Apple's Third Quarter Earnings Call Takeaways: Work on AI, Vision Pro Demo Success, iPad and Mac Sales to Fall in Q4

Apple today held its third earnings call of 2023, covering the second calendar quarter of the year. During the call, Apple CEO Tim Cook and Apple CFO Luca Maestri shared tidbits on recent product sales, services results, future plans, and revenue impacts.

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We've highlighted the most interesting parts of the call below for those who weren't able to listen.

AI

Apple CEO ‌Tim Cook‌ was asked about Apple's approach to AI, and he said that AI and machine learning are "core fundamental technologies integral to virtually every product" that Apple builds, which is the same answer that Cook has given before on the topic.

It is "absolutely critical" to Apple, with Cook confirming that Apple has been investigating AI (including generative AI) "for years."

"We will continue to responsibly advance our products with these technologies," Cook said, adding that Apple tends to "announce things as they come to market."

Vision Pro

Cook said that Apple is "very excited" about Vision Pro. "Everyone who has gone through the demos have been blown away," said Cook. "We're looking forward to shipping it next year.

Services Revenue

Apple set an all-time revenue record in Services during the quarter, which it says was driven by more than a billion paid subscriptions. Services revenue was $21.2 billion, up from $19.6 billion in the year-ago quarter.

Subscriptions have grown 150 million in the past year, and have more than doubled over the last three years.

All-time revenue records were set in cloud, video, AppleCare, and payments, with June quarter revenue records for the App Store, advertising, and Apple Music.

iPhone, iPad, and Mac Sales

iPhone, iPad, and Mac revenue dropped during the quarter across all three categories. ‌iPhone‌ revenue was $39.7 billion, down from $40.7 billion in 2022, while ‌iPad‌ revenue was $5.8 billion, down from $7.2 billion in the year-ago quarter. Apple CFO Luca Maestri said that the drop in ‌iPad‌ sales was due to a tough compare as last year, Apple had introduced a new iPad Air during the quarter.

Mac revenue was $6.8 billion, down from $7.4 billion. Almost half of Mac buyers in the quarter were new to the product.

Wearables

Apple saw growth in the Wearables, Home and Accessories category, which brought in $8.3 billion, up two percent from $8.1 billion in the year-ago quarter. Two thirds of new Apple Watch customers during the quarter were new to the product.

Wearables are nearly the size of a Fortune 100 company, earning $40 billion in the last 12 months.

R&D

Apple's research and development spending is growing slower than it has in prior years, which Luca Maestri said is due to Apple being more careful about controlling spending during the "uncertain period" across the last few quarters. Apple has successfully decelerated some of its expense growth by slowing hiring, and plans to continue to "manage deliberately." Even amid the slowdown, Maestri said that R&D costs are continuing to grow faster than the rest of the company.

"Our focus continues to be on innovation and product development," he said.

Next Quarter

For the September quarter, Apple said that year-over-year performance will be similar to the June quarter provided the macro outlook doesn't worsen, with a year-over-year revenue impact of more than two percent. ‌iPhone‌ and Services revenue is expected to be up compared to June, but Mac and ‌iPad‌ revenue will drop double digits due to difficult compares.

Rumors have suggested that we won't see notable updates to iPads or Macs, with Apple having no plans to refresh the iPad Pro or the higher-selling Mac models until 2024. Apple will not have new products to offer this fall to attract ‌iPad‌ and Mac buyers.

Apple is, however, expecting gross margin of 44 to 45 percent, which Luca Maestri attributed to a strong product mix, cost savings, and Services.

Read More

A more complete picture of Apple's earnings on a per-category basis can be found in our full live blog.

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Top Rated Comments

haydn! Avatar
13 months ago
Let’s be honest, revenues are down because for most products, pricing has gotten ridiculous. Especially in international markets. But we all know Apple’s solution will be to squeeze even more out of those willing to pay and not lower margins in favour of higher volumes.
Score: 25 Votes (Like | Disagree)
erikkfi Avatar
13 months ago
If iPad revenue is down it might be because the lineup is a frigging nightmare on wheels. Here’s your base price, now if you want more storage it’ll be $150 and you’ll be just about paying the base price of the next model up! ?
Score: 23 Votes (Like | Disagree)
HobeSoundDarryl Avatar
13 months ago

Here’s the thing: Vision Pro doesn’t really get anything done that a tradition computer can’t.
If you are going to set the bar that high, very little new product can leap it.

* Watch doesn't really get anything done that iDevices can't.
* iPad doesn't really get anything done that iPhone can't. It is just a big iPhone/iPod.
* iPhone doesn't really get anything done that MB can't. I was making phone calls on Macs long before iPhone (VOIP software)
* MB doesn't really get anything done that Mac can't.
* Mac doesn't really get anything done that PC can't.

So perhaps Apple should cut it all down to a single Mac product... or maybe a PC... if the bar has to be "what a traditional computer can't."

Else, the question becomes the one that justified all of the past new products launched: what does Vpro add to the tech proposition?

And there are PLENTY of answers to that one before any of us have even got to demo one ourselves. Rather than dig its grave before even a demo, it might be a good idea to "think different." A device capable of showing our eyes ANYTHING in a realistic way paired with devices that can similarly "fool" our ears is a new bit of tech with enormous potential.
Score: 21 Votes (Like | Disagree)
Mr. Dee Avatar
13 months ago
I don't even think its the macro-economic conditions thats affecting revenue, its just people feeling what they have is good enough and sticking with it. They would rather put that $1,000 in Apple Savings than upgrade from iPhone 12, 13 or 14.
Score: 12 Votes (Like | Disagree)
sw1tcher Avatar
13 months ago
MacRumors Bot doesn't know the difference between million and billion

?
Score: 12 Votes (Like | Disagree)
HobeSoundDarryl Avatar
13 months ago

Mac isn’t handheld, or wrist wearable, etc etc etc.

Look up Jobs To Be Done. It’s not necessarily about the device’s functions, but the job it does for its user. Changing the format changes the job it does.

Problem with vision pro is, in doing a bunch of new jobs with its spatial capability, it introduces a whole slew of compromises that make it so the new jobs it does aren’t worth it to the vast majority of potential buyers.
Vpro delivers ANY size screen for up to all of the rest of the product mix without scaling weight or size. It is a smallish mobile device that can summon up to any size screen on demand. No crease. No fold. No roll. Assuming that alone works about as well as it was demoed in the WWDC preview, and that's worth $1000 more than the "Starting at" price of a rigidly fixed size MBpro 16" to me... and/or a rigidly fixed size Apple Studio display to me... and/or whatever price the rumored iMac "bigger" is going to be when it arrives.

I'm a road warrior type. When I go from my desktop Mac (40" Ultra-Wide screen) to a 16" MB, my productivity plummets over that huge loss of screen RE. There's no practical way to carry that 40" screen everywhere I travel... and Watch, iPhone, iPad, or any MB can't offer more than 16" screens.

What would we pay for the soft-rumored 32" Apple Studio Display if we already pay about $2K for a 27" version? And that's only a display.

That's only 1 "simple" added value benefit likely to come with Vpro. There are likely countless others for a device able to show our eyes ANYTHING and it looks realistic and feed our ears any sound so it sounds like we are there too.

If Apple was willing, they can virtualize every other product INSIDE Vpro: Mac, iPhone, iPad, Watch, etc... as a kind of "one device to replace them all." Apple is likely NOT willing to cannibalize that much... but they could. Carry one smallish device around and it could potentially be like having all Apple devices with you, wherever you happen to be. I don't expect that (mostly because maximizing profit rules all at Apple), but that potential is available in this one kind of product... unlike everything else (except a Mac, which can offer up what the rest of the lineup can do).

It's perfectly fine for people to not like the idea of Vpro... or feel any interest at all in it. But any one of us doesn't represent all of us. Again, I'm very interested if it can do that ONE thing well. Basically, for a little more than "starting at" MBpro 16", I might make it a new kind of "laptop" that can give me any amount of screen RE when on the road. That seems much better than trying to replicate the same with some kind of MB "fold" or MB "roll" or lugging extra screens along, etc. to me.

I feel no love at all for $3500. But then again, if a 16" MBpro starts at $2499, what would a 20" MBpro start at? 24"? 30"? And what would those weigh? And how difficult would it be to carry those giant clamshells around? All of them could be inside Vpro at a fixed amount of weight & size... even a 65" MB. For me, it's still wait and see if it can really deliver on that, but the WWDC demo seemed to show it pretty clearly. Hopefully it actually works as well as implied in that demo.
Score: 10 Votes (Like | Disagree)