What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-05 compared with 2023-02-03 · 94 added, 80 removed, 88 unchanged (66% of the section changed)

2 unchanged sentences

Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.

For example, statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on the Company’s business and results of operations are forward-looking statements .

For example, statements in this Form 10-Q regarding the potential future impact of macroeconomic conditions on the Company’s business and results of operations are forward-looking statements .

Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms.

21 unchanged sentences

Quarterly Highlights

Total net sales decreased 5% or $6.8 billion during the first quarter of 2023 compared to the same quarter in 2022 due to the weakness in foreign currencies relative to the U.S.

The weakness in foreign currencies contributed to lower net sales of iPhone and Mac, which was partially offset by higher net sales of iPad.

During the first quarter of 2023, the Company announced a new iPad, a new iPad Pro ® powered by the Apple M2 chip, and a new Apple TV 4K.

The Company repurchased $19.0 billion of its common stock and paid dividends and dividend equivalents of $3.8 billion during the first quarter of 2023.

Weakness in foreign currencies relative to the U.S.

dollar had an unfavorable impact on the Company’s total net sales, which decreased 3% or $2.4 billion during the second quarter of 2023 compared to the same quarter in 2022.

The year-over-year net sales decrease consisted primarily of lower net sales of Mac, partially offset by higher net sales of Services.

During the second quarter of 2023, the Company announced the following new products:

• MacBook Pro ® 14” and MacBook Pro 16”, powered by the Apple M2 Pro and M2 Max chip;

• Mac mini ® , powered by the Apple M2 and M2 Pro chip;

• Second-generation HomePod ® .

The Company repurchased $19.1 billion of its common stock and paid dividends and dividend equivalents of $3.7 billion during the second quarter of 2023.

| Q2 2023 Form 10-Q | 14

The COVID-19 pandemic has had, and continues to have, a significant impact around the world, prompting governments and businesses to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of businesses, and quarantine and shelter-in-place orders.

The COVID-19 pandemic has at times significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets.

The COVID-19 pandemic and the measures taken by many countries in response have affected and could in the future materially impact the Company’s business, results of operations and financial condition.

Certain of the Company’s outsourcing partners, component suppliers and logistical service providers have experienced, and could in the future experience, disruptions related to the COVID-19 pandemic, resulting in supply shortages.

During the first quarter of 2023, COVID-related impacts temporarily affected the Company’s primary iPhone 14 Pro and iPhone 14 Pro Max assembly facility located in Zhengzhou, China.

The facility operated at significantly reduced capacity, impacting iPhone 14 Pro and iPhone Pro Max shipments.

Macroeconomic Conditions

Macroeconomic conditions, including inflation, rising interest rates and currency fluctuations, have direct and indirect impacts on the Company’s business.

The Company believes these factors have impacted, and could in the future materially impact, the Company’s results of operations and financial condition.

Macroeconomic conditions, including inflation, changes in interest rates, and currency fluctuations, have directly and indirectly impacted, and could in the future materially impact, the Company’s results of operations and financial condition.

Segment Operating Performance

The Company manages its business primarily on a geographic basis.

The Company’s reportable segments consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific.

Americas includes both North and South America.

Europe includes European countries, as well as India, the Middle East and Africa.

Greater China includes China mainland, Hong Kong and Taiwan.

Rest of Asia Pacific includes Australia and those Asian countries not included in the Company’s other reportable segments.

Although the reportable segments provide similar hardware and software products and similar services, each one is managed separately to better align with the location of the Company’s customers and distribution partners and the unique market dynamics of each geographic region.

Further information regarding the Company’s reportable segments can be found in Part I, Item 1 of this Form 10-Q in the Notes to Condensed Consolidated Financial Statements in Note 9, “Segment Information and Geographic Data.”

The following table shows net sales by reportable segment for the three months ended December 31, 2022 and December 25, 2021 (dollars in millions):

Three Months Ended

2022 December 25,

The following table shows net sales by reportable segment for the three- and six-month periods ended April 1, 2023 and March 26, 2022 (dollars in millions):

Three Months Ended Six Months Ended

2023 March 26,

2022 Change April 1,

2023 March 26,

Net sales by reportable segment:

5 unchanged sentences

Total net sales $ 94,836 $ 97,278 (3) % $ 211,990 $ 221,223 (4) %

Americas net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to lower net sales of iPhone and Mac, partially offset by higher net sales of Services and iPad.

The weakness of the Canadian dollar relative to the U.S.

dollar had an unfavorable year-over-year impact on Americas net sales during the first quarter of 2023.

Europe net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due to the weakness in foreign currencies relative to the U.S.

dollar, which contributed to lower net sales of iPhone and Mac.

| Q1 2023 Form 10-Q | 16

Americas net sales decreased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to lower net sales of iPhone and Mac, partially offset by higher net sales of Services.

The weakness in foreign currencies relative to the U.S.

dollar had a net unfavorable year-over-year impact on Europe net sales during the second quarter and first six months of 2023.

During the second quarter of 2023, the Europe net sales increase consisted primarily of higher net sales of iPhone, partially offset by lower net sales of Mac.

During the first six months of 2023, the Europe net sales decrease consisted primarily of lower net sales of Mac, partially offset by higher net sales of iPhone.

Greater China

Greater China net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due to the weakness of the renminbi relative to the U.S.

The weakness of the renminbi contributed to lower net sales of iPhone, which was partially offset by higher net sales of iPad.

Japan net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due to the weakness of the yen relative to the U.S.

dollar, which contributed to lower net sales of Services and Mac.

The weakness in the renminbi relative to the U.S.

dollar had an unfavorable year-over-year impact on Greater China net sales during the second quarter and first six months of 2023.

During the second quarter and first six months of 2023, the Greater China net sales decrease consisted primarily of lower net sales of iPhone and Mac.

The weakness in the yen relative to the U.S.

dollar had an unfavorable year-over-year impact on Japan net sales during the second quarter and first six months of 2023.

During the second quarter of 2023, the Japan net sales decrease consisted primarily of lower net sales of iPad, Services and iPhone.

During the first six months of 2023, the Japan net sales decrease consisted primarily of lower net sales of Services, Wearables, Home and Accessories and Mac.

Rest of Asia Pacific

Rest of Asia Pacific net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due to the weakness in foreign currencies relative to the U.S.

The weakness in foreign currencies contributed to lower net sales of iPhone and Mac, which was partially offset by higher net sales of Services and iPad.

The weakness in foreign currencies relative to the U.S.

dollar had an unfavorable year-over-year impact on Rest of Asia Pacific net sales during the second quarter and first six months of 2023.

During the second quarter and first six months of 2023, the Rest of Asia Pacific net sales increase consisted primarily of higher net sales of iPhone, partially offset by lower net sales of Mac.

| Q2 2023 Form 10-Q | 15

Products and Services Performance

The following table shows net sales by category for the three months ended December 31, 2022 and December 25, 2021 (dollars in millions):

Three Months Ended

2022 December 25,

The following table shows net sales by category for the three- and six-month periods ended April 1, 2023 and March 26, 2022 (dollars in millions):

Three Months Ended Six Months Ended

2023 March 26,

2022 Change April 1,

2023 March 26,

Net sales by category:

$ 65,775 $ 71,628 (8) %

7,735 10,852 (29) %

9,396 7,248 30 %

iPhone $ 51,334 $ 50,570 2 % $ 117,109 $ 122,198 (4) %

Mac 7,168 10,435 (31) % 14,903 21,287 (30) %

iPad 6,670 7,646 (13) % 16,066 14,894 8 %

Wearables, Home and Accessories 8,757 8,806 (1) % 22,239 23,507 (5) %

13,482 14,701 (8) %

20,766 19,516 6 %

Services 20,907 19,821 5 % 41,673 39,337 6 %

Total net sales $ 94,836 $ 97,278 (3) % $ 211,990 $ 221,223 (4) %

(1) Products net sales include amortization of the deferred value of unspecified software upgrade rights, which are bundled in the sales price of the respective product.

(2) Wearables, Home and Accessories net sales include sales of AirPods, Apple TV, Apple Watch, Beats products, HomePod mini and accessories.

(3) Services net sales include sales from the Company’s advertising, AppleCare, cloud, digital content, payment and other services.

Services net sales also include amortization of the deferred value of services bundled in the sales price of certain products.

iPhone net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to lower net sales from the Company’s new iPhone models launched in the fourth quarter of 2022.

Mac net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to lower net sales of MacBook Pro ® .

iPad net sales increased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to higher net sales of iPad and iPad Air ® .

| Q1 2023 Form 10-Q | 17

iPhone net sales were relatively flat during the second quarter of 2023 compared to the second quarter of 2022.

Year-over-year iPhone net sales decreased during the first six months of 2023 due primarily to lower net sales from the Company’s new iPhone models launched in the fourth quarter of 2022.

Mac net sales decreased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to lower net sales of MacBook Pro.

iPad net sales decreased during the second quarter of 2023 compared to the second quarter of 2022 due primarily to lower net sales of iPad Pro ® and iPad Air ® .

Year-over-year iPad net sales increased during the first six months of 2023 due primarily to higher net sales of iPad, partially offset by lower net sales of iPad mini ® .

Wearables, Home and Accessories

Wearables, Home and Accessories net sales decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to lower net sales of AirPods, partially offset by higher net sales of Watch.

Services net sales increased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to higher net sales from cloud services, the App Store ® and music.

Products and Services gross margin and gross margin percentage for the three months ended December 31, 2022 and December 25, 2021 were as follows (dollars in millions):

Three Months Ended

2022 December 25,

Wearables, Home and Accessories net sales were relatively flat during the second quarter of 2023 compared to the second quarter of 2022.

Year-over-year Wearables, Home and Accessories net sales decreased during the first six months of 2023 due primarily to lower net sales of AirPods ® .

Services net sales increased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to higher net sales from cloud services, music and advertising.

| Q2 2023 Form 10-Q | 16

Products and Services gross margin and gross margin percentage for the three- and six-month periods ended April 1, 2023 and March 26, 2022 were as follows (dollars in millions):

Three Months Ended Six Months Ended

2023 March 26,

2022 April 1,

2023 March 26,

Gross margin:

7 unchanged sentences

Products Gross Margin

Products gross margin decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to the weakness in foreign currencies relative to the U.S.

dollar and lower Products volume.

Products gross margin percentage decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to the weakness in foreign currencies relative to the U.S.

Products gross margin decreased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to lower Products volume and the weakness in foreign currencies relative to the U.S.

dollar, partially offset by a different Products mix.

Products gross margin percentage increased during the second quarter of 2023 compared to the second quarter of 2022 due primarily to a different Products mix, partially offset by the weakness in foreign currencies relative to the U.S.

Year-over-year Products gross margin percentage decreased during the first six months of 2023 due primarily to the weakness in foreign currencies relative to the U.S.

dollar, partially offset by a different Products mix.

Services Gross Margin

Services gross margin increased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to higher Services net sales, partially offset by the weakness in foreign currencies relative to the U.S.

Services gross margin percentage decreased during the first quarter of 2023 compared to the same quarter in 2022 due primarily to the weakness in foreign currencies relative to the U.S.

Services gross margin increased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to higher Services net sales, partially offset by the weakness in foreign currencies relative to the U.S.

dollar and higher Services costs.

Services gross margin percentage decreased during the second quarter and first six months of 2023 compared to the same periods in 2022 due primarily to the weakness in foreign currencies relative to the U.S.

dollar and higher Services costs, partially offset by improved leverage.

2 unchanged sentences

Operating Expenses

Operating expenses for the three months ended December 31, 2022 and December 25, 2021 were as follows (dollars in millions):

Three Months Ended

2022 December 25,

Operating expenses for the three- and six-month periods ended April 1, 2023 and March 26, 2022 were as follows (dollars in millions):

Three Months Ended Six Months Ended

2023 March 26,

2022 April 1,

2023 March 26,

Research and development $ 7,457 $ 6,387 $ 15,166 $ 12,693

5 unchanged sentences

Research and Development

The growth in research and development (“R&D”) expense during the first quarter of 2023 compared to the same quarter in 2022 was driven primarily by increases in headcount-related expenses.

The growth in research and development (“R&D”) expense during the second quarter and first six months of 2023 compared to the same periods in 2022 was driven primarily by increases in headcount-related expenses.

Selling, General and Administrative

The growth in selling, general and administrative expense during the first quarter of 2023 compared to the same quarter in 2022 was driven primarily by increases in headcount-related expenses.

Selling, general and administrative expense was relatively flat during the second quarter and first six months of 2023 compared to the same periods in 2022.

Provision for Income Taxes

Provision for income taxes, effective tax rate and statutory federal income tax rate for the three months ended December 31, 2022 and December 25, 2021 were as follows (dollars in millions):

Three Months Ended

2022 December 25,

Provision for income taxes, effective tax rate and statutory federal income tax rate for the three- and six-month periods ended April 1, 2023 and March 26, 2022 were as follows (dollars in millions):

Three Months Ended Six Months Ended

2023 March 26,

2022 April 1,

2023 March 26,

Provision for income taxes $ 4,222 $ 5,129 $ 9,847 $ 11,740

1 unchanged sentence

Statutory federal income tax rate 21 % 21 % 21 % 21 %

The Company’s effective tax rate for the first quarter of 2023 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings, tax benefits from share-based compensation, and the U.S.

The Company’s effective tax rate for the second quarter of 2023 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings and the U.S.

federal R&D credit, partially offset by state income taxes.

The Company’s effective tax rate for the first quarter of 2023 was lower compared to the same quarter in 2022 due primarily to a higher U.S.

federal R&D credit, lower state income taxes and a lower effective tax rate on foreign earnings, largely offset by lower tax benefits from share-based compensation.

The Company’s effective tax rate for the first six months of 2023 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings, the U.S.

federal R&D credit and tax benefits from share-based compensation, partially offset by state income taxes.

The Company’s effective tax rate for the second quarter of 2023 was lower compared to the second quarter of 2022 due primarily to the impact of U.S.

foreign tax credit regulations issued by the U.S.

Department of the Treasury in 2022 and a higher U.S.

federal R&D credit.

The Company’s effective tax rate for the first six months of 2023 was lower compared to the same period in 2022 due primarily to the impact of U.S.

foreign tax credit regulations issued by the U.S.

Department of the Treasury in 2022 and a higher U.S.

federal R&D credit, partially offset by lower tax benefits from share-based compensation.

Liquidity and Capital Resources

1 unchanged sentence

The Company’s contractual cash requirements have not changed materially since the 2022 Form 10-K, except for commercial paper and manufacturing purchase obligations.

| Q2 2023 Form 10-Q | 18

Commercial Paper

The Company issues unsecured short-term promissory notes (“Commercial Paper”) pursuant to a commercial paper program.

As of December 31, 2022, the Company had $1.7 billion of Commercial Paper outstanding, all of which was payable within 12 months.

| Q1 2023 Form 10-Q | 19

As of April 1, 2023, the Company had $2.0 billion of Commercial Paper outstanding, all of which was payable within 12 months.

Manufacturing Purchase Obligations

2 unchanged sentences

Outsourcing partners acquire components and build product based on demand information supplied by the Company, which typically covers periods up to 150 days.

As of December 31, 2022, the Company had manufacturing purchase obligations of $55.1 billion, with $54.8 billion payable within 12 months.

As of April 1, 2023, the Company had manufacturing purchase obligations of $40.5 billion, with $40.1 billion payable within 12 months.

The Company’s manufacturing purchase obligations are primarily noncancelable.

In addition to its contractual cash requirements, the Company has a capital return program authorized by the Board of Directors.

The share repurchase program (the “Program”) does not obligate the Company to acquire a minimum amount of shares.

As of December 31, 2022, the Company’s quarterly cash dividend was $0.23 per share.

Capital Return Program

In addition to its contractual cash requirements, the Company has an authorized share repurchase program, under which the remaining availability was $22.6 billion as of April 1, 2023.

On May 4, 2023, the Company announced the Board of Directors had authorized an additional program to repurchase up to $90 billion of the Company’s common stock.

The programs do not obligate the Company to acquire a minimum amount of shares.

On May 4, 2023, the Company also announced the Board of Directors raised the Company’s quarterly cash dividend from $0.23 to $0.24 per share, beginning with the dividend to be paid during the third quarter of 2023.

The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.

5 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to the Company’s market risk during the first three months of 2023.

There have been no material changes to the Company’s market risk during the first six months of 2023.

For a discussion of the Company’s exposure to market risk, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the 2022 Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis