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 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 2025 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 2025 Form 10-K filed with the U.S. Securities and Exchange Commission (“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 2026, the Company announced the following new or updated products: • iPad Air ® • iPhone 17e • MacBook Pro ® • MacBook Air ® • MacBook Neo™ • AirPods Max ® 2 Macroeconomic Conditions Macroeconomic conditions, including inflation, interest rates, component pricing and currency fluctuations, have directly and indirectly impacted, and could in the future materially impact, the Company’s results of operations and financial condition. The Company is experiencing a period of supply constraints and increasing costs for components driven by factors such as industry supply-demand imbalances for components, including advanced semiconductors, storage (NAND) and memory (DRAM). The Company expects these trends to intensify, which, together with actions that may be taken by the Company in response to such trends, may materially adversely affect demand for the Company’s products and negatively impact the Company’s revenue, costs, gross margin, results of operations and financial condition. Apple Inc. | Q2 2026 Form 10-Q | 13 Tariffs and Other Measures Beginning in the second quarter of 2025, new tariffs were announced on imports to the U.S., 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. On January 14, 2026, initial results were published of the previously announced U.S. Department of Commerce investigation under Section 232 of the Trade Expansion Act of 1962, as amended, into imports of semiconductors, semiconductor manufacturing equipment, and their derivative products, including downstream products that contain semiconductors. The announcement of the initial results of the investigation did not impose any additional tariffs affecting the Company’s products. Separately, on February 20, 2026, the U.S. Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act of 1977. The Company is applying for a refund of tariffs paid, following the processes established by U.S. Customs and Border Protection. Various modifications to U.S. tariffs have been announced, including the imposition of tariffs under Section 122 of the Trade Act of 1974, and further changes could be made in the future, which may include additional measures under the Section 232 semiconductor sector investigation, additional sector-based tariffs, actions under Section 301 of the Trade Act of 1974, or other measures. 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 28, 2026 and March 29, 2025 (dollars in millions): Three Months Ended Six Months Ended March 28, 2026 March 29, 2025 Change March 28, 2026 March 29, 2025 Change Americas $ 45,093 $ 40,315 12 % $ 103,622 $ 92,963 11 % Europe 28,055 24,454 15 % 66,201 58,315 14 % Greater China 20,497 16,002 28 % 46,023 34,515 33 % Japan 8,401 7,298 15 % 17,814 16,285 9 % Rest of Asia Pacific 9,138 7,290 25 % 21,280 17,581 21 % Total net sales $ 111,184 $ 95,359 17 % $ 254,940 $ 219,659 16 % Americas Americas net sales increased during the second quarter and first six months of 2026 compared to the same periods in 2025 due to higher net sales of iPhone and Services. The strength in foreign currencies relative to the U.S. dollar had a favorable year-over-year impact on Americas net sales during the second quarter of 2026. Europe Europe net sales increased during the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due to higher net sales of iPhone and Services. 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 second quarter and first six months of 2026. Greater China Greater China net sales increased during the second quarter and first six months of 2026 compared to the same periods in 2025 due to higher net sales of iPhone. The strength in the renminbi relative to the U.S. dollar had a favorable year-over-year impact on Greater China net sales during the second quarter of 2026. Apple Inc. | Q2 2026 Form 10-Q | 14 Japan Japan net sales increased during the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due 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 first six months of 2026. Rest of Asia Pacific Rest of Asia Pacific net sales increased during the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due to higher net sales of iPhone and Services. The strength in foreign currencies relative to the U.S. dollar had a net favorable year-over-year impact on Rest of Asia Pacific net sales during the second quarter of 2026. Products and Services Performance The following table shows net sales by category for the three- and six-month periods ended March 28, 2026 and March 29, 2025 (dollars in millions): Three Months Ended Six Months Ended March 28, 2026 March 29, 2025 Change March 28, 2026 March 29, 2025 Change iPhone $ 56,994 $ 46,841 22 % $ 142,263 $ 115,979 23 % Mac 8,399 7,949 6 % 16,785 16,936 (1) % iPad 6,914 6,402 8 % 15,509 14,490 7 % Wearables, Home and Accessories 7,901 7,522 5 % 19,394 19,269 1 % Services 30,976 26,645 16 % 60,989 52,985 15 % Total net sales $ 111,184 $ 95,359 17 % $ 254,940 $ 219,659 16 % iPhone iPhone net sales increased during the second quarter and first six months of 2026 compared to the same periods in 2025 due to higher net sales of Pro models. Mac Mac net sales increased during the second quarter of 2026 compared to the second quarter of 2025 due to higher net sales of laptops. Year-over-year Mac net sales during the first six months of 2026 were relatively flat. iPad iPad net sales increased during the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due 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 increased during the second quarter of 2026 compared to the second quarter of 2025 primarily due to higher net sales of Accessories and Wearables. Year-over-year Wearables, Home and Accessories net sales during the first six months of 2026 were relatively flat. Services Services net sales increased during the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due to higher net sales from advertising, the App Store ® and cloud services. Apple Inc. | Q2 2026 Form 10-Q | 15 Gross Margin Products and Services gross margin and gross margin percentage for the three- and six-month periods ended March 28, 2026 and March 29, 2025, were as follows (dollars in millions): Three Months Ended Six Months Ended March 28, 2026 March 29, 2025 March 28, 2026 March 29, 2025 Gross margin: Products $ 31,029 $ 24,684 $ 77,294 $ 63,197 Services 23,752 20,183 46,718 39,945 Total gross margin $ 54,781 $ 44,867 $ 124,012 $ 103,142 Gross margin percentage: Products 38.7 % 35.9 % 39.9 % 37.9 % Services 76.7 % 75.7 % 76.6 % 75.4 % Total gross margin percentage 49.3 % 47.1 % 48.6 % 47.0 % Products Gross Margin Products gross margin and gross margin percentage increased during the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due to a different mix of products and strength in foreign currencies relative to the U.S. dollar, partially offset by higher costs. Services Gross Margin Services gross margin increased during the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due to higher Services net sales and a different mix of services. Services gross margin percentage increased during the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due to a different mix of services and strength in foreign currencies relative to the U.S. dollar, partially offset by higher costs. The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of the 2025 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 2026 Form 10-Q | 16 Operating Expenses Operating expenses for the three- and six-month periods ended March 28, 2026 and March 29, 2025, were as follows (dollars in millions): Three Months Ended Six Months Ended March 28, 2026 March 29, 2025 Change March 28, 2026 March 29, 2025 Change Research and development $ 11,419 $ 8,550 34 % $ 22,306 $ 16,818 33 % Percentage of total net sales 10 % 9 % 9 % 8 % Selling, general and administrative $ 7,477 $ 6,728 11 % $ 14,969 $ 13,903 8 % Percentage of total net sales 7 % 7 % 6 % 6 % Total operating expenses $ 18,896 $ 15,278 24 % $ 37,275 $ 30,721 21 % Percentage of total net sales 17 % 16 % 15 % 14 % Research and Development Research and development (“R&D”) expense increased during the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due to higher infrastructure-related costs and headcount-related expenses. Selling, General and Administrative Selling, general and administrative expense increased during the second quarter and first six months of 2026 compared to the same periods in 2025 primarily due to higher headcount-related expenses, variable selling 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 28, 2026 and March 29, 2025, were as follows (dollars in millions): Three Months Ended Six Months Ended March 28, 2026 March 29, 2025 March 28, 2026 March 29, 2025 Provision for income taxes $ 6,255 $ 4,530 $ 15,160 $ 10,784 Effective tax rate 17.5 % 15.5 % 17.5 % 15.0 % Statutory federal income tax rate 21 % 21 % 21 % 21 % The Company’s effective tax rate for the second quarter of 2026 was lower than the statutory federal income tax rate primarily due to a lower effective tax rate on foreign earnings, the impact of the U.S. federal R&D credit, and a change in valuation allowance, partially offset by state income taxes. The Company’s effective tax rate for the first six months of 2026 was lower than the statutory federal income tax rate primarily due to a lower effective tax rate on foreign earnings, the impact of 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 2026 was higher compared to the second quarter of 2025 primarily due to the impact of changes in unrecognized tax benefits, partially offset by a change in valuation allowance. The Company’s effective tax rate for the first six months of 2026 was higher compared to the same period in 2025 primarily due 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 in the first quarter of 2025 related to the State Aid Decision. Apple Inc. | Q2 2026 Form 10-Q | 17 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 2025 Form 10-K, except for manufacturing purchase obligations, other purchase obligations, and deemed repatriation 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 28, 2026, the Company had manufacturing purchase obligations of $44.6 billion, with $43.9 billion payable within 12 months. Other Purchase Obligations The Company’s other purchase obligations primarily consist of noncancelable obligations related to supplier arrangements, licensed intellectual property and content, distribution rights, and the acquisition of capital assets related to product manufacturing. As of March 28, 2026, the Company had other purchase obligations of $30.4 billion, with $9.3 billion payable within 12 months. Deemed Repatriation Tax Payable During the first six months of 2026, the Company paid the remaining $8.8 billion balance of the deemed repatriation tax payable imposed by the U.S. Tax Cuts and Jobs Act of 2017. Capital Return Program In addition to its contractual cash requirements, the Company has an authorized share repurchase program, under which the remaining availability was $63.8 billion as of March 28, 2026. On April 30, 2026, 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 April 30, 2026, the Company also announced the Board of Directors raised the Company’s quarterly cash dividend from $0.26 to $0.27 per share, beginning with the dividend to be paid during the third quarter of 2026. The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors. During the second quarter of 2026, the Company repurchased $11.0 billion of its common stock and paid dividends and dividend equivalents of $3.8 billion. Recent Accounting Pronouncements Internal-Use Software In September 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which modernizes the accounting for internal-use software. ASU 2025-06 removes all references to software development stages and requires capitalization of software costs when management has committed to the software project and it is probable the software will be completed and perform its intended use. ASU 2025-06 will be effective for the Company in its first quarter of 2029, and early adoption is permitted. The Company is currently evaluating the timing and method of its adoption of ASU 2025-06. Apple Inc. | Q2 2026 Form 10-Q | 18 Disaggregation of Income Statement Expenses In November 2024, the FASB issued 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. 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 2025 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 2025 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 2026. 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 2025 Form 10-K.