During Apple's earnings call on October 31, senior executives emphasized the company's commitment to quality, which has influenced the pace of the Apple Intelligence launch across regions. Additionally, favorable foreign exchange developments benefited Apple, helping the company maintain stable performance in China.
Apple CEO Tim Cook reported during the call that iPhone sales grew in every geographic segment, setting a new third-quarter revenue record for the category. Services also achieved an all-time revenue record, rising 12% compared to the same period last year.
The third quarter segment revenue records were established in the Americas, Europe, and the rest of Asia Pacific, along with several countries, including the US, Brazil, Mexico, France, the UK, South Korea, Malaysia, Thailand, Saudi Arabia, and the UAE. Cook expressed excitement about the enthusiasm in India, where an all-time revenue record was also set.
Earlier in the week, the first set of Apple Intelligence features was made available in US English for iPhone, iPad, and Mac users. The company plans to release additional intelligence features in December, including enhanced writing tools, a new visual intelligence experience built on Apple Intelligence, and ChatGPT integration, along with localized English support for the UK, Australia, and Canada.
The Apple Vision Pro continues to deliver spatial experiences that were previously unattainable. The device boasts over 2,500 native spatial apps and 1.5 million compatible apps for Vision OS 2. On October 30, Apple announced that Vision Pro would be introduced in Korea and the UAE.
Apple CFO Luca Maestri reported that the company's gross margin was 46.2%, near the high end of their guidance range. The Product business' gross margin stood at 36.3%, reflecting a 100 basis point sequential increase primarily driven by a favorable mix. The company's Services' gross margin remained unchanged from the prior quarter at 74%.
Apple Intelligence roadmap and related capex
When asked about the proportion of Apple's global iPhone install base that will have access to Apple Intelligence in their native languages within the next one to two years, Cook responded by outlining the current rollout schedule, which began with support for US English. He mentioned that another release is planned for December, which will include additional features and localized support for users in the UK, Australia, Canada, Ireland, and New Zealand.
Cook noted that more languages will be added in April, although specific languages have yet to be announced. He emphasized that the rollout is being conducted as quickly as possible while maintaining a focus on quality, suggesting that ensuring a high-quality user experience is a priority as they expand language support.
When responding to a question about Apple's capital expenditure (Capex) outlook, Maestri explained that Apple employs a hybrid model for its data centers, utilizing both its own facilities and third-party providers, indicating Apple's Capex figures may not be directly comparable to those of other companies.
Maestri emphasized that Apple is actively rolling out features related to Apple Intelligence, ensuring the necessary capacity to support these initiatives. He indicated that detailed Capex figures for fiscal 2024 (November 2023 to October 2024) will be available in the company's annual report (10-K) and assured that Apple will continue to invest as needed in fiscal 2025, including in AI-related Capex.
Forex dynamics offset weak demand in China
Responding to a question about the demand dynamics in China, especially in light of recent stimulus plans that might boost iPhone sales, Maestri stated that Apple's performance in the region was relatively flat compared to the same period last year for the quarter. He highlighted that a significant factor contributing to this stability was a sequential improvement in foreign exchange, which had previously been a headwind for the company.
Maestri pointed out that Apple had the top two selling smartphones in urban China, according to research firm Kantar, and noted that more than 50% of new customers purchasing products like Mac and iPad were first-time buyers, with over three-quarters of Apple Watch purchasers being new to the product. These statistics suggest positive consumer interest and market penetration.
Regarding the impact of stimulus measures in China, Maestri refrained from speculating on its economic effects.
Discussing Europe, Maestri reported strong performance, with the region growing by 11%. He attributed this growth to positive results across various market segments, noting that Apple's definition of Europe includes emerging markets such as Turkey, where they have seen substantial growth, as well as the Middle East, with record sales in Saudi Arabia and the UAE. He also mentioned that India achieved an all-time revenue record during the third quarter, while Western Europe also performed well, indicating a strong overall performance in the European segment.
