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Item 2. Management’s Discussion and Analysis

2024-02-02 compared with 2023-08-04 · 67 added, 88 removed, 87 unchanged (64% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section and other parts of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.

This Item and other sections of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties.

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.

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Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements.

Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended September 24, 2022 (the “2022 Form 10-K”) under the heading “Risk Factors.” The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the 2023 Form 10-K under the heading “Risk Factors.” The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Unless otherwise stated, all information presented herein is based on the Company’s fiscal calendar, and references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.

Each of the terms the “Company” and “Apple” as used herein refers collectively to Apple Inc.

and its wholly owned subsidiaries, unless otherwise stated.

The following discussion should be read in conjunction with the 2023 Form 10-K filed with the U.S.

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Quarterly Highlights

Weakness in foreign currencies relative to the U.S.

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.

The Company’s first quarter of 2024 included 13 weeks, compared to 14 weeks during the first quarter of 2023.

The Company’s total net sales increased 2% or $2.4 billion during the first quarter of 2024 compared to the same quarter in 2023, driven primarily by higher net sales of iPhone and Services, partially offset by lower net sales of iPad and Wearables, Home and Accessories.

During the first quarter of 2024, the Company announced an updated MacBook Pro ® 14-in., MacBook Pro 16-in.

The Company repurchased $20.5 billion of its common stock and paid dividends and dividend equivalents of $3.8 billion during the first quarter of 2024.

Macroeconomic Conditions

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.

| Q1 2024 Form 10-Q | 13

Segment Operating Performance

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,

The following table shows net sales by reportable segment for the three months ended December 30, 2023 and December 31, 2022 (dollars in millions):

Three Months Ended

2023 December 31,

Net sales by reportable segment:

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Total net sales $ 119,575 $ 117,154 2 %

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 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.

Americas net sales increased 2% or $1.2 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of Services and iPhone, partially offset by lower net sales of iPad.

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

dollar had a net favorable year-over-year impact on Americas net sales during the first quarter of 2024.

Europe net sales increased 10% or $2.7 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of iPhone.

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

dollar had a net favorable year-over-year impact on Europe net sales during the first quarter of 2024.

Greater China

Greater China net sales decreased 13% or $3.1 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to lower net sales of iPhone, iPad and Wearables, Home and Accessories.

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 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.

dollar had an unfavorable year-over-year impact on Greater China net sales during the first quarter of 2024.

Japan net sales increased 15% or $1.0 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher 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 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.

dollar had an unfavorable year-over-year impact on Japan net sales during the first quarter of 2024.

Rest of Asia Pacific

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

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.

Rest of Asia Pacific net sales increased 7% or $627 million during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of iPhone, partially offset by lower net sales of Wearables, Home and Accessories.

| Q1 2024 Form 10-Q | 14

Products and Services Performance

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,

The following table shows net sales by category for the three months ended December 30, 2023 and December 31, 2022 (dollars in millions):

Three Months Ended

2023 December 31,

Net sales by category:

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Total net sales $ 119,575 $ 117,154 2 %

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.

iPhone net sales increased 6% or $3.9 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales of Pro models, partially offset by lower net sales of other models.

Mac net sales were relatively flat during the first quarter of 2024 compared to the same quarter in 2023.

iPad net sales decreased 25% or $2.4 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to lower net sales of iPad Pro, iPad 9th generation and iPad Air.

Wearables, Home and Accessories

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.

Wearables, Home and Accessories net sales decreased 11% or $1.5 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to lower net sales of Wearables and Accessories.

Services net sales increased 11% or $2.4 billion during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher net sales from advertising, video and cloud services.

| Q1 2024 Form 10-Q | 15

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,

Products and Services gross margin and gross margin percentage for the three months ended December 30, 2023 and December 31, 2022 were as follows (dollars in millions):

Three Months Ended

2023 December 31,

Gross margin:

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Products Gross Margin

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.

Products gross margin increased during the first quarter of 2024 compared to the same quarter in 2023 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 lower Products volume.

Products gross margin percentage increased during the first quarter of 2024 compared to the same quarter in 2023 due primarily to cost savings and a different Products mix, partially offset by the weakness in foreign currencies relative to the U.S.

Services Gross Margin

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 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.

Services gross margin increased during the first quarter of 2024 compared to the same quarter in 2023 due primarily to higher Services net sales and a different Services mix.

Services gross margin percentage increased during the first quarter of 2024 compared to the same quarter in 2023 due primarily to a different Services mix.

The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of the 2023 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.

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Operating Expenses

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,

Operating expenses for the three months ended December 30, 2023 and December 31, 2022 were as follows (dollars in millions):

Three Months Ended

2023 December 31,

Research and development $ 7,696 $ 7,709

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Research and Development

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.

Research and development (“R&D”) expense was relatively flat during the first quarter of 2024 compared to the same quarter in 2023.

Selling, General and Administrative

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.

Selling, general and administrative expense increased 3% or $179 million during the first quarter of 2024 compared to the same quarter in 2023.

Provision for Income Taxes

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, effective tax rate and statutory federal income tax rate for the three months ended December 30, 2023 and December 31, 2022 were as follows (dollars in millions):

Three Months Ended

2023 December 31,

Provision for income taxes $ 6,407 $ 5,625

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Statutory federal income tax rate 21 % 21 %

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.

The Company’s effective tax rate for the first quarter of 2024 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 impact of the U.S.

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

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, partially offset by lower tax benefits from share-based compensation.

| Q3 2023 Form 10-Q | 18

The Company’s effective tax rate for the first quarter of 2024 was relatively flat compared to the same quarter in 2023.

Liquidity and Capital Resources

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The Company also obtains individual components for its products from a wide variety of individual suppliers.

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 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.

As of December 30, 2023, the Company had manufacturing purchase obligations of $38.0 billion, with $37.9 billion payable within 12 months.

| Q1 2024 Form 10-Q | 17

Capital Return Program

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.

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

In addition to its contractual cash requirements, the Company has an authorized share repurchase program.

The program does not obligate the Company to acquire a minimum amount of shares.

As of December 30, 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.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions.

The Company will adopt ASU 2023-09 in its fourth quarter of 2026.

ASU 2023-09 allows for adoption using either a prospective or retrospective transition method.

Segment Reporting

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which will require the Company to disclose segment expenses that are significant and regularly provided to the Company’s chief operating decision maker (“CODM”).

In addition, ASU 2023-07 will require the Company to disclose the title and position of its CODM and how the CODM uses segment profit or loss information in assessing segment performance and deciding how to allocate resources.

The Company will adopt ASU 2023-07 in its fourth quarter of 2025 using a retrospective transition method.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with U.S.

generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported.

The preparation of financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported.

Note 1, “Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2023 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements.

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Quantitative and Qualitative Disclosures About Market Risk

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

There have been no material changes to the Company’s market risk during the first three months of 2024.

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 2023 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