Tim Cook warns memory costs to be passed-on to customers
Apple will not absorb all costs of memory and storage chips, Tom Cook confirms.
“Unfortunately, price increases are unavoidable,” he said. “We’re doing our best to mitigate the huge increases that are being passed to us, and we’ve been trying to shield our customers from the increases, but the situation has become unsustainable.”
No further details were provided.
Tim Cook decided to issue this warning about the price increases in advance through the Wall Street Journal. This communication preempts by at least 2 months of the Fall launch event. Due to this, it's likely that price increases on current products might arrive well before then.
Recall that guidance for the current quarter (ending June) was issued in April which indicated growth and markings consistent with the last quarter (ending March). The current quarter ends in 12 days and I would assume price increases are likely right after that. The current quarter likely saw increased inventory builds as components in the supply chain purchased at prices set a few months ago were used up.
This has kept pricing and margins constant but at the last earnings call, Tim Cook warned that cost increases in memory were likely to impact "beyond the June quarter". Here is the exact quote:
...let me talk about memory specifically, which I think is the root of the question. And I'll go back to December for a moment and just walk you through the chronology. In the December quarter, we really had a minimal impact due to memory, and you can kinda see that in the gross margin results. We said it would be a bit more in the March quarter, and we did see higher memory costs in the March quarter, and they were partially offset by benefits from carry-in inventory that we had. For the June quarter, and what's embedded in the guidance that [CFO] Kevan went through earlier, we expect significantly higher memory costs. They are also partly offset by the benefit of carry-in inventory.
Then where we don't give color beyond June, I can tell you that beyond the June quarter, we believe memory costs will drive an increasing impact on our business. We'll continue to evaluate this, and as we've said before, we'll look at a range of options.
It seems the range options have run out. Tim did say that the situation was unprecedented and not seen in the 40 years he's been in the business. Analysts are busy trying to predict the trajectory of memory pricing.
The Wall Street Journal states "Passing the higher cost on to consumers while maintaining its profit margin would add about $270 to the price of the next iPhone Pro model, estimates research firm TechInsights."
A transcript of the May 1, 2026 Asymco One Office Hours, recorded one day after Apple's Fiscal Q2 2026 earnings call. Horace Dediu presents his analysis of the quarter and takes questions from Asymco One subscribers. Hosted by Horace Dediu and Farshad Nayeri.
Horace Dediu: So I'll do a short presentation, and then we're going to open it up for questions. We are speaking approximately one day after Fiscal Second Quarter 2026 earnings call. Let's dig into it and see if we can understand it even better.
First, I think that there was a comfortable beat from already a highly elevated expectation.
So we had a range of estimates— I collected those from Yahoo and TipRanks, each one had about 30 [analysts], probably a lot of overlap between them. So we had a range of about 105 to 115 in terms of revenues in billion, and then we had EPS in a range of about 1.6 to about 2.15.
And not only did it beat the consensus, but also you can see what happened a year earlier, which is the circle at the bottom of the graph. So the beat was from already a pretty high growth rate expected from the year before.
So we have a measure of how each of us, myself included, performed relative to the actual results.
I was about 1.8% under revenues delivered, and 1.6% on EPS. And then you can see red is Yahoo and blue is TipRanks.
So speaking for myself, I was perhaps a little bit too conservative on my revenues, and I was a little bit more accurate, relatively speaking, on EPS. Roughly speaking, again, I think these are not big errors, 1% to 2%. Worst case, 3% on the consensus basis.
Now, on the segments, these are the actual growth that we ended up with, iPhone almost 22%, 16% on services, 8% on the iPad, which is impressive. 5.7 on the Mac, we'll talk about that a little bit, and 5% on wearables and growth.
Segment level, again, the worst case, you're looking at an 8% overestimation on the Mac. The Mac— I think a lot of people, once they saw the Neo come out, once they heard about the Mac mini stockouts, when they heard about the Claude bots, you know, everybody buying up all these Macs, there was an expectation of a big boom in the Mac, but those all happened fairly late in the quarter. My expectation was a little bit over, but not as much. I was off about 3% on that estimate. So although we saw 5.7% growth, some people expected double digits. Also, the pros had the same fault there.
Overall, though, I think these are pretty impressive. I didn't break out the geographic segments. China grew extremely well. Rest of the world, that grew very well. Management also pointed out that they're doing very well in developing markets. So overall, regionally, there were some extraordinary performances. But as we see here, just the iPhone was incredible, 22%. Very similar to performance in the previous holiday quarter, where, again, unprecedented growth, or at least in the near history of the product.
And we'll get into some reasoning why that is. People talk about super cycles, people talk about the assumption that we have these giant surges once in a while. Well, here's how to look at it.
There are two graphs here. The bottom graph shows in green the net sales, but trailing 12 months, so it's smoothed out, so we don't see the spikes on the holidays. That's the green line. Above that, we have the EPS line. Now you'll see how they tracked very similarly for a while, and then they began to diverge. That occurred around COVID. It also occurred during the surge in services, especially subscriptions and services. But still, there's a similar pulse, if you will, a cyclicality to it.
I mean, part of that has to do with the introduction of a new form factor. This has been true all the way back since 2012. When a new iPhone comes, especially a new, distinctive-looking iPhone, people will go out, especially in China, buy it for showing off that they have the latest, which there's nothing wrong with that. But then the second year usually is not the same, the phone is not new, it's the same form factor. That has to do a lot with tooling. That's a long, old story, that the tooling is depreciated on a two-year schedule, so you're going to produce roughly the same look a couple of years in a row, and then by the next cycle, you'll see people upgrading or replacing their older phones. So you're going to have this— I guess what they used to call a super cycle.
And you see it also in the upper graph, where I try to separate out of sales just the phones. Now this is an estimate because we have no unit sales for the phones since 2018, so some of that is an estimate. But you'll see again, once you smooth out the cyclicality, you'll see these surges once in a while. Now, again, this is a valid observation, but I don't think it's the main driver. The oscillation isn't huge, it might be significant, but it's a blend of many things.
The bottom graph is particularly interesting. The gray areas are when the stock price fell. And the red line represents the derivative of EPS. And you'll see how, when that is about to dip, there's usually a stock price sale going on. I wouldn't say it's predictive, but it's an interesting pattern to go through.
So what's happening now? You'll see from the iPhone, there's a new surge happening. Now, when Tim has been asked this question, he says that, well, the iPhone 17's really nice, people really love it, and that's a good answer, but the fact is, it's a distinctive-looking product. Some say it's the orange color, but it's certainly attractive. So we're seeing this pattern, a nice surge.
We'll get into the guidance in a minute, and that actually demonstrates that we're in some kind of an acceleration. But here's the thing, underneath all that, services is just absolutely steady growth, compound growth, and as a result, it just lifts the whole story.
Here, services is at the bottom. Normally, in a graph like this, you want to put the oldest products at the bottom and the newer ones at the top, but I wanted to highlight the fact that services is foundational, in the sense of showing how it holds up everything else.
Most people put it the other way, they say the iPhone holds everything up, but services is looking more and more to be the thing that keeps people in the ecosystem. There's a lot of value there. There's a lot of things people depend on there, and I think it's one of the reasons people don't switch. So it's another one of these stories that people aren't appreciating enough. It's been years and years of pounding the table on services, but here you see it, just how important it is. It's the tide that lifts all the boats, and the boats being all the products.
So let's now talk a little bit about margins. Unbelievable, unbelievable margins. We just hit almost 50% on gross margins. Gross margin here is the blue line. And that's composed of two subcategories. We have services in red at the top, and we have products with the purple triangles.
And although products margins are exceptional— they're right around 40%— those services, again, are pulling the whole average up, and you can see that bend in the curve in the blue line, where we were very steady around 40%, but as services took more and more; it just pulled the whole curve up.
And we also see here operating and net margins, which also are going up, naturally. There is a little bit more operating expense. We'll get into that, which maybe decreases the slope of the bottom line. But this gross margin is absolutely incredible. We just haven't seen anything like this since 2010-11. We saw that surge back then, and then it sort of leveled out, and everybody was happy with 40%, and now we're flirting with 50. I just cannot believe it.
Just one more thing. I remember being an analyst decades ago, when I was looking at different companies in hardware and software, in phones and computers and so on, and everybody was really impressed by Microsoft, because Microsoft, had an 80% gross margin, because there was very little cost of sales. That's exceptional. An 80% margin business is a money printing machine. And everybody was impressed and jealous of Microsoft that they could pull that off. Of course, Microsoft, a software company, is going to have extraordinary margins, right?
And so for a phonemaker like Nokia, there was something to be jealous of. And here we are with Apple services, a significant component on the business, approaching also almost 80% right now. And it's still rising. I just can't get over how impressive this is.
R&D Acceleration
A little bit about the difference between gross and net— you have to take out the operational expenses, and this is what we have here. It's interesting what's happened. Obviously, you see R&D overtaking on the absolute basis. So R&D overtook SG&A already in 2021. And now it's just [going] almost vertical.
By reading a little bit the guidance, I think it's going to taper a bit into the next quarter. But what we see is a significant R&D increase, also as a percent of sales, which you're seeing below in the graph below, but in a stacked fashion. In that sense, the two of them together are now approaching— haven't yet reached— a percentage of sales that was in evidence around 2007 and 8, when the iPhone was just emerging. But you'll see back then, R&D was tiny, SG&A was huge as a percent of sales. So much so that R&D—this is during Steve Jobs era, R&D was like 2% of sales. And now it's approaching 8%, which is extraordinary. Because that's an engineering company that's doing breakthrough work.
And that's something that Apple's not recognized for doing. There's a negative side of spending a lot on R&D. The positive, though, is that Apple is doing a lot of fundamental research now. This isn't fixing products, this isn't updating OS. This is engineering that is really driving what might be considered breakthrough. And that's something— and I've said this to the media when interviewed about Ternus and the succession— I said, the new CEO will need to be— this is before he was announced— I said [the CEO] would need to be someone who is acceptable to engineering, because Apple is an engineering company today. Fundamentally, culturally, operationally, it's an engineering company, and it is being now led by an engineer.
Steve Jobs was not an engineer. And none of the other CEOs were engineers. Tim Cook was an operations manager. He was excellent in a fundamental part of the business. And that is acceptable to engineers, culturally speaking. But the thing is that John is an engineer's engineer. He understands the culture of engineering and will understand how to motivate and retain talent, as well as to allocate capital effectively, not wasting it on pipe dreams. Engineers have a tendency to try to chase dreams, by the way, so you got to be harsh sometimes to shut things down. So, keep an eye on the R&D— it's a great story.
However overdoing it can be a problem. There are downsides to an engineering-led company where, again, it turns into kind of an engineering welfare state. Engineers tend to get projects and do a lot of navel-gazing, which needs to be managed carefully.
Now, let's just touch on ACTIVE. Active is the number of users, the fundamental measure of the value of the company. It's not counting iPhones. It's counting users, and these are the comments from management, just so we capture them. They come every quarter. Sometimes some products are mentioned, sometimes they're not.
So here's what we have exactly on the topic. Record upgraders and customers new to the Mac. They mentioned that Mac lifespans have been long, which is good and bad. They talk about the iPad, half the customers being— over half— new to the product. Same with the Apple Watch, this has been going on for a while.
So this is going to be important when we measure installed base, because if we see every quarter an estimate for the number of watches, or Macs, or iPads, you just take half of that and allocate it to the installed base, and the other half is growth of the installed base. So there's an interesting way to measure that, and I've been applying it. We're going to keep an eye on this.
And finally, there was a mention with respect to India during an answer to the question. The citation is that the iPhone, Mac, iPad, watch, all of these have a majority of customers that are new to the product in India. As you would expect, part of the developing market story. But this drum is still getting beaten. And that's a positive. Always want to look forward to that every quarter.
So let's jump in now to what I thought was the most unexpected comment during the call. I've pasted in here exact, verbatim the comments from the CFO. I need to point out a few things here, and I've highlighted these things in bold.
One is the dividend. The dividend number is 3.8. Last quarter was 3.9, so that's not a surprise. However, open market purchases were only $11 billion. Now, that is represented in the graph by the buyback, and that is this mustard color. And you'll notice it is extremely low. The previous quarter, we were over 25 on buyback, so we're less than half that. This is an anomaly. You'll see that it does not match the rest of the graph at all.
The blue area is dividends. The reddish area is net share repurchases, or settlements. And there's a pattern to both. Dividends has been growing in a predictable fashion, very steady. Buybacks have been somewhat steady, but up and down a little bit. During the last few periods, we've seen something unprecedented.
Now, you'll see that the 11 from last quarter was offset by a much higher number the previous quarter, but on balance, we're still down. And there's also these comments that say that they are abandoning the net cash neutral position. And I'm wondering if it's already started, because this $11 billion caught me by surprise.
I've highlighted that "our repurchase activity at any time can be affected by a number of factors that we take into account." So this was essentially explaining why sometimes there's a difference in the amount of purchases, right? And then in the middle of that commentary, he says, "as you're aware, we recently announced a CEO transition." Why does that comment fit in the middle of a paragraph, talking about the general theme?
I read this as it suggests that already the CEO choice is deciding how much to allocate to capital returns. And it appears— and again, I could be wrong— but it appears that John is probably against the idea of huge returns to shareholders in capital form. So keep an eye on this. This was, I found, very, very strange and out of character in a way. Very out of character of a Tim Cook presentation. I'm not judging it, I'm just pointing out that it isn't normal.
So here's the bottom line. This is the graph representing what's happening with the entire cash position and return of capital. The debt has decreased slightly, and it has been decreasing. And that's a good thing. As interest rates go up, you don't want to hold debt. A lot of that is fixed rate, but they're not taking on more. It seems like they're paying it down.
Net cash, which is the blue dotted line, has now been increasing two quarters in a row. Now, it's increased in the past, but never for long. It's had only one tick, during the holiday period. Here, where we're seeing two ticks— holiday and the quarter after.
Now, if you'll notice here, I'm going to try to zoom in. Those red lines represent what I would say were the trajectories to get to net cash zero. So that blue line, since they announced it, they kept missing the target. You would see that, another year goes by, and there's a notch up. Overall, the trend is down, but they haven't kept that path down all the way to zero. And that is now completely abandoned.
Again, we'll have to figure out why. The buyback, as I mentioned, halved— at least more than halved— to 11. Net cash zero abandoned, $100 billion net cash reduction. You'll see that this blue dot line has gone down by about half. It was down even further than that until it came back a bit. So that is going from about $160 billion net cash to the current $62 billion, which is why we get to 100 reduction. And $1 trillion overall return, which is, again, something they mentioned. In fact, they're at $1.085 trillion. And still $100 billion will be allocated further. Whether they actually spend it is another matter, but that's been approved.
So now— is this good news or bad news? I don't think it matters. I think at the end of the day, the value of the company doesn't change because of this. The value might be captured in the share price, or it might be captured as a percentage of the company that has been increasing.
In fact, let me just pop into the next slide. What does this mean? Are we never going to reach what I call the halving? Well, we were at the maximum 26.5 billion shares. And now we've reduced that to about 14.6. Half would be 13.2. So we're still going down. But there's 1.4 billion shares to go before it's half of what the max was. Now, this is an arbitrary figure. I just thought it was an interesting target to have. And as you can see, it's getting asymptotic as the price goes up. It should be harder and harder to get there. But we have $100 billion allocated. $260 billion at the current share price would need to be spent to get to half. But probably we're not going to get there. I really don't— if I were a betting man, I would say we're probably going to see this taper.
Let's look a little bit at guidance. This is based on what management already communicated. So if you put in the numbers they gave us, you will get revenue growth of 16%, coming at about— well, they guided 14 to 17, so I'm estimating 16 conservatively right now. That gets you to $108.7 billion. If you put in the other numbers— the margin, the OI&E and the tax— and do something about this share reduction. (We're still going to probably see a share reduction.) We're going to look at EPS 1.92. Which is another 22% growth. This is what we had last quarter as well.
I'm putting gross margin at the top of the guidance. [Last quarter] they went over. They guided high, and even so they went over, so I'm going to assume they're going to still hit towards the upper end of the range. I'm exactly at the upper end of that range.
If those things are true, the iPhone almost necessarily has to grow about 19%. Now, here, I'm dialing the Mac way up to 18% growth, because I do think they're going to get a lot more Mac Neos into customers' hands. Now, that's a lower price point, but it will drive sales. So yeah, I could be a little bit high on this. If I am, then iPhone needs to go a little bit higher because I still think they're going to get the revenue there.
They did warn that iPad is facing a tough comp, so I'm putting iPad down 3%. Wearables and home, 4%. It was 5% last time, so maybe consistency there. And Services, just the same as before, 16%, could come in a little bit less. But if it does, again, it's going to be put into something else like the iPhone.
So overall revenue growth, I think 16% is very much being telegraphed. And as I always say, they already have April on their books. They're communicating exactly at the end of April. They're not going to lie to us and withhold data from April. They know about a third [of the quarter] already, so that's why this guidance is so useful.
And, as you saw with my error analysis, nowadays, people's estimates are very close. There's a lot of consistency. We're not off more than a couple percentage from each other. That's just because they're so accurate on their guidance.
And speaking of analysts, one more graph. This is just some of the latest price targets. I'm just trying to bring everything together that came out today. This is all very brand new. A lot of targets moved up. Not that it's all that important, but people are getting more and more excited. Almost all the targets from anybody who has a positive— effectively a buy rating— is now above $310 as a target. There's two who are negative, that are at 270 and below. This is Barclays and Rosenblatt. And then there's a few which have no ratings. So they're typically neutral.
But overall, all these numbers are higher than they used to be. Now, again, I don't use that very much, but it's worth keeping an eye on things just to get a sense of how the sentiment is out there. And it looks like the stock is responding positively today. Not by much— 3% or so, last I checked. But that's the story today.
So given that, this is my first take on the quarter. Love to take questions.
-- End of Presentation --
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Dylan Weir • 31:51 There's been some reports that Tim Cook is on the way out and some speculation about who might replace him. Is that your sense, that he will be leaving soon?
Horace Dediu • 32:06 One thing that hints in that [direction] is that the board members are actually limited to age 65 and he is on the board although they can extend that by vote. So one should imagine that there is an age limit. The hypothesis however is that he's too valuable. Not so much as the manager but as the negotiator and as the diplomat. Because we live in such difficult times from a geopolitical point of view he somehow has managed, i don't know how, nobody knows how, even Warren Buffett recently pointed out that he thinks that's one of his greatest skills: that everybody likes Tim Cook.
That includes China that includes Trump that includes Europe. Somehow he gets along with everyone. So his ability to be the diplomat, will it be perhaps valued further? One possibility would be that he actually becomes executive chairman as opposed to CEO. That he continues in that role without having to do day-to-day operations.
There are people who are very good at that. And who've been on the bench for a long time and who've been cultivated for a long time to step in his place. So in that sense, on these fundamental questions of biological life...
You know, I think one hypothesis that makes sense is that he might stay as long as there's a Trump administration, because again, he's able to navigate that world. But yes, I think ultimately, though, he will be gone. And there's no question. And when he joined, he knew he'd be gone some day. There's no naiveté about his need to hand things to the next generation. And I think that was part of the thinking under Steve as well: How do we hand this off? And they've been thinking about it ever since.
But anyway, the speculation is John Ternus is the next in line. I think that's a very plausible hypothesis. And one reason, by the way, is I always maintain if you study the company from a cultural point of view, you'll realize that there are people who cannot be CEO. You may not know who it's going to be, but I can tell you who won't be. Many people over the years suggested candidates, and I would say no, never. And here are examples. Johnny Ive would never be CEO. An external hire would never be CEO. Even a head of marketing would never be CEO. Many people think that Apple is a brilliant marketing company. No, it's an engineering company. It's a huge secret out there.
If you look at the headcount, if you divide the employees by their job functions, you'll see that engineering is by far, three to four times, bigger than the next category, which would be perhaps marketing or operations. So what does that mean from a cultural point of view? It means that the people who are engineers want to have a boss who can listen and understand them. And they don't think, if you know engineering culture, […] that someone who's from marketing is going to be able to understand them because they don't have the cultural and the educational background or the mentality around engineering.
And so the people who need to run Apple have to be competent with engineering. In the case of operations, it's one of those acceptables because they are at least covering engineering as one of their constituencies. So they have to bridge between manufacturing, distribution, and all these things. So engineers respect operations. Engineers respect manufacturing. So in that sense, when you look at the candidates, I do think John is one of those who fits the bill. Of course, there could be many others as well.
Dylan Weir • 36:36 That's fascinating. Thank you.
Horace Dediu • 36:41 I think if I may just summarize, I think it's very rare that any analysis--and I come from an engineering background and I did my work always in a lot of data, using a lot of data. But the more I study Apple, the more I think it needs to be analyzed culturally. And it's a very difficult thing to do because we have no data. We have only some anecdotes. But you have to, as an analyst, you have to be humble and see that the data, perhaps that [which is] most important, is not available.
When it's dark outside and you're searching around the lamp, well, that's the only area that you have light. but the truth could be in the darkness. And that area under the light, that's your data set. And the solution is somewhere else perhaps. And that's why you have to have this idea: what tools can we use other than looking at the light? Use all your senses. Use other perceptions.
And so that's why I think Apple is a peculiar thing. And by the way, the analysts out there who do try to stay out of the data [delve] more into psychology, they tend to really study the man or woman. They'll study the personality as an alternative [to the data]. So they'll say, well, the company's success depends on Zuckerberg. We have to know who he is. Or Tim Cook or Steve Jobs or Larry Ellison, whomever it is.
There are people who specialize in understanding that person but i don't think Apple is that. I think [personality is] important but you have to study the whole. The whole way they do things internally. They give us plenty of hints; they say all the time that it's a team effort. They'll always say "no it's not me, it's it's a group effort".
And and they always say "we" [not I].
You know, we have a lot of debates [but I believe] we have to take them at their word that it isn't just the individual.
Takeshi Narabe •
Thank you so much it's very you know insightful analysis thank you very much.
Horace Dediu • 38:57 i love your questions. You have great questions and that's always my my biggest thrill. And not that i'm not being asked what color is the next iPhone.
Sic transit gloria mundi means "thus passes the glory of the world". The phrase was used in papal coronation ceremonies between 1409 and 1963. As the newly chosen Pope proceeded from the sacristy of St. Peter's Basilica, the procession stopped three times. On each occasion, a papal master of ceremonies would fall to his knees before the Pope, holding a silver or brass reed, bearing a tow of smoldering flax. For three times in succession, as the cloth burned away, he would say in a loud and mournful voice, "Pater Sancte, sic transit gloria mundi!". These cautionary words served as a reminder of the transitory nature of life and earthly honors.
"I sold it too soon. But, I bought it even sooner, so," Buffett told CNBC's Becky Quick in an interview Tuesday on "Squawk Box" .
Apple remains Berkshire Hathaway's largest holding even after the conglomerate trimmed its stake to $61.96 billion at the end of last year, according to InsiderScore.
However, Buffett said Tuesday that he would continue to add to the position if it gets cheaper. He said the iPhone maker is not yet attractive even after falling more than 14% off its recent high, and dropping more than 6% this month. That's amid turmoil in the broader market, with both the Dow Jones Industrial Average and the Nasdaq Composite in a correction.
"I'm very happy to have it be our largest holding," Buffett said. "I was not happy to have it be as large as almost everything else combined."
"It's not impossible that Apple would get to a price, we would buy a lot of it," he added. "But not in this market."
Buffett said the firm has made more than $100 billion in the stock pretax, and was favorable in his comments regarding Tim Cook's leadership of the firm over Steve Jobs.
"Tim Cook has done better with the hand. Steve Jobs — he couldn't have done what Steve Jobs did — but Steve Jobs handed him a hand that Steve would not have done as well," Buffett said.
"Tim was a fantastic manager, and he's a good guy, and somehow he gets along with everybody in the world," he added. "That's a technique I wouldn't have, for example, certainly my partner, Charlie Munger, wouldn't have had it."
NB: Warren Buffett said he sold Apple stock too soon but clarified he has no actual regrets. Buffett said it is better than any business Berkshire owns outright including its railroad, which is worth more in dollar terms but earns nowhere near the return on capital that Apple does. He also said his railroad might last longer than Apple.
He said if Apple ever got cheap enough, he would buy a lot more of it. He owned a lot more of it priced a lot lower than what he would have to buy it back at. Complete nonsense.
Also Warren Buffett:
Quote: "Our favorite holding period is forever". Action: Trade Apple to realize gain.
Quote: "Price is what you pay, value is what you get". Action: Trade Apple to make $100 billion pretax, mention that price determines decision.
Quote: "At a healthy business, cash is sometimes thought of as something to be minimized as an unproductive asset that acts as a drag on such markers as return on equity" Action: Sell Apple and other equities and move $300 billion into unproductive cash.
Quote: "Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to ‘time’ market movements..." Action: time decision to trade Apple for cash on the basis of price, tax and market conditions.
Quote: Apple is "probably the best business I know in the world," "we like to own businesses not stocks". Action: Convert Apple ownership into cash.
Quote: "I'd love to own 100 percent" of Apple. Action: Sell 60% of Apple holdings.
Quote: "I don't think of Apple as a stock. I think of it as our third business" Action: Sell Apple, move into unproductive asset cash.
Quote: "I sold Apple too soon". Action: Also say that you don't regret it.
Actions speak louder than words. The results will be felt by his shareholders.
In Apple’s first 50 years it shipped 5.13 billion computers. This shipment total is higher than any other computer company in its first 50 years. There actually are no other PC makers that are 50 years old. But all these things were true also 40 years ago. So what are we celebrating now that we did not celebrate at Apple 40? The answer is Services, the consistency in growth in user base and the potential trajectory of growth to never-before imagine audiences. The biggest change is a change of horizons. →
Says Neal Stephenson who first coined the term “metaverse” This revelation came soon after Meta canceled the Metaverse. Let’s look into Neal Stephenson’s mea culpa:
When I was working at Magic Leap, and people asked me why I thought that [Metaverse] was a good idea, I would ask the rhetorical question: “do you really think that twenty years from now everyone is still going to be going around all day staring at little rectangles in their hands?” →
How everyone is wrong about AI. The newspaper was an unexpected development It was not a product that anyone asked for. Like many innovations, it wasn’t an invention. It was not patented or discovered in a laboratory. It emerged as a result of the convergence of three disparate technologies: continuous roll printing presses, the telegraph, and the railroad. This convergence occurred by the 1830s, facilitated by a business model aptly named “the penny press”. Stepping back, the printing press was initially developed in the 1450s, 40 years before Columbus’ voyage. It went through numerous evolutions. The big change was moving →
Running a data-center AI model on a MacBook → Apple's MacBook Pro, with its unique Apple silicon architecture, could revolutionize personal AI by enabling powerful AI models to run locally without relying on cloud data centers, potentially shifting the competitive landscape in Apple's favor despite current perceptions of lagging behind in AI advancements. →
“There’s So Much Left” in iPhone: Tim Cook → Apple's relentless focus on user-centric innovation, epitomized by the ever-ascendant iPhone, underscores its enduring dominance and untapped market potential. →
Amazon developing a new phone more than a decade after its first → Amazon's renewed attempt at a smartphone, "Transformer," aims to integrate AI and deepen Prime ecosystem ties, learning from past Fire failures by addressing trust, scale, and developer engagement challenges. →
Mac fastest growing PC brand in India in Q4 2025 → In 2025, India's PC market soared to a record 15.9 million units, with Mac sales impressively up 24% year over year, hinting at a bright future despite looming 2026 challenges. →
Apple TV is a categorization failure → Apple TV, launched in 2007, struggled for 19 years as a misunderstood, underappreciated gateway to content, overshadowed by Apple's product-centric reputation. →
Apple’s Custom Silicon Opens up Potential for a Cellular MacBook → "Apple's C1X modem not only matches Qualcomm's performance but also reshapes the economic landscape for always-connected MacBooks, hinting at a future where seamless cellular integration redefines portable computing." →
Survey shows record upgrade interest for iPhones → Morgan Stanley forecasts Apple as the sole major smartphone vendor to gain market share in 2026, driven by strong upgrade intent and advanced features, while Android struggles with rising costs and declining loyalty. →
MacBook Neo Market Impact: Analysts weigh in → Market analysts predict the MacBook Neo will disrupt the low-end PC market, especially in education, by leveraging Apple's higher margins and user-centric design, despite challenges from price-sensitive K-12 sectors dominated by Chromebooks. →
World’s most respected Apple Analyst. —Macfilos
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In December, the company lost AI chief John Giannandrea, its top lawyer and a key design executive in a single week. Other recent headlines: “Apple faces unprecedented executive exodus”, “Apple rocked by executive departures, with chip chief at risk of leaving next.” “Apple home devices executive leaves for Finland’s Oura” “Lisa Jackson is set to retire late January 2026, while Kate Adams will retire in late 2026”. That’s just the names we hear about. They represent senior executives. But the harsh truth is that Apple lost tens of thousands of talented developers, marketers and mangers last year.
Almost 10 years ago I said “Managing the Mac product line must be one of the most challenging problems at Apple. That may not be obvious given the product’s success.” I pointed out that although the company grew the Mac into a redeemed and prosperous platform, “The big change in computing has not been a growing Mac vs. declining PC. It has been a huge surge in mobile device use vs. a decline in PC use overall.” It’s time to revisit this observation. First, a status update: The Mac is in its 42nd year...
How to read the history of the Mac and how to look at market share gains potential. Also: why the Mac has always been a cheaper alternative for buyers. →
Running a data-center AI model on a MacBook → The article discusses how Apple's MacBook Pro, with its unique Apple silicon architecture, could revolutionize personal AI by enabling powerful AI models to run locally without relying on cloud data centers, potentially shifting the competitive landscape in Apple's favor despite current perceptions of lagging behind in AI advancements. →
Lobster Boil → "OpenClaw, a revolutionary open-source AI agent by Peter Steinberger, transforms personal computing by autonomously managing tasks across platforms, sparking a Mac Mini craze and hinting at a future where AI agents are integral to daily life." →
‘No Near-Term Catalyst,’ KeyBanc on Apple Stock → Near-term catalysts may not sway long-term investors, but if Apple's valuation seems steep, critique the pricing, not its promising 14% revenue growth forecast. →
Harmful chemicals found in popular headphones → Apple's AirPods Pro 2 and JBL's Tune 720BT topped the safety charts, while budget brands like Temu raised red flags for hazardous chemical exposure. →
When does Apple split its stock? → Apple's stock split history shows a pattern of adjusting high share prices to maintain accessibility, with splits occurring around $100-$650 thresholds, potentially hinting at a $300 minimum for future splits. →
In December, the company lost AI chief John Giannandrea, its top lawyer and a key design executive in a single week. Other recent headlines: "Apple faces unprecedented executive exodus", "Apple rocked by executive departures, with chip chief at risk of leaving next." "Apple home devices executive leaves for Finland's Oura" "Lisa Jackson is set to retire late January 2026, while Kate Adams will retire in late 2026".
That's just the names we hear about. They represent senior executives. But the harsh truth is that Apple lost tens of thousands of talented developers, marketers and mangers last year and this year the numbers will be even higher. Is this indicative of an existential crisis in Cupertino which Tim Cook can't contain? Tim's head alone should be the first to roll to reverse this crisis in headcount.
Alas, math rears its ugly head.
Apple has over 166,000 employees including retail staff. According to one measure, Apple sees 58% of its staff turn over each year, having an average tenure of only 1.7 years, the worst in the tech world. That would imply 96,000 employees leave each year.
That seemed excessive to me and I assumed retail skews the total significantly. Retail, according to comments on Reddit, sees a few months of work per employee. So what is the turnover for its more "permanent" talent?
Let's assume that Apple can hold on to people as well as Alphabet/Google. We don't hear about the crisis of retention at Google. Their average tenure is 3.7 years, implying 27% would quit each year and indicate 49,000 Googlers leaving each year.
That rate applying to Apple would imply 45,000 Apple employees leaving each year. Having twice the tenure of Google would still mean 20,000 Apple employees quit each year.
A headline that screamed that between 20,000 and 30,000 Apple employees [quit, flee, abandon, escape] Apple each year would be perfectly reasonable and suggest a strong degree of loyalty. Moreover, next year the number will be higher because next year there will be more employees.
Of those tens of thousands, surely a few are senior managers. In fact, surveys show that 60% of executives plan to change roles in 3 years. The fact that we only hear of a handful of departures each year implies that Apple is far better at retention than average.
The Apple product line-up for 2023 is almost completely decided. This is not conjecture but simply an observation of the lead times for developing the types of products that Apple offers. The integration of hardware, software and services, often cited as the key to Apple's sustainable competitive advantage, has a great cost: the time required to develop in an integrated fashion is far longer than the time required to develop in a modular fashion.
2.5 years is not a long time. The development process on truly new products could take 4 to 5 years. Apple Silicon, new Operating Systems and new services could all take longer than 2.5 years. The products we just saw launch this year were planned and engineered at least 2 years ago. The more integrated, the more time is needed. Wearables, AI/ML and process engineering are additional examples of long arcs of development needed to reach products.
This does not mean we can predict what these products will be. We don't have visibility to the process but Apple management does and they will make decisions now on adjacent dependencies in the business. For example, visible efforts in planning the use of cash, the carbon offsetting, capital expenditures and R&D are all synchronized to the roadmap and hints may be read into this data.
The biggest hints are the R&D spending and the company's capital return program. Combined they show a confidence in the roadmap that is hard to overestimate. First, R&D is reaching new highs of about 7% of sales (on a trailing 12 months' basis, see graph below). This is almost the same as the spending on SG&A which has declined as a percent of sales from above 12% pre-iPhone.
Of course sales have increased significantly over the time shown in the graph below and the absolute spending is shown the following graph. R&D spending is over $5 billion/quarter or about $20 billion/yr. Some of the results of this will be seen in 2023 or beyond.
Next, capital returns. The company is returning almost all the cash it generates and is reducing its cash balance. It has returned about half a trillion dollars to date. Dividends paid has reached $100 billion and share buybacks about $400 billion. This is the largest capital return in US history.
The company has declared its intention to reduce net cash to zero. This means it will still have substantial cash due to loans in the form of bonds but no "excess" cash will be held by the company. This is in contrast to the strategy under Steve Jobs where he sought to keep as much cash on hand as possible due to the need to weather potential storms, Tim Cook's Apple is being very "casual" about cash.
Steve Jobs had his reasons for hoarding cash. The company had been through periods of existential crisis. The absence of cash jeopardized its independence and it was something he vowed never to happen again.
However if that strategy would be maintained to this day, as the graph shows, the company would have cash of nearly $700 billion today. It would make Apple the world's largest hedge fund, by far. Second only to a very few sovereign funds. Given a conservative cash preservation mandate it also means that that capital would largely go unrewarded because the return on it would have been minimal, negligible. Not to mention also the target it would paint on the company's balance sheet.
So given the trajectory in net cash being so consistent, it's probable that the goal of net zero will be reached mid 2023.
That leaves the question of what will happen at that time?
The answer is nothing. Nothing will happen. The capital return programs will probably be ended and additional cash generation will be paid as dividends going forward. That's it.
Rather than suggesting a change, the capital return program (and the R&D program) suggest a lack of change, consistency. The company management is anticipating a steady capital generation rate, a steady product roadmap (with predictable growth) and a steady customer base (with predictable loyalty).
This future for Apple in 2023 may seem boring. But that's exactly the plan. This is a plan that the company management has been making for a long time and has been executing for a long time. The plan is to be boring on the business side but exciting on the customer product side.
Consistency has been the characteristic trait of the Tim Cook era. It is a smoothing of seasonality with services. It is the clockwork delivery of product updates, regardless of macro and externalities. It is a growth in user base consistent for a decade.
It is perhaps because more people believe that consistency is the future that we have Apple's P/E ratio now in-line with its peers. Paradoxically, being boring is what makes Apple shares so exciting today.
The following is a transcript of the comments from Tim Cook (CEO) and Luca Maestri (CFO) at Apple's Q1 2018 Earnings Conference Call February 1, 2018. I color coded my interpretation of the comments into four categories:
Grey: Background and promotional commentary
Red: Strategy and signals of what management considers important and may include data beyond the regularly reported numbers.
Green: Financial data
Black: Commentary.
Blue: My commentary, in brackets.
For a quick read of Apple's strategy, read the Red text. These comments are not repeated in financial reports. Highly recommended.
For a quick read of Apple's financial performance, read the green text (which are replicated in financial reports). Read this if you don't want to wade through the financial reports.
For marketing or product material, read the grey text.This is sometimes unique but also repeats product launch information.
---- Tim Cook: Thanks, Nancy and thanks everyone on the call, and welcome to everyone today. Before we dive into the quarter, I'd like to take a moment to talk about a significant milestone we recently crossed.
Apple's active installed base reached 1.3 billion devices in January and is at an all-time high for all of our major products. 1.3 billion devices represents an astonishing 30% growth in just two years. It speaks to the strength and reliability of our products and our ecosystem, as well as the loyalty, satisfaction and engagement of our customers. It's also fueling tremendous growth in our services business, which I’ll talk about a little later in the call. [This is probably Apple's most important number. For at least the next 20 years this is the key performance metric and it can be used to derive company's valuation. A summary of the history of active devices vs. units sold is shown in the graph below:]
Turning to the December quarter. We're thrilled to report Apple's biggest quarter ever, which set new all-time records in both revenue and earnings. We generated revenue of $88.3 billion, which is above the high-end of our guidance range, and it is up almost $10 billion or 13% over the previous all-time record we set a year ago.
It's also our fifth consecutive quarter of accelerating revenue growth with double digit growth in each of our geographic segments around the world. What makes us even more remarkable is that the quarter we're reporting today was 13-weeks long, while the year ago quarter was 14-weeks. When we look at the average revenue per week in the December quarter this year compared to last year, our growth was a stunning 21%. [The 13-week vs. 14-week year-on-year comparison is repeated several times. The summary differences are shown in the table below:]
Our growth was broad-based and a key driver was iPhone, which generated its highest revenue ever. iPhone X was the best-selling smartphone in the world in the December quarter according to Canalys, and it has been our top selling phone every week since it launched. iPhone 8 and iPhone 8 Plus rounded out the top three iPhones in the quarter. In fact, revenue for our newly launched iPhones was the highest of any lineup in our history, driving total Apple revenue above our guidance range. [The iPhone X is a huge hit. It drove the average selling price $100 higher y/y. This is not only unprecedented for Apple but for the entire Industry. The average smartphone sells for less than $300 while iPhones sold for $800. The gap is widening. The following graph shows the product mix and the average resulting price.]
I want to take a moment to recognize the tremendous amount of work that went into creating iPhone 10. Our teams carried out an extremely complex launch from both an engineering and operations perspective, executing an outstanding product ramp that required years of research and development; one that introduced innovative features like an edge-to-edge Super Retina Display and the TrueDepth Camera, which enables face ID. Our customers love these new features and the new gestures like simply swiping up from the bottom, which make using iPhone even more intuitive and enjoyable.
Our team has put the technology of tomorrow in our customers’ hands today, set a standard for the next decade of smartphones and we are very proud of their achievements.
It was another very strong quarter for services with revenue of $8.5 billion, up 18% over last year, and we’re on pace to achieve our goal of doubling our 2016 services revenue by 2020. The number of paid subscriptions across our services offerings passed 240 million by the end of the December quarter, that’s an increase of 30 million in the last 90 days alone, which is the largest quarterly growth ever. [Services has been growing relentlessly for over a decade. This steadiness of growth makes is a juggernaut. Apple is increasingly speaking about subscriptions as the key metric and 240 million is reaching record territory. The rise of Services is shown below (both revenues and consumer spending.)]
We had an all-time record quarter for the App Store with our best holiday season ever. We’re seeing great excitement around augmented reality with customers now enjoying over 2,000 ARKit enabled app, spanning every category in the App Store. In December, when Pokémon GO released its new augmented reality features built with ARKit, it jumped the top of the App Store charts. Last week, on a stop in Toronto, I met developers who are hard at work on creative applications using ARKit from art appreciation to ecommerce, and I was very impressed with what I saw.
Just for months after ARKit launched to the public, we’ve already released ARKit 1.5 in beta to developers around the world, and the response has been tremendous. Augmented reality is going to revolutionize many of the experiences we have with mobile devices. And with ARKit, we’re giving developers the most advanced tools on the market to create apps for the most advanced operating system running on the most advanced hardware. This is something only Apple can do.
In addition to the App Store, several other services had their biggest quarter ever, including Apple Music, iCloud and Apple Pay, all of which saw growth in both active users and revenue.
Apple Pay has reached an important milestone in the U.S. As a result of 50% year-over-year growth in merchant adoption, it’s now accepted at more than half of all American retail locations, which includes more than two-thirds of the country’s top 100 retailers. Now available in 20 markets, global Apple Pay purchase volume more than tripled year-over-year and we’re delighted to be expanding to Brazil in the coming months. [There are no absolute data points on Apple Pay but we do have some scattered growth data. The US data is cited here but in my experience it's more popular in select countries like UK where users are using it habitually]
Today, you can use Apple Pay to take the subway in Guangzhou, China, see a concert at London’s Wembley Stadium or buy a souvenir in Yosemite National Park. In the U.S., we launched Apple Pay Cash in December, and it’s off to a terrific start. Millions of people are already using it to send and receive money with friends and family quickly, easily and securely; to split a bill, pay someone back, or send last minute gift right from the messages app.
It was our best quarter ever for the Apple Watch with over 50% growth in revenue and units for the fourth quarter in a row and strong double-digit growth in every geographic segment. Sales of Apple Watch Series 3 models were also more than twice the volume of Series 2 a year ago. Apple Watch is the most popular, smart watch in the world and gained market share during the quarter based on the latest estimates from IDC. [Apple Watch is growing consistently. The following graph shows my estimates of volume (total 42 million to date) and revenues (total $15 billion) based on all available data and commentary from management.]
It was the third consecutive quarter of growth for iPad revenue, thanks to the strength of both iPad and iPad Pro. Based on the latest data from IDC, we gained share in nearly every market we track with strong outperformance in emerging markets.
Worldwide, almost half of our iPad sales were the first-time tablet buyers are those switching to Apple, and that’s true in some of our most developed markets, including Japan and France. In China, new and switching users made up over 70% of all iPad sales.
For Mac, we launched the all new, iMac Pro in mid-December. It’s an entirely new product line designed for our Pro users who love the all-in-one design of iMac and require workstation class performance. It's the fastest, most powerful Mac ever, delivering incredible computational power, for simulation and real time 3D rendering, immersive VR and complex photography audio and video projects. Worldwide, 60% of our Mac sales were the first time buyers and switchers and in China, that number was almost 90%.
We're looking forward to getting HomePod in customers’ hands beginning next week. HomePod is an innovative wireless speaker, which delivers stunning audio quality wherever its placed in the home, thanks to the advanced Apple engineered hardware and software.
Together with Apple Music, HomePod gives you instant access to one of the world's largest music catalogs. And with the intelligence of Siri, it’s a powerful assistant you control through natural voice interaction. We're very happy with the initial response from reviewers who've experienced HomePod ahead of its launch, and we think our customers are going to love this new product.
We believe one of the key issues of the 21st century is education. And because of that, we've strengthened our commitment and investment into initiatives like everyone can code. To find the innovators of the future, we need to nurture the students of today. Our App Development with Swift curriculum, which is available free on iBooks, has been downloaded more than 1.2 million times worldwide with almost half of those coming from here in the United States. It’s also being taught in dozens of community colleges across the country, putting practical skills in the hands of today’s jobs seekers.
I was in London two weeks ago as we announced that the program was expanding to more than 70 colleges and universities in Europe. Millions of students around the world will have the opportunity to add Swift to their coding vocabulary and gain skills that are essential for today’s economy.
This is an exciting time at Apple and with the best lineup of products and services we've ever had and a set of initiatives that show how business can be a force for good in the world. We could not be more excited about our future.
Now, for more details on the December quarter results, I'd like to turn over the call to Luca.
Luca Maestri: Thank you, Tim. Good afternoon, everyone. Our business and financial performance in the December quarter were exceptional, as we set new all-time records for revenue, operating income, net income and earnings per share.
Starting with revenue, we’re reporting an all-time record, $88.3 billion, up nearly $10 billion or 13% over the prior record set last year. It is our fifth consecutive quarter of accelerating revenue growth. As you know, the December quarter a year ago spanned 14-weeks compared to 13-weeks this year, which is important to consider as we have set the underlying performance of our business this year. When we look at average revenue per week, our growth rate was even higher at 21% with growth across all product categories for the third consecutive quarter.
Our results were terrific all around the world with double digit revenue growth in all our geographic segments, an all-time quarterly record in the vast majority of markets we track, including the U.S., Western Europe, Japan, Canada, Australia and Korea, as well as Mainland China, Latin America, The Middle East, Central and Eastern Europe, and India.
In Greater China, we were very happy to generate double digit revenue growth for the second quarter in a row and in emerging markets outside of Greater China, we saw 25% year-over-year growth.
Gross margin was 38.4% at the high end of our guidance range. Operating margin was 29.8% of revenue. Our net income was $20.1 billion an all-time record, and up $2.2 billion over the last year. Diluted earnings per share were $3.89 also an all-time record and cash flow from operations was very strong at $28.3 billion.
During the quarter, we sold 77.3 million iPhones, the highest number ever for a 13-week quarter. Average weekly iPhone sales were up 6% compared to December quarter last year with growth in every region of the world despite the staggered launch of iPhone 10. We established all-time iPhone revenue record in nearly every market we track with double-digit growth in all of our geographic segments. iPhone ASP increased to $796 from $695 a year ago, driven primarily by the launch of iPhone 10 and the success of iPhone 8 and 8 Plus.
We exited the December quarter towards the lower end of our target range of five to seven weeks of iPhone channel inventory with less than 1 million more iPhones in the channel compared to the December quarter a year ago, in line with our growth in average weekly unit sales. Customer interest and satisfaction with iPhone are very, very strong for both consumers and business users.
The latest data from 451 Research indicates U.S. customer satisfaction ratings of 96% or higher across iPhone models. In fact, combining iPhone 8, iPhone 8 Plus and iPhone 10, consumers reported an amazing 99% satisfaction rating. And among business customers planning to purchase smartphones in the next quarter, 77% planned to purchase iPhone. Our customers are also incredibly loyal with Kantar's latest U.S. research, reflecting a 96% iPhone loyalty rate, the highest ever measured. [Customer satisfaction is the second most important figure after active user base. Combining these two figures yields the recurring revenue value of the company. Remember what Deming said: the most important measurements for a company's value are the multipliers of a satisfied customer and a dissatisfied customer--these numbers never appear on any financial report but they are applied to all the numbers on every report].
Turning to services. We had a terrific quarter with revenue of $8.5 billion, up 18% year-over-year and up 27% in terms of average revenue per week; that is an acceleration to the 24% services growth run rate that we experienced in the September quarter.
The App Store set a new all-time revenue record. The Store’s all-new design is off to a fantastic start with quarterly store visitors, transacting accounts and paying accounts, reaching new all-time highs. During the week beginning December 24th, a record number of customers made purchases or downloaded Apps from the App Store, spending over $890 million in that seven-day period, followed by $300 million in purchases on New Year’s day alone.
And according to App Annie’s latest report, the App Store continues to be the preferred destination for customer purchases by a very wide margin, generating nearly twice the revenue of Google Play. Across all our services offerings, paid subscriptions reached $240 million with growth of 58% over last year and they were a major contributor to the overall strong growth in services revenue. [Apple has half the user base of Google Android. This is based on Google's May 2017 report of 2 billion active devices vs. the 1.3 billion that we just got from Apple. And yet these users collectively spend twice as much on apps. This ratio of "half the users, twice the spending" has been cropping up in individual developer anecdotes and can also be seen in other metrics of engagement and consumption. This should not be surprising as it conforms to the Pareto distribution of economic value.]
As Tim mentioned, it was our best quarter ever for Apple Watch. And when we add to this us from Beats and AirPods, our total revenue from wearables was up almost 70% year-over-year. In fact, wearables were the second largest contributor to revenue growth after iPhone, which is impressive for a business that started only three years ago. In total, our other products category set a new all-time record with quarterly revenue exceeding $5 billion for the first time. [Wearables now includes more than watches but watches are likely still the dominant product.]
Next, I’d like to talk about the Mac. We sold 5.1 million Macs during the December quarter, which translates to a 2% year-over-year increase in average sales per week. Mac performance was particularly strong in emerging markets with unit sales up 13% year-over-year and with all-time records in Latin America, in India, Turkey and Central and Eastern Europe. On a worldwide basis, the active install base of Macs was up double-digits year-over-year to a new record.
It was also another growth quarter for iPad. We sold 13.2 million units with average iPad sales per week up 8% over last year’s December quarter. iPad sales grew strong double-digits in many emerging markets, including Latin America, the Middle East, Central and Eastern Europe and India, as well as developed markets, including Japan, Australia and Korea. The active install base of iPad has grown every quarter since its launch in 2010, and it reached a new all-time high in December, thanks to extremely high customer loyalty and large numbers of first-time iPad users. [iPad is clearly recovering from a long decline. ASPs are rising as it's being positioned as a PC alternative. Its low end functions are being absorbed by large screen iPhones.]
NPD indicates that iPad had 46% share of the U.S. tablet market in the December quarter, up from 36% share a year ago. And the most recent surveys from 451 Research found that among customers planning to purchase tablets within 90 days, 72% of consumers and 68% of business users planned to purchase iPads. Customer satisfaction is also very high with businesses reporting a 99% satisfaction rating for iPad.
We are seeing great traction in enterprise as businesses across industries and around the world standardize on iOS. For example, Intesa Sanpaolo, one of Europe’s leading banks, has chosen iOS as the mobile standard for its entire 70,000 employee base in Italy; choosing iOS for its security, user interface, accessibility and reliability, Intesa Sanpaolo will deploy native apps to improve employee productivity in customer support, human resources, and marketing across the company.
And LensCrafters, one of the largest optical retail brands in North America, will be using over 7,000 iPad Pros to enable digital eye exams and digital optical measurements in a personalized and interactive experience. We’re also rolling out a new initiative, called Apple AtWork to help businesses implement employee choice programs more easily and offer Apple products company-wide.
Resources from both Apple and our channel partners will enable enterprise IT and procurement teams to buy or lease Apple products more efficiently, streamline the setup of iPhone, iPad, and Mac, and deliver a seamless onboarding experience for employees. We launched the program with CDW in the U.S. last week, and we would be expanding to more channels and regions later this year.
The December quarter was extremely busy for our retail and online stores, which welcomed 538 million visitors. Traffic was particularly strong during the four-weeks following the launch of iPhone 10, up 46% over last year. And across the quarter, our stores conducted over 200,000 today at Apple sessions, covering topics including photography, music, gaming, and app development, and art and design. Just last weekend, we opened our first store in Seoul, Korea and we’re looking forward to opening our first store in Austria in a few weeks. These newest openings will mark the expansion of our retail store presence to 21 countries.
Let me now turn to our cash position. We ended the quarter with $285.1 billion in cash plus marketable securities, a sequential increase of $16.2 billion. $269 billion of this cash, or 94% of the total, was outside the United States. We issued $7 billion in debt during the quarter, bringing us to $110 billion in term-debt and $12 billion in commercial paper outstanding, for a total net cash position of $163 billion at the end of the quarter. We also returned $14.5 billion to investors during the quarter. We paid $3.3 billion in dividends and equivalents, and spent $5.1 billion on repurchases of 30.2 million Apple shares through open market transactions.
We launched a new $5 billion ASR program, resulting in initial delivery and retirement of 23.6 million shares and we retired 3.8 million shares upon the completion of our 12th ASR during the quarter. We’ve now completed over $248 billion of our $300 billion capital return program, including $176 billion in share repurchases against our announced $210 billion buyback program with $34 billion remaining under our current authorization. [An updated look at Apple's cash is shown below]
Turning to taxes. Due to the recently enacted legislation in the U.S., we estimate making a corporate income tax payment of approximately $38 billion to the U.S. government on our cumulative past foreign earnings. This amount is very similar to what we had been accruing on those earnings in our financial results through fiscal year 2017, including the $38 billion payment. We will have paid over $110 billion of corporate income tax on our total domestic and foreign earnings during the last 10 years for a cash tax rate of about 26%. [Apple has paid more tax than any company in history, and is about the make the largest single payment to the US Treasury.]
Our tax rate of 25.8% for the December quarter was close to our guidance of 25.5% as the lower U.S. statutory rate from the new legislation was effective offset by the remeasurement of deferred tax balances.
As we move ahead into the March quarter, I'd like to review our outlook, which includes the types of forward looking information that Nancy referred to at the beginning of the call; we expect revenue to be between $60 billion and $62 billion; we expect gross margin to be between 38% and 38.5%; we expect OpEx to be between $7.6 billion and $7.7 billion; we expect OI&E to be about $300 million; and we expect the tax rate to be about 15%.
Tax reform will allow us to pursue a more optimal capital structure for our company. Our current net cash position is $163 billion. And given the increased financial and operational flexibility from the access to our foreign cash, we are targeting to become approximately net cash neutral overtime. We will provide an update to our specific capital allocation plans when we report results for our second fiscal quarter, consistent with the timing of updates that we have provided in the past.
Finally, today our Board of Directors has declared a cash dividend of $0.63 per share of common stock, payable on February 15, 2018, to shareholders of record as of February 12, 2018.
During the last quarterly earnings call, Tim Cook said that Apple has seen the highest switching rate from Android ever. That there is switching isn't surprising. We've seen many surveys which show higher loyalty with iOS than with Android. But it's been very hard to spot the evidence in the data which is visible publicly. Both iOS and Android are adding users and sales for both platforms are still increasing.
The switching effect is easier to discern when the market is not growing overall. In that situation one platform's growth has to be at the expense of another. However, some markets do show evidence of "churn" in users.
Consider the ComScore data on US platform users (above). If we look at the last six months' data ((these data are actually three month averages)) we can count that there are about 8.2 million more Americans using iPhones than there were six months ago. At the same time, there are 1.6 million Android users. One million users left the BlackBerry platform and about 700,000 left Windows Mobile. The data also suggests that the total number of first-time smartphone users is about 8.3 million.
Now, we could say that Android recruited all the Windows and BlackBerry users that switched (1.6 gained equivalent to 1.7 million lost) and Apple recruited all the new-to-smartphone users (8.2 million gained by Apple vs. 8.3 million non-consumers).
But this is not very plausible. It's much more likely that Apple converts existing smartphone users while Android converts first-time users.
In this scenario, 8 million non-users first started using Android while 1.7 million BlackBerry and Windows users switched to iPhone. But that leaves the question of what happened to the missing 6.3 million that Apple should have gained.
That's where the switching number comes into the picture. This Scenario 2 is shown in the figure above and suggests that although Android gained 8 million new users, it lost 6.4 million to iPhone for a net gain of 1.6.
Apple may have also lost a few users to Android but overall gained switchers from other platforms, mainly Android. This is what would support Tim Cook's comments.
Thinking further ahead, as the markets mature globally, they may well evolve into the way the US market evolves today. Apple's brand promise ensures loyalty while competing platforms slowly "leak" users. If this sounds eerily familiar then you'd be right. This is exactly how the PC market behaves today.
