Apple Inc. released its fourth quarter and full year financial report for the 2024 fiscal year: the total net revenue for the fourth quarter was $94.93 billion, a 6% year-on-year increase; net income was $14.736 billion, a 36% year-on-year decrease; diluted earnings per share was $0.97, a 34% year-on-year decrease. Apple Inc.'s revenue in Greater China in the fourth quarter was $15.033 billion, slightly lower than the $15.084 billion in the same period last year (Note: Apple's fiscal year is not synchronized with the calendar year, from October 2023 to September 2024 is the 2024 fiscal year).
After the financial report was released, Apple's management team held a conference call, with Apple's CEO Tim Cook, CFO Luca Maestri, and Vice President of Financial Planning and Analysis Kevan Parekh participating and answering analyst questions. CFO Luca Maestri will step down on January 1, 2025, and Kevin Parekh will succeed the CFO position.
The following is the main content of the analyst Q&A session during the conference call:
Goldman Sachs analyst Michael Ng: My first question is about Apple Intelligence. Tim, with the official launch of iOS 18.1, could you please share with us the preliminary feedback from users on Apple Intelligence? How did the beta version sent to developers perform? We see strong iPhone sales momentum currently, do you attribute this to the launch of Apple Intelligence?
Tim Cook: As I mentioned in the briefing earlier, this Monday, we officially pushed out the Apple Intelligence feature that is compatible with iPhone, iPad, and Mac in the U.S. region. Currently, Apple Intelligence supports features including: system-wide writing tools to help users optimize text input to enhance writing quality; a more natural voice assistant Siri; smarter photo management tools; a video tool that generates movies based on input descriptions; and intelligent recognition to generate app notification summaries, helping users get key information, and more.
So far, we have received a lot of positive feedback from both developers and users. Based on data from the first three days (of course, we only have three days of data), the user update rate for iOS 18.1 starting from this Monday is twice that of iOS 17.1 at the same time last year. In this sense, users are definitely very interested in Apple Intelligence.
This trend will continue into the coming quarter. In December, we will roll out more features to users, including but not limited to more powerful writing tools and visual intelligence experiences integrated with Apple Intelligence and ChatGPT. Additionally, Apple Intelligence will also be officially pushed out to users in multiple countries and regions like the United Kingdom, Australia, and Canada.
It can be said that this will be an exciting quarter (from this Monday to December), and we will have a lot of news to share with everyone. Going into 2025, Apple Intelligence will launch in more non-English-speaking countries and regions, supporting more languages. Starting from April next year, we will introduce more features for Apple Intelligence. In summary, Apple Intelligence has strong momentum, and we are extremely excited about it.
Goldman Sachs analyst Michael Ng: My second question is for Luca. First of all, I would like to congratulate Luca on his new position (Luca Maestri, the Chief Financial Officer of Apple, will step down on January 1, 2025, and then he will serve as the head of Apple's corporate team). It is my honor to work with you during this time. My second question is also related to your new position. Could you please talk to us about the company's capital expenditure prospects? Will the company's investment in projects such as proprietary cloud computing change Apple's annual capital expenditure range of about $10 billion?
Luca Maestri: Regarding capital expenditures. As I have mentioned before, Apple adopts a hybrid approach in the operation of data centers: in some cases, we use our own data centers; in other cases, we use third-party data centers. Therefore, our capital expenditure amount may not be comparable to past data. Of course, with the introduction and push of new features such as Apple Intelligence, we will provide the necessary computing power support for these new features. You can also see the amount of our capital expenditures during the 2024 fiscal year in our 10-K report. We will continue to advance all necessary investments in the 2025 fiscal year, continuing to invest in capital expenditures related to artificial intelligence projects.
Morgan Stanley analyst Erik Woodring: My first question is for Tim. In the past four years, with the launch of a new iPhone in the December quarter, there has often been excess demand for the new iPhone at this time. However, when observing the iPhone 16 cycle, it is found that the delivery time of the iPhone 16 series is relatively short, and the shortage of supply is not significant. My question is, compared to the past few years, could the management provide a detailed breakdown of the user demand for the iPhone 16 series this year? Including the proportion of users upgrading to a new device, replacement rate, trade-in rate, and more. Additionally, has the launch of Apple Intelligence had a positive impact on the sales of the iPhone 16 series?
Tim Cook: Regarding Apple Intelligence. We do believe that the launch of Apple Intelligence will be one of the reasons to prompt users to upgrade and replace their devices. However, considering that Apple Intelligence was just launched three days ago, from a data perspective, the only numbers we have now are what I mentioned earlier, that the adoption rate of iOS 18.1 by users is twice that of iOS 17.1. This also proves that users are very interested in our products.
As for the 'excess demand' situation in the December quarter of the past four years. If I'm not mistaken, this situation did not occur every year in the past four years. There might have been supply interruptions during the pandemic, but in the current normal operating environment, as long as there is no 'once-in-a-century great flood', our supply-demand relationship should be relatively normal.
We have always aimed to achieve a balanced supply-demand relationship as soon as possible, rather than make users wait indefinitely. You can see our performance this year: we quickly achieved supply-demand balance for the iPhone 16, iPhone 16 Pro, and iPhone 16 Pro Max. There may have been slight supply constraints in October, but we believe we can overcome the difficulties quickly. From our perspective, this is a good sign. I want to make it clear that the supply-demand relationship has always been two-way, not just from the supply side or just the demand side. For the launch of new products in this fiscal quarter, we have actually been preparing for some time.
Morgan Stanley analyst Erik Woodring: My second question is for Luca. First of all, it was a pleasure working with you during this time, and I wish you all the best in your new position.
Amid ongoing controversies in the market surrounding input costs, commodity prices, and other topics, these cost changes will also impact the company's gross margin. In previous financial reports, you had expected the company's gross margin to increase by 50 basis points sequentially in the December quarter. My question is, could you please share your views on the trend of component prices? From a macro perspective, do you think these costs will still have a favorable impact on the company's gross margin? Is this favorable impact sustainable? If not, when will these cost impacts turn into headwinds? What are your thoughts on this?
Luca Maestri: Our gross margin composition includes a lot of variables. While csi commodity equity index prices are important, they are not the only influencing factors.
Specifically, in terms of csi commodity equity index prices, whether in the September quarter or the December quarter, we expect most csi commodity equity index prices to decrease; memory and land costs may increase in the September quarter and December quarter. We are very satisfied with the level of our gross margin in the company's fiscal year 2024. In fiscal year 2024, our gross margin level reached a historical high, and the gross margin in the December quarter could reach 46% to 47%. One of the reasons is that we have introduced a lot of new technologies in our product lineup as well as new features tim just mentioned, and we have launched a series of new products. In my opinion, these are all positive signs.
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