Today's report covers the opening commentary from Apple's CEO Tim Cook during their Q3 2016 Financial Conference Call that was held yesterday, July 26, 2016. It's a transcript that Patently Apple has created so that we can be more accurately quote Tim Cook in future reports about company specifics. It's an accurate account that any Apple fan could rely on for facts about Apple's Q3 at any time – and we hope that you enjoy it. Today's report covers the following: Tim Cook on the iPhone SE; on services; on iPad; on Apple Watch; on China and India; on Apple's four platforms; on Siri and Artificial Intelligence; on Privacy / Differential Privacy; and finally on Apple Pay.
Highlights from Apple's Financial Conference Call with Apple's CEO Tim Cook
The following are comments made by Apple's CEO Tim Cook during Apple's fiscal Q3 2016 Financial Conference call.
On the iPhone SE
Last month Patently Apple posted a report titled "Is the Strategy behind Apple's smaller iPhone SE Paying Off?" In that report we noted that "Taiwan Supply Chain Claims that Apple has increased iPhone SE Chip Orders." While it's definitely positive to read about increased orders and web traffic notes, we hope to hear more about the success of the iPhone SE from Apple when they hold their next financial conference call sometime next month. While Apple is unlikely to breakdown the new iPhone sales specifically, Apple's CEO could provide us with colorful commentary on the success of this iPhone entry if it's warranted."
Apple's CEO did exactly that during their Q3 financial conference call yesterday as noted below:
Tim Cook noted that "We had a very successful global launch of iPhone SE and demand outstripped supply throughout the quarter. We brought on additional capacity and were able to achieve supply and demand balance as we entered the September quarter.
At its launch we said that the addition of the iPhone SE to the iPhone lineup placed us in a better position to the meet the needs of customers who love a 4" phone and to attract even more customers into our ecosystem. In both cases that strategy is working.
Our initial sales data tells us that the iPhone SE is popular in both developed and emerging markets and the percentage of iPhone SE sales going to customers who are new to iPhone is greater than we've seen in the first weeks of availability for other iPhones launched in the past several years.
Overall, we added millions of first time smartphone buyers in the June quarter and switchers accounted for the highest percentage of quarterly iPhone sales we've ever measured. In absolute terms, our year-to-date iPhone sales to switchers are the greatest than we've ever seen in any nine month period and our active installed base of iPhones is up strong double digits year over year."
"We saw tremendous performance from our services businesses which grew 19% to a June quarter record of 6 billion dollars. The Growth was broad based, with App Store revenue was up 37% to a new all-time high in additional to strong increases in music, iCloud and Apple Care. In the last twelve months, our services revenue is up almost 4 billion dollars year-on-year to 23.1 billion and we expect it to be the size of a Fortune 100 company next year.
Most of our terrific services performance during the quarter was filled by our active installed base of devices with installed base related purchases of 10.3 billion dollars accelerating to 29% growth year-on-year."
"We had our best iPad compare in 10 quarters with revenue growing 7% thanks to roll out of the 9.7 iPad Pro. We're proud to have the most exciting line-up of tablets and accessories in the world and exceptionally high customer satisfaction and engagement.
Our surveys also show that about half of iPad Pro purchasers are buying them for work. iPad Pro is the ultimate upgrade for existing iPad users and the ultimate replacement device for customers switching from PC notebooks."
On Apple Watch
"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. We're just getting started with the Apple Watch and we look forward to even more exciting announcements in this space."
"On a personal note, during the past quarter, I visited China and India and I am very encouraged by our growth prospects in those countries. We remain very optimistic about the long term opportunities in Greater China and we continue to invest there. We opened our forty-first Greater China retail store during the quarter and we also made a one billion dollar investment in Didi Chuxing.
Switchers and first-time smartphone buyers represented the lion's share of our iPhone sales in the quarter and our installed base of iPhones in China has grown 34% over the last year alone.
According to China Mobile, there are more iPhones on their network than any other brand, with iPhone users ranking first in terms of customer loyalty, data usage and [? Not understood]." Yet for overall context, Reuters pointed out yesterday that sales decreased in Greater China by 33% year-on-year and nearly 26% from last quarter.
By far, the largest portion of our global channel inventory reduction was in Greater China so our underlying business there is stronger than our results imply.
We faced 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 as 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 severely impacted by the stronger Hong Kong dollar relative to other Asian currencies.
Combining this backdrop with a tough comparison to last year when revenue grew 112% and the channel inventory reduction this year we're reporting a decline in revenue in the June quarter.
But to keep things in perspective, when we look back on our accomplishments in this segment over the last couple of years, they are truly remarkable. In the first three quarters of this fiscal year our total revenue from Greater China was almost 40 billion dollars up 55% from the same time frame just two years ago while iPhone units were up 47%."
It's clear that the historic growth that came from Apple's iPhone 6 mania two years ago is still affecting sales perception in 2016. That year was an anomaly and so comparisons to it make Apple's current financial performance look anemic when this isn't the case and why Tim Cook added commentary yesterday afternoon about perspective.
The addition of Apple's first phablet, the iPhone 6 Plus, was explosive and without a new product to make up for that new revenue growth, sales appear to be falling when it's really the market adjusting to normal growth patterns for Apple's total iPhone sales.
This is why one of the analysts late yesterday noted that Apple could make up for this drop in margins (due to the iPhone SE) by adding a new higher end iPhone category like the iPhone Pro. Whether that's an actual strategy of Apple's for September is still unknown at this time."
"India is now one of fastest growing markets. In the first three quarters of this fiscal year our iPhone sales in India were up 51% year-on-year. We just launched, we just announced a first of its kind design center and development accelerator to support Indian developers creating innovative applications for iOS and we opened a new office in Hyderabad to accelerate maps development.
We're looking forward to opening retails stores in India down the road and we see huge potential for that vibrant country."
On Apple Platforms
"As we look forward to the fall, we're thrilled by customer's response to the software services that we previewed at our World Wide Developer Conference (WWDC) last month. This was our biggest WWDC ever – and for the first time, we have four innovative Apple platforms for our developer's apps: iOS, macOS, watchOS and tvOS. In fact iOS 10 will be the biggest release ever for iOS.
The momentum for all four platforms shows the strong relationship Apple enjoys with customers throughout their day and wherever they go. Whether it's at home, in their car, at work and everywhere in between the Apple ecosystem is thriving and growing and our new OS releases this fall will take these great experience to a new level.
Customers could look forward to more expressive ways to communicate with messages now with its own app store allowing users to create and share content, make payments, add stickers and more, all without having to leave 'messages' which is now one of the largest messaging services in the world.
With our latest OS releases the unparalleled continuity across Apple devices will become even more powerful. For example, macOS Sierra will sense other devices and use secure protocols to communicate. With an authenticated Apple Watch I can auto-unlock my Mac when I open it without typing a password.
With Universal Clipboard, I can copy and paste text images and even video between my iOS devices and my Mac. And I can automatically access the files on my Mac desktop and documents folder from another Mac, iOS device or even a PC."
On Siri and Artificial Intelligence
"Customers could also look forward to a broader and more intelligent role for Siri which will work with your favorite apps from the App Store so you could add Siri to book a ride with your favorite ride sharing app or send money to someone with Square. There are also beautifully designed apps for music, maps and news, significant enhancements to HomeKit, CarPlay and Health apps building on our strategy to give users a seamless experience for all aspects of their lives.
There's also a major update with macOS Sierra with new features like Siri and Apple Pay that make the Mac smarter and more helpful than ever and even a more stronger continuity features across all Apple devices.
These experiences become more powerful and intuitive as we continue our long history of enriching our products through advanced artificial intelligence (AI). We have focused our AI efforts on features that best enhance the customer experience.
For example, machine learning enables Siri to understand words and the intent behind them. That means that Siri does a better job understanding and even predicting what you want, then delivering the right responses to requests.
To make Siri an even smarter assistant, we're opening the service to our developers and this fall Siri will be available throughout our entire product line.
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 choices 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 and battery life. And most importantly, we deliver these intelligent services while protecting user's privacy. Most of the AI processing takes place on the device rather than being sent to the cloud."
New Differential Privacy Coming this Fall
"And starting this fall, we'll be using sophisticated technology called "Differential Privacy' enhancing our ability to deliver the kind of services we dream of and customers love without compromising on the individual privacy our customers have come to expect from us."
On Apple Pay
"This fall, we'll also bring Apple Pay to Safari so that users could easily make secure and private purchases when shopping on participating websites. Tens of millions of users from around the world are enjoying Apple Pay today in stores and in apps with estimated monthly active users up more than 450% year-on-year last month.
Leading financial partners tell us that three out of four contactless payments in the U.S. are made with Apple Pay. This is amazing.
There are more than 11 million contactless ready locations in the countries where Apple Pay is available today including 3 million locations now accepting Apple Pay in the United States. With the launch of France, Switzerland and Hong Kong this month, Apple Pay is now live in nine markets including six of our top ten. Adoption outside the U.S. has been explosive with over half of transaction volume now coming from none U.S. markets.
Innovations like these are the kinds of things that only Apple can do. We have an incredible line-up of products in our pipeline and I'm very bullish about our long-term opportunity."
Just a note: Patently Apple's transcript covers all of the main topics that were covered by Tim Cook's opening statement.Tim Cook's statement on continuity and Universal Clipboard are out of sequence to when he actually spoke about them so as to keep his comments in the appropriately group they belong for easier future references.