Transcript: Here’s what Apple said at its Q2 2021 earnings call

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company’s Q2 2021 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 these excellent charts from Six Colors.

Cook’s opening remarks

Tim Cook

Good afternoon, everyone, and thanks for joining the call today. Apple is proud to report another strong quarter. One where we set new March quarter records for both revenue and earnings, besting our year-ago revenue performance by 54 percent, reflecting both the enduring ways our products have helped our users meet this moment in their own lives. As well as the optimism consumers seem to feel about better days ahead, we set new March quarter records in every geographic segment, and success was broadly distributed across our product categories.

Mac and services delivered all-time record results, and we set new March quarter records for iPhone and wearables, home, and accessories. To provide some color on our results, let’s turn to our product categories. We saw very strong performance for iPhone, which grew 66% year over year, driven by the strong popularity of the iPhone 12 family. With unmatched capability, the best camera system ever in an iPhone, and advanced durability from ceramic shield, this family of devices is popular with both upgraders and new customers alike. And just last week, we unveiled an all new purple finish for iPhone 12 and 12 mini.

As has been the case throughout the pandemic, iPad and Mac continue to be critically important tools for our customers. Over the past year, tens of millions of iPads and Macs have been deployed to help students learn creators create and to enhance remote work in all of its forms. This has helped iPad grow very strong double digits to its highest March quarter revenue in nearly a decade.

On Mac, fueled by the M1, we set an all-time revenue record, continuing the momentum for the product category. In fact, the last three quarters for Mac have been its three best quarters ever. Last week, both iPad and Mac took a big step forward. We debuted a radically redesigned brand new iMac designed around in one’s unmatched capabilities. And we’ve brought in one to iPad for the first time in a new iPad Pro with 5G capability and a liquid retina XDR display.

It was a quarter of sustained strength for wearables, home and accessories, which grew by 25% year-over-year. Apple Watch is a global success story and a category set March quarter records in each geographic segment, thanks to strong performance from both Apple Watch Series 6 and Apple Watch SE. It’s an exciting and busy period ahead for wearables, home, and accessories with the launch of the next generation Apple TV 4K and our newest accessory AirTag. AirTag builds on the powerful and incredibly useful Find My experience, helping users privately and securely keep track of the items that matter most to them.

Third-party accessories and products can also make use of the Find My network, guaranteeing a great experience no matter what products you choose to use. Turning to services, we achieved growth of 27% year-over-year and set new records for services in each of our geographic segments, we continue to enhance and improve our current service offerings from Apple Music to Apple News, while continuing to launch new services that enhance our customers lives. Just last week, we introduced Apple Card Family, which reinvents how you can share credit cards and build credit together.

We also announced Apple Podcast Subscriptions, a global marketplace for listeners to discover premium content from their favorite creators and storytellers. While we’re on the topic of services, in many ways, this quarter showed the unique value to customers created by Apple’s belief in the deep integration of hardware, software, and services. Across our products and throughout our software ecosystem, we continue to deploy industry-leading new tools to protect users’ fundamental right to privacy. In addition to the App Store privacy nutrition labels that we discussed on last quarter’s call, we’re proud to have launched the full implementation of App Tracking Transparency. This powerful yet simple idea gives users a choice over how their data is used and shared across the apps that they love and use every day.

No matter what device you enjoy it from, it is a milestone period for Apple TV+, racking up many new award nominations and wins, including its first Oscar nominations. Ted Lasso in particular, has been recognized with a multitude of awards and nominations, including, most recently, and AFI Program of the Year Recognition, Writers Guild of America Awards, and a clean sweep at the Critics Choice Awards. Apple TV+ also continues to be a place where we can tell stories that matter and lift up important voices and experiences like our new upcoming content Partnership with Malala or latest original documentary special, The Year the Earth Change, narrated by the legendary David Attenborough and released to commemorate Earth Day.

This is, of course, just one example of how Apple lives its values and operationalizes the idea that to whom much is given, much is expected. To begin with our environmental efforts, just last week, we marked a milestone Earth Day on multiple fronts. In addition to the progress we’ve made in our own efforts to achieve our pledge of a net zero carbon footprint by 2030 across our entire supply chain and use of our products, we’re proud to play a role in the growing ripple of change taking place across the private sector.

As of this month, 110 of our suppliers have joined us in our renewable energy commitment, and we will bring online nearly eight gigawatts of new clean energy, the equivalent of taking three point four million gas powered vehicles off the road each year. Through Apple’s, $4.7 billion in green bonds and related efforts, we’ve supported transformative environmental projects around the world from clean energy initiatives in China to two of the world’s largest onshore wind turbines in Denmark to 180-acre solar project outside Reno, Nevada, and many more.

We’re also keenly focused on how this wave of green innovation can lead to equitably shared prosperity through our new $200 million restore fund, we’re helping local and rural communities around the world built sustainable industries around working for us, creating opportunities and removing up to one million metric tons of carbon from the atmosphere every year. And here in the United States, we’ve started a green impact accelerator, investing and supporting minority-owned businesses at the forefront of environmental fields.

As we look forward to WWDC, we’re taking new steps to support and foster the unmatched community of developers we work with here in the United States and around the world. I’m particularly excited about our inaugural entrepreneur camp for black founders and developers, building on the success of our entrepreneur camp program, which we began in 2019, this program gives this profoundly innovative community of developers the chance to develop next level technical skills through hands-on technology labs and, with our partners at Harlem Capital, it also shares insights and mentorship on building and scaling an app business.

We were proud to announce that we have expanded and accelerated our commitment to the U.S. economy over the next five years. We will invest $430 billion, creating 20,000 jobs in the process. The investments will support American innovation and drive economic benefits in every state, including a new North Carolina campus and job-creating investments in innovative fields like silicon engineering and 5G technology.

Looking forward, whether you’re running a business or just hoping to see family again after more than a year, it’s tempting at this moment to let hope about the end of the COVID-19 pandemic outstripped clear-eyed realism about the challenges we still face in many places around the world.

New waves of infections driven by even more infectious variants of the virus are driving new lockdowns. Instead of simply assuming that the end is in sight, we at Apple are doing our part to make it a reality, beginning with an enduring and uncompromising commitment to the health and safety of our teams and extending well beyond our walls into the communities where we work. We also want to do everything we can to connect users to lifesaving vaccinations that are in ever greater supply.

Through Apple Maps, for example, we now showcase vaccine site locations here in the United States, building on our maps of testing locations in many countries around the world. It’s worth remembering for much more than financial reasons, or year-ago compares just how we felt at this time last year when everything we knew had to change. Planes sat grounded. Entire business districts were empty and silent. People left groceries or care packages sitting in the garage or in the hall overnight in recognition of all that we didn’t know and therefore had to imagine.

Thanks to researchers and scientists, doctors and nurses, everyone who can put a shot in an arm and even just check a name off a list, we have reached new days of hopeful resolve. Our work’s not done, but as I said a year ago, while we can’t say for sure how many chapters are in this book, we can have confidence that the ending will be a good one. With that, I’ll hand things over to Luca.

Luca Maestri detail on the quarter

Luca Maestri

Thank you, Tim.

Good afternoon, everyone. We are extremely pleased to report record results for our March quarter, despite continued uncertainty in the macro environment. we’ve been operating in new ways for over a year, and we could not be more proud of the way our team continues to execute and innovate at unprecedented levels.

Our revenue reached a March quarter record of $89.6 billion, an increase of over $31 billion, or 54% from a year ago. We grew very strong double digits in each of our product categories, with all-time records for Mac and for services, and March quarter records for iPhone and for wearables, home, and accessories. We also set new March quarter records in every geographic segment, with growth of at least 35% in each one of them.

Products revenue was a March quarter record of $72.7 billion, up 62% over a year ago. As a result of this level of such performance and the unmatched loyalty of our customers, our installed base of active devices reached a new all-time record in each of our major product categories. Our services set an all-time record of $16.9 billion, growing twenty seven percent over a year ago, we established new records in each geographic segment and in most service categories.

I will provide more details about the performance of our services business later.

Company gross margin was 42.5% percent, up 270 Basis points from last quarter, driven by cost savings, a strong mix, and favorable foreign exchange. Products gross margin was 36.1% percent, growing 100 Basis points sequentially, also thanks to cost savings and effects partially offset by seasonal loss of leverage. Services gross margin was 70.1%, up 170 basis points sequentially, mainly due to a different mix.

Net income of $23.6 billion, diluted earnings per share of $1.40, and operating cash flow of $24 billion, were all of March quarter records by a wide margin. Let me get into more detail for each of our revenue categories. iPhone revenue set a March quarter record of $47.9 billion, growing 66% year-over-year as the iPhone 12 family continued to be in high demand. Performance was consistently strong across the world as we grew strong double-digits in each geographic segment and said March quarter records in most markets we track.

Thanks to the exceptional loyalty of our customer base and strength of our ecosystem, our active installed base of iPhones reached a new all-time high. In the U.S., the latest survey of consumers from 451 Research indicates customer satisfaction of over 99% for the iPhone 12 family.

Turning to services, we reached an all-time revenue record of $16.9 billion with all-time records for the App Store, cloud services, music, video, advertising, and payment services. Our new service offerings, Apple TV+ Apple Arcade, Apple News+ Apple Card, Apple Fitness+, as well as the Apple One bundle, continue to scale across users, content, and features and are contributing to overall services growth.

The key drivers for our services business all continue to move in the right direction. First, our installed base growth has accelerated and reached an all-time high across each major product category. Second, the number of both transacting and paid accounts on our digital content stores reached a new all-time high during the March quarter, with paid accounts increasing double digits in each of our geographic segments. Third, paid subscriptions continue to show strong growth. During the March quarter, we added more than 40 million paid subs sequentially and we have now reached more than 660 million paid subscriptions across the services on our platform. This is up 145 million from just a year ago and twice the number of paid subscriptions we had only two-and-a-half years ago. Finally, we’re adding new services that we think our customers will love while also continuing to improve the breadth and quality of our current service offerings.

For example, Apple Arcade launched its biggest expansion yet, adding incredibly fun games to the catalog, including new exclusive Arcade originals, along with two entirely new categories: App Store greats and Timeless Classics. Apple Pay continues to expand geographically, launching in Mexico and South Africa, bringing our payment service to six continents.

Wearables, home, and accessories grew 25% year-over-year to $7.8 billion setting new March quarter revenue records in every geographic segment. Apple Watch continues to extend its reach with nearly 75% of the customers purchasing Apple Watch during the quarter being new to the product. We are very excited about the future of this category and believe that our integration of hardware, software, and services uniquely positions us to provide great customer experiences in this category.

Next, I’d like to talk about Mac, we set an all-time revenue record of 9.1 billion dollars, up 7% over last year, and grew very strongly in each geographic segment with an all time revenues in Europe and rest of Asia Pacific and March quarter records in the Americas, Greater China and Japan. This amazing performance was driven by the very enthusiastic customer response to our new Macs powered by the M1 chip.

iPad performance was also outstanding, with revenue of $7.8 billion, up 79%. We grew very strongly in every geographic segment with an all time record in Japan and a March quarter record in rest of Asia Pacific. 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 U.S. Consumers from 451 Research measured customer satisfaction at 91% for Mac and 94% for iPad.

With this level of customer satisfaction and with around half of the customer’s purchasing Mac and iPad during the quarter being new to that product, the active installed base for both products continues to grow nicely and reach new all-time highs.

In the enterprise market, customers across many industries are accelerating their adoption of iPhone 12 and 5G as a key platform for the future of their business. Delta Airlines, for example, is putting iPhone 12 and 5G connectivity into the hands of flight attendants so they can provide the best passenger service possible as air travel rebounds.

Openreach in the UK has started equipping tens of thousands of field engineers with iPhone 12 to speed up their deployment of broadband services to homes around the country. And UC Health, a large health care provider in Colorado, was able to reduce per-patient vaccination time from three minutes to only 30 seconds, largely by moving from PC stations to iPhones. This has allowed their staff to rapidly scan and register new patients and vastly increase their daily vaccination capacity

Let me now turn to our cash position, we ended the quarter with over $204 billion in cash plus marketable securities. We issued $14 billion of new term debt and retired $3.5 billion of term debt, leaving us with total debt of almost $122 billion. As a result, net cash was $83 billion at the end of the quarter. This strong position allows us to continue to invest confidently in our future while also returning value to our shareholders. We are innovating and investing at an unprecedented pace, including accelerating our investment in the United States with our new commitment to contribute more than $430 billion and 20,000 jobs to the country over the next five years.

As we continue to execute an extremely high level, we were also able to return nearly $23 billion to shareholders during the March quarter. This included $3.4 billion in dividends and equivalents and $19 billion through open market repurchases of 147 million Apple shares. We continue to believe there is great value in our stock and maintain our target of reaching a net cash neutral position over time.

Given the confidence we have in our business today and into the future, our board has authorized an additional $90 billion dollars for share repurchases. We are also raising our dividend by 7% to $0.22 per share and we continue to plan for annual increases in the dividend going forward.

As we move ahead into the June quarter, I’d like to review our outlook, which includes the types of forward-looking information the pages 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, assuming that the COVID-related impacts to our business do not worsen from what we are seeing today for the current quarter.

We expect our June quarter revenue to grow strong double digits year over year. However, we believe that the sequential revenue decline from the March quarter to the June quarter will be greater than in prior years for two reasons. First, keep in mind that due to the later launch timing and strong demand, iPhone only achieved supply/demand balance during the March quarter. This will cause a steeper sequential decline than usual. Second, we believe supply constraints will have a revenue impact of $3 to $4 billion in the June quarter.

We expect gross margin to be between 41.5 and 42.5%. We expect OpEx to be between $11.1 and $11.3 billion dollars. We expect OINE to be around $50 million and our tax rate to be around 14.5%. Finally, reflecting the approved 7% dividend increase I just mentioned, today, our board of directors has declared a cash dividend of $0.22 cents per share of common stock payable on May 13, 2021, to shareholders of record as of May 10th, 2021.

With that, let’s open the call to questions.