What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-04 compared with 2023-05-05 · 74 added, 81 removed, 101 unchanged (61% of the section changed)

27 unchanged sentences

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.

dollar had an unfavorable impact on the Company’s total net sales, which decreased 1% or $1.2 billion during the third quarter of 2023 compared to the same quarter in 2022.

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

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

• 15-inch MacBook Air ® , powered by the M2 chip;

• Mac Studio™, powered by the M2 Max chip and the new M2 Ultra chip;

• Mac Pro ® , powered by the new M2 Ultra chip;

• Apple Vision Pro™, the Company’s first spatial computer featuring its new visionOS™, expected to be available in early calendar year 2024.

The Company also announced iOS 17, macOS ® Sonoma, iPadOS ® 17, tvOS ® 17 and watchOS ® 10, updates to its operating systems that are expected to be available in the fall of 2023.

| Q3 2023 Form 10-Q | 14

The Company repurchased $18.0 billion of its common stock and paid dividends and dividend equivalents of $3.8 billion during the third quarter of 2023.

Macroeconomic Conditions

1 unchanged sentence

Segment Operating Performance

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,

The following table shows net sales by reportable segment for the three- and nine-month periods ended July 1, 2023 and June 25, 2022 (dollars in millions):

Three Months Ended Nine Months Ended

2023 June 25,

2022 Change July 1,

2023 June 25,

Net sales by reportable segment:

5 unchanged sentences

Total net sales $ 81,797 $ 82,959 (1) % $ 293,787 $ 304,182 (3) %

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.

Americas net sales decreased during the third quarter and first nine 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.

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

During the third quarter of 2023, the Europe net sales increase consisted primarily of higher net sales of iPhone.

During the first nine 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

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.

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

During the third quarter of 2023, the Greater China net sales increase consisted primarily of higher net sales of iPhone.

During the first nine months of 2023, the Greater China net sales decrease consisted primarily of lower net sales of iPhone.

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.

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

During the third quarter of 2023, the Japan net sales decrease consisted primarily of lower net sales of iPhone.

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

Rest of Asia Pacific

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.

dollar had a net unfavorable year-over-year impact on Rest of Asia Pacific net sales during the third quarter and first nine months of 2023.

During the third quarter of 2023, the Rest of Asia Pacific net sales decrease consisted primarily of lower net sales of iPhone and iPad.

During the first nine 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.

| Q3 2023 Form 10-Q | 15

Products and Services Performance

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,

The following table shows net sales by category for the three- and nine-month periods ended July 1, 2023 and June 25, 2022 (dollars in millions):

Three Months Ended Nine Months Ended

2023 June 25,

2022 Change July 1,

2023 June 25,

Net sales by category:

5 unchanged sentences

Total net sales $ 81,797 $ 82,959 (1) % $ 293,787 $ 304,182 (3) %

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 ® .

iPhone net sales decreased during the third quarter and first nine months of 2023 compared to the same periods in 2022 due primarily to lower net sales from certain iPhone models, partially offset by higher net sales of iPhone 14 Pro models.

Mac net sales decreased during the third quarter and first nine months of 2023 compared to the same periods in 2022 due primarily to lower net sales of laptops.

iPad net sales decreased during the third quarter of 2023 compared to the third quarter of 2022 due primarily to lower net sales across most iPad models.

Year-over-year iPad net sales were relatively flat during the first nine months of 2023.

Wearables, Home and Accessories

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.

Wearables, Home and Accessories net sales increased during the third quarter of 2023 compared to the third quarter of 2022 due primarily to higher net sales of Wearables, which includes AirPods ® , Apple Watch ® and Beats ® products, partially offset by lower net sales of accessories.

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

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

Year-over-year Services net sales increased during the first nine months of 2023 due primarily to higher net sales from cloud services, advertising and music.

| Q3 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,

Products and Services gross margin and gross margin percentage for the three- and nine-month periods ended July 1, 2023 and June 25, 2022 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2023 June 25,

Gross margin:

7 unchanged sentences

Products Gross Margin

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.

Products gross margin decreased during the third quarter and first nine 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 lower Products volume, partially offset by cost savings and a different Products mix.

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

dollar and decreased leverage.

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

dollar and decreased leverage, partially offset by cost savings and a different Products mix.

Services Gross Margin

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.

Services gross margin increased during the third quarter and first nine 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.

Services gross margin percentage decreased during the third quarter of 2023 compared to the third quarter of 2022 due primarily to higher Services costs, partially offset by improved leverage.

Year-over-year Services gross margin percentage decreased during the first nine months of 2023 due primarily to higher Services costs and the weakness in foreign currencies relative to the U.S.

dollar, partially offset by improved leverage.

The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of the 2022 Form 10-K under the heading “Risk Factors.” As a result, the Company believes, in general, gross margins will be subject to volatility and downward pressure.

1 unchanged sentence

Operating Expenses

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,

Operating expenses for the three- and nine-month periods ended July 1, 2023 and June 25, 2022 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2023 June 25,

Research and development $ 7,442 $ 6,797 $ 22,608 $ 19,490

5 unchanged sentences

Research and Development

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.

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

Selling, General and Administrative

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.

Selling, general and administrative expense was relatively flat during the third quarter and first nine 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- 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, effective tax rate and statutory federal income tax rate for the three- and nine-month periods ended July 1, 2023 and June 25, 2022 were as follows (dollars in millions):

Three Months Ended Nine Months Ended

2023 June 25,

Provision for income taxes $ 2,852 $ 3,624 $ 12,699 $ 15,364

1 unchanged sentence

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

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.

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

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

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.

The Company’s effective tax rate for the third quarter of 2023 was lower compared to the third quarter of 2022 due primarily to a lower effective tax rate on foreign earnings, including the favorable impact of changes in unrecognized tax benefits, partially offset by lower tax benefits from share-based compensation.

The Company’s effective tax rate for the first nine months of 2023 was lower compared to the same period in 2022 due primarily to a lower effective tax rate on foreign earnings and 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.

Department of the Treasury in 2022, partially offset by lower tax benefits from share-based compensation.

| Q3 2023 Form 10-Q | 18

Liquidity and Capital Resources

The Company believes its balances of cash, cash equivalents and unrestricted marketable securities, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.

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

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

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

As of July 1, 2023, the Company had manufacturing purchase obligations of $38.4 billion, with $38.1 billion payable within 12 months.

The Company’s manufacturing purchase obligations are primarily noncancelable.

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.

In addition to its contractual cash requirements, the Company had authorized share repurchase programs as of July 1, 2023.

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.

As of July 1, 2023, the Company’s quarterly cash dividend was $0.24 per share.

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 six months of 2023.

There have been no material changes to the Company’s market risk during the first nine 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