Apple (AAPL) Q3 2025 Earnings Call Transcript

Image source: The Motley Fool. DATEThursday, July 31, 2025 at 5 p.m. ETCALL PARTICIPANTSChief Executive Officer — Timothy D. CookChief Financial Officer — Kevan ParekhHead of Investor Relations — Suhasini ChandramouliNeed a quote from one of our analysts? Email [email protected]RISKSApple(AAPL 0.60%) incurred approximately $800 million in tariff-related costs and estimates $1.1 billion in additional tariffs for the next quarter, with management stating, "This estimate should not be used to make projections for future quarters as there are many factors that could change, including tariff rates."iPad and Wearables Revenue Decline— iPad revenue was $6.6 billion, down 8% year-over-year, and Wearables, Home and Accessories revenue decreased 9% year-over-year, with management citing "difficult compare" against the prior-year launches as a contributing factor.TAKEAWAYSTotal Revenue— $94 billion, up 10%, marking a June quarter record.Earnings per Share (EPS)— $1.57, up 12%, achieving a June quarter record.iPhone Revenue— $44.6 billion, up 13%, with growth in every geographic segment and a record number of upgraders.Mac Revenue— Mac revenue was $8 billion, up 15% year-over-year, driven by the M4 MacBook Air and growth across all regions.iPad Revenue— iPad revenue was $6.6 billion, down 8% year-over-year, reflecting a challenging compare to prior product launches.Wearables, Home and Accessories Revenue— Wearables, Home and Accessories revenue was $7.4 billion, down 9% year-over-year, attributed to a difficult compare related to previous iPad launches.Services Revenue— $27.4 billion, up 13%, setting an all-time record.Gross Margin— Company gross margin was 46.5%, down 60 basis points sequentially, primarily due to tariff costs.Product and Services Gross Margin— Products gross margin was 34.5% (down 140 basis points sequentially). Services gross margin was 75.6% (down 10 basis points sequentially).Operating Expenses— Operating expenses were $15.5 billion, up 8% year-over-year.Net Income— $23.4 billion, a June quarter record.Operating Cash Flow— Operating cash flow was $27.9 billion.Shareholder Returns— $27 billion returned via $3.9 billion in dividends and $21 billion in share repurchases.Active Installed Base— All-time high across all products and regions.Paid Subscriptions— Over 1 billion paid subscriptions across services, reflecting double-digit year-over-year growth.Geographic Performance— Revenue records were set in the U.S., Canada, Latin America, Western Europe, the Middle East, India, and South Asia.Guidance for Next Quarter— Revenue growth expected at mid- to high single-digit percent for the next quarter; Services growth rate to match the June quarter; Gross margin is expected to be between 46%-47% for the next quarter, including $1.1 billion in tariff costs; operating expenses between $15.6 billion and $15.8 billion.AI and Capital Expenditure— Significant increase in AI-related investment is driving higher capital expenditures, with ongoing expansion in private cloud compute and first-party data centers, as discussed for the current year and next.Dividend— Cash dividend of $0.26 per share declared, payable August 14, 2025.Tariff Pull-Ahead Effect— Management estimated "pull forward of demand into April, specifically to be about 1 point of the 10 points" growth due to tariff discussions.Customer Satisfaction— Recent U.S. surveys show customer satisfaction at 97% for Mac, 98% for iPad, and 97% for Apple Watch.SUMMARYManagement reported 10% revenue growth and 12% EPS growth, crediting record performance across iPhone, Mac, and Services, despite declines in iPad and Wearables. The iPhone 16 family outperformed earlier models, contributing to a record number of upgraders and an all-time high installed base. AI investment is accelerating, with expanded capital spending on both in-house data centers and a hybrid cloud strategy, as well as a planned $500 billion investment in the U.S. over the next four years. Gross margin and product margins (GAAP) saw sequential declines due to increased tariff-related costs. Guidance anticipates continued strong Services growth and mid- to high single-digit overall revenue growth next quarter, with exposure to tariff cost volatility and ongoing macroeconomic, legal, and regulatory uncertainties explicitly acknowledged in the outlook.CEO Cook stated, "We incurred approximately $800 million of tariff-related costs." and projected next quarter's costs at $1.1 billion if tariff policies remain unchanged.Management attributed above-seasonal strength, in part, to "pull forward of demand into April," quantified as roughly 1 percentage point of total company growth.iPhone channel inventory was reduced to the "low end of our targeted range" by quarter-end, according to Cook.Paid accounts and subscriptions reached new all-time highs, with transacting and paid accounts growing double digits year-over-year across the Services segment.Management confirmed iPhone growth in every region, and noted the highest-ever iPhone installed base and upgrader record for Mainland China.U.S. supply chain investments include $0.5 billion with MP Materials and the opening of an Apple Manufacturing Academy in Detroit as part of a $500 billion U.S. commitment over the next four years.Guidance includes a gross margin range lowered by the expected $1.1 billion tariff cost and operating expenses as high as $15.8 billion.AI development is prioritized, with more than 20 Apple Intelligence features released and continued significant increases in resource allocation and capital expenditure.INDUSTRY GLOSSARYApple Intelligence: Apple’s suite of generative AI technologies and features integrated across its hardware and software platforms, designed for privacy and on-device capability.Installed Base: The total number of actively used Apple devices in the market across all product categories.Upgraders: Customers who replace their existing device with a newer model within the Apple product line during the reporting period.Private Cloud Compute: Apple's proprietary cloud infrastructure which processes certain advanced AI tasks while preserving privacy architecture.Full Conference Call TranscriptTimothy D. Cook: Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call. Today, we are proud to report a June quarter revenue record of $94 billion, up 10% from a year ago, which was better than we expected. EPS set a June quarter record of $1.57, up 12% year-over-year. We saw an acceleration of growth around the world in the vast majority of markets we track, including Greater China and many emerging markets. And we had June quarter revenue records in more than two dozen countries and regions, including the U.S., Canada, Latin America, Western Europe, the Middle East, India and South Asia. These results were driven by double-digit growth across iPhone, Mac and Services.We set a June quarter record for iPhone, which grew a strong 13% year-over-year. We saw iPhone growth in every geographic segment and double-digit growth in emerging markets, including India, the Middle East, South Asia and Brazil. Mac continued to see excellent results with revenue up 15% year-over-year. And we set another all-time revenue record in Services, which grew 13% with double-digit growth in both developed and emerging markets. Last month, we hosted WWDC, an incredible event for our developer community with millions joining us online and more than 1,000 developers here in person at Apple Park.We shared some truly exciting updates, including a stunning new design crafted from a material we call Liquid Glass, it's both beautiful and expressive. And for the first time ever this design extends across all of our platforms. We can't wait for users everywhere to experience it this fall. And we were excited to share some updates across our AI work. We announced even more capabilities coming later this year, including live translation and Workout Buddy. In addition to those new features, we announced new support for a number of languages, and we opened up access to the on-device foundation models at the core of Apple Intelligence, enabling developers to build a whole new experience for our users.It's wonderful to see great momentum building for our platforms. iOS 26, macOS 26 and iPadOS 26 are by far the most popular developer betas we've had. Taking a step back, we see AI as one of the most profound technologies of our lifetime. We are embedding it across our devices and platforms and across the company. We are also significantly growing our investments. Apple has always been about taking the most advanced technologies and making them easy to use and accessible for everyone. And that's at the heart of our AI strategy. With Apple Intelligence, we're integrating AI features across our platforms in a way that is deeply personal, private and seamless, right where users need them.We've already released more than 20 Apple Intelligence features, including visual intelligence, cleanup and powerful writing tools. We're making good progress on a more personalized Siri, and as we've said before, we expect to release these features next year. Apple silicon is at the heart of all of these experiences, enabling powerful Apple Intelligence features to run directly on device. For more advanced tasks, our servers also powered by Apple silicon deliver even greater capabilities while preserving user privacy through our private cloud compute architecture. We believe our platforms offer the best way for users to experience the full potential of generative AI.Thanks to the exceptional performance of our systems, our users are able to run generative AI models right on their Mac, iPad and iPhone. We're excited about the work we're doing in this space, and it's incredibly rewarding to see the strong momentum building. Now let me turn to more details about our results for the quarter, starting with iPhone. iPhone revenue was $44.6 billion, up 13% from a year ago, and we set a June quarter record for upgraders. This strong broad-based performance was driven by the incredible popularity of the iPhone 16 family, which was up strong double digits year-over-year as compared to the 15 family. We also recently marked a significant milestone.We shipped the 3 billionth iPhone since its launch in 2007. From the Pro models with the powerhouse A18 Pro and innovative Pro camera features to the iPhone 16e with breakthrough battery life and a 2-in-1 camera system, users are finding so many reasons to love the best iPhone lineup we've ever created. And iOS 26 will take that experience even further. In addition to the beautiful new design and powerful Apple Intelligence features, it introduces a range of meaningful updates like real-time call screening and hold assist in the phone app, smarter messaging tools and new live translation features.It all adds up to a smarter, more personal iPhone experience that we can't wait for users everywhere to enjoy this fall. In Mac, we had another strong quarter with revenue of $8 billion, up 15% year-over-year, largely driven by the strength of the M4 MacBook Air. We set a June quarter record for upgraders on Mac, and we saw great performance in emerging markets with strong double-digit growth on revenue as well as strong double-digit growth on both upgraders and customers new to Mac. MacBook Air, the world's most popular laptop, unlocks a whole new level of performance with the power of M4.MacBook Pro customers meanwhile continue to be drawn to its incredible power and the longest battery life we've ever had on a Mac. Customers are also loving the newest Mac Studio, which is the most powerful Mac we've ever made with next-level capabilities to tackle even the most demanding AI workflows. At the same time, Mac mini continues to win over customers by packing so much performance into an ultracompact design. And with fantastic new updates in macOS Tahoe 26 6 from the phone app to live activities to our biggest ever update to Spotlight, Mac users across our entire lineup are going to find delightful new ways to stay connected and productive.For iPad, June quarter revenue was $6.6 billion. Our incredibly versatile iPad lineup brings together power and portability like never before. And users are already excited for our biggest iPad software update ever with the upcoming release of iPadOS 26. It starts with a new windowing system that's remarkably intuitive, giving users more control than ever of their iPad experience. An enhanced files app makes it easier than ever to stay organized. And that's all on top of a beautiful new software design that brings these updates to life. Turning to Wearables, Home and Accessories. Revenue was $7.4 billion, and we saw a June quarter record for upgraders to Apple Watch.During the quarter, we marked the 10-year anniversary of Apple Watch, celebrating a decade of helping users navigate their health and fitness journeys. And with watchOS 26 Apple Watch will be more intelligent than ever with smart updates to the workout app and Smart Stack, along with a fresh new design that feels both dynamic and personal. We're also thrilled about what's coming to Apple Vision Pro with visionOS 26 introducing spatial widgets that let users customize their digital space, more life-like personas and new enterprise APIs that empower companies to build their own spatial experiences.And this fall, new features for our latest AirPods lineup will unlock even more possibilities from studio quality audio recording to using AirPods as a camera remote, giving users powerful new ways to capture content and stay connected. As we're innovating across our lineup, we're especially proud of the work we're doing to help our users live healthier lives. Since we first launched our hearing health features for AirPods Pro 2, I've received notes from people who are delighted to be able to connect more deeply with loved ones.Whether it's with AirPods Pro 2 or Apple Watch or iPhone, it's amazing to see the power of our health and safety features from hearing tests to fall detection alerts to irregular rhythm notifications having such a profound impact. Turning to Services. Revenue for the June quarter was $27.4 billion, up 13% from a year ago and an all-time record. Apple TV+ scored 81 nominations, a record for the platform across nearly every eligible category for this year's Emmy Awards. Severance leads all Emmy nominees with 27 nominations and The Studio follows close behind with 23 nominations, more than any other freshman comedy series ever.It's amazing to see how these and other Apple TV shows have captured the popular imagination. To date, Apple TV+ has earned more than 2,700 award nominations and 585 wins on the strength of the highest-rated original content of any streaming network. And we continue to see very positive trends in the June quarter with TV+ viewership up strong double digits year-over-year. In June, we were also thrilled to release F1 in theaters around the world, one of the summer's most unforgettable blockbusters. During the quarter, we celebrated a big anniversary with 10 years of Apple Music. To mark the occasion, we launched an all-new studio space in Los Angeles for artists to create content and connect with fans.And later this year, we're bringing Apple Music users even more to love from an enhanced listening experience with AutoMix, which mixes songs like a DJ to lyrics translation and more. The App Store meanwhile continues to be the very best place to discover the latest apps from developers around the world in a safe and trusted way and App Store revenue grew double digits year-over-year, setting a June quarter record. In retail, we continue to find opportunities in emerging markets to connect with even more customers. We recently launched the Apple Store online in Saudi Arabia, and we couldn't be more excited to open new stores in the UAE and India later this year.We were also delighted to welcome customers in Japan to a new location in the heart of Osaka. Across everything we do at Apple, we show up by leading with our values. We feel strongly that the benefits of technology should be shared by everyone. That's why we make technology for everyone. In May, to mark Global Accessibility Awareness Day, we announced updates to help users learn, connect and interact with their worlds, including magnifier for Mac, a new braille experience and accessibility reader, a new system-wide reading mode to make it easier to understand content.And we're proud to introduce accessibility nutrition labels, giving users an understanding of accessibility features before they download an app while helping developers educate people on features their app support. This month, we also announced a $0.5 billion commitment with MP Materials to strengthen the supply of vital recycled rare earth materials in the U.S. and support American industry. And in August, we're opening our all-new Apple Manufacturing Academy in Detroit to train and support American manufacturers. These investments are part of Apple's largest ever spend commitment, which we announced earlier this year.Over the next 4 years, Apple is investing $500 billion in the U.S., driving innovation and creating jobs in cutting-edge fields like advanced manufacturing, silicon engineering and artificial intelligence. We're proud of this work and all that we're doing to tap into American innovation and bring the best technology experiences to users across the globe. And we continue to look for further opportunities to do even more. Finally, the situation around tariffs is evolving, so let me provide some color there. For the June quarter, we incurred approximately $800 million of tariff-related costs.For the September quarter, assuming the current global tariff rates, policies and applications do not change for the balance of the quarter and no new tariffs are added, we estimate the impact to add about $1.1 billion to our costs. This estimate should not be used to make projections for future quarters as there are many factors that could change, including tariff rates. We're really proud of our results for the June quarter, and I want to thank our teams and our customers. In everything we do, we're driven by transformative innovation, delivering the most exceptional products and services we've ever created, and we're especially excited about what's ahead. With that, I'll turn it over to Kevan.Kevan Parekh: Thanks, Tim, and good afternoon, everyone. Our revenue of $94 billion was up 10% year-over-year and is a new June quarter record. We grew in every geographic segment and in the vast majority of the markets we track. Products revenue was $66.6 billion, up 8% year-over-year, driven by growth across iPhone and Mac. And thanks to our high levels of customer satisfaction and strong loyalty, our installed base of active devices reached another all-time high across all product categories and geographic segments. Services revenue was $27.4 billion, up 13% year-over-year and an all-time record. We saw strength across the world with double-digit growth in the majority of our markets.Company gross margin was 46.5% at the high end of our guidance range and down 60 basis points sequentially, primarily driven by approximately $800 million in tariff-related costs Tim mentioned earlier. Products gross margin was 34.5%, down 140 basis points sequentially, driven by mix and tariff-related costs, partly offset by cost savings. Services gross margin was 75.6%, down 10 basis points sequentially. Operating expenses landed at $15.5 billion, up 8% year- over-year. This strong business performance led to June quarter records for both net income at $23.4 billion and diluted earnings per share of $1.57, which was up 12% year-over-year. Operating cash flow was also strong at $27.9 billion.Now I'm going to provide some more details for each of our revenue categories. iPhone revenue was $44.6 billion, up 13% year-over- year, driven by the iPhone 16 family. As Tim noted, we saw iPhone growth in every geographic segment and double-digit growth in many emerging markets. The iPhone active installed base grew to an all-time high in total and in every geographic segment, and we reached a June quarter record for upgraders. According to a recent survey from Worldpanel, formerly of Kantar, iPhone was a top-selling model in the U.S., Urban China, the U.K., Australia and Japan during the June quarter.And we continue to see very high levels of customer satisfaction in the U.S. at 98% as measured by 451 Research. Mac revenue was $8 billion, up 15% year-over-year, driven by continued strength across the portfolio, including MacBook Air, Mac mini and MacBook Pro. We grew in every geographic segment and saw double-digit growth in Europe, Greater China and the rest of Asia Pacific. The Mac installed base reached an all-time high, and we hit a June quarter record for upgraders.In the U.S., customer satisfaction was recently measured at 97%. iPad revenue was $6.6 billion, down 8% year-over-year, which was expected given the difficult compare against the launch of the iPad Air and iPad Pro in the year ago quarter. At the same time, the iPad installed base reached another all-time high and over half of the customers who purchased an iPad during the quarter were new to the product. And based on the latest reports from 451 Research, customer satisfaction was 98% in the U.S. Wearables, Home and Accessories revenue was $7.4 billion, down 9% year-over-year. This was driven by a difficult compare on accessories due to the prior year's iPad launches that I just referred to.The Apple Watch installed base reached a new all-time high with over half of customers purchasing an Apple Watch during the quarter being new to the product. We also set a quarterly record for upgraders on Apple Watch and the latest customer satisfaction for Watch in the U.S. was reported at 97%. Our Services revenue reached an all-time high of $27.4 billion, up 13% year-over-year. The performance in the June quarter was broad-based. We saw a sequential acceleration across the majority of the categories, including cloud services, where we reached an all-time revenue record, driven by the year-over-year growth of iCloud paying accounts.We saw strong momentum during the June quarter and the growth of our installed base of active devices gives us great opportunities for the future. Customer engagement across our Services offerings also continued to grow. Both transacting and paid accounts reached new all- time highs with paid accounts growing double digits year-over-year. Paid subscriptions also grew double digits. We have well over 1 billion paid subscriptions across the Services on our platform. We continue to improve the quality and breadth of our Service offerings from the new Apple Games app to a continued expansion of Tap to Pay and Wallet. Turning to enterprise. Organizations are continuing to invest in Apple products to drive employee innovation and productivity.With companies like PayPal and Roche deploying more Macs for their workforce, we had the best June quarter ever for Mac in enterprise. In Thailand, Siam Commercial Bank, one of the largest Thai banks, has deployed thousands of iPads across their branches to enhance the quality and efficiency of their banking operations from loan services to wealth management. CAE, a leader in pilot training and simulation technology is using Apple Vision Pro to enable pilots to become more familiar with aircraft procedures, leading to more productive in-person flight simulator training outcomes. Let's turn to our cash position and capital return program. We ended the quarter with $133 billion in cash and marketable securities.We had $5.7 billion of debt maturities, issued $4.5 billion of new debt and increased commercial paper by $4 billion, resulting in $102 billion in total debt. Therefore, at the end of the quarter, net cash was $31 billion. During the quarter, we returned over $27 billion to shareholders. This included $3.9 billion in dividends and equivalents and $21 billion through open market repurchases of 104 million Apple shares. As we move into the September quarter, I'd like to review our outlook, which includes the types of forward-looking information that Suhasini referred to.Importantly, the color we're providing assumes that the global tariff rates, policies and application remain in effect as of this call, the global macroeconomic outlook does not worsen from today and the current revenue share agreement with Google continues. We expect our September quarter total company revenue to grow mid- to high single digits year-over-year. We expect Services revenue to grow at a year-over-year rate similar to what we reported in the June quarter. We expect gross margin to be between 46% and 47%, which includes the estimated impact of the $1.1 billion tariff-related costs that Tim referred to earlier. We expect operating expenses to be between $15.6 billion and $15.8 billion.We expect OI&E to be around negative $25 million, excluding any potential impact from the mark-to-market of minority investments and our tax rate to be around 17%. Finally, today, our Board of Directors has declared a cash dividend of $0.26 per share of common stock payable on August 14, 2025, to shareholders of record as of August 11, 2025. With that let's open the call to questions.Suhasini Chandramouli: Thank you, Kevan. [Operator Instructions]. Operator, may we have the first question, please?Operator: Certainly, we'll go ahead and take our first question from Michael Ng with Goldman Sachs.Michael Ng: I just have one on upgrade rates and one on CapEx. First, on the upgrade rates, it's encouraging to see the records on iPhone, Mac and Watch. I was wondering if you're seeing strength in the upgrade rates? Or is the records more a function of the growing installed base? What is your research showing that made upgrades particularly compelling this year? For example, is it product features, tariff pull forward, perhaps Apple Intelligence? And then I'll give my follow-up on CapEx.Timothy D. Cook: You'll do CapEx first.Kevan Parekh: Yes, I'll do CapEx first.Michael Ng: Just on the CapEx, it's up notably year-to-date. Could you just comment on your capital spending plan this year and next and provide some qualitative color in terms of what's driving that growth? Is it AI-related or supply chain diversification, for instance?Kevan Parekh: Yes, Mike, it's a combination of factors. I would say, a pretty significant driver as Tim talked about, is the fact we are increasing our investment significantly in AI. So that is certainly a component of it. As you know, we've been investing in private cloud compute, which is also in our first-party data centers. The other piece, as you know, is we do have a hybrid strategy where in cases we do use third parties to make capital investments, and we also invest in our own. So you are going to see an increase in CapEx.We also, from time to time, have other investments in facilities, in toolings, but I would say a significant portion of the driver of growth that you're seeing now is really driven by some of our AI-related investments.Timothy D. Cook: On the upgrades, Michael, if you look at iPhone, the 16 family grew double digit as opposed to the 15 family from the year ago quarter. And so we did set an upgrade record. I think it directly is because of the strength of the product. Mac also set records on upgrade, and I think we continue to see a move to Apple silicon and the performance of Apple silicon is playing a very key role. And so it was an incredible quarter.In terms of -- if you're wondering about pull forward, we would estimate the pull forward of demand into April, specifically to be about 1 point of the 10 points in terms of people buying because of discussions about tariffs.Operator: Our next question is from Erik Woodring with Morgan Stanley.Erik William Richard Woodring: I have two as well. Tim maybe starting with you, shortly after March quarter earnings, there were some reports about searches on Safari declining in April for the first time, I think, in over 2 decades. Judging by your 13% Services growth this quarter, it doesn't seem to indicate that April trends necessarily played out through the remainder of the June quarter. And so I'm really just looking for a little bit more color on really how the rest of the quarter played out. And if you believe Apple products as kind of search access points are losing their strategic value as AI platforms become more valuable, popular or increasing in strategic value. And then I have a follow-up.Timothy D. Cook: I think they continue to be very valuable. I think that consumers' behaviors are evolving, and we're monitoring it very closely.Erik William Richard Woodring: Okay. I appreciate that color. And then maybe second to that, I'd love if you could maybe elaborate a bit on what you're seeing in China. I think in an interview earlier this afternoon, you alluded to some of the promotions being tailwinds. But just bigger picture, if we take a step back in China, how would you characterize demand interest in the iPhone 16 and some of your other products? Is that shifting or maybe were some of the trends in the June quarter maybe a bit more onetime and unique in nature?Timothy D. Cook: Yes. We did grow in Greater China by 4% during the quarter versus the previous quarter, it was driven by an acceleration by iPhone, although we also had substantial growth on the Mac year-over-year. From a -- as you know, the government has placed certain subsidies that affects some of our products, not all of them, but there are some of them. And I think that had some effect. It was the first full quarter of the subsidy playing out, that cut in during a portion of the previous quarter. The other things I would say are that the installed base hit a record high in Greater China, and we set an all-time record for the iPhone installed base.The iPhone upgraders in Mainland China set a record for the June quarter. And according to Worldpanel, which was formerly known as Kantar, iPhone had the top 3 models in Urban China, which is extraordinary. Also, if you look at the other products, Mac, iPad and Watch, the majority of customers that are buying in China Mainland were new to the product. So lots of good things there. And the other thing I would point out, which is an interesting point, The MacBook Air was the top-selling laptop model in all of China, and the Mac mini was the top-selling desktop model in all of China. So overall, a positive -- very positive quarter.Operator: Our next question is from Ben Reitzes with Melius Research.Benjamin Alexander Reitzes: I really appreciate it. I wanted to ask about Siri, Tim, and just overall AI investment. There's a perception that Siri is going to help drive other new products potentially that maybe where voice is quite needed. And just wondering how's your confidence towards launching that next year? Is there anything that's been done internally to increase that confidence? Is it tied to the investment? I just think folks would love to know a little bit more about your confidence in how that's going? And then I have a follow-up.Timothy D. Cook: Yes. Thanks for the question. We're making good progress on a more personalized Siri, and we do expect to release the features next year, as we had said earlier, our focus from an AI point of view is on putting AI features across the platform that are deeply personal, private and seamlessly integrated. And of course, we've done that with more than 20 Apple Intelligence features so far from visual intelligence to cleanup to writing tools and all the rest. We are significantly growing our investment, we did during the June quarter, we will again in the September quarter.I'm not putting specific numbers behind that at this point, but you can probably tell from the guidance that things are moving up. We are also reallocating a fair number of people to focus on AI features within the company. That are -- we have a great team, and we're putting all of our energy behind it. In terms of other products, I don't want to really comment on specific other products. But we have an exciting road map ahead and I could not be more excited about it.Benjamin Alexander Reitzes: That's great, Tim. Just with regard to my second question, it's about the overall revenue guide. And I appreciate that you guide the best you can see it. But I just wanted to challenge it from a different way is, why would it decelerate if Services is staying the same at 13%. What -- is there a conservatism there? I would think even currency is just as favorable, if not more favorable. So why would it decelerate to the higher single digits from where you were in the quarter? Or is it just being conservative? And if there's something decelerating or comp, do you mind just pointing that out?Kevan Parekh: Yes, Ben, this is Kevan. Thanks for the question. I think when you look at the growth from Q3, we just reported to the mid- to high single-digit guide. I think you have to kind of keep in mind two components. The first is the effect of the tariff-related pull-ahead in demand that Tim referenced earlier, which we estimated to be about 1 point of the 10 points that we ended up doing in Q3. And then the other factor that I think you have to take into consideration is the fact that in September quarter a year ago, we had the full quarter impact of the iPad launches, which also leads to a difficult compare this year.So those two components are things you have to take into consideration as you think about the move from Q3 to Q4. I would say foreign exchange is a very minor tailwind going from Q3 to Q4, so not really a major factor.Operator: Our next question is from Wamsi Mohan with Bank of America. .Wamsi Mohan: Tim, I know you said similar growth in Services, and that's predicated with Google payments continuing. Is there any way for us to dimensionalize sort of -- or maybe just conceptually talk about maybe options if, if the counter were to happen, if the payments were not allowed in some way, what are some of the things that Apple could do given that it is a significant chunk of profitability? And I have a follow-up.Timothy D. Cook: Yes, Wamsi, I don't really want to speculate on the court ruling and how they would rule and what we would do as a consequence of it.Wamsi Mohan: Okay. Okay. I guess we'll wait for that ruling to come out. I guess, separately, Tim, at a high level, when you look at some of what is perceived fears of new form factors and ways to interact with devices. There was some worry that given some of the developments in AI that there could be a world where dependence on screen-based devices significantly diminishes. And I'm kind of curious to get your thoughts on if do you think that would happen and rate and pace in which? And how do you think Apple is preparing in that case?Timothy D. Cook: When you think about all the things an iPhone can do from connecting people to bringing app and game experiences to life to taking photos and videos to helping users explore the world and conduct their financial lives and pay for things and so much more. It's difficult to see a world where iPhone is not living in it. And that doesn't mean that we are not thinking about other things as well. But I think that, that the devices are likely to be complementary devices, not substitution.Operator: Our next question is from Amit Daryanani with Evercore.Amit Jawaharlaz Daryanani: I guess just to start with -- Tim, the tariff assumption of $1.1 billion in the September quarter, I kind of -- I understand the uptick you folks are talking about. But can you just talk about assuming tariffs remain at these levels or even they evolve under Section 232, how do you eventually think about offsetting this headwind to your P&L? And when do you decide to execute on the levers to offset this headwind versus just flowing into your bottom line?Timothy D. Cook: Right now, we're just estimating the cost of it, and it's up quarter-over-quarter, because our volume is up quarter-over-quarter. And there was some build ahead in the previous quarter. And so that's the primary reason that it's up. In terms of what we do to mitigate, we obviously try to optimize our supply chain and ultimately, we're -- we will do more in the United States. We've committed $500 billion investment in the U.S. over the next 4 years. And we're already building chips in Arizona. And in fact, we're building semiconductors across 12 states in 24 factories, and have a lot of other things in the work. You probably saw the investment in MP Materials last week.And so we continue to explore these things and look for more that we can do, which I think ultimately is the objective.Amit Jawaharlaz Daryanani: Got it. Super helpful. And then your Services growth, I think, was extremely impressive at 13%, especially given all the fears folks had. Can you just touch on, did you see any impact that was notable from the Epic case and the steering dynamics that came after that? And maybe just touch on what does that appeal process looks like for you as you go forward? .Kevan Parekh: Yes, this is Kevan. Let me take that one. In general, I think just reminding, I think you just said, we had a very strong Services quarter, we had an all-time record at the $27.4 billion, up 13%. The one thing I would also say is our services performance was broad- based. So we also saw strength in developed and emerging markets, both parts of the world had double-digit growth. We also saw a sequential acceleration across the majority of our categories, including cloud services, where I mentioned in the prepared remarks that we had an all-time revenue record.As it relates to the EPIC decision, we -- keep in mind, we only just introduced the change required by the court in the June quarter. And as you know, we don't provide the level of detail. But in general, I would say it was a very, very -- in the U.S., we had a double- digit growth for the U.S. App Store, and we set an all-time record. And so we'll continue to monitor the effects on our business, but we'll continue to innovate and ensure that the App Store delivers the best experience for users and remains a great business opportunity for developers.Operator: Our next question is from David Vogt with UBS.David Vogt: And I have two questions as well. Maybe Tim, just on the supply chain strategy. I know last quarter, you talked about focusing production or assembly to India. And I just want to get an update on how you're thinking about the strategy holistically, given sort of the tariff rates, I think, in India potentially are higher than I think anyone had expected. So I know you mentioned some U.S. investments, would love to kind of get your thoughts on how you're thinking about China versus the rest of Southeast Asia and India going forward? And then I'll give you my second question also.So Kevan, I'm just trying to understand a little bit more about the demand drivers of iPhone in the quarter because obviously, the 16 has been in the market for some time. I know there was some promotional activity. But seasonally, you generally don't see this kind of strength in the June quarter. Maybe you can help us understand outside of maybe the promotional activity, what else were some of the drivers that led to what was -- looks like a pretty significant above seasonal strength in the June quarter stats?Timothy D. Cook: Yes. In terms of the tariff situation and country of origin and so forth. One thing I would say, just to remind everyone is keep in mind that the vast majority of our products are covered under the Section 232 investigation. And so the -- today or I should say, last quarter, the bulk of the tariffs that we paid were the IEEPA tariffs that hit early in the year related to China. And so that's just a reminder of where things are and what we assumed as we calculated the projection of $1.1 billion that's in our outlook color. In terms of the country of origin, it's the same as I referenced last quarter.There hasn't been a change to that, which is the vast majority of the iPhone sold in the U.S. or the majority, I should say, have a country of origin of India and the vast majority of the products, other products, the Mac and the iPad and the Watch have a country of origin of Vietnam that are sold in the United States. Still, the products for other international countries, the vast majority of them are coming from China. And so that hopefully gives you a flavor of the of where things are. But I would stress again that we do a lot in this country in the United States.And we've committed $500 billion, and we're always looking to do more. And you could kind of see that in the most recent announcements, whether it's MP Materials or our manufacturing academy that we're standing up in Detroit in a couple of weeks or so. And so we're going to be doing -- we're doing more in this country, and that's on top of having roughly 19 billion chips coming out of the U.S. now, and we will do more, and of course, glass from iPhone and the Face ID module. And so there's loads of different things that are done in the United States.Kevan Parekh: And then, David, as...David Vogt: And then on the iPhone activity?Kevan Parekh: Yes. So I was going to mention the iPhone activity. You asked if there's any kind of unique characteristics this quarter? I would just say, as Tim outlined, we really believe that the strong upgrade performance, which was a June quarter record was really driven by the strength of the product lineup. The iPhone 16 family has done incredibly well compared to the iPhone 15 family. And we also, as you recall, recently introduced the 16e as well, which also continued to impact the success of the overall iPhone 16 lineup.Operator: Our next question is from Krish Sankar with TD Cowen.Krish Sankar: I have two of them. The first one is for Kevan, this was a previous question, do you think there was any pull-in of iPhones in the June quarter that led to some of the upside? And how to think about channel inventory in June quarter? And how it looks in September relative to seasonal trends? And then I had a longer-term follow-up for Tim.Timothy D. Cook: Let me see if I can answer the channel inventory question or what I think is the channel inventory question. If you look at iPhone channel inventory from the beginning of the quarter to the end of the quarter, we reduced it, and it ended toward the low end of our targeted range. And so that's the answer on the inventory piece of it.Kevan Parekh: And then I think you also asked about the pull-ahead impact. I think we referenced that earlier. Just to be clear on what we believe we saw in the June quarter, we did see some obvious signs of pull-ahead really in the April time frame around the tariff-related discussions that were out in the marketplace. And so we felt that, that was from what we saw about a 1 point impact of the 10 points at a total company level of growth. And so that was the limited impact that we believe we saw for the quarter.Krish Sankar: Got it. Very helpful. And then I just have like a long-term follow-up for Tim. Tim, I'm kind of curious about your thoughts on AI for edge devices. There's like some people who think that LLM could be a commodity in the future. Do you think -- do you see a scenario where the LLMs become a core part of your iOS or is the SLM the way to go and how to think about evolution of edge devices in a futuristic AI world and if smartphone going to be the choice of device. Just curious your thoughts on it, broadly speaking.Timothy D. Cook: The way that we look at AI is that it's one of the most profound technologies of our lifetime. And I think it will affect all devices in a significant way. What pieces of the chain are commoditized and not commoditized, I wouldn't want to really talk about today because that gives away some things on our strategy. But I think it's a good question.Operator: Our next question is from Samik Chatterjee with JPMorgan.Samik Chatterjee: Tim, maybe if I can start with your remarks about the pull-ahead being about a 1 percentage point benefit here. Anything to share in terms of how -- what's underlying that estimate in terms of what you're seeing for -- is it a pull-ahead largely on iPhones? Or is it across the board? And is it primarily in the U.S. or again, sort of across multiple regions? Any color there would be helpful in terms of how you're sort of getting to that assumption there. And I have a follow-up.Timothy D. Cook: It was principally on iPhone and Mac. And it was pretty -- it was obvious evidence of it. It was an unusual buying pattern there and that largely occurred in April towards the beginning of the quarter. And it was really -- we believe it was largely the United States.Samik Chatterjee: Okay. Okay. Got it. And maybe on the tariff front, when you gave the estimate of $900 million last quarter, which came in at $800 million, you did highlight it was -- there were some unique factors in the quarter. When I take the $1.1 billion that you're now sort of expecting for the September quarter and as we start to think about December, would -- is there anything unique in the December quarter in terms of sourcing from regions, et cetera, that would uniquely impact December, just given sort of that you had highlighted that quarter-to-quarter, so there would be unique things. Just curious if December looks very different from September because of any unique factors.Timothy D. Cook: I would be careful about projecting based on the numbers from Q2 and Q3 because, one, we're uncertain of what the rates will be. And so the rates may change. Two, in -- particularly in last quarter, we had some build ahead inventory that we were -- that we had within the company and within our supplier -- within our supply chain. And so those two are a little unique. Also, as you know, from following us for so long, Q1 is generally a higher volume quarter. And the tariffs are currently are pretty linear with volume.Operator: Our next question is from Aaron Rakers from Wells Fargo.Aaron Christopher Rakers: I've got two as well, and I'll just ask them together. I guess the first one is just more housekeeping. Kevan, when we think about currency impact, how much of a benefit was currency this quarter, and I guess across the business and in particular, maybe on the Services segment, and on a year-on-year basis, how much currency benefit should we be thinking about embedded in the guidance into the September quarter? And then the second quick question is CapEx is clearly moving higher. I know you guys don't guide specifically to that number.But just kind of qualitatively, should we -- as you lean in more on AI, should we really start to see that CapEx, which is running close to about $4 billion annualized today, really start to move appreciably higher? Any color on that would be helpful.Kevan Parekh: Great, Aaron. Thanks for the questions. Let me answer the first one, first around foreign exchange. For Q3, we really had no impact from a foreign exchange standpoint on the year-on-year results. And so -- when we look at both the revenue growth as well as the gross margin, there was virtually no impact from foreign exchange. As we look at going from Q3 to June quarter to the September quarter, again, very, very, as I mentioned earlier, a very small tailwind going from Q3 to Q4 from a foreign exchange standpoint on both revenue as well as gross margin.And then on the second question, sure, on the CapEx side, I think we talked about the fact that we are, and Tim mentioned the fact that we are increasing our investment significantly in AI. You are going to continue to see our CapEx grow. It's not going to be exponential growth, but it is going to grow substantially. And a lot of that's a function of the investments we're making in AI. As we mentioned, we also have other items that fall under that category, facilities and some of our retail store investments. But I would say a lot of the growth is really being driven by AI.I would remind you that we do have a hybrid model though, where we also leverage third-party infrastructure in addition to investing in our own first-party infrastructure.Operator: Our next question is from Atif Malik with Citi.Atif Malik: Tim, at the WWDC earlier in the quarter, you showed impressive updates on Vision Pro with the use of widget, spatial scenes, persona and new ways to create content. Appears like Meta and Xiaomi are seeing strong momentum on their AI glasses. So is the focus still around enterprises on Vision Pro? Or are you thinking of broadening the use cases and maybe tying it to more of your devices? Any thoughts on Vision Pro as they did not get enough airtime in the prepared remarks.Timothy D. Cook: Yes. Thanks for bringing it up. I was thrilled with the release from the team on visionOS 26. It includes many things in it like spatial widgets to enable users to customize their digital space. The personas took a huge increase. They're much more lifelike. And of course, there's new enterprise APIs for companies as well. And we're seeing, as Kevan talked about in his opening remarks, we're seeing those things resonate out with CAE and other customers. And so we continue to be very focused on it. And I don't want to get into the road map on it, but this is an area that we really believe in.Atif Malik: Great. And Kevan, historically, you guys have not done much big M&A. Do you feel like you need to accelerate your AI road map or just keep the organic focus?Timothy D. Cook: Let me take that one as well. We've acquired around seven companies this year. And that's companies from all walks of life, not all AI oriented. And so we're doing one, think of it as one every several weeks. We're very open to M&A that accelerates our road map. We are not stuck on a certain size company, although the ones that we have acquired thus far this year are small in nature. But we basically ask ourselves whether a company can help us accelerate a road map. If they do, then we're interested, but we don't have anything to share specifically today.Suhasini Chandramouli: All right. Thank you, Atif. A replay of today's call will be available for 2 weeks on Apple Podcasts, as a webcast on apple.com/ investor and via telephone. The number for the telephone replay is (866) 583-1035. Please enter confirmation code 6287473 followed by the pound sign. These replays will be available by approximately 5 p.m. Pacific Time today. Members of the press with additional questions can contact Josh Rosenstock at (408) 862-1142. And financial analysts can contact me, Suhasini Chandramouli with additional questions at (408) 974-3123. Thanks again for joining us today.Operator: Once again, this does conclude today's conference. We do appreciate your participation.