Apple CEO Tim Cook took to the phones today to talk with analysts about Apple's third-quarter results for 2015, along with Apple Watch, iPhone, China, and more. Follow along below with our live-updating transcript of his remarks.
Tim's opening remarks
Thanks, Nancy. Good afternoon, everyone, and thanks for joining us. It's been a busy and exciting quarter, and I'm delighted to talk to you about the highlights.
Revenue and numbers
Today, we're proud to report record June quarter results with revenues of 49.6 billion dollars, and earnings of 10.7 billion. Our year-over-year growth rate in the fiscal third quarter accelerated over the first half of fiscal 2015. Revenues were up 33 percent, our fastest growth rate in over three years, and earnings per share were up 45 percent.
We achieved these incredibly strong results despite reducing channel inventories across our product lines by over 1 million units, and despite the challenging FX environment. Revenue exceeded the high end of our guidance by 1.6 billion dollars as we topped our internal expectations for sales of iPhone, iPad, Mac, and Apple Watch.
iPhone
We had another stellar quarter for iPhone, establishing a new June quarter record. iPhone unit sales grew 35 percent, which is almost three times the rate of growth of the smartphone market overall, and we gained share in all of our geographic segments. iPhone revenue grew even more strongly, up 59 percent.
The strong iPhone results were broad-based in both developed and emerging markets, and we experienced the highest switcher rate from Android that we've ever measured.
Most importantly, iPhone customer metrics are tremendous. ChangeWave's most recent survey of U.S customers found that iPhone has the highest customer satisfaction rate of any smartphone brand by a wide margin, and that among iPhone owners planning to purchase a new phone, 86 percent plan to purchase another iPhone. That compares to 50 percent repurchase intent for the next-highest brand measured.
Mac
We also had a tremendous record quarter for Mac, continuing to defy the industry trend with unit growth of 9 percent, in a market that IDC estimates contracted by 12 percent. Growth was fueled by great response to our new MacBook, and we're working hard to catch up with customer demand.
Services
We generated over 5 billion dollars in services revenue, setting a new all-time record. Within services, the App Store produced its best quarter ever, with revenue growing 24 percent.
China
Our results from greater China were outstanding, with revenue growth of 112 percent, and iPhone unit growth of 87 percent. This is particularly impressive given IDC's estimate of only 5 percent growth for the greater China smartphone market.
We also achieved our highest-ever PC market share in the segment, with Mac sales growing 33 percent over last year. And our ecosystem in China continues to grow at a very fast pace, with App Store revenue more than doubling in the quarter. [CFO] Luca [Maestri] will go into more detail on our product and financial results in a moment.
Apple Watch
A major highlight of the past quarter for all of us here at Apple was the launch of Apple Watch in April. As you know, we've been very excited to get this revolutionary product to customers.
We started taking pre-orders in nine countries on April 10, and demand immediately exceeded supply by a wide margin. To prioritize those first orders and to deliver the best experience for our customers, we delayed the availability of Apple Watch in our own retail stores until mid-June.
We made huge progress with a production ramp across the quarter, and near the end of the quarter, expanded into six additional countries. And in just the past few days, we've been able to catch up with demand, enabling us to expand Apple Watch availability to a total of 19 countries currently, with three more countries to be added at the end of this month.
The feedback from Apple Watch customers is incredibly positive, and we've been very happy with customer satisfaction and user statistics. Market research from Wristly measured a 97 percent customer satisfaction rate for Apple Watch, and we hear from people every day about the impact it's having on their health, their daily routines, and how they communicate. Our own market research shows that 94 percent of Apple Watch owners wear and use it regularly if not every day.
Messaging and activity features are among the most popular, and social networking apps including Twitter, WeChat, and Line are seeing the most usage among third-party apps.
We believe that the possibilities for Apple Watch are enormous, and that's been reinforced in just the first few weeks since it became available to customers. For example, doctors and researchers at leading hospitals in the U.S. and Europe are already putting Apple Watch to work in improving patients' lives.
Nebraska Medicine, the latest hospital to adopt Apple Watch, has rolled out new apps that facilitate communication between patients and doctors, and provide quick access to important charts and dosage information.
Ochsner Health System of Louisiana is using Apple Watch with hypertension patients to gather important information like daily activity and blood pressure levels.
And leading cancer centers like London Kings College Hospital are incorporating Apple Watch into trials for ongoing care and monitoring of cancer patients.
Great Apple Watch solutions go well beyond health care: Users are tracking their fitness, getting breaking news alerts, following their investments, connecting with friends, and living a healthier day.
The user experience for Apple Pay and Siri is nothing short of incredible, and customers are enjoying countless other features through the over 8500 third-party apps available for Apple Watch.
This is just the beginning of what this new platform can deliver. With Apple watchOS 2, developers now have the ability to build richer and more powerful native apps for Apple Watch, taking advantage of the heart rate sensor, the Digital Crown, accelerometer, and more, ushering in a whole new class of apps designed specifically for the wrist.
It's a rare and special privilege to launch a new platform with such promise and potential, and I know I speak for everyone at Apple when I say that we can't wait to see what our developers and customers do with it.
We hosted a fantastic developers' conference in June, with thousands of attendees from 70 countries coming together with Apple engineers to share in the excitement of our three operating systems: OS X, iOS, and watchOS. We've been working hard to make our products even more intelligent, more powerful, and more meaningful in all aspects of our customers' lives, while adding new Continuity features to make the experience across our devices more seamless than ever, and preserving the security and privacy our customers deserve.
Public betas of OS X El Capitan and iOS 9 are available now, and customer versions of all three updated OSes are on schedule and will be available in the Fall.
We're very excited about our News app, coming to iPhone and iPad with iOS 9. We believe that it will be the best news-reading experience on any mobile device, combining a beautiful magazine layout with real-time customized digital media content. News will follow over a million topics, and pull relevant stories based on the user's specific interests without compromising their privacy.
We've already signed 25 leading publishers representing more than 75 of the world's most influential news, sports, business, and magazine titles—including CNN, the New York Times, the Financial Times, ESPN, Bloomberg Business, Conde Nast, Hearst, Reuters, Time Inc, and the Daily Telegraph.
Apple Music
The September quarter is off to an exciting start. We're thrilled by the response to Apple Music, which launched in over 100 countries on June 30. Apple Music is a single, immersive app that combines the best ways to enjoy music, all in one place. It's an incredible streaming music service, a pioneering worldwide live radio station broadcasting 24 hours a day, and a great place for music fans to connect with their favorite artists.
Customers and reviewers love the human curation features of Apple Music and the way it's helping people discover new music. Millions and millions of customers are already experiencing the new service using the three-month trial period, and the numbers are growing substantially every day. Over fifteen thousand artists have signed up to post on Connect, where we are already seeing great original content including a world-premiere video by Drake.
Millions of listeners around the world are tuning into Beats 1, the first of its kind worldwide radio station featuring some of the most talented and passionate music lovers on the planet. This all adds up to a renewed sense of excitement around music, which we love and expect to continue as Apple Music gets traction with customers.
Apple Pay
Last week, we launched Apple Pay in the U.K., bringing customers our easy, secure, and private way to pay. On day one, we had an incredible roster of over a quarter of a million locations and major credit and debit cards from many of the U.K's most established banks supporting Apple Pay.
Customers are using Apple Pay to ride the London Underground, as well as the overground system of transports for London, and we hope this will be a model for other public transportation systems around the world.
In the U.S., we've seen fantastic support from merchants of all sizes. We're excited to see this momentum continue with the new Square reader, coming this fall. It will bring Apple Pay to even more neighborhood businesses where you pay every day—from your corner coffee shop to your local farmers' market—bolstering the 80,000 small and medium-sized businesses we're already adding every month.
American Express will add Apple Pay support for its robust portfolio of corporate cards next month, offering businesses and their employees a new way to make easy and secure payments.
And as we head into the school year, 700 universities and colleges across the U.S. will accept Apple Pay, such as Auburn University, the University of California Irvine, Colorado State University, the University of Kentucky, and the University of Oklahoma, among many others.
We're on track for Apple Pay acceptance at over 1.5 million U.S. locations by the end of 2015. I'd like to thank our customers, developers, business partners, and employees for another record-breaking quarter. We're very hard at work on our exciting pipeline of new hardware, software, and services, and we're continuing to expand our global reach into new markets.
And we're passionately committed to leaving the world better than when we found it. With that, I'll turn the call over to Luca.
On iPhone's sequential unit decline
Katie, it's Tim. As Luca mentioned, the channel inventory did go down 600,000. We sold more units than we thought we would, and so that was a part of that.
The other part of it is that we always run with just the amount of inventory that we think we need, and so to do the degree that sales are distributed in the countries with disproportionately with shorter supply chains, or the standard deviation demand is less, we would always choose to have less.
And so in this particular quarter, we were able to end—to basically, right at the bottom end of our range. And we view that as a good thing, not a bad thing.
Obviously, the revenues could have been much higher if we would've expanded the channel, but if you don't need to do that, that's not how we think about the business. We run the business for the long-term, not the 90-day clock.
In terms of the... what's going on with iPhone: The 35 percent growth [year-over-year] is almost three times the market and if you look at it at a little narrower regional level, western Europe grew 30 percent versus a market of 7 [percent] so four times market; Japan grew over five times market; we doubled in Korea versus a market that was shrinking; and in India we grew at 93 percent. And this is on top of the greater China numbers that we've already covered that grew 87 percent during the quarter against a market of five percent.
And so we did exceptionally well, I think, in any way that you look at it. In terms of our—the percentage of customers that have upgraded to a 6 and 6 Plus versus those that have not upgraded, it's 73 percent, meaning that 27 percent of the install base of customers prior to the launch of 6 and 6 Plus have now upgraded.
And so we view that as a very bullish sign on the future, that there's a lot of headroom left for upgraders. We also are incredibly happy to see the highest Android switcher rate that we've observed. And so, from our point of view, the iPhone is doing outstanding.
More to come.
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