Live transcript: Here’s what Apple said at its Q4 20 earnings call

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q4 2020 earnings call. Here's our ongoing live transcript of their remarks! If you want some quick analysis on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon and thanks for joining the call today. Back in April, I said we were in the most challenging environment in which Apple as a company has ever operated. That atmosphere of uncertainty, of resolve, of making difficult calls with limited information has not only come to define Apple's year, but each of our lives as individuals across this country and around the world. It has been a chapter that none of us will forget. In the face of these challenges, Apple stayed relentlessly focused on what we do best seeing and every obstacle and opportunity to do something new, something creative, something better on behalf of our customers. Today, we report a quarter and a fiscal year that reflects that effort this quarter, Apple achieved revenue of $64.7 billion, a September quarter record, despite the anticipated absence of new iPhone availability during the quarter and the ongoing impacts of covid-19, including closures at many of our retail locations. We also set a new all time record for Mac and services. Outside of iPhone, each of our product categories saw strong double digit year over year growth, despite supply constraints in several product categories. Our results for this quarter were ahead of our expectations, driven by stronger than expected iPhone and services performance. As we anticipated, we launched new iPhone models in October, a few weeks later than last year's mid-September launch. Up to that mid-September point, customer demand for iPhone was very strong and grew double digits. On services we saw stronger than expected performance across the board. Geographically, we set September quarter records in the Americas, Europe and rest of Asia Pacific. We also set a September quarter record in India, thanks in part to a very strong reception to this quarter's launch of our online store in the country. Greater China is the region that was most heavily impacted by the absence of the new iPhones during the September quarter. Still, we beat our internal expectations in the region, growing non iPhone revenue, strong double digits and iPhone customer demand grew through mid-September. When you pull back the lens to the entire fiscal year, it's a testament to the team's work and to the resilience of the business in the era of covid-19. This year, we set an all-time revenue record of $274.5 billion, growing six percent year on year. We grew every quarter, set all time yearly records in Mac, wearables, home and accessories and services, and grew by double digits in every product category outside of iPhone. When we first began to grapple with covid-19, I said there are worse things for a company whose business is innovation than having to periodically do just about everything, and in an entirely new way. This year, we not only launched our most powerful and compelling generation of hardware, software and services ever, we did it in a way that pushed us to reimagine every part of that innovation process down to how we share these announcements with the world and how we get new products into our customers hands. Working from kitchen tables and bedrooms and distanced office settings and reworked labs and manufacturing facilities, the team rebuilt every part of the plane while it was midair, and the results speak for themselves. In a year that has been enormously challenging, our retail team's contact centers and all those who work with our customers most closely have gone to creative and dedicated lengths to keep serving our customers from adapting our stores for contactless pickup, to new Apple Express storefronts, to new online customer support options amid store closings, reopenings and reimagining these teams have been an unfailing source of energy, creativity and determination, innovation isn't just about what you make, it's about how you approach problems. And these teams and every team across Apple have not faced a single question this year that they haven't found an answer to with passion and resolve. Their actions didn't just meet the moment. They will make us a better company moving forward. The pandemic has hit home for all of us and at Apple, we have seen it as a call to action. We have seen the pain in our communities. Many of us have seen our children work hard to adapt to remote learning. And we all know that the road ahead is uncertain. This quarter and throughout the year, our response to this crisis has been to ask, how can we help? In terms of covid-19 response, that has meant sourcing and donating millions of face masks, designing and manufacturing millions of face shields, and scaling the production of millions of test kits. But we have tried to live our values more broadly. We pledged a $100 million to our new racial equality and justice initiative. We've committed to be fully carbon neutral by 2030 across our entire supply chain and device usage as massive wildfires, hurricanes and floods bring home the consequences of climate change for all of us. And we deepened our enduring educational partnerships from coding education beginning in elementary school to new efforts with dozens of historically black colleges and universities. One of the many areas where covid-19 continues to have a significant impact is in education. As teachers, students and parents alike work hard to keep education relevant, creative and effective, our products have helped them meet the moment in a typical year. The back to school season is a bustling time for us. This year that was true and the biggest why ever. We've helped school districts around the world meet this moment in an unprecedented way, including starting nine of our 10 largest school district deployments ever. That alone will support over one million students and teachers. We have also supported these deployments and educators and learners everywhere with free tools and training, reaching over 150,000 teachers and millions of parents and students around the world. Looking forward, we feel great optimism about the road in front of us, we're in the midst of our most prolific product introduction period ever. In addition to the announcement of HomePod mini, which achieves unmatched sound quality and Siri and smart home capabilities in a small and affordable format, we just marked the beginning of a new era for iPhone with the arrival of our first 5G enabled devices. The iPhone 12 and 12 mini boast powerful breakthroughs like an edge to edge super retina XDR display, unprecedented durability with the new ceramic shield developed with our partners at Corning, new Magsafe charging and accessories, the fastest ever A14 bionic chip and a new dual camera system driven by computational photography. The iPhone 12 Pro and 12 Pro Max take all of this to an even higher level, driven by the most powerful photo and video tools ever delivered by a smartphone, including an all new LiDAR scanner and the ability to shoot an Apple ProRAW and full Dolby video. And of course, all of these devices bring the 5G experience users have been waiting for with lightning fast downloads and uploads a new standard in video streaming, more responsive gaming and much more. The early product reviews have been tremendously positive, and our customers had been similarly excited to get their hands on this next era of devices. We're very optimistic about what the next few weeks will bring. We're also seeing a very positive response to our September announcement, the all new Apple Watch Series 6 boast powerful new health and wellness features, including a blood oxygen sensor, a next generation altimeter and a wide variety of new colors and bands. The potential for Apple Watch's powerful health and wellness capabilities continues to grow. Just yesterday, the government of Singapore and Apple launched Lumi Health a first of its kind program designed to encourage healthy activity and behaviors using Apple Watch. Created in collaboration with a team of physicians and public health experts, Lumi Health uses technology and behavioral insights to encourage Singaporeans to keep healthy and complete wellness challenges through their Apple Watch and iPhone. Singapore is a trailblazer here, and we're proud to be their partner. Our iPad lineup continues to set the pace for the category, including the new iPad Air now shipping with the A14 Bionic, our most powerful chip ever. We announced Apple Fitness Plus, which delivers deep personalization and integration across the fitness tools our users love and depend on. An Apple One, launching tomorrow, is the easiest way for users to enjoy Apple's services, like music, TV+, Arcade, iCloud, News+ and Fitness+ on a single plan that is right for them and their family. Looking across services more broadly, we're really excited about what we see. This was a record quarter for the App Store, AppleCare, Cloud Services, Music and payment services. The App Store in particular, continues to play an essential role in helping small businesses, educational institutions and workplaces adapt to covid-19. Apple TV Plus continues to impress from fan favorites like Ted Lasso, which has won a worldwide audience with its hopeful tone during challenging times, to critical and award praise, including a prime time Emmy for Billy Cruddup in the morning show. Lucca will speak in greater detail about our expectations for the December quarter. Without giving away too much, I can tell you that this year has a few more exciting things in store. Before I hand things off, I want to offer one more comment on resilience, because I think if I had to describe our performance this quarter in a single word, it's resilient. Financial performance aside, I don't think this year will be a time that any of us look back on with great fondness or nostalgia. Those of us who wake up every day hoping for a return to normal can count ourselves fortunate. Others don't have that luxury. There is the great pain of a lost loved one, the uncertainty and fear of a lost job, a deep well of concern for people we care about, who we are not able to see. A sense of opportunities missed, of plans delay, of time lost. Even though we're apart, it's been obvious this year that around the company, teams and colleagues have been leaning on and counting on each other more than in normal times. I think that instinct, that resilience has been an essential part of how we have navigated this year. Work can't solve for all the things we're missing right now. But a shared sense of purpose goes a long way. A belief that we can do more together than we can alone, that people of goodwill driven by creativity and passion, and that certain itch of a big idea can still do things that help other people in our own small way to teach, to learn, to create or just to relax at a time like this. Even as the things we make require us to operate at the very cutting edge of technology in materials, products and ideas that didn't exist just a few years ago, this year has forced us to face plainly the things that make us human; disease, resilience and hope. You never wished for a year like this one, but I couldn't be prouder of the team, the work we have done and the small role we have played in helping our communities find hope and resilience in this time. With that, I'll hand things over to Lucca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. We're very pleased to report today a new September quarter revenue record, which caps a remarkable level of performance for our fiscal year 2020, during which we set new all time records for revenue, earnings per share and free cash flow in spite of an extremely volatile and challenging macro environment, we could not be more proud of the way our team has innovated and executed throughout this unprecedented period of uncertainty. We reported total revenue of $64.7 billion for the September quarter, up 1% from a year ago. This is a very impressive level of performance when we consider that this year we did not launch and ship any new iPhone models during the quarter. Outside of iPhone, we grew 25% in aggregate and had strong double digit year over year revenue growth in each of our product categories. We set all time records for Mac and services and a September quarter record for wearables, home and accessories. We also achieved news September quarter records in the vast majority of countries that we track, including, among others, the US, Canada, Brazil, Germany, France, Italy, Spain, Turkey, Russia, India, Korea, Thailand, Malaysia and Vietnam. Products revenue was $50.1 billion, with very strong underlying performance across each product category. Our products outside of iPhone grew a combined 30%, despite supply constraints on iPad, Mac and Apple Watch throughout the quarter. For iPhone through mid-September, customer demand grew double digits. As a result of this level of sales performance and the unmatched loyalty of our customers, our installed base of active devices reached an all time high in aggregate and in each of our major product categories. Our services set an all time record of $14.5 billion, growing 16% year over year. We establish new all time records in many services categories, and September quarter records in each geographic segment. I'll covered this in more detail later. Company gross margin was 38.2%. This was up 20 basis points sequentially due to cost savings and a higher mix of services, partially offset by a different mix of product products. Gross margin was 29.8%, growing 10 basis points sequentially driven by cost savings, partially offset by a different mix. Services gross margin was 66.9%, decrease in 30 basis points sequentially, mainly due to a different mix. Let me get into more detail for each of our product categories. iPhone revenue was $26.4 billion, as we did not have availability of new iPhone models during the September quarter this year, which we had mentioned during our call in July. While covid-19 and social distancing measures impact the store operations in a significant manner, demand for iPhone remained very strong. In fact, through mid-September, customer demand for our current product line up to double digits and was well above our expectations. Our active installed base of iPhones reached a new all time high thanks to the exceptional loyalty of our customer base and strength of our ecosystem. In fact, in the U.S., the last survey of consumers from 451 Research indicates iPhone customer satisfaction of 98% for iPhone 11, 11 Pro and 11 Pro Max combined. Turning to services, as I said, we set an all time revenue record of $14.5 billion. We grew strong double digits and set all time records in App Store cloud services, music, advertising and payment services. We also set an all time record in Apple care as in-store traffic improved and we were able to support more customers. Our new services, Apple TV+, Apple Arcade, Apple News+, and Apple Card, 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 be moving in the right direction. First, our installed base continues to grow and is an all time high across each major product category. Second, the number of both transacting and paid accounts in our digital content stores reached a new all time high during the September quarter, with paid accounts increase in double digits in each of our geographic segments. Third, paid subscriptions grew more than 35 million sequentially and we now have over 585 million paid subscriptions across the services on our platform, up 135 million from just a year ago. With this momentum, we are very confident to reach and exceed our increased target of 600 million paid subscriptions before the end of calendar 2020. Finally, as Tim mentioned, we continue to improve the breadth and the quality of our current services offerings and are adding new service offerings that we think our customers will love, like Apple One and Apple Fitness+. Wearables, home and accessories establish a new September quarter record with revenue of $7.9 billion up 21% year over year. We said September quarter records in every geographic segment and for each of the three product categories, wearables, home and accessories. As a result, our wearables business is now the size of a Fortune 130 company. Importantly, Apple Watch continues to extend its reach, with over 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, including the recent launches of our new products Apple Watch Series 6 NFC, HomePod Mini, and the MagSafe ecosystem of accessories. Next, I'd like to talk about Mac. Revenue was by far an all time record at $9 billion up 29% over last year and $1.6 billion above our previous record, in spite of supply constraints during the quarter. We grew strong double digits in each geographic segment and said all time revenue records in the Americas and the rest of Asia Pacific, as well as September quarter records in Europe and Japan. We've seen amazing customer response to the new MacBook Air and MacBook Pro and very strong demand during the back to school season. iPad performance was also very impressive, with revenue of $6.8 billion, up 46%, and our highest September quarter revenue in eight years despite supply constraints. Demand exceeded our expectations around the world as we grew very strong double digits in every geographic segment, including an all time record in Japan and a September quarter record in the Americas. 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 measure customer satisfaction at 93% for Mac and 95% 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, it is no surprise that the active installed base for both products reached a new all time high. In the enterprise market, our products are helping companies grow their business while achieving their sustainability goals. One example is Vestas,a leading producer of wind turbines, Vestas is using Apple products and native iOS apps extensively across their operations to deliver renewable energy efficiently to customers worldwide. For instance, they use iPads to help optimize onsite construction operations, cutting crane usage on average by one day per project. Vestas field technicians are using iPhone for work orders, troubleshooting a remote collaboration, saving them 400,000 service hours annually. More recently, they've started piloting the augmented reality capability in iPads to help customers visualize wind turbine installations in the field. Another example of how organizations are using Apple products to reduce carbon impact is digitizing paper workflows. In Switzerland alone, Zurich Insurance reduces paper consumption by over 10,000 sheets per day by equipping a thousand customer advisors with iPads. Canada is reducing its carbon footprint by over 2,200 metric tons annually by loading flight plans and manual's onto iPads rather than using paper. We are thrilled that our products are helping businesses run more efficiently and sustainably. Let me now turn to our cash position, we ended the quarter with almost $192 billion in cash plus marketable securities. We issued $5.5 billion of new term debt and decreased short term borrowing facilities by $6.2 billion during the quarter, leaving us with total debt of $112 billion. As a result, net cash was $79 billion at the end of the quarter, as we continue on our path to reaching a net cash neutral position over time. We return nearly $22 billion to shareholders during the September quarter, including $3.5 billion in dividends and equivalents and $18 billion to open market repurchases of 168.7 million Apple shares. We also retired an additional 3.1 million shares in the final settlement of our 16th ASR. Before looking ahead, I want to provide just a few highlights for the amazing fiscal year we just completed. In fiscal 20, we grew revenue by 6% to $274.5 billion and new all time record. We showed remarkable resilience throughout the year as we were able to grow both revenue and installed base of active devices in every quarter. In spite of the most challenging economic environment we can remember, we said new revenue records in the Americas, in Europe and in the rest of Asia Pacific. We grow our business outside of iPhone by 16%. We grew earnings per share 10% to a new all time record. And most importantly, we continue to deliver innovative products and services that our customers love. As we move ahead into the December quarter, I'd like to provide some color on what we are seeing, which includes the types of forward looking information that Tagis referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we will not be issuing revenue guidance for the coming quarter. However, we are providing some insights on our expectations for the December quarter for our product categories. These directional comments assume that Canada is reducing its carbon footprint by over 2,200 metric tons annually by loading flight plans and manual's onto iPads rather than using paper. We are thrilled that our products are helping businesses run more efficiently and sustainably. Let me now turn to our cash position, we ended the quarter with almost $192 billion in cash plus marketable securities. We issued $5.5 billion of new term debt and decreased short term borrowing facilities by $6.2 billion during the quarter, leaving us with total debt of $112 billion. As a result, net cash was $79 billion at the end of the quarter, as we continue on our path to reaching a net cash neutral position over time. We return nearly $22 billion to shareholders during the September quarter, including $3.5 billion in dividends and equivalents and $18 billion to open market repurchases of 168.7 million Apple shares. We also retired an additional 3.1 million shares in the final settlement of our 16th ASR. Before looking ahead, I want to provide just a few highlights for the amazing fiscal year we just completed. In fiscal 20, we grew revenue by 6% to $274.5 billion and new all time record. We showed remarkable resilience throughout the year as we were able to grow both revenue and installed base of active devices in every quarter. In spite of the most challenging economic environment we can remember, we said new revenue records in the Americas, in Europe and in the rest of Asia Pacific. We grow our business outside of iPhone by 16%. We grew earnings per share 10% to a new all time record. And most importantly, we continue to deliver innovative products and services that our customers love. As we move ahead into the December quarter, I'd like to provide some color on what we are seeing, which includes the types of forward looking information that Tagis referred to at the beginning of the call. Given the continued uncertainty around the world in the near term, we will not be issuing revenue guidance for the coming quarter. However, we are proCovid related impacts to our business in November and December are similar to what we're seeing in October. We just started shipping iPhone 12 and 12 Pro, and we're off to a great start. We are also excited to start preorders on iPhone 12 mini and 12 Pro Max next Friday. Given the tremendously positive response, we expect revenue to grow during the December quarter, despite shipping iPhone 12 and 12 Pro four weeks into the quarter and iPhone 12 mini and 12 Pro Max seven weeks into the quarter. We expect all other products in aggregate to grow double digits and we also expect services to continue to grow double digits. For gross margin, we expect it to be similar to our most recent quarters, despite the cost associated with the launch of several new products for OPECs, we expect to be between 10.7 and 10.8 billion. We expect OANE to be around 50 million and the tax rate to be around 16 %. Finally today, our board of directors has declared a cash dividend of 20.5 cents per share of common stock payable November 12, 2020 to shareholders of record as of November 9, 2001. With that, let's open the call to questions.

Analysts questions

Shannon Cross, Cross Research

Thank you very much. Tim, can you talk a bit more about China? And, you know, in terms of linearity, I think, Lucca, you'd mentioned that services in all regions where at an all time high, I'm not sure exactly what your comment was, but, you know, maybe give us a little idea of, you know, whether you're seeing any blowback or benefit from the Huawai situation and just get a bit more into the trends we're seeing in China. And I have a follow up. Thank you.

Tim Cook

Hey, thanks, Shannon. If you look at China and look at last quarter's, I'll talk about both last quarter and this quarter a bit. Last quarter, what we saw was our non-iPhone business was up strong, double digit for the full quarter. And then if you look at iPhone and you look at it in two parts, one pre mid-September, which is pre the point at which the previous year we would have launched iPhones, that that period of time, which was the bulk of the quarter iPhone was growing from a customer demand point of view. And of course, the not shipping new iPhones for the last two week of September makes that number in the aggregate a negative. But the but the net is the underlying business in China last quarter was very strong and perhaps very different than than you might think from just a quick look at the stated number. In terms of this quarter, given the explanation for last quarter and the momentum that we've got, and as importantly, given the initial data points that we see on iPhone 12 and iPhone 12 Pro, although we don't guide to revenue, as Lucca said, I would tell you that we are confident that we will grow this quarter in China. And so we're very bullish on on what's going on there. A little more color on last quarter, we had a much more significant inventory draw down on the channel side than other regions. And so that is one reason why the numbers are different than other regions. And additionally, the new products in the year ago quarter were a higher percentage of our iPhone sales than they were in other regions. So hopefully that explains what's going on in China. In terms of the market there, 5G is is fairly advanced there. They're forecasting 600,000 base stations by the end of the year. And so we're entering the market at a very good time. And with the reception that we've gotten so far, we're we're very confident there.

Shannon Cross, Cross Research

OK, great. And then can you talk a bit about just overall in, you know, the the world, the cadence that you see, sort of the five 5G adoption launch, you know what what you see will be the key drivers. Obviously, there's a fair amount of subsidies going on in the U.S. at this point. Thank you.

Tim Cook

Yeah, we're working hard to provide the best experience for our iPhone users. To do so, we've been collaborating closely with carriers all around the world to ensure iPhone has great throughput and coverage and battery and call quality. We've completed 5G testing so far on over 100 carriers in over 30 regions. And so it's pretty pervasive around the world. But, grantely, it will continue to rollout in more places as carriers continue to expand their coverage. And this will happen every week. And so it's just going to get better. There are there are obvious places in the world where it's more ahead than that in others. But we feel like we are are entering at a sort of at exactly the right time.

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