Apple Q1 FT 2023 financial call transcript
Apple announced its Q1 FY 23 results in February. The company didn’t meet expectations in the quarter. What follows is a partial transcript of what the company told analysts announcing its results. Keep up with highlights of Apple business news here, and read my in depth look at these results here.
Apple CEO Tim Cook
We continue to hear a wide praise for Apple Watch Series 8 and Apple Watch Ultra, which has set a new standard for what’s possible with a wearable. From a whole host of health and safety features to incredible new capabilities for extreme athletes, there is something for everyone in these amazing products.
Customers are excited about some phenomenal new features we’ve made available across many of our products as well. One of the highlights is emergency SOS via satellite, which launched for iPhone 14 customers in the U.S. and Canada in November and for customers in France, Germany, Ireland and the UK and December.
This is a feature we hope our users will never need, but it is incredibly heartening to get emails from people describing the lifesaving impact our new safety features have had on them.
We’re always looking for new ways to empower people to create and collaborate. In December, we released Freeform, a brand new app that lets users take their ideas wherever they want, anywhere they are, all how collaborating in real time. Freeform has already received praise from reviewers for its flexibility and simplicity as it works seamlessly across iPhone, iPad, and Mac.
Today we are very excited to announce that we’ve achieved a truly incredible milestone. Thanks to our deep commitment to innovation, incredible customer loyalty and satisfaction, and a large number of switchers, we now have more than two billion active devices as part of our growing installed base, double what it was just seven years ago.
This is an incredible testament to our products and services and the strength of our ecosystem. We set an all-time revenue record of $20.8 billion in services, which was better than what we had expected.
We achieved double digit revenue growth from App Store subscriptions and set all time revenue records across a number of categories, including cloud and payment services.
All told, Apple now has more than 935 million paid subscriptions. Apple has also just begun a historic 10-year partnership with Major League Soccer. Just yesterday we launched MLS Season Pass, which will give fans in more than 100 countries access to every live MLS regular season game, as well as the playoffs and MLS Cup, all with no blackouts.
And while we’re providing more content to sports fans than ever before, Apple TV Plus continues to showcase powerful characters and moving storytelling. We were thrilled to celebrate the holidays alongside our Apple TV+ subscribers with the hit movie “Spirited.” And we’re delighted to see how much people are enjoying new and returning series like shrinking, slow horses, and truth be told. And we have some great upcoming movies in Sharper and Tetris, along with Emmy Award winner Ted Lasso returning this spring. the quarter, we made some great updates to Fitness Plus as well, expanding our catalog of more than 3,500 workouts and meditations to include a new kickboxing category and a new sleep theme for meditations. Our latest artist spotlight series features the music of the incomparable Beyoncé and we’re excited to take a stroll with guests appearing on our fifth season of Time to Walk.
We continue to build on our decades-long commitment to helping small businesses thrive when we announce Apple Business Connect. This new tool gives business owners even more control over how billions of people see and engage with their products and services every day. Businesses of all sizes can now customize key information for users across Apple Maps, Messages, Wallet, Siri, and other apps. Meanwhile, in retail, we celebrated 25 years of the Apple Online store and also opened Apple Pacific Center in Vancouver and Apple American Dream in New Jersey. And I’m grateful to all the teams who helped our customers throughout the busy holiday season.
At Apple, we spend a lot of time focused on creating an unparalleled experience for our customers and every product and service that we offer. We’re also just as dedicated to leading with our values in everything we do.
As part of that work, we strengthen our deep commitment to privacy and security, giving users three new tools to protect their most sensitive data. I message contact key verification, security keys for Apple ID, and advanced data protection for iCloud.
At Apple, we feel a deep sense of responsibility to leave the world better than we found it. We’re also a year closer to 2030, and we remain ever focused on the environmental commitments we set out for the end of the decade.
As an example, the latest Mac Mini and MacBook Pro models all use 100% recycled aluminum in the enclosure and recycled rare earth elements in all magnets. And in a first for home pod, we’re using 100% recycled gold in the plating of multiple printed circuit boards. In honor of Black History Month, we released the Black Unity collection, including the special edition Apple Watch Black Unity Sport Loom, a new matching watch face and iPhone wallpaper.
Through our racial equity and justice initiative, we’re expanding our support of five organizations focused on lifting up communities of color through technology. And we are committed as ever to building on our progress around inclusion and diversity.
We also announced that since the inception of our giving program 11 years ago, we’ve donated more than $880 million to humanitarian efforts, disaster relief, childhood education, and more. And over the last 16 years through our partnership with Red, Apple supported grants have helped more than 11 million people get the care and support services they need.
As we look ahead in 2023, we are excited about the year to come. At Apple, we are always looking forward, always focused on the next challenge, always determined to do great things with unmatched creativity and unrivalled innovation. And that makes me more confident about the future of Apple, then I have ever been. With that, I’ll turn it over to
CFO Luca Maestri
Thank you, Tim, and good afternoon, everyone. As Tim mentioned, revenue for the December quarter was 117.2 billion down 5% from last year.
A number of factors had a significant impact on our results.
First, we faced a very difficult for an exchange environment, which affected our performance by nearly 800 basis points. In other words, we grew revenue on a constant currency basis. And in fact, we did so in the vast majority of markets. Second, the macroeconomic environment this past quarter was markedly more challenging than 12 months ago.
Third, we experienced significant supply shortages for iPhone 14 Pro and iPhone 14 Pro Max in November and through December.
On the other hand, we had the positive impact of the 14th week in the quarter that we mentioned at the beginning of the call. Product revenue was 96.4 billion, down 8% from last year due to the factors I just called out.
At the same time, however, our install base of active devices grew double digits and achieved all-time records in each geographic segment and in each major product category.
We are proud to now have over 2 billion active devices in our install base. This continued growth in the install base is due to extremely strong levels of customer satisfaction and loyalty and a high number of customers who are new to our products.
The install base growth also helped our services sell an all-time revenue record of 20.8 billion up 6% over a year ago. We achieved this new milestone despite more than 700 basis points of negative impact from foreign exchange. We reached all-time services revenue records in the Americas, Europe, and rest of Asia Pacific and a December quarter record in Greater China. We also set records in many services categories, including all-time revenue records for cloud services, payment services, and music and December quarter records for the App Store and Apple care.
Company gross margin was 43%, up 70 basis points from last quarter due to leverage and favourable mix partially offset by foreign exchange. Products gross margin was 37% up 240 basis points sequentially and services gross margin was 70.8% up 30 basis points sequentially, both due to the same factors that impacted total company grows margin.
Operating expenses of 14.3 billion were significantly below the guidance range we provided at the beginning of the quarter and grew at a slower pace than in the past, as we took actions to respond to the current macro environment.
Net income was 30 billion, diluted earnings per share were $1.88 and we generated very strong operating cash flow of 34 billion.
iPhone sales
Let me now get into more detail for each of our revenue categories. iPhone revenue was 65.8 billion, despite significant foreign exchange headwinds, supply constraints on iPhone 14 Pro and iPhone 14 Pro Max, and a challenging macroeconomic environment.
In spite of these circumstances, we said all time iPhone revenue records in Canada, Italy, Spain and saw strong growth in several emerging markets, including all time, iPhone revenue records for India and Vietnam.
…, installed base of active iPhones, continues to grow nicely, and is at an all-time high across all geographic segments. In emerging markets, in particular, the installed based group double digits, and we had record levels of switchers in India and in Mexico.
Our customers continue to love their experience with our products, with the latest survey of US consumers from 451 research indicating customer satisfaction on 98% for the iPhone 14 family. Mac revenue was $7.7 billion, down 29% year over year, and in line with our expectations.
Mac sales
There were three key drivers for our Mac results.
First, we had a challenging compare against last year’s launch of the completely reimagined MacBook Pros, our first notebooks with M1 Pro and M1 Max.
Second, we believe that the macro environment impacted our Mac performance and third, we faced significant foreign exchange headwinds.
At the same time, however, the install base of active Macs, bridge an all-time high across all geographic segments and we continue to see very strong upgraded activity to Apple Silicon. Customers satisfaction with Mac remains very strong at 96% based on the latest survey of US consumers from 451 research.
iPad sales
iPad revenue was 9.4 billion, at 30% year over year, despite significant FX headwinds. This performance was driven by two key items. First, during the December quarter a year ago, we experienced significant supply constraints. While this year, we had enough supply to meet demand. Second, we launched our new iPad, and the iPad Pro powered by the M2 chip during the quarter. The iPad install base reached a new all-time high thanks to incredible customer loyalty and a high number of new customers.
In fact, over half of the customers who purchased iPads during the quarter when due to the product.
Wearables and home
Wearables home and accessories revenue was @13.5 billion, down 8% year over year. The year over year decline was driven by significant FX headwinds in a challenging macroeconomic environment.
However, our installed base of devices in the category set a new all-time record, thanks to the largest number of customers new to a smart watch that we’ve ever had in a given quarter. In fact, nearly two-thirds of customers purchasing an Apple Watch during the quarter were new to the product.
Services
Moving to services, we generated $20.8 billion in revenues, a new all-time record in total, and for many services offerings, in spite of a difficult foreign exchange environment, and microeconomic headwinds impacting certain categories such as digital advertising and mobile gaming.
In constant currency, we grew services revenue double digits on top of growing 24% during the December quarter a year ago.
We focus on the large long-term opportunity in this category, and we continue to observe several trends that reflect the strength of our ecosystem. For example, we saw increased customer engagement with our services during the quarter. Both our transacting accounts and paid accounts grew double digits year over year each setting a new all-time record. subscriptions also continue to grow nicely.
We now have more than 935 million paid subscriptions across the services on our platform, up more than 150 million during the last 12 months alone, and nearly four times, what we had just five years ago. And we continue to increase the reach and improve the quality of our offerings.
For instance, Apple Pay is now available to millions of merchants in nearly 70 countries and regions. And we saw a record breaking number of purchases made using Apple Pay globally during the holiday shopping season.
A little more information
Finally, our install base of over 2 billion active devices represents a great foundation for future expansion of our ecosystem.
And it continues to grow even during difficult macroeconomic conditions, which speaks to the exceptionally high levels of customer loyalty satisfaction and our ability to attract new customers to our platform.
The growth is coming from every major product category and geographic segment with strong double-digiting increases in emerging markets such as Brazil, Mexico, India, Indonesia, Thailand, and Vietnam.
Enterprise markets
Turning to the enterprise market, we are seeing continued adoption of our services for business like Apple Business Essentials, Apple Care, Tap to Pay, and Apple Financial Services.
For example, Mars Inc. has expanded its use of Apple Care for Enterprise to provide timely device support and assurance for iPads deployed across their manufacturing sites.
Meanwhile, HCA Health Care has leveraged Apple Financial Services to manage the annual refresh of its entire fleet of iPhones. This not only ensures that their staff stay current on the latest Apple technology, but also provides them with significant annual savings in the process.
Investor details
Let me now turn to our capital return program and our cash position.
We returned over $25 billion to shareholders during the December quarter as our business continues to generate very strong cash flow. This included $3.8 billion individuals and equivalents and $19 billion through open market repurchases of 133 million Apple shares.
We ended the quarter with $165 billion in cash and marketable securities.
We repaid $1.4 billion in maturing debt and decreased commercial paper by $8.2 billion, leaving us with total debt of $111 billion. As a result, the cash was $54 billion at the end of the quarter and we maintain our goal of becoming net cash neutral over time.
Forward outlook
As we move into the March quarter, I’d like to review our outlook, which includes the types of forward-looking information that teachers refer to at the beginning of the call
Given the continued uncertainty around the world in the near term, we are not providing revenue guidance, but we are sharing some directional insights based on the assumption that the micro-economic outlook and COVID related impacts to our business, do not worsen from what we are projecting today for the current quarter.
In total, we expect our March quarter year-over-year revenue performance to be similar to the December quarter. This represents an acceleration in our underlying year-over-year business performance as the December quarter benefited from an extra week.
- Foreign exchange, will continue to be a headwind, and we expect a negative year-over-year impact of five percentage points.
- For services, we expect revenue to grow year-over-year, while continuing to face macroeconomic headwinds in areas such as digital advertising and mobile gameing.
- For iPhone, we expect our March quarter year-over-year revenue performance to accelerate relative to December quarter year-over-year revenue performance.
- For Mac and iPad, we expect revenue for both product categories to decline double digits year-over-year, because of challenging compares and macroeconomic headwinds.
- We expect gross margin to be between 43.5% and 44.5%.
- We expect OPEX to be between $13.7 and $13.9 billion.
- We expect OINE to be around negative 100 million, excluding any potential impact from the market to market of minority investments, and it our tax rate to be around 16%.
Finally, today, our board of directors has declared a cash dividend of $0.23 per share of common stock, available on February 16, 2023, to share all the soft record as of February 13, 2023.
The analysts ask questions
With that, let’s open the call to questions.
David Bott, UBS
Great, thanks guys for taking my question. Tim and maybe this is for Lucas, you talked about the supply chain returning back to normal after a very difficult October and November. But we are still seeing some disruptions across tech products, whether it’s enterprise or consumer facing. How do you think about your supply chain and maybe the levels of inventory or builds that you might need as we go forward to sort of **inaudible your business from these sorts of episodic disruptions? Have you changed your view? And how does that affect ultimately margins and sort of your balance sheet and cash?
Tim Cook
This is Tim, David. From a supply point of view, we did see disruption from early November through most of December and from a supply chain point of view we’re now at a point where production is what we needed to be and so, the problem is behind us.
In terms of going forward in the supply chain, you know, we build our products everywhere. There are component parts coming from many different countries in the world and the final assembly coming from three countries in the world on just iPhone, and so we continue to optimize it will continue to optimize it over time and change it to continue to improve.
I think when you sort of zoom out and back up from it the last three years of have been a pretty difficult time between COVID and silicon shortages and the like and I think we have had a very resilient supply chain in the aggregate.
In terms of supply for this quarter which I think was one of your points. I think we’re in decent supply on most products for the quarter, currently.
Shannon Cross of Credit Suisse
Thank you very much. Luca, I wanted to dig a bit more into the commentary on gross margin. The guidance, especially at 43.5 to 44.5 is obviously quite strong.
I’m wondering what’s helping you out there.. and how should we think about what currency and head you’re going to do as we look forward and then I have a follow-up?
Luca Maestri
With that good margin for the December quarter to start with, we reported 43%. Obviously, in December, we have the benefit of leverage because of the seasonality of the business, but we also have favorable mix across the board.
Of course, foreign exchange is an issue right now in the December quarter on a sequential basis foreign exchange was a negative 110 basis points for us.
And on a year of a year basis, it’s 300 basis points. So obviously the FX environment has changed a lot during the last 12 months.
For March, we’ve seen a March in expansion for 3.5 to 4.5.
We do a lot of work around cost. Of course, the mix we continue to have both within categories and services mix as we move away from the holiday season. But we do a lot of work on the cost structure and that is paying off.
Foreign exchange, it’s still a negative, about 50 basis points sequentially, but it’s mitigating the last couple of weeks, the dollar has weakened a bit and hopefully, as we go through the year, hopefully things will improve.
But for now, as you correctly state, we are in a good position on margins.
Shannon Cross of Credit Suisse
Thank you. And then Tim, can you talk a bit about China? You know, what you’re seeing, obviously, you have the issues with production, but I mean more on the demand side. As, you know, we’ve gotten through Chinese during just Chinese New Year and the opening. I’m just wondering, you know, are you seeing the Chinese consumer come back? What are they buying? And how are you thinking about your position there?
Tim Cook
Shannon, in the last quarter, we declined by 7% on a reported basis, but we grew on a constant currency basis. And that was despite some significant supply constraints that we talked about earlier. And obviously, the COVID restrictions throughout China that happened in various places throughout the country also impacted demand during the quarter.
When you look at the opening that started happening in December, we saw a marked change in traffic in our stores as compared to November, and that followed through to demand as well. And I don’t want to get into January – we’ve obviously for January’s included in the color that Luca provided earlier — ut we did see a mark change from December compared to November.
Erik Woodring Morgan Stanley
Hi guys, thanks for taking my questions. Maybe Tim, for us one for you, that two-billion install base, a device install base figure that’s up, I believe 200 million units year over year, that implies the strongest annual gain in new devices. And your install base basically is far back as you’ve provided those data points. And so, I guess my two questions are one.
Can you provide the install base for the iPhone at your end?
And then two, is there anything that you see in this new cohort of users that might look different or similar to past cohorts, either by demographic or regions or monetization ramp? And then I will follow up. Thanks.
Tim Cook
The install base is now over two billion active devices, as you mentioned. And we set records across each geographic segment and major product category. And so, it was a broad-based change.
To correct one thing you said. It’s up over 150 million year-to-year. The last report we reported to be over 1.85. And so, it’s 150m, which we’re very proud of.
We also saw strong double digit [growth?] in several of the emerging markets, which is very important to us, for example, India and Brazil as just two examples.
So, very, very strong, and obviously it bodes well for the future.
Erik Woodring Morgan Stanley
Great. Thank you for the color, Tim. And, you know, Luca, obviously the December quarter was negatively impacted by the production challenges. Can you just maybe unpackage where channel inventory levels are today, kind of across the iPhone broadly and then what the data that you’re seeing so far this quarter is telling you about iPhone demand deferral versus kind of iPhone demand destruction and perhaps pushing some upgrades later into the year rather than into the March quarter. And that’s it for me thanks.
Tim Cook
Yeah, Eric, I’ll take that one as well. The channel inventory levels on iPhone, we obviously ended the December quarter below our target range given the supply challenges on iPhone 14 Pro and iPhone 14 Pro Max. But as you think about this, keep in mind that a year ago we also exited the December quarter below our target inventory range because of supply challenges in the year ago quarter, not related, not the same issue by just as a point.
And so that hopefully gives you some flavor of that.
In terms of what we’re seeing in January we’ve included in our colour that Luca provided kind of our thinking. It’s very hard to estimate the recapture. You have to know exactly what would have happened and how many people bought down, and it takes a while to get those reports in during the quarter and so we’ve made our best guess at it in terms of the sizing of the constraint in Q1.
What we estimate, although not with precision, is that we believe iPhone would have grown during the quarter and had it not been for the supply shortages.
Hopefully that could provide you a little bit of a follow-up.
Erin Murray, Wells Fargo.
Yeah, thanks for taking the question. I have two as well. I can. I guess the first kind of question, … , pretty good guidance into this March quarter. I’m curious if you unpack that a little bit, is specific around what you’re seeing as far, you know, maybe benefits from component pricing. You know, in the guidance, if you’re embedding any of that at this point? –
Luca Maestri
Yeah, of course, you know, with our guidance, we try to capture every aspect of our cost structure, and obviously components are a big portion of that.
So, that’s included, and keep in mind, again, that for an exchange, I mentioned earlier, I think to Shannon, that the sequential negative on FX is 50 basis points versus a year ago, it’s 270 basis points. Obviously, the US dollars moved a lot over the last 12 months.
So obviously, we need to find offsets and more to the negative effects to be able to provide this kind of guidance. And so obviously, components are a big part of that.
Erin Murray, Wells Fargo.
And kind of, you know, from a strategic perspective, given the things that we’re seeing out in some of your peer group. I’m curious, Tim, how do you think about the role of AI in your strategy as far as… particularly in the services segment, whether you see opportunities to sell monetization abilities within the paid subscriber base and whether or not AI is something that you’re implementing a bit more strategically there?
Tim Cook
Yeah, it is a major focus of ours. It’s incredible in terms of how it can enrich customers’ lives. And you can look no further than some of the things that we announced in the fall with crash detection and fall detection or back a ways with ECG. I mean, these things have literally saved people’s lives.
And so, we see an enormous potential in this space to affect virtually everything we do. It’s obviously a horizontal technology, not a vertical. And so, it will affect every product and every service that we have.
Amit Dayanani of Evercore
My question is, the first one I have is, I think basically all your comments that iPhones would have grown without the production issue that would imply that maybe it’s a $7 billion or so impact that you had in December quarter from the production challenges on the high end models.
I’m sure it’s tough to see what happens this time around, but I think historically even have had production issues of things like this happen… What has the consumer behavior been typically? Do they tend to go down to lower-end models and get the phone they want quickly? Do you typically recover what’s before it out or no?
Tim Cook
It’s very hard to estimate is the real answer. You should have to know a lot of data and it’s usually only in hindsight that you have a more reasonable view of it. And so, we put our best views in the color that Luca provided. That’s kind of what I would say.
Amit Dayanani of Evercore
All right. And then maybe if I think about the services as you go forward, and you’re got good growth of services across the last several years. But as you go forward in services, what do you think drives the growth more?
Luca Maestri
I mean, there’s several things and I’ve mentioned a few of them during the call.
The first step is always the install base. The install base is the engine for services growth and the fact that the install base is growing very nicely and it’s growing, you know, in a lot of emerging markets is growing even faster that gives us a larger, addressable pool of customers. So that’s incredibly important.
The second one is that we’re seeing that the level of engagement of our customers already in our ecosystem continues to grow. We mentioned that both transacting accounts and paid accounts grew double digits. And so that bodes very well for the future.
And we have a lot of transacting accounts that can move to paid accounts over time.
The other aspect that is very important for us is to continue constantly to improve the reach and quality of our services. And I give the example of Apple Pay, which is a great example because we started off premiering the United States. Now we’ve taken it to 70 markets, millions of merchants, And so obviously payment services are continuing to set new highs all the time for us.
And as you’ve seen over the last few years, we also launch new services over time. And that obviously contributes to the growth.
We’re very excited.
And when we look at the behaviour of our installed base, we think it’s very promising for the continued growth of our services business.
Harsh Kumar, Piper Sandler
Yeah, hey, a quick question on emerging markets. Seems like you’re making a lot of strides in India. I wanted to understand the share you have?
Tim Cook
Looking at the business in India we set a new revenue record and grew double digits.
so, we feel very good about how we performed. And that was best despite the headwinds that we’ve talked about.
Taking a step back, India is a hugely exciting market for us and is a major focus. We brought the online store there in 2020. We will soon bring Apple retail there. So, we’re putting a lot of emphasis on the market. There’s been a lot done from the financing options and trade-ins to make products more affordable and give people more options to buy.
And so, there’s a lot going on there.
We’re in essence taking what we learned in China years ago and how we scaled China and bringing that to bear.
And I don’t have the exact market shares in front of me, but I think you would see that from a market share point of view that we grew around the world last quarter despite the challenges that we had on and the supplies side. And I wouldn’t expect to have a difference in those two markets.
Harsh Kumar, Piper Sandler
Sort of an interesting theoretical question on pricing. Assuming we get the chip act passed, and there’s a whole bunch of manufacturing that happens in US and other territories that are potentially somewhat more expensive than the ones you might be in now.
Have you as the company done any studies to gauge the elasticity of demand relative to small price increases in your products?
Tim Cook
We have experience in that, but I wouldn’t necessarily draw the same conclusion that you have in terms of the cost of the product.
We don’t know at this point exactly what that will be, but we’re all in in terms of being the largest customer for TSMC in Arizona. I’m very proud to take part in that. That’s what I would say about that.
Wamsi Mohan of Bank of America
You done a phenomenal job of driving consumer choice towards higher end products within your portfolio. How would you compare this cycle for iPhones if we were if we were to segment the pro versus non-pro models versus the cycles from the past few years. And do you think this move to higher ASBs is sustainable? Or do you think it reverses in a tighter consumer spending environment?
Tim Cook
The 14 pro and the 14 pro max have done extremely well up into the point where we had a supply shortage and couldn’t provide them, couldn’t provide the total of the demand. And so, it’s definitely a strong pro cycle.
I think there’s several reasons for that, but the most important one is always the product. And I think the innovations in the product speak for themselves. And we feel very good about the product that we announced back in September and are happy to now be at a point where we’re shipping to the demand.
Wamsi Mohan of Bank of America
Do you think this move to sort of higher ASBs that have happened over the last few years, is sustainable in the tough macro environment that you’ve cited.
Tim Cook
I wouldn’t want to predict, but I would say that the smartphone, the iPhone, has become so integral into people’s lives. You know, it contains their contacts and their health information and their banking information and their smart home. So many different parts of their lives – it’s the payment vehicle and for many people. And so, I think people are willing to really stretch to get the best they can afford in that category.
Wamsi Mohan of Bank of America
You clearly emphasize the focus and importance of the install base. If we think about the absolute grip of the install base from a billion to two billion over seven years from a divide standpoint, how should we think about the penetration of services or the growth in paying customers on services over that time frame? Is that penetration increasing or decreasing?
Luca Maestri
Over the last seven years as we’ve doubled install base, we’ve seen a growing engagement of our customers on the platform. from that happens.
First, by customers transacting on the platform and then moving to paid accounts, so starting to pay for some of the services. That percentage of paid accounts tends to grow over time. We’ve seen it in developed markets. We see it in emerging markets.
And that is due to some of the reasons that I was explaining earlier, including the fact that we made it easier for our customers to get engaged on the platform. For example, we offer multiple payment methods in many countries. And we’ve made it easier to explore for more services, because we’ve added a lot of services on the platform over the last seven years.
So, to your question, of course, higher engagement means a higher percentage of paid accounts of a time.
Jim Sula of City Group
Tim and Luca, you both mentioned earlier on the Q&A, a little bit about India. I was wondering if you are now entering a situation of even more opportunity because we’ve exited COVID, we’ve exited countries with different COVID criteria.
We’ve also seen India build out its higher speed transmissions and your market share is tremendously underrepresented there. And it appears with the supply chain, you’re looking at diversifying kind of operational risk, not specific to any country, but just overall. And now you look at potentially opening stores and stuff.
Am I right that that’s the way you look at it? Is it’s even more prime for opportunity now than ever? And once you start opening stores there, you can just see a complete green shoot of adoptions or any additional commentary on your view on India now we’ve navigated COVID, supply, chain, and so many challenges over the past two years.
Tim Cook
Yeah, Jim, we did fairly well through COVID in India, and I’m even more bullish now on the other side of it, or hopefully on the other side of it. And that’s the reason why we’re investing there with bringing retail there and bringing the online store there and putting a significant amount of energy there.
I’m very bullish on India.
Jim Sula of City Group
Thank you, and then as my quick follow up, you’ve mentioned that services overall were better than expected. And of course, supply chain was more challenge than expected. So, what was the bridge factor of services being better than expected on the outside? Was it like advertising or apps or paid monthly subscriptions or what kind of things are really surprising to the upside on services?
Luca Maestri
It was primarily the level of engagement that we saw, which then it reflects into the, as you said, the paid subscriptions.
We saw very good results in our cloud services business, in payment services, music was very strong. So, we had a number of categories that set new records, all-time records, and they did a bit better than we were expecting at the beginning of the quarter.
And so, Tim mentioned it during, I think, his prepared remarks, that when you look at in constant currency, we grew services, double digits, and that was on top of a 24% increase a year ago. So, it’s very sustained growth that we’re seeing.
Bunch more questions lost the will to live
Tim Cook
And so the industry is very challenged, as you say. It’s the industry is contracting. I think for us though, is– and I don’t know how this year will play out, so I don’t want to predict the year. But over the long run, we have a market that is a reasonable size market, a big market. And we have low share. And we have a competitive advantage with Apple Silicon. And so strategically, I think we’re well positioned in the market. albeit I think it will be a little rough in the short term.”
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