Notes of interest from Apple's Q3 2021 earnings report and conference call

Apple CEO Tim Cook (left) with CFO Luca Maestri

Highlights from the earnings report

Published by Apple shortly before its quarterly conference call with industry analysts, Apple reported $81.4 billion in total revenue for the quarter ending June 2021. The figure is year-over-year growth of 36.3% from Q3 2020, when it generated $59.7 billion at the start of the COVID-19 pandemic.

Gross margin of 55.4% is up from 38% in the year-ago quarter. Net profit grew 93% to $21.7 billion.

Revenue stemming from iPhone sales reached $39.6 billion for the quarter, an increase of 52% from $25.98 billion seen in Q3 2020. Similarly, iPad revenue is also up 12% to $7.4 billion from $6.6 billion in the same period last year. Mac sales revenue grew 16% to $8.2 billion from $7.1 billion one year prior.

Services continues to be a reliable growth center for Apple, with its $17.5 billion revenue up 33% year-over-year from $13.2 billion. The Wearables, Home, and Accessories segment is now at $8.8 billion, rising 36% from the year-ago quarter's result of $6.45 billion.

"This quarter, our teams built on a period of unmatched innovation by sharing powerful new products with our users, at a time when using technology to connect people everywhere has never been more important," said Apple CEO Tim Cook. "We're continuing to press forward in our work to infuse everything we make with the values that define us — by inspiring a new generation of developers to learn to code, moving closer to our 2030 environment goal, and engaging in the urgent work of building a more equitable future."

Apple's chief financial officer was equally bullish about the quarter.

"Our record June quarter operating performance included new revenue records in each of our geographic segments, double-digit growth in each of our product categories, and a new all-time high for our installed base of active devices," Maestri. "We generated $21 billion of operating cash flow, returned nearly $29 billion to our shareholders during the quarter, and continued to make significant investments across our business to support our long-term growth plans."

Highlights from the conference call

• Apple's quarterly earnings and growth is unparalleled for a third-quarter for Apple
• The earnings for a historically slow quarter for Apple is just a bit less than the revenue generated in the holiday quarter of 2018
• The quarterly profit generated is third for all time, behind only the first and second fiscal quarters of 2021
• The only analyst who was close to the $81.4 billion was Neil Cybart, who predicted $80.4 billion in revenue. Consensus was less than $73 billion.
• Apple stock is down on the news, from $146.77 at close to $146.10 as of 4:54 PM ET.
• Mac revenue over the last four quarters is interestingly relatively static. Historical trends suggest that there should be dips in Q2 and Q3. Likely due to supply constraints preventing peaks.
• Here we go!
• Starting with Tim Cook, as always
• Cook: "Vast majority of markets we track, we grew double-digits."
• "Growing sense of optimism" by consumers grew the quarter
• Cook: "Progress made is not progress guaranteed."
• Cook cites the delta variant as a potential point of difficulty going forward
• Still in the "Early innings" of 5G
• iPad had its highest June quarter in nearly a decade, this is Mac & Wearables best June quarter ever.
• Apple proud of its 35 Emmy nominations
• Cook reiterating equality, equity, and affordable housing initiatives
• Cook hands mic to Luca Maestri
• Install base of Apple products has grown to a new all-time record - but Maestri declined to give a value
• Transacting and paid Services accounts reached a new all-time high in every geographic segment
• More than 700 million paid subscriptions across all Services and App Store
• Most of the Apple Watch buyers in the quarter are new to the product
• Half of the purchasers of Mac and iPad were new to the product
• Mass Mutual offering M1 Macs to all of its employees
• Largest Italian natural gas deliverer ItalGas replacing every Windows laptop with MacBook Air
• 136 million Apple stock shares purchased by the company in the quarter
• No revenue guidance given
• Expect double-digit revenue growth in September quarter, but lower than June quarter growth
• Reasons: Foreign exchange impact, Services growth rate to return to a more typical level, Supply constraints to be greater in June quarter with impact on iPhone and iPad
• Question time!
• Katy Huberty asked, but gone!
• Raymond James - Chris Caso: asks for color on the next quarter
• Maestri basically says what he said two minutes ago, adding details including the expectation of a very slightly weaker dollar
• Advertising, AppleCare hit in the year-ago quarter, leading to favorable compare year over year in June.
• Caso: Wants more detail on supply constraints for holiday quarter, what costs are being absorbed by Apple because of the supply issues?
• Cook: Cost: Paying more for freight than Apple wants to pay, but component costs in aggregate declining
• Cook: "I don't want to predict that today" in regards to constraints in the holiday quarter
• Citibank - Jim Suva: Asking about R&D, is it impacted by COVID, flooding, etc
• Cook: "Company has been incredibly resilient, employees are really doing double-duty." - fine with cadence of releases.
• Cross Research - Shannon Cross: Asking about customer preferences in this iPhone cycle, differences in geographic basis?
• Cook: Switchers and upgraders grew double-digits. Largest Q3 upgrade quarter ever.
• Cook: Penetration on 5G is very, very low. "We feel really good about the future of the iPhone"
• Cross: What about China?
• Cook: Particularly strong response to iPhone 12 Pro, iPhone 12 Pro Max
• Cook: "Across the board strength" - plenty of new customers in China. About 2/3 of buyers in China new to product, Apple Watch in China 85% new to product
• Maestri: For the world, 75% on Apple Watch new to product
• Evercore - Amit Daryanani : Gross margin September expectation
• Maestri: Very high mix of Services in third quarter, tough compare to next quarter
• Maestri: Different mix expected going forward because of COVID recovery
• Apple stock down to $143.10, a drop of 2.5% after-hours.
• Katy Huberty returns!
• Huberty: Was your business helped or hindered by COVID?
• Maestri: "We don't have a crystal ball."
• Maestri: Positive - Services did well, work from home iPad and Mac demand strong
• Maestri: Negative - Advertising, AppleCare impacted negatively. iPhone and Apple Watch impacted negatively due to points of sale closed
• Maestri: Businesses rebounding as recovery continues. Constraints been in place for a long time. New normal will be different.
• Huberty: iPhone specifically, after a strong product cycle, iPhone revenues under pressure. What's the other side of a super cycle?
• Cook: "We're not predicting the next cycle."
• Cook: Large and growing install base, loyal and satisfied customers, geographic response "pervasive across the world"
• Piper Sandler: Harsh Kumar - How old is the install base?
• Cook: Difficult to answer; upgraders and year-over-year comps "look extremely well"
• Cook: reiterates 5G penetration is quite low, "We're at the front-end of this"
• Kumar: How does Apple determine strategic versus non-strategic product generation, how does Apple view the ARM acquisition
• Cook: Acquisition has lots of questions, and "I'll leave that to every one else"
• Cook: If we can deliver a better product, we'll do that. If we can buy something in the market that's great, we're going to buy it. M1 is the main example
• Cook: M1 power Mac sales that are constrained. iPad also constrained
• Cowen: Krish Sankar - Choke point on supply?
• Cook: Same that everybody is seeing. Industry shortages, also shortages where demand has been so great, that it's difficult to get all the parts necessary
• Cook: Legacy nodes are where the supply constraints have been
• UBS - David Vogt: Is there less of a need for low-end iPhones?
• Cook:June quarter records in price-sensitive markets with the existing mix
• Cook: The iPhone SE is still in the line, Cook seems satisfied with the existing lineup
• Vogt: Emergent market buyer is looking for 5G as well?
• Cook: In most of the markets, it's really early on 5G (theme of the call). Top-end buyer buying for the future
• Cleveland Research Company - Ben Bollin : Economics of Services, IDFA in Services impact
• Cook: Apple One makes enjoying subscriptions easier than before
• Cook: Very pleased about Apple One numbers, great customer benefit
• Cook: App Tracking Transparency - Positive reaction from customers being given the choice on whether to be tracked or not.
• Bank of America - Wamsi Mohan : Are the margins and cost savings trajectory intentional? On Services: What were the offsets on services growth?
• Maestri: Freight cost pressure is an issue. Other than that, continued typical cycle with good cost savings on sequential basis
• Maestri: Nothing one-off on the quarter.
• Maestri: Services growth has a high baseline for a continued increase in growth rate. Large Services portfolio offsets individual weaknesses
• Mohan: Regulatory pressures in China. How to consider that? Any impacts?
• Cook: For the quarter, growth, with record for services in China.
• Cook: In regards to regulation, Apple focusing on user satisfaction
• Call ends, 06:01 PM ET.