Kicking off Apple’s investor conference call following the company’s announcement of quarterly numbers for Q2 2016, Apple CEO Tim Cook reported again that Apple sold 51 million iPhones, but noted that the numbers fell short of the iPhone sales in the year-ago quarter. Cook noted that iPhone sales remain healthy and strong in all purchase target markets, with slightly higher upgrades in the iPhone 6s cycle that are higher than in the iPhone 5s cycle two years ago, but slower than in the iPhone 6, which contributed to Apple’s sales a year ago. The Apple CEO also highlighted the fact that iPhone customers are very loyal with a 95 percent satisfaction rate, and indicated that Apple has added more switchers from other platforms in the past six months than in any other quarter ever, and that iPhone sales continue to be strong in emerging markets, such as India where iPhone sales are up 56% over a year ago.
Speaking to services revenue, Cook noted that services in the March quarter equalled $6 billion, with App Store revenue up 35 percent, beating last quarter’s all-time record, and Apple Music continuing to grow, reaching 13 million subscribers this quarter. As a result, Apple’s music revenue has now hit an inflection point after many quarters of decline. Cook reiterated Apple’s installed base of one billion devices, noting that they are an important recurring source of revenue, with the purchase value of services tied to devices reaching $9.9 billion in the March quarter, up 27 percent over last year, and accelerating from the December quarter. Apple Pay also continues to expand, following its successful launch in China and last week’s rollout in Singapore, growing the user base by more than five times, adding one million new users per week, and noting that over ten million contactless-ready locations are available in countries where Apple Pay has launched today, with 2.5 million locations now accepting Apple Pay in the U.S.
Regarding Apple Watch sales, Cook noted that the numbers met Apple’s expectations, and they expect the seasonality of sales to be similar historically to the seasonality of the iPod, which generated 60% of more of its sell-through in the December quarter. While not providing specific numbers, Cook also revealed that the unit sales of the Apple Watch during the first year exceeds the sales of the iPhone in its first year on the market. Cook also explained that the new iPhone SE and 9.7-inch iPad Pro are not reflected in the Q2 results as they went on sale after the quarter ended, but that demand for both devices has been strong, and exceeds supply. The addition of the iPhone SE gives Apple a chance to get more customers into the iOS ecosystem, and Apple expects the June quarter to be Apple’s best iPad revenue compare in over two years.
During the Q&A session, a question was raised as to whether iPhone SE sales could be compared to the iPad mini, which ended up being something of a flash in the pan — with strong sales immediately after release that flatlined afterward. Cook responded that the upgrade and replacement cycle for tablets differs significantly from that of smartphones, and that the sales of the iPhone SE have been strong enough that demand has outstripped supply, and that the iPhone SE fills a clear need for customers who have been looking to upgrade their iPhones but have been resistant to opting for the larger-screened models. In response to a question about year-over-year replacement cycles, Cook noted that the iPhone 6 upgrade cycle of last quarter was an aberration due to pent-up demand for a larger-screened model, and Apple would be “having a real party” if every year’s upgrade cycles were that significant, and year-over-year cycles should not normally be expected to match last year’s quarter. Cook also reiterated that the iPhone SE is now attracting customers that Apple didn’t previously attract with the past two models, and that replacement cycles shouldn’t be the benchmark, as the installed base is up 80 percent over the past two years, and the increasing number of switchers shouldn’t be underestimated as a core factor in iPhone sales growth.