Live blog: Apple’s fiscal year Q2 2016 earnings call

Apple just posted its official Q2 2016 earnings report and we’ve broken down how that compares to previous quarters. Next up on the schedule is Apple’s quarterly conference call with analysts where CEO Tim Cook and CFO Luca Maestri typically recap the numbers and field questions about Apple’s financial situation.

To recap the big numbers from today’s report, Apple counted $50.6b in revenue, $10.5b in profit, 51.1m iPhones sold, 10.2m iPads sold, and 4m Macs sold during the final three months of last year. Apple Watch numbers aren’t broken out at this point and instead included in the Other category with iPods, Apple TVs, and other accessories.

We’ll be tuned in to the call as it plays out, and update this post with up-to-the-minute details while highlighting major updates. The call is scheduled to kick off at 2 pm PT/5 pm ET so stick around.

• Earnings report is a-go!
• Tune in for yourself here, or stick around and we’ll pull out the highlights.
• Music is on rotation.
• Standby warning, nice groan from Tim Cook (sort of fitting)
• As expected, Tim Cook will speak first (another groan, seriously), followed by Luca Maestri, then Q&A with analysts
• Tim Cook: ‘very busy and challenging quarter’ recapping earnings report, ‘difficult year-over-year comparisons’, ‘huge number of Android switchers and new to Mac customers’, iPhone sales in expected range but lower than year ago: upgrade 6s rate slightly higher than 5s rate, but lower than iPhone 6 rate; 95% customer loyalty rate for iPhone; high level of Android switchers in first half of fiscal year 2016; iPhone still attracting first time smartphone buyers especially in emerging markets, sales in India up 56% year-over-year
• March quarter services revenue highest ever not counting patent dispute revenue, Apple Music over 13 million paying subscribers, 1 billion+ active devices source of reoccurring revenue independent of quarterly sales, Apple Pay continuing to expand: 5x transaction volume of 1 year over, 1 million new users/week, 10m Apple Pay locations where it’s available
• Confident in Mac business and ability to gain share in that area, Apple Watch seasonality expected to be similar to iPod (December heavy sales), unit sales during first year exceeded sales of iPhone during its first year, response great since new bands and price drop, really excited about first year with Apple Watch, exciting future ahead
• iPhone SE sales weren’t reflected in quarter, this quarter seeing terrific customer response, demand has been strong, exceeds supply but working hard to get it into hands of customers, addition of iPhone SE places Apple in better strategic position to attract new customers into ecosystem
• iPad Pro 9.7-inch: expect to see best iPad year-over-year compare in June quarter
• CareKit also announced in March, talking renewable energy, privacy, diversity
• Apple plans to lower channel inventory in June quarter, which will impact revenue in Q3
• Future of Apple is very bright, product pipeline has major innovations in store, WWDC ahead, forging ahead with important investment, we’ve made 15 acquisitions in last 4 quarters
• Luca Maestri: Recapping earnings report (full details here)
• Significant channel reduction and currency weakness affected China, up against strong year-ago compare
• iPhone sales year-over-year comparison tricky following stronger than usual quarter last year, iPhone average selling price $642
• $6 billion in revenue from services thanks to App Store (35% revenue growth), 90% more revenue than Google Play in March quarter says AppAnnie, average amount spent by customer reached all-time high
• Challenging quarter for PC sales, Apple believes it gained marketshare
• iPad has 78% share of tablets priced over $200, iPad accounts for 72% of commercial tablet market, 59% of purchase intent over next 3 months goes to iPad
• Revenue from Other products grew 30% thanks to Apple Watch, 94% customer satisfaction, available in 60 countries
• Talking IBM partnership with 108 partners across 28 countries
• Recapping cash position… $232.9 billion in cash and marketable securities; $208.9 billion outside US
• iPhone ASP will decrease as iPhone 6s launch is further, iPhone SE with lower selling price
• Expected tax rate: 25.5%
• Q&A time!
• Q: Apple growth company or mature tech company?
• Cook: Smartphone market currently not growing, than’s overhang of macroeconomic environment, optimistic this will pass, Apple will grow again; iPhone sales come from upgrades, switchers, emerging markets. Data positive on all fronts. iPhone SE attracting more customers into platform. On mergers and acquisitions, Apple remaining active.
• Q: Talk about iPhone ASP trend and SE impact.
• Cook: SE is latest tech in compact package, attracting people that want an iPhone but not comfortable with price. Expects Apple will be happy with new-to-iPhone numbers. SE supply constrained, great to see demand.
• Maestri: ASP will be down, lower SE price, channel inventory reduction will come from higher end models. Music business hit inflection point thanks to Apple Music, growth expected after declines with iTunes. Apple Pay not meaningful contribution in terms of revenue, but longterm could be interesting business.
• Q: Worst gross margin in year and a half, volume related or iPhone SE?
• Maestri: Other dynamics at play, channel inventory reduction, mix of products.
• Q: Appreciate optimism around long term iPhone growth, but growth will need to come from new markets. What are hurdles in India?
• Cook: Short term, install base in developed markets increased by 80%. Upgrade cycles would have varying rates. 6s higher than 5s, lower than 6. Size of install base also factor. Good business in developing markets. Apple’s job to come up with great products. Attract Android switchers as well. India specifically, LTE rollout just really begins this year. New networks will come online and unleash power and capability of iPhone that 2.5G and 3G can’t do. On infrastructure, building channel out is key. In US, carriers sell majority of phones. In India, carriers sell virtually no phones and retail sells them. We’ve been in process over last 18 months or so to grow presence. Already third largest smartphone market in the world, but network and economics mean they’re low end. India is where China was 7-10 years ago. Great opportunity there.
• Q: With SE entering market and positive response, why aren’t we seeing above average results?
• Cook: Channel inventory reduction is mostly iPhone. iPhone SE response is thrilling; it’s clear there’s a demand there beyond what we thought. Tablet market in general has different replacement cycle than smartphone market. Customer satisfaction and usage is high, but behavior is holding on to iPads for a long time before upgrades. Optimistic on iPad business. Expecting best compare in a while in July. iPhone has different cycle.
• Q: Describe replacement cycle…
• Cook: iPhone 6s upgrade cycle higher than iPhone 5s replacement cycle, but lower than iPhone 6 by a lot, not a hair. If we had same rate on iPhone 6s than 6, it’d be time for a huge party. Thanks for the question.
• Q: Talk about China.
• Cook: Tourism, international trading down, points to Hong Kong. China not weak, may not have wind at our backs, lot more stabile than common view says. LTE adoption on the rise. 40 stores still target in China.