the promise of technology at its best. I will now turn it over to Luca to go over our quarterly results in more detail..

Thank you, Tim, and good afternoon, everyone. We are very pleased to report record financial results for the December quarter. We set an all-time revenue record of $123.9 billion, an 11% increase from a year ago. We reached new all-time records in the Americas, Europe, Greater China and the rest of Asia Pacific.

And it was also an all-time record quarter for both products and services. On the product side, revenue was $104.4 billion, up 9% over a year ago, despite significant supply constraints.

We grew in each of our product categories, except iPad, where supply constraints were particularly pronounced, and set all-time records for iPhone, Mac and Wearables, Home and Accessories.

The strong level of sales performance, the unmatched loyalty of our customers and the strength of our ecosystem have driven our current installed base of active devices to a new all-time record of 1.8 billion devices.

The growth in the installed base were broad-based as we set all-time records in each major product category and in each geographic segment. Our Services set an all-time revenue record of $19.5 billion, up 24% over a year ago, with December quarter records in every geographic segment.

Company gross margin was 43.8%, up 160 basis points from last quarter due to volume leverage and favorable mix, partially offset by higher cost structures. Products gross margin was 38.4%, up 410 basis points sequentially, driven by leverage and mix. Services gross margin was 72.4%, up 190 basis points sequentially, mainly due to a different mix.

Net income of $34.6 billion and diluted earnings per share of $2.10 both grew more than 20% year-over-year and were all-time records. Operating cash flow of $47 billion was also an all-time record. Let me get into more detail for each of our revenue categories.

iPhone revenue grew 9% year-over-year to an all-time record of $71.6 billion despite supply constraints, thanks to a remarkable customer response to our new iPhone 13 family. We set all-time records in both developed and emerging markets, reached all-time high in the iPhone active installed base and the latest survey of U.S.

consumers from 451 Research indicates iPhone customer satisfaction of 98%. For Mac, revenue of $10.9 billion was an all-time record with growth of 25% year-over-year driven by strong demand for our newly redesigned MacBook Pro powered by M1 despite supply constraints.

We are 1 year into our transition to Apple silicon and already, the vast majority of our Mac sales are from M1-powered devices, which helped drive a record number of upgraders during the December quarter. Our momentum in this category is very impressive as the last 6 quarters have been the best 6 quarters ever for Mac.

iPad generated $7.2 billion in revenue, down 14% year-over-year due to very significant supply constraints, but customer demand was very strong across all models. Despite the supply shortages, our installed base of iPads reached a new all-time high during the quarter, thanks to a high number of customers that are new to iPad.

In fact, around half of the customers purchasing an iPad during the quarter were new to the product. Wearables, Home and Accessories set a new all-time record of $14.7 billion, up 13% year-over-year. And we set all-time revenue records in each geographic segment.

We also continue to improve and expand our product offerings in this category to create unique experiences showcasing our deep integration of hardware, software and services.

In addition to an outstanding level of sales performance globally, Apple Watch continues to extend its reach, with over 2/3 of customers purchasing an Apple Watch during the quarter being new to the product. Turning to services.

As I mentioned, we reached an all-time revenue record of $19.5 billion, up 24%, with all-time records for cloud services, for music, video, advertising and payment services and a December quarter record for the App Store. These impressive results reflect the positive momentum we are seeing on many fronts.

First, as I mentioned before, our installed base has continued to grow and has reached an all-time high across each geographic segment and major product category. Next, we continue to see increased customer engagement with our services.

The number of paid accounts on our digital content stores grew double digits and reached a new all-time high during the December quarter in every geographic segment. Also, paid subscriptions continue to show very strong growth.

We now have more than 785 million paid subscriptions across the services on our platform, which is up 165 million during the last 12 months alone. And finally, we're adding new services that we think our customers will love, and we continue to improve the breadth and quality of our current service offerings.

Just in this last quarter, we have added incredible new content on Apple TV+, on Fitness+ and Apple Arcade and a brand-new way to listen to music with Apple Music Voice.

We also announced in November the beta program for Apple Business Essentials, a new service offering that brings together device management 24/7 support and iCloud storage to our small businesses, manage the end-to-end life cycle of their employees' Apple devices.

We are very excited that many thousands of small business customers are already actively participating in the beta program. This announcement is just one of many ways we are expanding our support for enterprise and business customers.

With the latest MacBook Pros that we've introduced last October, the new M1-powered Mac lineup has quickly become the preferred choice of Macs among enterprise customers. Shopify, for example, is upgrading its entire global workforce to M1-powered MacBook Pro and MacBook Air.

By standardizing on M1 Max, Shopify continues its commitment to providing the best tools to help its employees work productively and securely from anywhere.

And Deloitte Consulting is expanding the deployment of the Mac Employee Choice program, including offering the new M1 MacBook Pro to empower their professionals to choose devices that work best for them in delivering consulting services. Let me now turn to our cash position.

Due to our strong operating performance and holiday quarter seasonality, we ended the quarter with $203 billion in cash, plus marketable securities. We decreased commercial paper by $1 billion, leaving us with total debt of $123 billion. As a result, net cash was $80 billion at the end of the quarter.

Our business continues to generate very strong cash flow, and we were able to return nearly $27 billion to shareholders during the December quarter. This included $3.7 billion in dividends and equivalents and $14.4 billion through open market repurchases of 93 million Apple shares.

Our business continues to generate very strong cash flow, and we're also able to return nearly $27 billion to shareholders during the December quarter. This included $3.7 billion in dividends and equivalents and $14.4 billion through open market repurchases of 93 million Apple shares.

We also began $6 billion accelerated share repurchase program in November, resulting in the initial delivery and retirement of 30 million shares. As we move ahead into the March quarter, I'd like to review our outlook, 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 are not providing revenue guidance, but we are sharing some directional insights based on the assumption that the COVID-related impacts to our business do not worsen from what we are projecting today for the current quarter.

We expect to achieve solid year-over-year revenue growth and set a March quarter revenue record despite significant supply constraints, which we estimate to be less than what we experienced during the December quarter. We expect our revenue growth rate to decelerate from the December quarter, primarily due to 2 factors.

First, during the March quarter a year ago, we grew revenue by 54%. Remember that last year, we launched our new iPhones during the December quarter. While this year, we launched them during the September quarter. Due to the later launch a year ago, some of the associated channel inventory fill occurred during the March quarter last year.

As a result of the different launch timing, we will face a more challenging year-over-year compare. Second, we expect foreign exchange to be a 3-point headwind when compared to the December quarter growth rate.

We currently expect FX to have a negative impact on growth of 2 points in the March quarter, while it represented a 1 point benefit during the December quarter. Specifically related to Services, we expect to grow strong double digits but decelerate from the December quarter performance.

This is due to a more challenging compare because a higher level of lockdowns around the world last year led to increased usage of digital content and services. We expect gross margin to be between 42.5% and 43.5%. We expect OpEx to be between $12.5 billion and $12.7 billion.

We expect OI&E to be around negative $150 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 $0.22 per share of common stock payable on February 10, 2022, to shareholders of record as of February 7, 2022.

And with that, let's open the call to questions..

Thank you, Luca. We ask that you limit yourself to two questions.

Operator, may we have the first question, please?.

Absolutely. We'll take our first question from Katie Huberty with Morgan Stanley. Hearing no response, we'll take our next question from Wamsi Mohan with Bank of America..

Yes. Thank you. Your margins have clearly been very impressive. So I have one question each on product and one on services gross margins. On product gross margins, that's clearly benefiting from a very strong mix.

So Tim, I'm curious how sustainable do you think these mix trends are from the data that you see? And can you share any thoughts across how the Pro and Pro Max mix compared to prior cycles? And on the services side, if I could just ask that, too. When you look at the gross margins there, that's been really impressive.

Can you give us some sense of where within services, you're seeing particularly favorable mix trends? And how should investors think about the trajectory of these margins given some of the sizable investments you're making to drive very successful areas like content for TV+ as an example?.

Wamsi, it's Tim. In terms of the mix, we don't comment directly on mix. But what I would tell you is that we saw strong demand across the iPhone 13 family. And in fact, we had several of the top-selling models in various markets, including the top 5 in the U.S.

and Australia, the top 4 in Urban China, 2 of the top 3 in the UK, 3 of the top 4 in France and Germany and 4 of the top 6 in Japan. And certainly, based on some external data that I've seen, it does seem to say that we are gaining share as well. So we feel quite good about the momentum of iPhone.

And I should add that we were constrained during the quarter..

Wamsi, on the services side, you were asking about gross margin there. As you know, our services business in aggregate is accretive to overall company margin. And as you know, our services portfolio is very broad, and it contains businesses with very different margin profiles.

The difference in margin profile is due in part to the nature of those businesses and in part to the way that we account for them, in some cases, we account on a net basis as opposed to a gross basis.

And so as a result, the services gross margin percentage over time will be influenced by the relative growth of the different businesses within the portfolio.

We do not guide at the product and services level, but I think you've seen the guidance that we provided for the March quarter at the total company level, 42.5% to 43.5%, obviously very strong compared to our recent history. And so we're very pleased with that..

We'll take our next question from Kyle McNealy with Jefferies..

Congrats on the solid iPhone result. That's very good. I assume that you may have prioritized iPhone to the extent there may be similar components that are used for iPhone and iPad.

Can you just level set me on that if that's not the case? And if it is, should we see a recovery in iPad as you move past your prime iPhone selling season and you may have better access to components or better supply as we move through the next few months of the year?.

Yes. Kyle, it's Tim. From a supply constraint point of view, as you recall, we said that in Q1, the December quarter, that would have constraints more than 6, and we clearly did have constraints more than 6. On March, we're saying that where we will have -- we will do better or have less constraints than we had in the December quarter.

If you look at the commonality between different products, there is some. But generally, the challenge is on legacy nodes. And these legacy nodes are by supplier. And so it's much more focused on the supplier than anything else and versus us behind the curtain finding a place to take it. There's not -- none of that, but there is some of that.

But largely, we have to take it where the shortages are..

Okay. Great.

Can you give us any other color on kind of the trajectory of iPad and what's impacting this quarter and where it might go in the March and the June quarter?.

Yes. The issue with iPad, and it was a very significant constraint in the December quarter, was very much on these legacy nodes that I had talked about. Virtually all of the problem was in that area. And so overall, we're not guiding by product constraint -- by product level.

But at the -- but overall, we do see an improvement in the March quarter in terms of the constraints going down versus what they were in the December quarter..

We'll take our next question from Shannon Cross with Cross Research..

Tim, could you talk a bit about the Mac business? Looking back, it's up about 50% from the calendar 2019 revenue. You did almost $11 billion this quarter, and you're still working through the M1 transition.

So can you talk about where you see the opportunity to gain share? What are really sort of the target markets that you think you can go after in order to grow this beyond think it was about $37 billion in the last 12 months? And then I have a follow-up..

Yes. Shannon, thank you for the question. Mac set an all-time revenue record at $10.9 billion for the quarter. That was up 25%. And as you point out, the last 6 quarters for the Mac have been the top 6 revenue quarters of all time.

And what's further very good about this is we set all-time revenue records in Americas, in Europe and the rest of Asia Pacific. And we set a December quarter record in Greater China. And so it's not narrowed to a particular geographic area that we're doing well in. It's almost -- about almost across the board. The response is very much because of M1.

And we got even more response with the MacBook Pro that we launched in the -- during the Q1 time frame. The -- both the upgraders, which we had a record number of upgraders for the December quarter, but also in markets like China, 6 out of 10 sales are people new to the Mac. And so it's powered by both upgraders and switchers.

Customer satisfaction is off the charts. And so what I see this as is a -- that will -- a product that will be very successful in a number of different markets from education, to business, to the creative industry and in all geographic markets. We're not limiting ourselves..

Great. And then, Luca, can you talk a bit more on services? Just obviously outperformed your guidance or your expectations as well as certainly where we were at.

Where were the -- what were the things that really outperformed? And maybe what trends are you seeing that is driving the extra revenue?.

Yes, Shannon. It was -- I mean it was really great on all fronts. We said December quarter records in every geographic segment. And then as I mentioned earlier, an all-time record for cloud, for music, for video, for advertising, for payment services. December quarter record in the App Store.

So we've done, as you said, better than we were expecting at the beginning of the quarter. This overperformance has been spread around the world and spread around our services categories.

And the reality is this combination of factors, the fact that the installed base is growing, the fact that we continue to have more and more engagement of our customers on all the services -- paid subscriptions is a phenomenal story, right? We now have 785 million paid subs.

We just -- we've increased 165 million in the last 12 months alone, right? And so all these things combined are really powering the business. Very, very pleased with the performance..

We'll hear next from Katy Huberty with Morgan Stanley..

So first question just as it relates to some of the disruption you've seen on the component side, manufacturing and logistics over the past couple of years, are you starting to rethink your broader supply chain strategy or the manufacturing footprint on the back of the significant disruption? Are you happy with the overall geographic exposure that you see in the supply chain today?.

Katy, if you sort of step back and look at how we've done, our largest issue by far has been the chip shortage. That is industry-wide and on these legacy nodes, as I had mentioned earlier. And I think our supply chain actually does very good considering the shortages because it's a fast-moving supply chain. The cycle times are very short.

There's very little distance between a chip being fabricated and packaged and a product being -- going out of factory. And so, no, I don't see that it makes a fundamental change in the supply chain..

Okay.

And how are you thinking about the metaverse opportunity and Apple's role in that market?.

Well, that's a big question. But we're a company in the business of innovation. So we're always exploring new and emerging technologies. And I -- you've spoken at length about how this area is very interesting to us. Right now, we have over 14,000 AR kit apps in the App Store, which provide incredible AR experiences for millions of people today.

And so we see a lot of potential in this space and are investing accordingly..

We'll take our next question from Amit Daryani with Evercore..

I have 2 as well. I guess both up on the supply chain side, I think these continue to be fairly volatile.

I'd love to get your perspective, if you feel, if things or supply chain issues are starting to alleviate or they still remain challenging? And then maybe I missed this, but could you perhaps tell us how much revenue was left on the table in December because of the supply chain issues? And how does that number shake up in March?.

Yes. Amit, what we've said in terms of December and March was that it's very difficult to estimate with great precision the constraints. But we said that they would be more than the Q4 or more than the September quarter, and we're saying that March will be less than the December quarter. And so that's the kind of verbiage that we’ve placed around it.

In terms of is it still challenging? Yes, it is challenging. And for us, we pride ourselves on getting products to customers who really want them and try to do that in a fast basis. And so it's frustrating that we can't always do that at the speed that we would like. However, March is better than December. And so there's some encouraging sign there.

We're not predicting, [which we do not know] overall, obviously because of the number of variables that go into such a prediction..

Fair enough. Tim, I think one of the topics investors can struggle a fair a bit with Apple is really just sort of understand visibility around your product road map, and I think some of your tech peers tend to be more vocal about their initiative. Some of them go change their name when they find an initiative that’s attractive I feel.

You folks are spending, I think, $23 billion on R&D in '21. So you're really spending a fair amount.

And maybe without telling us the road map, could you just talk about how do you think about where to focus your R&D resources on? And to some extent, is the way to think about this R&D spend, how much of it is really done on things that are more evolutionary in products that are out in the marketplace versus things that we haven't seen yet are on potential new offerings?.

We have a little different model. We try to announce things when they're ready or close to ready and try to maintain an element of surprise in there. And so that explains hopefully what we do with our road map.

And I think that's proven successful for us, and other people can do it differently, of course, but it's pretty been good for us over time to do that. So we're going to continue to do that. In terms of deciding where we invest in, we look at areas that are sort of at the intersection of hardware, software and services.

And because we think that, that's where the magic really happens and it brings out the best in Apple. And so there are areas that have more than peaked our interest, and we are investing in those. And you can tell through time that we've ramped our R&D spend even more than we were before.

And so there's quite a bit of investment going into things that are not on the market at this point as there always are..

We'll hear next from David Vogt with UBS..

I just wanted to dive in perspective on China and sort of the macro climate there and how that sort of pertains to your business as we think about it going forward. And the reason why I'm asking is we've heard some concerns that current policies might have caused a pause in this market and smartphone inventory.

Maybe more specifically the local vendors could be a little bit elevated going into Chinese New Year. So we just want to get your thoughts on what you're seeing in this market around, the sort of potential development and then maybe touch on sell-in versus sell-through in that market. And then I have a follow-up..

Well, I can only comment on, for us. Our sales grew 21% there in the last quarter, and we're very proud of that. I'll stay away and let other people be the economist and make the macro determinations.

But what we're seeing there was super impressive with all-time revenue records and a record number of upgraders and strong double-digit growth in switchers on iPhone, which is very important to us. And as I've mentioned before, we had the top 4 selling phones in urban China. And so there's a lot of good there.

And I would remind you that iPhone was constrained in the quarter. And so I'm not sure where the statements are coming around about inventory, and I can't comment on whether other people have more or not, I don't know the answer to that. Thanks for the question..

That's helpful, Tim. And then maybe just on the supply chain. Obviously, you've been managing it incredibly well over the last 12 to 18 months. And gross margins have actually performed relatively well, mix driven both between products and services.

Can you help us think about sort of the quantifiable impact or maybe the costs that you're carrying due to the supply chain that may be sort of -- I don't want to use the word transitory, but we'd expect over the longer term, that might be sort of abate a little bit and you'll get a little bit of a benefit as we get past some of these supply chain issues over the next 12 months or so?.

We're seeing inflation, and it's factored into our gross margin and OpEx that Luca reviewed with you earlier. Logistics, as I've mentioned on a previous call, is very elevated in terms of the cost of moving things around. I would hope that at least a portion of that is transitory, but the world is -- the world has changed, and so we'll see..

We'll take the question from Samik Chatterjee with JPMorgan..

I had a couple. The first question that I had was really on Apple TV+, and I know some of the other players in this market have talked about slowing subscriber growth as we exit the pandemic.

So curious if you can share what trends you're seeing in Apple TV and Apple TV+ and how similar or dissimilar they are and how your content is maybe helping you on that aspect? And I have a follow-up..

We don't give out subscriber numbers for Apple TV+. What we do, do is give out a subscriber number for our subscription number for the total number of subscriptions that we had. And I think Luca mentioned earlier we ended the quarter at 785 million. And so we were incredibly pleased with that.

That's a huge growth on a year-over-year basis of 165 million. And it counts, as you recall, both Apple branded and third party. In terms of how we're doing with TV+, we've been honored with 200 wins and 890 nominations. We're doing exactly like we had wanted to.

We’re giving storytellers a place to tell original stories and feel really good about where we are competitively and strategic position of the product..

And if I can just follow up, and similarly on Apple Pay, can you just help us think about when you think about the next few years, where are the biggest opportunities, either be it in terms of like geographies or either segments -- customer segments that you may not be tapping into currently and have an opportunity in..

Well, putting aside any kind of thing that sits on our road map for a second in that area, which we obviously wouldn't talk about in the call, I would say that I think Apple Card has a great runway ahead of us. It was rated to the #1 midsized credit carding customer set by J.D.

Power and is getting -- has fast become people's main credit card for many, many people. And the growth of Apple Pay has just been stunning. It's been absolutely stunning. And there's still obviously a lot more there to go and because there's still a lot of cash in the environment.

And so I think that both of these and whatever else we might do have a great future ahead..

We'll take our next question from Chris Caso with Raymond James..

Yes. So the first question is just a little bit of help in interpreting the guidance. And if you could speak to the March quarter, perhaps in terms of seasonality and seasonal performance.

And Luca, as you mentioned last year, because of the later launch of the phone that some of that came into the March quarter, and that was better than seasonal performance in March.

Should we interpret because the supply constraints are easing somewhat as you go into the March quarter that we should see something similar that March quarter would get some better than seasonal performance? Is that the correct way to interpret your guidance?.

Well, and we talked about it on a year-over-year basis because that's probably how most people look at it. And so just to recap what we said. First of all, we expect a record for the March quarter. We expect solid growth on a year-over-year basis.

And -- but as Tim was saying, we still expect significant supply constraints but less than what we've seen in December. So I think on that basis, you can do the math around sequential.

But given where we are in the environment, given the difficult compare both on iPhone, and as I mentioned on -- during my prepared remarks, on services, we're very, very happy with the way we're guiding and the way the business is going right now..

Okay. As a follow-up, a follow-up question is on perhaps the sustainability and repeatability of the growth in iPhone after 2 very good years, well-received product and the 5G upgrade cycle. And I think there was a point in time when perhaps there's a view from some that iPhone was ex growth, and that's been proven wrong.

Off of these very strong results, maybe you can speak to your level of confidence that iPhone continues to grow in the future? And kind of what are the avenues for that growth?.

Yes. Chris, it's Tim. What I would say is that iPhone has become an integral part of so many people's lives now more than ever. And the active installed base of iPhone continues to grow and is now at an all-time high.

And during December, as we had mentioned, we had a record number of upgraders and grew switchers strong double-digit, which I think speaks to the strength of the product. And that's all baked into some -- an enormous customer satisfaction rating of 98% and doing well throughout the geographies.

And I've mentioned some of the geos that we track and how many units that we have on the top-selling model charts.

And so -- and even though this is the second product announcement that has 5G in it, we're still really in the early innings of 5G, meaning if you look at the installed base and look at how many people are on 5G versus not, and we don't release those exact numbers, but you can do some math and estimate those, we maintain a very optimistic view on iPhone long term..

We'll take our next question from Ben Bollin with Cleveland Research..

Tim, I'm interested in how you think about the relationship between the total iOS installed base and then the subsequent performance you see within the services or the paid subscriptions.

And a second part to that is, how do you look at the existing services business in terms of the growth you get from customers who are already subscribers versus completely net new or greenfield subscribers?.

I think I'll let Luca comment on the second part of that. But if you back up and sort of look at how we're doing, even though we have 785 million subs, relative to the total number of products offered and the customers that's offered in, there's still a lot of room to grow there.

And so I -- the way that I look at it is that we -- there's a lot more greenfield in front of us..

And Ben, on the services engagement and how we think about customers, right, obviously, it's important for us that customers are engaged on our services platforms. And the ones that we have, we know that the more engaged they are, they're more likely to stay with Apple for the long term.

So we just obviously track all those metrics, and they're very important for us. And that's why we continue to improve the quality of our offerings and the quantity over time. As you've seen, we launched a lot of new services.

We obviously care a lot about new customers as well, and that's why we keep track of the installed base and a lot of other metrics on that front. It's very similar to what we do with products. I mean, also for products, we care a lot about upgraders. We care a lot about switchers.

It's obviously the combination of the 2 that when you put it together provides the level of growth that you've actually seen in our Services business. I mean the last 12 months, we've done over $72 billion of revenue on Services. It's the size of a Fortune 50 company. It couldn't happen with our contribution from both existing and new customers..

We'll take our next question from Harsh Kumar with Piper Sandler..

First of all, congratulations on stellar quarter in December and all the records that the Apple community has set. Tim, I had a question on the content on Apple TV. When we look at the Apple content that you guys put all on TV original content, it's typically very socially responsible and healthy, for example, Ted Lasso.

Has this, in effect, created a constraint or a hesitancy of some sort for Apple to go and purchase studios when they come up? Or have those decisions be primarily financial or otherwise?.

We don't make purely financial decisions about the content. We try to find great content that has a reason for being. And we love shows like Ted Lasso and several of the other shows as well that have reason for existing and may have a good message and may make people feel better at the end of it.

But we're -- but I don't view that we've narrowed our universe, the things we're selecting from. There's plenty to pick from out there. And I think that we're doing a pretty good job of it as we speak..

Fair enough. And then my follow-up was the Apple vision of healthcare in the future. So you guys have sort of cautiously approached healthcare with iWatch and iPhone. It's mostly a preventative sort of approach. It provides you updates.

But do you see a situation down the line where Apple perhaps plays a more active role, either through the Watch or some of the device where perhaps a doctor or a hospital mandates that the watch we want for effectively for critical and vital monitoring? And I was curious if you could just give us some color on how you guys think about health care and iWatch and that confluence?.

Well, the -- with the Apple Watch, there's literally not days that go by without me getting notes about someone that's received a health alert. Maybe it's to do with their cardiovascular health.

Or more recently, a lot of people have told me that they fell and was knocked unconscious and couldn't respond and the watch responded for them to emergency contacts and emergency personnel. And so there's a lot that we're doing today. My sense has always been that there's more here. I don't want to get into a road map discussion in the call.

But we continue to kind of pull the string and see where it takes us. But we're really satisfied with how we're doing in this area because we are fundamentally changing people's lives and, in some cases, saving people's lives. So it's an area of great interest..

Thank you. A replay of today's call will be available for 2 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 3599903. 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. Financial analysts can contact me with additional questions at (669) 227-2402. Thank you again for joining us..

This concludes today's conference. We do appreciate your participation..