While Patently Apple usually covers highlights of comments made by Apple's CEO during their financial conference calls, this time I thought it important to cover all of what Tim Cook had to say this afternoon because in order to understand the quarter in depth, you have to understand the extraordinary difficulties that Apple's CFO had to navigate in trying to balance the currency crisis that's been occurring around the globe. Cook spent an extraordinary amount of time to patiently explain the balancing act that they had to navigate to get Apple successfully through the quarter. In fact, Apple's quarterly revenue could have been much higher if they didn't have to deal with this currency crisis. Apple CEO also made it clear that Apple is financially strong and has the mother of all balance sheets. What Apple lost in currency exchanges was more than most Fortune 500 companies earned this quarter. It was one of the most detailed opening statements that I've heard in some time and thought it best to simply cover his statement as a transcript rather than just highlight points. In the end, many analysts will be out for radical headlines tomorrow by simply pointing to the numbers blindly rather than appreciating the fact that Apple had an incredible quarter in spite of having to navigate through the craziest currency crisis in decades, if ever. I found it to be the hidden story of this quarter that has to be read to be appreciated.
The Full Transcript: The Opening Statement from Apple's CEO Tim Cook
The following are comments made by Apple's CEO Tim Cook during Apple's fiscal Q1 2016 Financial Conference call.
Cook's Opening Statement: "Good afternoon everyone and thank you very much for joining us. Today we're reporting Apple's strongest financial results ever. We generated all-time record quarterly revenue of $75.9 billion in the December quarter in line with our expectations and up two percent over last year's blockbuster results. This is a huge accomplishment for our company especially given the turbulent world around us."
Cook further noted that in constant currency our growth rate would have been 8%. Our record revenue and continued strong operating performance also led to an all-time record quarterly net income of $18.4 billion," which is something that we reported on in our report last Friday titled "Apple Could Announce Close to $18 Billion in Profits on Tuesday, a World Record for any Public Company Ever." So on that point alone Apple deserves a standing ovation.
Cook added that "We sold 74.8 million iPhones in the December quarter, an all-time high. To put that volume into perspective, it's an average of over 34,000 iPhone per hour, 24 hours a day/7 days a week for thirteen straight weeks. It's almost 50% more than our Q1 volume just two years ago and more than four times our volume five years ago.
74.8 million iPhones is an incredible number and it speaks to both the immense popularity of iPhone and the phenomenal execution of our teams to deliver a mass number of devices in such a short period of time.
Our results are particularly impressive given the challenging global macro-economic environment. We're seeing extreme conditions unlike anything we've experienced before just about everywhere we look. Major markets including Brazil, Russia, Japan, Canada, Southeast Asia, Australia, Turkey and the Eurozone have been impacted with slowing economic growth, falling commodity prices and weaken currencies.
Since the end of fiscal 2014, for instance, the Euro and British Pound are down double digits and major currencies such as the Canadian dollar, Australian dollar, Mexican Peso and Turkish Lira have declined 20 percent or more. The Brazilian Real (pronounced Ree-al) is down 40 percent and the Russian Ruble has declined more than 50%."
After that rundown, Apple's Tim Cook put that into perspective by stating that "Two thirds of Apple's revenue is now generated outside the U.S. so foreign currency fluctuations have a very meaningful impact on our results. Page one of our Supplementary Material [as presented in a chart below for your convenience] illustrates this point."
Cook then provided an example of what that translates to for Apple. "One hundred dollars of Apple non-U.S. dollar revenue in Q4 of 2014 translated into only eighty-five dollars last quarter due to the weakening currencies in our international markets. As you can see, the movement has been dramatic. Last quarter alone the currency impact has been very large. Page two of our 'Supplementary Material' [PDF] illustrates Q1 revenue in growth rates expressed in 'Constant Currency.'
Earlier in Tim Cook's statement he pointed to Apple's 8 percent growth rate without a context, so we didn't add it to his statement when he actually mentioned it. Now Cook puts this into perspective for us. "The 8 percent growth rate that I spoke about earlier, translates into 80.8 billion in 'Constant Currency' revenue which is five billion dollars more than our reported revenue. For perspective, that difference is about the size of the annual revenue of a fortune 500 company.
We know that the conditions in China have been a source of concern for many investors. Last summer while many companies were experiencing weakness in their China based results, we were seeing just the opposite with incredible momentum for iPhone, Mac and App Store in particular. In the December quarter, despite the turbulent environment, we produced our best results ever in Greater China with revenue growing 14% over last year, 47% sequentially and 17% year-over-year in Constant Currency. These great results were fueled by our highest ever quarterly iPhone sales and record App Store performance.
Notwithstanding these record results, we began to see some signs of economic softness in Greater China earlier this month, most notably in Hong Kong. Beyond the short term volatility, we remain very confident about the long term potential of the China market and the large opportunities ahead of us and we are maintaining our investment plans.
Despite the economic challenges all over the world, Apple remains incredibly strong. We have a very satisfied and loyal customer base. We saw a greater number of switchers from Android to iPhone than ever in Q1 and we are very optimistic about our business over the long term.
Innovation has always been the reason behind our success and we remain committed to making the best products in the world and expanding the Apple experience to change our customer's lives in better and more meaningful ways.
We've invested through economic uncertainty in the past and we've always come out stronger on the other side. In fact, some of the most important breakthrough products in Apple's history were borne as a result of investing through the downturns. We've also seen these times as opportunities to invest in new markets just as we're doing now in areas such as India and other emerging markets.
Getting back to our record Q1 performance, let me give you some highlights of what we've accomplished since our last quarterly conference call together.
We shipped an amazing new iPad Pro which has been extremely well received by customers along with the new Smart Keyboard and revolutionary Apple Pencil. We launched the all-new Apple TV with its own app store – laying the foundation for the future of television. We had our best quarter, by far, for Apple TV sales and the number of apps developed for Apple TV is growing rapidly. Today there are over 3600 apps delivering everything from games to entertainment to education programming.
We expanded distribution of Apple Watch to over 12,000 locations in 48 countries during the quarter. As we expected, we set a new quarterly record for Apple Watch sales with especially strong sales for the month of December.
We released OS X El Capitan. We've fine tuning the experience and are improving the performance for our Mac customers. We also updated the entire iMac family with stunning new Retina displays and introduced a new line-up of wireless accessories.
We launched Apple Pay in Canada and Australia with American Express and announced plans to bring this amazingly convenient, private and secure mobile payment experience to China, Hong Kong, Spain and Singapore in the coming year.
Consumers have spent billions of dollars with Apple Pay. In the second half of 2015, we saw significant acceleration in usage with a growth rate 10 times higher than in the first half of the year. There are now over 5 million contactless payment ready locations in the countries where Apple Pay is live today and it's soon to be accepted at thousands of Exxon and mobile branded stations across the U.S. via their Speedpass Plus app.
Finally, we also shared the incredible Apple Music experience with even more listeners with over 10 million paying subscribers less than four months since customers began paying for the service.
Our financial position has never been stronger. We have the mother of all balance sheets with almost $216 billion in cash which translates to nearly $39/diluted share of Apple Stock.
We continue to invest confidently in our future and we also continue to return capital to our shareholders at a rapid pace. Our investors have been asking for a while about the recurring nature of our business. Especially during a period of economic uncertainty we believe it is important to appreciate that a significant portion of Apple's revenue recurs over time.
First and foremost, our customer satisfaction and retention rates are second to none and provide us with a long lasting foundation. For example, we think consumer surveys done by 451 Research, formerly known as ChangeWave, measured an incredible 99 percent customer satisfaction rate for iPhone 6s and 6s plus and an equally impressive 97% rate for the iPad Air 2. They also indicate that our iPhone loyalty rate is almost twice as strong as the next highest brand.
In addition, a growing portion of our revenue is directly driven by our existing installed base. Because our customers are very satisfied and engaged, they spend a lot of time on their devices and purchase apps, content and other services. They're also very likely to buy other Apple products or replace the one that they own. And because of the enduring value of the device, they're replacing is likely higher to be given or sold to someone who also love and use it often. So as a result, our installed base has been growing very fast and has recently reached a major milestone crossing 1 billion active devices for the first time.
This is an unbelievable asset for us. Because of installed base has grown quickly, we've also seen an acceleration in the growth of our services business, another large and important source of recurring revenues.
Now that we've reached this milestone of 1 billion active devices we felt this would be a great opportunity to share more information on what has become one of the largest service businesses in the world." Tim Cook then turned the call over to Luca Maestri, Apple's CFO.
Other highlights for this quarter could be found in our first report that we posted earlier today, here.