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 (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) 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.”

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.”

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