Apple (AAPL) Q3 2017 Earnings Call

Timothy Donald Cook – Apple, Inc.

The iphone is 10 and still popular

“The combined iPhone 7 and iPhone 7 Plus family was up strong double digits year over year. One decade after the initial iPhone launch, we have now surpassed 1.2 billion cumulative iPhones sold.”

They are keen on autonomous systems

“We are very focused on autonomous systems from a core technology point of view. We do have a large project going and are making a big investment in this. From our point of view, autonomy is the mother of all AI projects. And the autonomous systems can be used in a variety of ways and a vehicle is only one.”

The drivers of Apple growth going forward include emerging markets

“I do think that we can grow both in units and market share….And so what are the drivers? The installed base is growing. It’s still growing very strongly. That will generate more upgrades over time. I feel good about our ability to convince people to switch. And where the developed markets the first-time buyer rates are down other than places like Japan perhaps, the emerging markets, we haven’t even gotten started yet, really. From a revenue point of view, we had very strong growth there. Emerging markets ex-China were up 18% year on year. It was a record for us, so we see a lot of opportunity in these markets.”

Created 2m jobs in the US

“We’ve created 2 million jobs in the U.S., and we’re incredibly proud of that. We do view that we have a responsibility in the U.S. to increase economic activity, including increasing jobs, because Apple could have only been created here. And so as we look at that 2 million, there are three main categories of that, and we have actions going on in each of them to further build on that momentum. The first category is app development. About three-quarters of the 2 million are app developers. And we’re doing an enormous amount of things to deliver curriculum to both K-12 with Swift Playgrounds in the K-to-6 area, other curriculum as you proceed beyond grade 6 under the Everyone Can Code area.”

Luca Maestri – Apple, Inc.

High interest and satisfaction with Iphone

“Customer interest and satisfaction with iPhone are very strong with both consumers and business uses. In the U.S., the latest data from 451 Research on consumers indicates a 95% customer satisfaction rating for iPhone 7 and 99% for iPhone 7 Plus. Among consumers planning to buy a smartphone, purchase intention for iPhone was nearly three times the rate of our closest competitor. Among corporate smartphone buyers, iOS customer satisfaction was 94%. And of those planning to purchase smartphones in the September quarter, 78% plan to purchase an iPhone.”

Service is growing driven by the App store

“Turning to Services, we set an all-time quarterly record of $7.3 billion, up 22% year over year. The App Store was a major driver of this performance…the App Store, which is the largest of our Services categories, is seeing an increasingly larger amount of paying accounts. On a year-over-year basis, the number of accounts that are actually transacting and paying on the App Store is growing very, very well.”

On App store spending trends

“What we’re seeing and we’ve seen over a long period of time as we keep track of these cohorts of customers, we see that as customers get on the App Store and start spending on it, we see the spending profile is very similar across generations of customers. People tend to spend more over time. Obviously, you have different spending profiles in different geographies around the world, but in general you see that trend across the board.”

Apple FY 2Q17 Earnings Call Notes

Timothy Donald Cook – Apple, Inc.

Misjudged the demand for the 7 plus

“Katy, one of the things that we did not get right was the mix between the iPhone 7 and the iPhone 7 Plus. It wound up that demand was much stronger to the iPhone 7 Plus than we had predicted. And so it took us a little while to adjust all the way back through the supply chain and to bring iPhone 7 Plus into balance, which occurred early this past quarter. What have we learned from it? Every time we go through a launch, we learn something. And you can bet that we’re brushing up our models and we’ll apply everything we learn to the next time.”

Watch units have doubled in 6/10 top markets

“We have seen the watch as a really key product category for us since before we launched it. We took our time to get it right, and we’ve made it even better with the Series 2 offering. And we’re really proud of the growth of the business. The watch units more than doubled in six of our top ten markets, which is phenomenal growth, particularly in a non-holiday quarter. And so we couldn’t be more satisfied with it.”

Not surprised that competitors are falling out of watch

“Where does it go? I wouldn’t want to comment on that, but we do have a really great pipeline here. And I think in terms of competition falling out and so forth, the watch area is really hard. It in essence from an engineering point of view is similar to a phone in terms of the intricacies and so forth. And so I’m not very surprised that some people are falling out of it. But we’re very committed to it and believe that – it’s already a big business and believe over time it will be even larger. Thanks for the question.”

Apple FY 1Q17 Earnings Call Notes

Tim Cook

Especially strong demand for iPhone 7 plusWe might do acquisitions with repatriated moneyIndian demonetization was the right move

“That’s a really good question. Despite the demonetization move in India that created lots of economic pressure there last quarter, despite that, we had all-time record revenue results, and so we were very happy about that. The demonetization impact has not worked its way through yet. It’s still definitely having some overhang. But I think in the longer term, it’s a great move, and I feel really good about how we’re doing there”

Litigation vs. Qualcomm was a last resort

“I feel the same way I did in April of 2012. I don’t like litigation and view it as a last resort. And so you should take from our filing that we viewed it as we didn’t see another way forward. They were insisting on charging royalties for technologies that they had nothing to do with. And so we were in a situation where the more we innovated with unique features like Touch ID or advanced displays or cameras, just to name a few, the more money Qualcomm would collect for no reason and the more expensive it would be therefore for us to innovate. And so it’s somewhat like buying a sofa, and you charge somebody a different price depending upon the price of the house that it goes into. Just from our point of view, this doesn’t make sense, and we don’t believe it will pass muster in the courts. In addition to that, as a part of their increasingly radical steps they were taking to try to hold up that model, they withheld $1 billion in payments that they owed us. And so we felt like we had no choice was the net of it.”

See a lot of opportunity for the iPad

“If I zoom out of the 90-day clock and look at it, we’ve got some exciting things coming on iPad. I still feel very optimistic about where we can take the product. When we look at the number of people buying iPads for the first time, which is a good thing to look at from a point of view of whether things are reaching a penetration point or not, the numbers indicate that it’s not close to that kind of thing. The customer sat numbers are through the roof. Literally, the customer sat for the iPad Pro is 99%. It’s stunning.”

Luca Maestri

Iphone grew double digits in many markets including the US

“When we look at it geographically, I think we see different developments. For example, we felt very, very good about the unit growth that we had in many markets around the world. You’ve been quoting an overall total company growth rate. But when we look at a country-specific level, there were a lot of countries, I would say the majority of the countries, where iPhone units grew strong double digits, starting here in the United States, where for example, the fact that annual upgrade programs are becoming more and more popular is proving to be a positive for us. Same happened in a number of countries around the world, starting with Canada and Australia but also many places in Western Europe as well. Japan grew double digits in terms of units. So I think geographically we are seeing very, very good performance.”

Apple FY 4Q16 Earnings Call Notes

Apple (AAPL) Q4 2016 Results

Timothy Donald Cook

iPhone demand is outstripping supply

“In terms of iPhone 7, Gene, the carriers that had upgrade plans, the information that we have from them is that demand is very robust. But from a worldwide point of view, the truth is that demand is outstripping supply in the vast majority of places, particularly on the iPhone 7 Plus”

Weakness in China due to anniversary of surge in upgrade rate

“why was it down? There’s lots of reasons, but the largest one in our view is that when you look at what happened in 2015 in China, we had a surge of upgraders that came into the market for the iPhone 6 or iPhone 6 Plus, and the upgrade rate increased relatively more in Greater China than elsewhere around the world. And so when that upgrade rate in fiscal year 2016 returned to a more normal upgrade rate, which would be akin to what we saw with the iPhone 5S as a point, it had further to fall. And so that’s the main reason in our view that you see a difference.”

We’re open to acquisitions of strategic value

We are open to acquisitions of any size that are of strategic value where we can deliver better products to our customers and innovate more. And so we look at a whole variety of companies, and based on that, we choose whether to move forward or not. But we’re definitely open and we definitely look.

We have the strongest pipeline that we’ve ever had

“We have the strongest pipeline that we’ve ever had and we’re really confident about the things in it. But as usual, we’re not going to talk about what’s ahead…We have a strong sense of where things go and we’re very agile to shift as we need to.”

Smartphone has not done as well in India because infrastructure hasn’t been there, but that’s changing

“The smartphone has not done as well in India in general. However, one of the key reasons for that is the infrastructure hasn’t been there. But this year or this year and next year, there are enormous investments going in on 4G and we couldn’t be more excited about that because it really takes a great network working with iPhone to produce that great experience for people. And so I see a lot of the factors moving in the right direction there. I also think the government is much more focused on the infrastructure and on creating jobs, which is fantastic, because you really need the kind of infrastructure and the technology to do that.”

Luca Maestri – Apple, Inc.

65% of smartphone buyers in the US plan to purchase and iPhone

“Customer interest and satisfaction with iPhone remains extremely strong. In the U.S. for instance, the latest survey fielded by 451 Research found that among consumers planning to purchase a smartphone within 90 days, 65% plan to purchase iPhone, with the current iPhone owners reporting a 97% customer satisfaction rating. Among corporate smartphone buyers, the latest survey measured a 95% iPhone customer satisfaction rating and found that of those planning to purchase smartphones in the December quarter, 79% planned to purchase iPhone.”

iPad has 82% of high end tablet market

“We continue to be highly successful both in terms of market share and customer metrics in the segments of the tablet market where we compete. Recent data from NPD indicates that iPad gained share in the U.S. tablet market in the September quarter and had 82% share of tablets priced above $200. And in August, 451 Research measured a 96% consumer satisfaction rate for iPad mini, 95% rate for iPad Air, and a 93% rate for iPad Pro”

At some point the strong dollar becomes the new normal and we need to work with that

“It is very, very important I think for investors to understand that what’s happened during the last two years. During the last two years, the U.S. dollar has appreciated by 15% over the basket of currencies where we do business. And we’re a company that generates two thirds of our revenues outside the United States, 15% appreciation of the U.S. dollar. So on a year-over-year basis, just 2016 over 2015 was 340 bps impact from foreign exchange. This is something that we have offset almost entirely through a number of initiatives going from pricing actions to cost initiatives to our hedging program, but at some point, the strong dollar becomes the new normal and we need to work with that”

Apple (AAPL) Senior Vice Presidents Eddy Cue & Craig Federighi Interview

Apple (AAPL) Senior Vice President Eddy Cue on focusing

“I love Facebook. We can’t be everything. One of the reasons we’ve been highly successful is that we focus. We can’t be great at everything; nobody’s great at everything. I mean, come on. So, if you want to be great at something, you have to focus and do a few things. We’ve been lucky. We’ve had a few, and not just one. That’s the only way we know how to work. So we don’t want to be Amazon and be Facebook and be Instagram and so on.”

Apple (AAPL) Senior Vice President Craig Federighi on how he thinks about their internal maps capabilities 

“While Maps isn’t a revenue-producing product itself, it’s a platform. It’s certainly an important feature in terms of the convenience it provides you, but Maps is a platform on which so many of our developers build. If you think about mobility in general, Maps is a core organizing structure for the physical world in which you interact. So many, many third-party apps incorporate mapping, as an understanding of where you are in relation to others, as a way to do all sorts of things—put photos on a map to help you relive a trip, get a heads up about when you need to leave, or see which of your friends is in a certain area. Just as our operating system is a platform or a foundation, having a map of the physical world is a foundation for building all kinds of value on the platform. Our Maps app is just one client of that underlying platform that’s delivered there.”

Apple (AAPL) Senior Vice President Craig Federighi on the company’s ability to evolve

“We are a company that has learned and adapted as we’ve gone into new domains, during Steve’s time and after Steve’s time. If you look at building mobile consumer devices and what it meant to market and retail those, we were doing lots of things we had never done while we were just the Mac company. Under Steve, that part of the business learned to adapt to that domain, and got really good at it. Under Steve, we got into silicon; we now design and build our own chips. The set of practices, disciplines, expertise, and management approach to releasing a chip that you’re going to fabricate in the billions is a different discipline than the one you’re going to use to design a Mac, or to sell something in retail, or to sell songs in the iTunes Store. So we had to develop that expertise in chips, because it was vital to the experience we wanted to deliver. Maps is yet another domain where we had to learn what we didn’t know. And as we realize that a particular technology or approach is necessary to deliver new experiences, we’re going to learn what we don’t know and adapt our style to address it. There’s not just one way to get things done here.”

 

 

Source: Fast Company Interview, August 10 2016 – http://www.fastcompany.com/3062596/tim-cooks-apple/eddie-cue-and-craig-federighi-open-up-about-learning-from-apples-failures

Apple (AAPL) CEO Tim Cook Interview

Apple (AAPL) CEO Tim Cook on the purpose of the company

“The DNA of the company is really what I was talking about there. The North Star has always been the same, which for us, is about making insanely great products that really change the world in some way — enrich people’s lives. And so our reason for being hasn’t changed.”

Apple (AAPL) CEO Tim Cook on how many analysts have always been wrong about the company not able to grow anymore because it’s so large

“It doesn’t bother me. Because honestly, they were saying that about Apple in 2001. They were saying it in 2005. They were saying it in 2007 — ‘this stupid iPhone, whoever dreamed up this thing?’ Then they were saying that we peaked in 2010, then it was 2011. We got to $60 billion [in revenue], and they said you can’t grow anymore from this. Well, last year we were $230 billion. And, yes, we’re coming down some this year. Every year isn’t an up, you know. I’ve heard all of it before. And I don’t subscribe to it because it’s traditional thinking in a lot of ways: You can’t get large because you are large.”

Apple (AAPL) CEO Tim Cook on focusing on doing just a few things well

“The wonderful thing about Apple is there are many ideas about doing things. We have resources to do a few, but you can only do a few things deep and well, and so you have to say no and have debates about what things are in versus out. So more than one big thing has left the page.”

Apple (AAPL) CEO Tim Cook on whether he has made any mistakes

“Maps was a mistake. Today we have a product we’re proud of. [But] we had the self-honesty to admit this wasn’t our finest hour and the courage to choose another way of doing it. That’s important. It’s the only way an organization learns. The classic big-company mistake is to not admit their mistake. They double down on them. Their pride or ego is so large that they can’t say we did something wrong. And I think the faster you do that, the better — change gears to something else. If you’re honest, people will give you the benefit of the doubt. But if you have your head stuck in the sand and you just keep doing it, I think you lose your employees and your customers as well.”

 

 

 

Source: Washington Post Interview – August 13, 2016 – http://www.washingtonpost.com/sf/business/wp/2016/08/13/2016/08/13/tim-cook-the-interview-running-apple-is-sort-of-a-lonely-job/

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.”

 

Apple FY 3Q16 Earnings Call Notes

Apple (AAPL) Timothy Donald Cook on Q3 2016 Results

Sell through greater than sell in

“Revenue of $42.4 billion was near the high end of our guidance range and gross margin of 38% was at the top of our guidance range. We achieved these results while reducing channel inventory by about $3.6 billion, significantly more than the $2 billion inventory reduction we had expected. So our sell-through was markedly greater than our sell-in.”

iPad grew 7%

“We had our best iPad compare in 10 quarters, with revenue growing 7% thanks to the rollout of the 9.7-inch iPad Pro. We’re proud to have the most exciting lineup of tablets and accessories in the world and exceptionally high customer satisfaction and engagement. Our surveys also show that about half of iPad Pro purchases are buying them for work.”

New watchOS coming in the fall

“Apple Watch continues to be the best-selling smartwatch in the world. And just this month, J.D. Power ranked it highest in customer satisfaction among all smartwatches. With watchOS 3 coming this fall, customers will be able to update their Apple Watches with an enhanced user interface, significantly improved performance and all-new fitness and health capabilities, including activity sharing.”

China’s economic environment has slowed since the beginning of the year

“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.”

Using machine learning

“We’re also using machine learning in many other ways across our products and services, including recommending songs, apps, and news. Machine learning is improving facial and image recognition in photos, predicting word choice while typing in messages and mail, and providing context awareness in maps for better directions. Deep learning within our products even enables them to recognize usage patterns and improve their own battery life.

Developing ways to deliver AI processing on cloud without compromising privacy

And most importantly, we deliver these intelligent services while protecting users’ privacy. Most of the AI processing takes place on the device rather than being sent to the cloud. And starting this fall, we’ll be using sophisticated technology called differential privacy, enhancing our ability to deliver the kinds of services we dream of and customers love without compromising on the individual privacy our customers have come to expect from us.”

Rationale for Didi investment

“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”

Very optimistic about the future since smartphone becoming even more instrumental to people’s lives

“I’m very optimistic about the future because I see so many signs that are positive. I see an installed base that has gotten incredibly large. I see a switcher rate that is the highest ever. I see the smartphone itself, led by iPhone, becoming even more instrumental and important to people’s lives. It’s becoming essential”

Smartphone penetration is still only 42%

“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.”

Luca Maestri – Chief Financial Officer & Senior Vice President

We do know that the macro environment is slowing down in a number of places

” As you know, we do not provide guidance for channel inventory. But I would say, in general, I think it’s important to keep in mind that if we look around the world, we do see a lot of positive signs, but we also know that the macroeconomic environment is slowing down in a number of places around the world. And that needs to be taken into account in our guidance.”

Apple FY 2Q16 Earnings Call Notes

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.”

Apple 1Q16 Earnings Call Notes

Tim Cook

Seeing extreme conditions unlike anything we’ve experienced before

“Our results are particularly impressive, given the challenging global macroeconomic environment. We’re seeing extreme conditions unlike anything we’ve experienced before just about everywhere we look. Major markets, including Brazil, Russia, Japan, Canada, Southeast Asia, Australia, Turkey and the eurozone, have been impacted by slowing economic growth, falling commodity prices and weakening currencies.”

Foreign currency fluctuations have a meaningful impact

“66% of Apple’s revenue is now generated outside the United States, so foreign currency fluctuations have a very meaningful impact on our results. ”

Began to see economic softness in China

“Notwithstanding these record results, we began to see some signs of economic softness in Greater China earlier this month, most notably in Hong Kong. ”

The mother of all balance sheets

“We had the mother of all balance sheets, with almost $216 billion in cash, which translates to nearly $39 per diluted share of Apple stock.”

Customer loyalty still high

“recent consumer surveys by 451 Research, formerly known as ChangeWave, measured an incredible 99% customer satisfaction rate for iPhone 6S and 6S Plus and an equally impressive 97% rate for the iPad Air 2. They also indicate that our iPhone loyalty rate is almost twice as strong as the next highest brand.”

Install base has crossed 1B devices

“our install base has been growing very fast and has recently reached a major milestone, crossing 1 billion active devices for the first time. ‘

The level of Android switchers we had was the highest ever by far

“I would say we were blown away by the level of Android switchers that we had last quarter. It was the highest ever by far. And so we see that as a huge opportunity.”

I don’t think VR is a niche

“Yeah. In terms of virtual reality, no, I don’t think it’s a niche. I think it can be — it’s really cool and has some interesting applications.”

Next quarter should be our toughest compare

“we do think that iPhone units will decline in the quarter. We don’t think that they will decline to the levels that you’re talking about. We aren’t projecting beyond the quarter, as Luca mentioned earlier. But at this point in time, we see that Q2 is the toughest compare.”

I don’t think smartphone penetration is saturated yet

“as I look at sort of your — maybe your broader umbrella point about a question on saturation, the metrics I see would strongly suggest otherwise. For example, almost half of the iPhones that we sold in China last quarter were to people who were buying their first iPhone. And certainly if you go outside of China into the other emerging markets, our share is much lower and the LTE penetration is so low, I mean in some cases, it’s zero, that it indicates to me that there’s still a lot of people, a tremendous number of people in the world, that will buy smartphones and we ought to be able to win over our fair share of those.”

Our expansion plans have not changed even in markets where it looks fairly bleak

“our expansion plans in China have not changed. We are maintaining our investment profile and plans there. We are also continuing to invest in markets where we believe they are great places for Apple for the long-term, like India, as an example of that one. And finally, even in the markets where today, grandly, it looks fairly bleak, from Russia and Brazil and some of the other economies that are very much tied to our oil-based economies. We do believe that this, too, shall pass and that these countries will be great places and we want to serve customers in there and so we’re not retrenching. ”

Luca Maestri

79% of corporate buyers planning to purchase smartphones plan to purchase iPhones

“Among corporate buyers planning to purchase smartphones in the March quarter, 451 Research found that 79% planned to purchase iPhones. That is the highest iPhone purchase intent in the eight-year history of the survey.”

The macroeconomic environment is weakening

“The macroeconomic environment is weakening. When you think about all the — particularly all the commodity-driven economies, Brazil and Russia and emerging markets, but also Canada, Australia in developed markets, clearly the economy is significantly weaker than a year ago. We talked about the unfavorable FX, which again is 400 basis points.”

Data centers are a growing expense as installed base keeps growing

“data centers is a growing expenditure for us, because, as we mentioned in our prepared remarks, our installed base of customers and devices is growing, and is growing very significantly. And the data center capacity that we put in place is to provide the services that are tied to the installed base.”