Apple FY 2Q16 Earnings Call Notes

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Timothy Donald Cook – Chief Executive Officer & Director

Smartphone market slow growth due to macro environment

” In terms of do I think the smartphone market is mature, I think that the market, as you know, is currently not growing. However, my view of that is that’s an overhang of the macroeconomic environment in many different places in the world. And we’re very optimistic that this too shall pass and that the market and particularly us will grow again.”

More people than we expected want the latest tech in a more compact package

“I think the iPhone SE is attracting two types of customers. One is customers that wanted the latest technology but wanted it in a more compact package, and we clearly see even more people than we thought in that category. And then secondly, it’s attracting people who aspire to own an iPhone but couldn’t quite stretch to the entry price of the iPhone, and we’ve established a new entry. ”

The upgrade rate is slightly higher to 6s than 5s but lower than 6

“The iPhone 6s upgrade cycle that we’ve measured for the first half of this year, so the first six months of our fiscal year to be precise, is slightly better than the rate that we saw with the iPhone 5s two years ago, but it’s lower than the iPhone 6. I don’t mean just a hair lower. It’s a lot lower. And so without giving you exact numbers, if we would have the same rate on iPhone 6s that we did iPhone 6, it would be time for a huge party. It would be a huge difference.”

Upgrade cycle is much longer in the tablet market than cell phone

“one of the challenges with the tablet market is that the replacement cycle is materially different than in the smartphone market. And so as you probably know, we haven’t had an issue in customer satisfaction on the iPad. It’s incredibly high. And we haven’t had an issue with usage of the iPad. The usage is incredibly high. But the consumer behavior there is you tend to hold on for a very long period of time before an upgrade.”

China is not as weak as has been talked about

“And so as I back up from this and look at the larger picture, I think China is not weak as has been talked about. I see China as may not have the wind at our backs that we once did, but it’s a lot more stable than what I think is the common view of it. And so we remain really optimistic on China. ”

Growing number of people in both parties that want tax reform so it will probably get done

“I think there are a growing number of people in both parties that would like to see comprehensive reform, and so I’m optimistic that it will occur. It’s just a matter of when. And that’s difficult to say, but I think most people do recognize that it’s in the U.S.’s interest to do this.”

Luca Maestri – Chief Financial Officer & Senior Vice President

Advocates for corporate tax reform

“On tax reform, maybe I can continue, and I’ll let Tim provide more color, but we’ve been strong advocates for comprehensive corporate tax reform in this country. We continue to do that. We think a reform of the tax code would have significant benefits for the entire U.S. economy, and we remain optimistic that we’re going to get to a point where we can see that tax reform enacted. At that point in time, of course, we would have much more flexibility around optimizing our capital structure and around providing more return of capital to our investors.”