Apple (AAPL) Q2 2016 Earnings Call

Apple (AAPL) CEO Tim Cook said the smaller iPhone SE is resonating with consumers

“We had a very successful global launch of iPhone SE, and demand outstripped supply throughout the quarter. We brought on additional capacity and were able to achieve supply/demand balance as we entered the September quarter. At its launch, we said that the addition of the iPhone SE to the iPhone lineup placed us in a better position to meet the needs of customers who love a four-inch phone and to attract even more customers into our ecosystem.”

Consumers are switching from the Android ecosystem to the iOS ecosystem

“Overall, we added millions of first-time smartphone buyers in the June quarter, and switchers accounted for the highest percentage of quarterly iPhone sales we’ve ever measured. In absolute terms, our year-to-date iPhone sales to switchers are the greatest we’ve seen in any nine-month period, and our active installed base of iPhones is up strong double-digits year over year.”

App store sales hit a record high

“We saw tremendous performance from our Services businesses, which grew 19% to a June quarter record of $6 billion. The growth was broad-based, with App Store revenue up 37% to a new all-time high, in addition to strong increases in Music, iCloud, and AppleCare. In the last 12 months, our Services revenue is up almost $4 billion year on year to $23.1 billion, and we expect it to be the size of a Fortune 100 company next year. Most of our terrific Services performance during the quarter was fueled by our active installed base of devices, with installed base-related purchases of $10.3 billion accelerating to 29% growth year on year.”

Apple (AAPL) CEO Tim Cook says he sees weakness in the slowing Chinese economy

“We face some challenges in Greater China, as the economic environment has slowed down since the beginning of the year. This is reflected in consumer confidence and retail spending, and the Chinese yuan has depreciated by 7% relative to the U.S. dollar since August of last year. Hong Kong’s tourism and retail businesses also continue to be significantly impacted by the stronger Hong Kong dollar relative to other Asian currencies.”

75% of contactless payments are done utilizing Apple Pay

“Leading financial partners tell us that three out of four contactless payments in the U.S. are made with Apple Pay. This is amazing. There are more than 11 million contactless-ready locations in the countries where Apple Pay is available today, including 3 million locations now accepting Apple Pay in the United States. With the launch of France, Switzerland, and Hong Kong this month, Apple Pay is now live in nine markets, including six of our top 10. Adoption outside the U.S. has been explosive, with over half of transaction volume now coming from non-U.S. markets.”

Apple (AAPL) CFO Luca Maestri said business customers are more interested in purchasing iPhones than ever

“iPhone continues to show great momentum in business markets. A recent survey by 451 Research found that among U.S. corporate buyers planning to purchase smartphones in the September quarter, 75% plan to purchase iPhones. This is the highest corporate purchase intent ever measured by the survey for the September quarter.”

They’ve now done $127 billion in share repurchases over the last few years

“We also completed our sixth accelerated share repurchase program, retiring an additional 8.7 million shares. We’ve now completed almost $177 billion of our current $250 billion capital return program, including $127 billion in share repurchases. During the quarter, we also spent $1 billion on a minority investment in Didi Chuxing in China, completed three acquisitions and incurred $4.2 billion in capital expenditures.”

Apple (AAPL) CEO Tim Cook on the rationale for the $1 billion dollar investment into Chinese ride sharing company Didi

“From a Didi point of view, we see that as, one, a great financial investment. Two, we think that there are some strategic things that the companies can do together over time. And three, we think that we’ll learn a lot about the business and the Chinese market even beyond what we currently know, and Didi has an incredible team there. And so that’s the rationale for why we did that. Would we do more investments? Yes, but it’s not something that you’ll see a whole string of from us. But we will constantly look for things that are smart to do.”

Less than half of the world has a smartphone so there’s still room for organic growth

“The iPhone demand is made up, as you know, of upgraders, switchers and new to smartphone. And so if you take it in reverse order for a minute and look at a new smartphone, smartphone penetration right now around the world at the end of December was 42%. And so there’s quite a bit of room there. It is true that a lot of those are in emerging markets, but we have done – we’ve had reasonable business success in several emerging markets. And so we don’t enter into those with no experience, although we will enter into them humbly.”

Apple (AAPL) CEO Tim Cook says it’s all about the totality of the user experience

“On the switcher side, we really like what we’re seeing. And we think that from a user point of view, as the smartphone itself becomes more and more essential to people’s daily lives, which is a part of what I had talked about before, a part of bringing it into the home in a bigger way and in the car and at work and so forth, we think people will put more and more focus on what they’re buying and the thing that Apple does best, which is provide this killer experience. A killer user experience that’s integrated across their lives I think becomes more important and I think that really plays to our advantage. I also think that the deployment of AI technology is something that we will excel at because of our focus on user experience, and so I like that.”