Apple Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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. For example, statements in this Form 10-Q regarding the potential future impact of macroeconomic conditions and tariffs and other trade measures 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. 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 2024 Form 10-K and Part II, Item 1A of this Form 10-Q, in each case 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. The following discussion should be read in conjunction with the 2024 Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q. Available Information The Company periodically provides certain information for investors on its corporate website, www.apple.com, and its investor relations website, investor.apple.com. This includes press releases and other information about financial performance, information on corporate governance, and details related to the Company’s annual meeting of shareholders. The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references only. Business Seasonality and Product Introductions The Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand. Additionally, new product and service introductions can significantly impact net sales, cost of sales and operating expenses. The timing of product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch, and channel inventory of an older product often declines as the launch of a newer product approaches. Net sales can also be affected when consumers and distributors anticipate a product introduction. During the second quarter of 2025, the Company announced the following new or updated products: • iPhone 16e • iPad Air ® • iPad • MacBook Air ® • Mac Studio ® Macroeconomic Conditions Macroeconomic conditions, including inflation, 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. Apple Inc. | Q2 2025 Form 10-Q | 12 Tariffs and Other Trade Measures Beginning in the second quarter of 2025, new tariffs were announced on imports to the U.S. (“U.S. Tariffs”), including additional tariffs on imports from China, India, Japan, South Korea, Taiwan, Vietnam and the European Union (“EU”), among others. In response, several countries have imposed, or threatened to impose, reciprocal tariffs on imports from the U.S. and other retaliatory measures. Various modifications and delays to the U.S. Tariffs have been announced and further changes are expected to be made in the future, which may include additional sector-based tariffs or other measures. For example, the U.S. Department of Commerce has initiated an investigation under Section 232 of the Trade Expansion Act of 1962, as amended, into, among other things, imports of semiconductors, semiconductor manufacturing equipment, and their derivative products, including downstream products that contain semiconductors. Tariffs and other measures that are applied to the Company’s products or their components can have a material adverse impact on the Company’s business, results of operations and financial condition, including impacting the Company’s supply chain, the availability of rare earths and other raw materials and components, pricing and gross margin. The ultimate impact remains uncertain and will depend on several factors, including whether additional or incremental U.S. Tariffs or other measures are announced or imposed, to what extent other countries implement tariffs or other retaliatory measures in response, and the overall magnitude and duration of these measures. Trade and other international disputes can have an adverse impact on the overall macroeconomic environment and result in shifts and reductions in consumer spending and negative consumer sentiment for the Company’s products and services, all of which can further adversely affect the Company’s business and results of operations. Segment Operating Performance The following table shows net sales by reportable segment for the three- and six-month periods ended March 29, 2025 and March 30, 2024 (dollars in millions): Three Months Ended Six Months Ended March 29, 2025 March 30, 2024 Change March 29, 2025 March 30, 2024 Change Americas $ 40,315 $ 37,273 8 % $ 92,963 $ 87,703 6 % Europe 24,454 24,123 1 % 58,315 54,520 7 % Greater China 16,002 16,372 (2) % 34,515 37,191 (7) % Japan 7,298 6,262 17 % 16,285 14,029 16 % Rest of Asia Pacific 7,290 6,723 8 % 17,581 16,885 4 % Total net sales $ 95,359 $ 90,753 5 % $ 219,659 $ 210,328 4 % Americas Americas net sales increased during the second quarter and first six months of 2025 compared to the same periods in 2024 due primarily to higher net sales of iPhone and Services. The weakness in foreign currencies relative to the U.S. dollar had an unfavorable year-over-year impact on Americas net sales during the second quarter and first six months of 2025. Europe Europe net sales were relatively flat during the second quarter of 2025 compared to the second quarter of 2024. Year-over-year Europe net sales increased during the first six months of 2025 due primarily to higher net sales of Services, Mac and iPad. 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 of 2025. Greater China Greater China net sales decreased during the first six months of 2025 compared to the same period in 2024 due to lower net sales of iPhone. 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 of 2025. Japan Japan net sales increased during the second quarter and first six months of 2025 compared to the same periods in 2024 due primarily to higher net sales of iPhone and Services. 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 2025. Apple Inc. | Q2 2025 Form 10-Q | 13 Rest of Asia Pacific Rest of Asia Pacific net sales increased during the second quarter of 2025 compared to the second quarter of 2024 due primarily to higher net sales of Services and iPhone. Year-over-year Rest of Asia Pacific net sales increased during the first six months of 2025 due primarily to higher net sales of Services. Changes 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 second quarter of 2025, while they had a net favorable impact during the first six months of 2025. Products and Services Performance The following table shows net sales by category for the three- and six-month periods ended March 29, 2025 and March 30, 2024 (dollars in millions): Three Months Ended Six Months Ended March 29, 2025 March 30, 2024 Change March 29, 2025 March 30, 2024 Change iPhone $ 46,841 $ 45,963 2 % $ 115,979 $ 115,665 — % Mac 7,949 7,451 7 % 16,936 15,231 11 % iPad 6,402 5,559 15 % 14,490 12,582 15 % Wearables, Home and Accessories 7,522 7,913 (5) % 19,269 19,866 (3) % Services 26,645 23,867 12 % 52,985 46,984 13 % Total net sales $ 95,359 $ 90,753 5 % $ 219,659 $ 210,328 4 % iPhone iPhone net sales increased during the second quarter of 2025 compared to the second quarter of 2024 due primarily to higher net sales of Pro models. Year-over-year iPhone net sales were relatively flat during the first six months of 2025. Mac Mac net sales increased during the second quarter and first six months of 2025 compared to the same periods in 2024 due primarily to higher net sales of both laptops and desktops. iPad iPad net sales increased during the second quarter and first six months of 2025 compared to the same periods in 2024 due primarily to higher net sales of iPad Air. Wearables, Home and Accessories Wearables, Home and Accessories net sales decreased during the second quarter and first six months of 2025 compared to the same periods in 2024 due primarily to lower net sales of Wearables. Services Services net sales increased during the second quarter and first six months of 2025 compared to the same periods in 2024 due primarily to higher net sales from advertising, the App Store ® and cloud services. Apple Inc. | Q2 2025 Form 10-Q | 14 Gross Margin Products and Services gross margin and gross margin percentage for the three- and six-month periods ended March 29, 2025 and March 30, 2024 were as follows (dollars in millions): Three Months Ended Six Months Ended March 29, 2025 March 30, 2024 March 29, 2025 March 30, 2024 Gross margin: Products $ 24,684 $ 24,462 $ 63,197 $ 62,480 Services 20,183 17,809 39,945 34,646 Total gross margin $ 44,867 $ 42,271 $ 103,142 $ 97,126 Gross margin percentage: Products 35.9 % 36.6 % 37.9 % 38.3 % Services 75.7 % 74.6 % 75.4 % 73.7 % Total gross margin percentage 47.1 % 46.6 % 47.0 % 46.2 % Products Gross Margin Products gross margin was relatively flat during the second quarter of 2025 compared to the second quarter of 2024. Year-over-year Products gross margin increased during the first six months of 2025 due primarily to favorable costs, partially offset by a different mix of products and weakness in foreign currencies relative to the U.S. dollar. Products gross margin percentage decreased during the second quarter and first six months of 2025 compared to the same periods in 2024 due primarily to a different mix of products and weakness in foreign currencies relative to the U.S. dollar, partially offset by favorable costs. Services Gross Margin Services gross margin increased during the second quarter and first six months of 2025 compared to the same periods in 2024 due primarily to higher Services net sales. Services gross margin percentage increased during the second quarter and first six months of 2025 compared to the same periods in 2024 due primarily to a different mix of services, partially offset by higher Services costs and weakness in foreign currencies relative to the U.S. dollar. The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of the 2024 Form 10-K and Part II, Item 1A of this Form 10-Q, in each case under the heading “Risk Factors.” As a result, the Company believes, in general, gross margins will be subject to volatility and downward pressure. Apple Inc. | Q2 2025 Form 10-Q | 15 Operating Expenses Operating expenses for the three- and six-month periods ended March 29, 2025 and March 30, 2024 were as follows (dollars in millions): Three Months Ended Six Months Ended March 29, 2025 March 30, 2024 March 29, 2025 March 30, 2024 Research and development $ 8,550 $ 7,903 $ 16,818 $ 15,599 Percentage of total net sales 9 % 9 % 8 % 7 % Selling, general and administrative $ 6,728 $ 6,468 $ 13,903 $ 13,254 Percentage of total net sales 7 % 7 % 6 % 6 % Total operating expenses $ 15,278 $ 14,371 $ 30,721 $ 28,853 Percentage of total net sales 16 % 16 % 14 % 14 % Research and Development The growth in research and development expense during the second quarter and first six months of 2025 compared to the same periods in 2024 was driven primarily by increases in headcount-related expenses and infrastructure-related costs. Selling, General and Administrative The growth in selling, general and administrative expense during the second quarter of 2025 compared to the second quarter of 2024 was driven primarily by increases in professional services and headcount-related expenses. Year-over-year selling, general and administrative expense increased during the first six months of 2025 due primarily to increases in variable selling expenses, headcount-related expenses and professional services. 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 March 29, 2025 and March 30, 2024 were as follows (dollars in millions): Three Months Ended Six Months Ended March 29, 2025 March 30, 2024 March 29, 2025 March 30, 2024 Provision for income taxes $ 4,530 $ 4,422 $ 10,784 $ 10,829 Effective tax rate 15.5 % 15.8 % 15.0 % 15.8 % Statutory federal income tax rate 21 % 21 % 21 % 21 % The Company’s effective tax rate for the second quarter of 2025 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings, including the impact of changes in unrecognized tax benefits, partially offset by state income taxes. The Company’s effective tax rate for the first six months of 2025 was lower than the statutory federal income tax rate due primarily to a lower effective tax rate on foreign earnings, including the impact of changes in unrecognized tax benefits, tax benefits from share-based compensation, the impact of foreign currency loss regulations issued by the U.S. Department of the Treasury in December 2024, and the tax impact from foreign currency revaluations related to the State Aid Decision. The Company’s effective tax rate for the second quarter of 2025 was lower compared to the second quarter of 2024 due primarily to the impact of changes in unrecognized tax benefits, partially offset by a higher effective tax rate on foreign earnings. The Company’s effective tax rate for the first six months of 2025 was lower compared to the same period in 2024 due primarily to the impact of changes in unrecognized tax benefits, the impact of foreign currency loss regulations issued by the U.S. Department of the Treasury in December 2024, and the tax impact from foreign currency revaluations related to the State Aid Decision, partially offset by a higher effective tax rate on foreign earnings. Apple Inc. | Q2 2025 Form 10-Q | 16 Liquidity and Capital Resources The Company believes its balances of cash, cash equivalents and 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 2024 Form 10-K, except for manufacturing purchase obligations and the State Aid Decision tax payable. Manufacturing Purchase Obligations The Company utilizes several outsourcing partners to manufacture subassemblies for the Company’s products and to perform final assembly and testing of finished products. The Company also obtains individual components for its products from a wide variety of individual suppliers. As of March 29, 2025, the Company had manufacturing purchase obligations of $38.4 billion, which were payable within 12 months. State Aid Decision Tax Payable During the first six months of 2025, the Company released from escrow €14.2 billion or $15.4 billion to Ireland in connection with the State Aid Decision, which fully settled the obligation. Capital Return Program In addition to its contractual cash requirements, the Company has an authorized share repurchase program, under which the remaining availability was $40.8 billion as of March 29, 2025. On May 1, 2025, the Company announced the Board of Directors had authorized an additional program to repurchase up to $100 billion of the Company’s common stock. The programs do not obligate the Company to acquire a minimum amount of shares. On May 1, 2025, the Company also announced the Board of Directors raised the Company’s quarterly cash dividend from $0.25 to $0.26 per share, beginning with the dividend to be paid during the third quarter of 2025. The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors. During the second quarter of 2025, the Company repurchased $25.0 billion of its common stock and paid dividends and dividend equivalents of $3.8 billion. Recent Accounting Pronouncements Disaggregation of Income Statement Expenses In November 2024, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”) and in January 2025, the FASB issued ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date , which clarified the effective date of ASU 2024-03. ASU 2024-03 will require the Company to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization, as applicable, included in certain expense captions in the Consolidated Statements of Operations, as well as qualitatively describe remaining amounts included in those captions. ASU 2024-03 will also require the Company to disclose both the amount and the Company’s definition of selling expenses. The Company will adopt ASU 2024-03 in its fourth quarter of 2028 using a prospective transition method. Income Taxes In December 2023, the FASB issued 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 using a prospective transition method. Apple Inc. | Q2 2025 Form 10-Q | 17 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 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 2024 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2024 Form 10-K. Item 3. 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 2025. 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 2024 Form 10-K.