Apple Earnings Call: More personalized Siri launching this year; storage price hike and tight 3nm capacity create Q2 margin pressure

January 29, Apple Inc released its [Fiscal Year 2026 Q1 earnings report (ending December 27, 2025)](https://wallstreetcn.com/articles/3764518), showing record highs in total revenue, iPhone revenue, service revenue and many other metrics. Against a global tech sector betting on an “AI + hardware upgrade cycle”, market focus on Apple’s holiday season report centers on three issues: **whether iPhone 17’s upgrade intensity can be sustained**, **if China’s demand is truly recovering**, and whether Apple can **maintain profit margin and supply rhythm amidst memory price hikes and advanced process capacity constraints**. Even more notably, CEO Tim Cook announced on the earnings call that Apple is working with Google to develop the next generation of Apple Foundation Models, powering a more personalized Siri due out this year. This partnership marks a major shift in Apple’s AI strategy, with Cook stating: > “We believe Google’s AI technology will provide the most powerful foundation for Apple Foundation Models. We are confident this collaboration will unlock many experiences and enable key innovations.” ## iPhone kicks off a super cycle: Record highs across all regions The biggest surprise this quarter came from the iPhone. The product line's revenue hit $85.3 billion, a YoY surge of 23%, a historic high. On the call, Cook described user enthusiasm for the iPhone 17 series as “staggering” and “extraordinary”. Especially the ultra-thin iPhone Air and high-performance 17 Pro series, propelled global revenues in all regions to fresh records. The iPhone 17 series has become the strongest and most popular product line ever. According to a 451 Research survey, iPhone 17 series customer satisfaction in the US reached 99%. Cook highlighted the product’s multi-faceted appeal: “It’s the perfect combination of performance, battery life, camera system, and design.” Soaring demand led to supply chain strains. Cook admitted that, because the December quarter far outperformed expectations, Apple’s current channel inventory is extremely lean. > “We are in a supply catch-up mode to meet tremendous customer demand. It’s hard to predict when supply and demand will balance.” ## Greater China up 38%: Shattering rumors of soft demand Previously the area of greatest concern to the market, Greater China’s performance was the quarter’s biggest surprise. Revenue soared by 38% YoY, completely dispelling concerns about weak China demand. Cook revealed it was the **best quarter in iPhone’s history in China**, with record upgrade users and double-digit growth for “switchers” from Android. Offline store traffic surged, and iPhone took the top three spots in smartphone sales in Chinese cities, proving Apple’s dominance in the high-end market remains strong. ## Confirmed: Partnership with Google, completing the AI strategy puzzle In the hotly watched AI arena, Apple finally made its “big move”. Cook confirmed on the call: **Apple is working with Google to develop the next generation of “Apple Foundation Models”**. **This collaboration will directly support a more personalized Siri launching later this year.** Cook stated Google’s AI will be the strongest foundation for Apple’s models, ending speculation about whether Apple would go solo or partner in generative AI. The news greatly increased market confidence in Apple’s AI monetization path. ## Supply bottlenecks & memory price hikes: Growing pains Despite stellar results, Apple faces “happy headaches”. CFO Kevan Parekh pointed out that demand far exceeded expectations, with iPhone now in severe supply constraint, likely to persist into next quarter. Cook explained, > The bottleneck mainly stems from insufficient capacity for the most advanced 3nm SoC chip process. Management also warned that **storage chip prices have surged**. While the impact on FY26 Q1 gross margin is limited, it’s expected to hit Q2 to some degree. Nonetheless, with stronger high-end model mix and scale effects, **Apple still issued strong Q2 gross margin guidance (48%-49%)**. ### Apple FY26 Q1 Earnings Call Transcript > Event date: 2026/01/29 > Company: Apple > Event: FY26 Q1 Earnings Call > Source: Apple #### Presentation **Suhasini Chandramouli, Investor Relations:** Good afternoon, everyone, and welcome to Apple’s Fiscal Year 2026 First Quarter Earnings Conference Call. I’m Suhasini Chandramouli, Director of Investor Relations. Today’s call will be recorded. Speaking first will be CEO Tim Cook, then CFO Kevan Parekh. Afterward, we’ll open the lines for analyst Q&A. Note: Some information discussed today will constitute forward-looking statements, including but not limited to revenue, gross margin, operating expenses, other income/expense, taxes, capital allocation, and future business outlook. These statements involve risks and uncertainties that may cause actual results or trends to differ materially, including macroeconomic conditions, tariffs and other actions, legal and regulatory proceedings affecting our business and results. For more on these risks, refer to Apple’s recent 10-Q and 10-K filings, today’s 8-K and press release, and tomorrow’s 10-Q for the quarter ended December 27, 2025, plus other SEC filings. Apple does not undertake to update any forward-looking statements; these statements are effective only as of the date made. Now I’ll hand the call to Tim for opening remarks. **Tim Cook, CEO:** Thank you, Suhasini. Good afternoon, everyone, and thanks for joining. I’m proud to say we just had a “historic” quarter. We reported the best quarterly results in company history: revenue of **$143.8 billion**, up **16% YoY**, beating our expectations. iPhone demand was simply “incredible”, with revenue up **23% YoY** and record results across all geographies. Service revenue hit an all-time high, up **14% YoY**; EPS reached a record **$2.84**, up **19% YoY**. We set all-time revenue records in the Americas, Europe, Japan, and Asia Pacific, with growth in nearly every market we track. Emerging markets continue to build momentum, including India – we posted strong double-digit revenue growth in India. Greater China revenue was up **38% YoY**, led by iPhone; iPhone upgrades are at record levels, and “switchers” (coming from other brands) saw double-digit growth. Apple’s December quarter reflects our unwavering commitment to innovation, customer service, and our mission “to create the world’s best products and services”. Let’s dig deeper into product line performance, starting with iPhone. As mentioned, iPhone had an exceptional quarter: revenue hit a record high, **$85.3 billion**, up **23% YoY**. It’s the strongest iPhone lineup ever, and the most popular generation to date. Customer enthusiasm was extraordinary all quarter. Users were excited by everything it could do. The iPhone 17 Pro and 17 Pro Max deliver the ultimate iPhone experience: best-ever performance and battery, most advanced camera, and striking new design. iPhone Air is our thinnest, lightest smartphone yet, packing powerful capabilities into a sleek profile; and iPhone 17 offers outstanding upgrades at truly great value. Mac: December quarter Mac revenue was **$8.4 billion**. Mac installed base hit new highs; nearly half of Mac buyers were new to the product. The M5 14-inch MacBook Pro achieved a massive leap in AI performance, thanks to a new GPU architecture and faster Neural Engine. From the everyday and enterprise favorite MacBook Air, to the compact Mac mini – every Mac brings unique value. With Apple Creator Studio now available across Mac, iPad and iPhone, creators have even more tools, from music production to turning devices into video studios. iPad: December quarter iPad revenue was **$8.6 billion**, up **6% YoY**, and upgrade users set new records. Our strongest iPad lineup ever: from the popular A16 iPad, to the versatile iPad Air, to the incredible M5-powered iPad Pro – all with slim, lightweight design. No wonder iPad remains the world’s most beloved tablet. Wearables, home, and accessories: revenue was **$11.5 billion**. Apple Watch Ultra 3 and Watch Series 11 help users realize health goals with a complete suite of wellness features. More users now wear their Watch to sleep, checking sleep scores each morning for ways to improve quality. Apple Watch reminders foster important conversations with doctors, like high blood pressure warnings. These are just some ways Apple Watch helps people live healthier lives. AirPods Pro 3 feedback is excellent. Customers praise its immersive sound, unrivaled active noise cancellation, and nearly “unfelt” comfort. Real-time translation features are changing communication: helping users connect across languages naturally and easily. All these innovations create experiences that are powerful and personalized – AirPods Pro 3 clearly resonates with users. Across all product categories, customer satisfaction is extremely high. We’re proud to report our installed base has reached new records, with **over 2.5 billion active devices**. Most supported iPhones now actively use Apple Intelligence features. Since launch, we’ve added dozens of features, including writing tools and “cleanup”, available in 15 languages. These AI experiences are personal, privacy-first, seamlessly integrated, and relevant to users’ daily activities. We’re bringing intelligence into more experiences users love, making each one even more powerful and effortless. People love "visual intelligence", one of our most popular features, helping users learn and accomplish more from their iPhone screen content, speeding up searches, tasks, and answers between apps. We’ve also heard great stories: people communicate seamlessly across languages in real time. These are just a few of many robust AI features helping users achieve extraordinary things with our products – the world’s leading AI platform, thanks to Apple silicon’s computing power and performance. Building on our AI efforts, we’re working with Google on next-generation Apple Foundation Models. This will help power future Apple Intelligence features, including this year’s more personalized Siri. We’re intensely excited about all the upcoming new experiences. Services: We achieved a record **$30 billion** in revenue, up **14% YoY**; records in both developed and emerging markets. Apple TV momentum is strong: December viewership up **36% YoY** thanks to hit shows like “Pluribus”. Anticipation is rising for upcoming shows, such as “Cape Fear” from Spielberg & Scorsese. We’re thrilled to announce “Ted Lasso” will return for a fourth season this summer. Apple TV audience enthusiasm is steadily growing, and we’re grateful for the honors – recently at Critics Choice and Golden Globe Awards. Apple TV content has won **over 650 awards** and **3,200+ nominations** so far, including an Oscar Best Picture nomination for "F1, the Movie". Speaking of F1, a new season is coming; US F1 fans will find every practice, qualifying, sprint, and main race on Apple TV. MLS fans can subscribe to watch every regular and playoff game – we’re excited for the season ahead. 2025 was a great year for Services: new features launched, many records broken. Apple Music listenership and new subscribers hit record highs. Apple Pay cut fraud losses for partners by **over $1 billion** last year and brought the service to more markets than ever. The App Store saw **over 850 million** weekly users — the world’s safest and most innovative app marketplace. Since 2008, developers have earned **over $550 billion** on our platforms. Retail: We continue to bring “magic” to customers worldwide, with best-ever retail results this quarter. In December we opened a fifth store in India, with another coming soon in Mumbai. Wherever we are, we see ourselves as part of a greater whole; we act on our values. That means partnering in places like Vietnam to provide cleaner water to rural areas; celebrating graduates from developer academies in Brazil, Indonesia, Korea; 3D-printing Apple Watch titanium cases with recycled materials for sustainability without sacrificing quality; and much more. We’re especially proud of supporting US innovation. Last year, we pledged **$600 billion** investment over four years in advanced manufacturing, chip engineering, AI and more. Throughout our long-term US investment, we support nearly **500,000** jobs across thousands of suppliers in all 50 states. One year in, we’ve made great progress. Today, servers supporting Apple Intelligence ship from our new Houston facility. With our Advanced Manufacturing Program, we’re working with Corning in Kentucky, producing **100% of iPhone and Watch cover glass in the US**. Working with Micron, who just broke ground on a new advanced chip packaging/testing facility; we continue driving end-to-end chip supply chains in the US, with $20 billion chip purchases in 2025. At the Detroit Apple Manufacturing Academy we train US businesses and innovators in smart manufacturing and AI. In just six months, the academy has made a huge impact: businesses and Apple engineers work together to boost productivity, efficiency, and quality in supply chains. As I said at the start, this was an exceptional quarter for Apple. We’re excited about the unprecedented innovation opportunities ahead in the next year, enriching users' lives step by step. So much to look forward to in coming weeks and months; I’m confident our best work lies ahead. I’ll turn it over to Kevan. **Kevan Parekh, SVP and CFO:** Thanks, Tim. Good afternoon, everyone. This quarter we delivered **$143.8 billion** revenue, up **16% YoY**, the best quarter in our history. Globally, we set revenue records in both developed and emerging markets. Most major markets saw double-digit YoY growth: US, Latin America, Western Europe, Greater China, India, South Asia. Product revenue was **$113.7 billion**, up **16% YoY**, led by double-digit iPhone growth, setting new records. Strong customer loyalty and satisfaction drove our **installed base past 2.5 billion active devices**, with records across all product categories and geographies. Service revenue was **$30 billion**, up **14% YoY**; almost all markets saw double-digit growth. We set records in advertising, cloud, music, and payment services. App Store and video also had quarterly records. Companywide gross margin was **48.2%**, beating the top end of our guidance, up **100 basis points QoQ**, mainly from favorable product mix and scale effects. Product gross margin was **40.7%**, up **450 bps QoQ**, also from favorable mix and scale. Services gross margin was **76.5%**, up **120 bps QoQ**, mainly from structural factors. Operating expenses were **$18.4 billion**, up **19% YoY**, in line with our prior range, mainly driven by increased R&D. Net income was **$42.1 billion**, diluted EPS **$2.84**, up **19% YoY**, both record highs. Robust business performance also drove **record operating cash flow** of **$53.9 billion**. Here are more details on revenue by category: **iPhone revenue:** $85.3 billion, up 23% YoY, led by iPhone 17 series; strong performance globally, records in US, Greater China, Latin America, Western Europe, Middle East, Australia, South Asia, and a December record in India. Active iPhone installs hit all-time highs overall and in countries like US, Mainland China, Japan, India; upgrade users also at record levels. WorldPanel confirms iPhone as top-selling in US, top cities in China, UK, Australia, Japan. Customers love the latest lineup. 451 Research shows US iPhone 17 series satisfaction at **99%**. **Mac revenue:** $8.4 billion, down 7% YoY; as we said last quarter, we faced tough YoY compares from M4 MacBook Pro, Mac mini, iMac launches last year. Still, we grew in emerging markets like Brazil, India, Malaysia, Vietnam. Mac install base hit new highs, nearly half of buyers are new. US Mac satisfaction: **97%**. **iPad revenue:** $8.6 billion, up 6% YoY, led by M5 iPad Pro and A16 iPad. Continuous new user attraction; over half of buyers this quarter were new. iPad install base and upgrades at record highs. US iPad satisfaction: **98%**. **Wearables, Home, Accessories:** $11.5 billion revenue, down 2% YoY. Supply constraints for AirPods Pro 3; without those, category would’ve grown. Installed base hit new highs; over half of Apple Watch buyers were new. US satisfaction: **96%**. **Services revenue:** $30 billion, up 14% YoY, an all-time high. Records in advertising, music, payments, cloud; paid subs with double-digit growth. With over **2.5 billion active devices installed**, we have a very solid foundation for services growth. Account and paid account numbers hit all-time highs, engagement keeps rising. Service quality and breadth expand: Wallet’s digital ID features (users can create digital IDs for US passports and add to Wallet); more ad slots in App Store searches. **Enterprise:** Businesses keep expanding Apple devices for security and productivity. Snowflake deployed **over 9,000 Macs** companywide as the main laptops, boosting performance and reducing support tickets. AstraZeneca is rolling out **5,000+ M5 iPad Pros** for pharma sales teams to leverage Apple Intelligence AI capabilities in daily clinician visits. Mexico's leading retailer Coppel added MacBook Air; its iPad fleet now exceeds **10,000 devices**. **Cash and capital return:** Quarter ended with **$145 billion** in cash/securities. Repaid **$2.2 billion** debt, reduced **$6 billion** commercial paper; total debt **$91 billion**; net cash: **$54 billion**. Returned **nearly $32 billion** to shareholders: **$3.9 billion** in dividends, and **$25 billion** in open-market buybacks of **93 million** Apple shares. **March quarter outlook:** Forward-looking info; assumptions are: tariffs, policies remain unchanged, macroeconomic environment does not worsen. Expect **March quarter revenue up 13%-16% YoY**, estimate includes best take on iPhone supply constraints. Services revenue growth rate similar to December quarter. Gross margin **48%-49%**. Operating expenses **$18.4B-$18.7B**, similar to December, up YoY mainly on R&D. Other income/expense: about **$100 million** (excluding minority interest mark-to-market), tax rate: **17.5%**. Board declared **$0.26/share** cash dividend, payable February 12, 2026, to shareholders of record February 9. ### Q&A **Operator:** We’ll take the first question from Amit Daryanani at Evercore. **Amit Daryanani, Analyst:** I have two questions. First, the market is focused on memory’s impact on OEMs. When you raised margin guidance for March quarter: 1) How confident are you on securing sufficient memory supplies for shipments? 2) How will memory price increases affect Apple’s cost model over time? **Tim Cook, CEO:** Hi Amit, it’s Tim. Let me address both the supply constraint and memory issue together. First, the response to iPhone’s latest lineup **far exceeded our expectations**, with **23% growth**. This led to very low channel inventory at December quarter-end due to extraordinary demand. Right now, we’re **catching up supply to meet very high demand**. We are indeed supply-constrained and, at this stage, it’s hard to predict when supply and demand will balance. Constraints mainly come from **advanced process node capacity availability** for our SoC. Supply chain flexibility is lower than usual, partly due to much higher-than-expected demand. On memory, the **impact on Q1 (December quarter) margin is very limited**. We do expect memory to impact Q2 margin more noticeably, and this is factored into Kevan’s **48%-49%** guidance. Beyond Q2, we’re not giving margin guidance, but we see memory pricing rising sharply in the market. As always, we’ll review a variety of responses. Hope this gives you a full perspective. **Amit Daryanani, Analyst:** Thanks, Tim, that’s very clear. Second, about China’s strong performance – almost at all-time high China revenue. What’s driving this growth? And is the December quarter growth pace sustainable? **Tim Cook, CEO:** Of course. Greater China was up **38%** YoY, driven mostly by iPhone, which hit its **highest-ever revenue** in Greater China – the best iPhone quarter ever there. It was driven entirely by customer enthusiasm for the iPhone 17 lineup. Store traffic in China grew by **strong double digits** YoY. An outstanding quarter. Our install base in Greater China/Mainland China hit new highs; upgrade user counts broke records and switchers saw strong double-digit growth. Worldpanel shows iPhone was in the top 3 smartphones in top Chinese cities this quarter. It’s really about product strength and customer feedback. Elsewhere, for non-iPhone products, most buyers of Mac, iPad, and Watch are new users, another positive sign. Same survey shows iPad is top-selling tablet in major Chinese cities. Counterpoint data: MacBook Air was the best-selling laptop, Mac mini the best-selling desktop, in December. Overall, China was a truly outstanding quarter and we’re delighted. **Suhasini Chandramouli, Investor Relations:** Thank you, Amit. Operator, next question. **Operator:** Next question is from Erik Woodring at Morgan Stanley. **Erik Woodring, Analyst:** Thank you. Tim, congrats on the Google partnership, looking forward to new products. Thinking about your AI strategy, it obviously drives extra costs, also seen in op-ex. Can you help us understand the **AI upside on the revenue side**? Many competitors are integrating AI, but clear incremental monetization is still lacking. Apple’s always been disciplined on investment, and differentiates in product. How do you plan to monetize AI? What’s the ROI timeline? Then a quick follow-up. **Tim Cook, CEO:** We’re bringing intelligence into more beloved features and integrating it **personally, privately** throughout the OS. Doing so creates huge value and opens many opportunities for products and services. We’re also really happy about the Google partnership. **Erik Woodring, Analyst:** Very helpful. **Tim Cook, CEO:** We’re — we’re delighted. **Erik Woodring, Analyst:** Thank you, Tim. My follow-up: now with more data/time to assess this cycle, can you summarize the key drivers of iPhone strength? If you had to pick the top one or two, what would they be, and how sustainable are they? **Tim Cook, CEO:** It differs for different user groups, but it’s always a **combination of factors**: display, camera, performance, the upgraded selfie camera, and the new design – which users love. It’s the sum of all these that creates a very strong cycle, as shown in our December results. **Erik Woodring, Analyst:** Great, thanks and best wishes. **Tim Cook, CEO:** Thanks. **Suhasini Chandramouli, Investor Relations:** Thank you, Erik. Operator, next question. **Operator:** Next question from Michael Ng, Goldman Sachs. **Michael Ng, Analyst:** Good afternoon, thanks for taking my questions. First, your outlook for **13%-16%** March quarter revenue growth is encouraging. As we consider product categories, are there base effects from YoY compares we should flag? I know last year you launched M4 MacBook Air, iPhone 16E, A16 iPad, and M3 iPad Air. Do these create base effect challenges, or is the current product cycle strong enough to offset? **Kevan Parekh, CFO:** Hi Michael, this is Kevan. Thanks for the question. I wouldn’t flag any major base effect concerns. As you recall, last quarter we noted Mac faced a difficult compare, but now nothing stands out to that degree. So, I see it as a continuation of the strong product cycle we’re seeing, plus the supply constraints both Tim and I discussed. **Michael Ng, Analyst:** Great. Second, regarding Services: advertising was strong this quarter. Can you discuss new ad growth opportunities? I know you added new App Store search ad slots. Any thoughts of expanding ads into Maps, TV, etc? **Tim Cook, CEO:** Certainly, Michael. Overall, we’ve seen strong, broad performance across services: advertising, music, payments, cloud — all record highs. I think there’s good opportunity across service categories; we keep rolling out new service features. Wallet digital ID, new App Store ad slots, which excite us as more ways for advertisers to be discovered. I see continued opportunity to add value for users and Apple alike. As we noted, **2.5 billion active devices** is a major milestone and an exciting services opportunity. **Michael Ng, Analyst:** Thanks, Kevan. **Kevan Parekh, CFO:** Thank you. **Suhasini Chandramouli, Investor Relations:** Thank you, Mike. Operator, next question. **Operator:** Next question from Ben Reitzes, Melius. **Ben Reitzes, Analyst:** Hi, all, how’s it going? **Tim Cook, CEO:** Hello, Ben. **Ben Reitzes, Analyst:** Hi, Tim. First, on the Google collaboration: can you discuss how you made this decision, especially for AI and Siri? Is there potential for revenue sharing like in search? **Tim Cook, CEO:** Fundamentally, we think Google’s AI provides the most capable base for Apple Foundation Models. We’re confident the partnership can unlock many experiences and critical innovations. We’ll continue running on device and in private cloud, maintaining leading privacy standards. On specific terms with Google, we won’t disclose details. **Ben Reitzes, Analyst:** Knew you’d say that. Second, about margin – it’s incredible, Tim, truly. How did you deliver **48%–49%** margins despite NAND/memory price hikes? Is it improved mix, higher services, rising services margin? How do you maintain that? **Kevan Parekh, CFO:** Ben, it’s Kevan. Let’s start with Q1 margin: **48.2%**, above guidance, up **100 bps QoQ**. This is from favorable mix — a strong product cycle, good iPhone pricing, yielding better structure and scale effects. We’re in a strong iPhone cycle as Tim described, reflected in **+450bps** product margin. Services also grew double digits, another important factor. In guidance, Q2 will see positives and offsets. Service share will keep rising, typical in Q1 to Q2, partially offset by seasonal leverage decline. In summary, we’re confident in **48%–49%** guidance. **Ben Reitzes, Analyst:** Amazing, thanks. **Suhasini Chandramouli, Investor Relations:** Thanks, Ben. Operator, next question. **Operator:** Next question from David Vogt, UBS. **David Vogt, Analyst:** Thanks. Tim or Kevan, broad question: How do you view smartphone market demand overall, especially with rising memory prices? Other OEMs and parts suppliers worry about component access and whether price increases to offset costs will hurt demand. I know you don’t give yearly guidance, but how do you see these factors and their potential impact the rest of the year on market demand and iPhone? **Tim Cook, CEO:** On supply, I’ve commented about Q2 constraints, which are reflected in Kevan’s revenue guidance. Constraints stem from **advanced process node capacity**, mainly due to **23% iPhone growth in Q1 far surpassing our internal expectations**, with supply chain flexibility limited for a time. Beyond Q2, I won’t comment further on supply, as it’s affected by multiple changing factors. On memory, I’ve already commented. On demand, given what we know, **we gained market share in Q1**. Clearly, the overall market didn’t grow 23%, which is encouraging. But I won’t hazard a future market prediction. **David Vogt, Analyst:** Got it. Risking a follow-up: you mentioned a range of options for memory prices. How should we view Long Term Agreements (LTAs) now? Is that a lever you use, or more spot buying? Just want to understand market dynamics. **Kevan Parekh, CFO:** It’s a mix. We won’t get more specific. There are different levers, with varying effects, but yes, we have a range. **David Vogt, Analyst:** Thank you. **Kevan Parekh, CFO:** Uh-huh. **Suhasini Chandramouli, Investor Relations:** Thanks, David. Operator, next question. **Operator:** Next question from Wamsi Mohan, Bank of America. **Wamsi Mohan, Analyst:** Thanks. Tim, on services: you had **14%** growth and mentioned App Store record in December. But third-party data shows App Store growth slowing, maybe only **7%**, vs your **14%**. Can you clarify? If true, what’s driving it? What might you do to reverse it? I have a follow-up. **Kevan Parekh, CFO:** Wamsi, it’s Kevan. To clarify: App Store set a quarterly record. As you know, we don’t break out segment performance. But across services, and regions, we saw broad growth, records in both developed and emerging markets, and double-digit growth. So we won’t comment further at sub-segment level. **Wamsi Mohan, Analyst:** Thanks, Kevan. Back to memory prices: Apple historically rarely uses pricing as a lever unless FX swings. But with unprecedented memory hikes, would you consider pricing as a lever? **Tim Cook, CEO:** Won’t speculate on that. **Wamsi Mohan, Analyst:** Okay, thanks. **Tim Cook, CEO:** Uh-huh. **Suhasini Chandramouli, Investor Relations:** Thanks, Wamsi. Operator, next question. **Operator:** Next question from Samik Chatterjee, JPMorgan. **Samik Chatterjee, Analyst:** Hi, thanks for answering. First on Q1 capital spending, down vs prior quarter. Does your partnership with Google on Gemini/Apple Foundation Models affect short-term Apple private cloud plans? You highlight long-term private cloud importance, does this alter things? One follow-up. **Kevan Parekh, CFO:** Of course, Samik. As Tim said, we don’t provide more detail on Google collaboration. On CapEx: we use a **hybrid model**, so CapEx can be lumpy, not always closely tracking business performance. CapEx covers molds, facilities, retail, datacenters. For datacenters, we combine owned and third-party capacity. So it’s hard to draw conclusions from a single quarter. Last year, we did build out private cloud, reflected in December quarter. **Samik Chatterjee, Analyst:** Understood. Follow-up: you said product margin gains came from mix. Can you specify how iPhone 17’s mix differs from 16? Did tariffs impact? Guidance for next quarter’s tariffs? **Kevan Parekh, CFO:** A few points: First, overall product margin gains came from mix and scale. With a strong iPhone cycle, this favorable mix is higher than typical cycles. Second, Q1 usually reflects new product cost impacts, but this time mix and scale offset those. On tariffs, our December impact was about **$1.4 billion**, and we came in close to that. **Samik Chatterjee, Analyst:** Thanks. **Suhasini Chandramouli, Investor Relations:** Thank you, Samik. Operator, next question. **Operator:** Next question from Krish Sankar, TD Cowen. **Krish Sankar, Analyst:** Hi, thanks. First for Tim: you mentioned Gemini and Foundation Models collaboration. How should we view functions between Apple’s and third-party models? Will Foundation Models evolve into layers in the AI stack? One follow-up. **Tim Cook, CEO:** You should see it as a collaboration. We will continue independently developing our own tech, but powering personalized Siri will be via the Google partnership. **Krish Sankar, Analyst:** Got it. Follow-up: With memory shortfalls in smartphones/PCs, Apple has stronger procurement. Is this a chance to boost iPhone/Mac share vs rivals? **Tim Cook, CEO:** Won’t comment further. We’ve mentioned iPhone took share in Q1, and Mac gained share in 2025 overall. We’re happy with our position. **Krish Sankar, Analyst:** Thanks, Tim. **Tim Cook, CEO:** Uh-huh. **Suhasini Chandramouli, Investor Relations:** Thank you, Krish. Operator, next question. **Operator:** Next question from Atif Malik, Citi. **Atif Malik, Analyst:** Hi, thanks. First for Tim. Some see iPhone 17’s upgrade cycle like 2020–2021 when iPhone 12 users started upgrading. Do you agree? How is Apple Intelligence affecting upgrade rates? **Tim Cook, CEO:** Every cycle is unique; I don’t compare directly to any past one. iPhone 17 is a unique product, with many highly appealing features, delivering outstanding results. **Kevan Parekh, CFO:** I’ll add: we have a large, diverse installed base, and this product resonates deeply across groups. **Atif Malik, Analyst:** Thanks. Follow-up on supply constraints: You usually get priority at foundries, so surprised at advanced packaging limits. How long will this last, and how much does it affect meeting real demand? **Tim Cook, CEO:** When you can’t meet all demand, it’s hard to estimate true demand. Specifically, **3nm advanced node** is the **core reason** for Q2 supply constraints, directly stemming from **Q1’s 23% growth** far above plan, with limited short-term supply chain flexibility. I won't predict when supply/demand will balance. **Atif Malik, Analyst:** Very helpful, thanks. **Suhasini Chandramouli, Investor Relations:** Thank you, Atif. Operator, next question. **Operator:** Next question from Aaron Rakers, Wells Fargo. **Aaron Rakers, Analyst:** Thanks. First on India: you mentioned strong China demand, but also India. Can you discuss India iPhone growth and your opportunity in this huge market? **Tim Cook, CEO:** In December we set an India quarterly revenue record; iPhone, Mac, and iPad all posted quarterly highs, and services reached an all-time high. India is the world’s second-largest smartphone market, fourth-largest PC market; our share is still relatively low, so huge opportunity. Most Apple buyers are still new users. **Kevan Parekh, CFO:** Also, India’s installed base grew strongly, double digits. **Aaron Rakers, Analyst:** Follow-up: On in-house chip development, do you see deepening Apple Silicon as an underappreciated margin lever? Will even more chip capability be internalized in future? **Tim Cook, CEO:** Apple Silicon is a massive transformative advantage. **Kevan Parekh, CFO:** In-house silicon helps on cost, but also delivers differentiation and roadmap control, positively impacting margin. **Aaron Rakers, Analyst:** Thanks. **Suhasini Chandramouli, Investor Relations:** Thanks. Operator, last question. **Operator:** Final question from Richard Kramer, Arete Research. **Richard Kramer, Analyst:** Tim, how do you see AI evolving between device and cloud? Do you have enough data center capacity for broad Siri deployment without major CapEx increases? **Tim Cook, CEO:** Device and private cloud are equally important, a key differentiator for us. On capacity, we’ve done all we can to plan and build. **Richard Kramer, Analyst:** With 2.5 billion active devices, but Apple Intelligence only supports iPhone 15 Pro and up, can you share the share of AI-capable devices within installs? Does this affect AI rollout pace? **Kevan Parekh, CFO:** No specific numbers, but it’s a steadily increasing share. **Richard Kramer, Analyst:** Worth a try. Thanks. **Suhasini Chandramouli, Investor Relations Director:** Thank you, Richard. Today’s call replay will be available on Apple Podcasts for two weeks, as streaming at apple.com/investor, or via phone. Replay number: 866-583-1035, confirmation code 890-2968, then pound key. These replays will be available at about 5pm Pacific. Reporters may contact Josh Rosenstock at 408-862-1142, financial analysts can reach me, Suhasini Chandramouli, at 408-974-3123. Thanks again for joining us. **Operator:** That concludes today’s call. 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