Good day, everyone, and welcome to this Apple Incorporated Third Quarter Fiscal Year 2017 Earnings Release Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Nancy Paxton, Senior Director of Investor Relations. Please go ahead, ma'am.

Thank you. Good afternoon and thanks to everyone for joining us. Speaking first today is Apple CEO Tim Cook, and he'll be followed by CFO Luca Maestri. After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expense, taxes, and future business outlook. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in Apple's Form 10-K for 2016, the Form 10-Q for the first two quarters of 2017, and the Form 8-K filed with the SEC today along with the associated press release. Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. I'd now like to turn the call over to Tim for introductory remarks.

Thank you, Nancy, and good afternoon and thanks, everyone, for joining us. Today we're proud to announce very strong results for our fiscal third quarter, with unit and revenue growth in all of our product categories. We'll review our financial performance in detail, and I'd also like to talk about some of the major announcements we made in June at our Worldwide Developers Conference. It was our biggest and best WWDC ever, and the advances we introduced across hardware, software, and services will help us to delight our customers and extend our competitive lead this fall and well into the future. For the quarter, total revenue was at the high end of our guidance range at $45.4 billion. That's an increase of 7% over last year, so our growth rate has accelerated in three successive quarters this fiscal year. Gross margin was also at the high end of our guidance, and we generated a 17% increase in earnings per share. iPhone results were impressive, with especially strong demand at the high end of our lineup. iPhone 7 was our most popular iPhone, and sales of iPhone 7 Plus were up dramatically compared to iPhone 6s Plus in the June quarter of last year. The combined iPhone 7 and iPhone 7 Plus family was up strong double digits year over year. One decade after the initial iPhone launch, we have now surpassed 1.2 billion cumulative iPhones sold. Services revenue hit an all-time quarterly record of $7.3 billion, representing 22% growth over last year. We continue to see great performance all around the world, with double-digit growth in each of our geographic segments. Over the last 12 months, our Services business has become the size of a Fortune 100 company, a milestone we've reached even sooner than we had expected. We had…

Thank you, Tim. Good afternoon, everyone. Revenue for the June quarter was $45.4 billion, up 7% over last year, an acceleration to the growth rate we reported during the first half of our fiscal year. We achieved these results despite a 200 basis point negative impact from foreign exchange on a year-over-year basis, as currency movements, especially in Europe and China, affected our reported results. Our performance was very strong across the board with growth in all our product categories and almost every market around the world. We achieved double-digit revenue growth in many developed markets, including the U.S., Canada, Germany, Spain, Australia, and Korea, and emerging markets outside of Greater China grew 19% over a year ago. Gross margin was 38.5%, at the high end of our guidance range. Operating margin was 23.7% of revenue and net income was $8.7 billion. Diluted earnings per share were $1.67, up 17% over last year, and cash flow from operations was $8.4 billion. During the quarter we sold 41 million iPhones and reduced iPhone channel inventory by 3.3 million units, leaving us with our lowest level of channel inventory in 2.5 years and well within our five-week to seven-week target inventory range. iPhone sales were up year-over-year in most markets we track, with many markets in Asia, Latin America, and the Middle East growing unit sales by more than 25%. We are very pleased with these iPhone results, especially considering the tough comparison to the June quarter last year when we launched iPhone SE. iPhone ASP was $606, up from $595 a year ago, thanks to strong demand for iPhone 7 Plus, which represented a higher percentage of the iPhone mix compared to the Plus model a year ago. The impact of the stronger mix on ASP was partially offset by negative…

Thank you, Luca, and we ask that you limit yourself to one one-part question and one follow-up. Rebecca, may we have the first question, please?

And that question will come from Katy Huberty with Morgan Stanley. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Yes, thanks. Good afternoon. Luca, first question for you, gross margin guidance is strong, but it did tick down from your June quarter guidance, and you also narrowed the range to 50 basis points. I wonder if you can just address. What is the driver of the sequential downtick, and what gives you confidence that you have more visibility than you did three months ago?

Katy, sequentially from 38.5% that we just reported, typically we have product transition costs during the September quarter. That's the primary driver. This happens fairly regularly for us. We also have a more difficult memory pricing environment this year than a year ago. And we think that we're going to be able to partially offset this with the positive leverage. As you've seen, we guided up sequentially in revenue. So those are the major puts and takes. In terms of the range that we use for gross margins, we have a fairly good understanding on where we are with our hedging program, and that allows us to mitigate some of the volatility there. So we felt we could guide to a slightly narrower range, which we've done occasionally in the past. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Thank you, and maybe a question for both Tim and Luca. As you outlined on this call and at the Developer Conference in June, there is an unprecedented number of products that either ramped volume or launched in the back half of this year. So appreciating you only formally guide a quarter out, I wonder if there's any qualitative commentary you can provide to help us think about the back half of this calendar year and how all those new products that come into the model could impact either revenue seasonality versus past years or could impact just the costs associated with ramping that many products all at once. Thanks.

Katy, as Luca mentioned, we did assume some transitional costs in our guidance for the quarter, as is typically the case. And we're looking very much forward to the product rollouts.

Thank you, Katy. Could we have the next question, please?

We'll go to Shannon Cross with Cross Research.

Thank you very much for taking my question. Tim, could you talk a bit about what you're seeing in China? I think obviously, there continues to be strong demand for smartphones. But perhaps mix shift, I think you brought back the iPhone 6 this quarter to be a bit more price aggressive. And then can you just talk a bit about how you see that market developing with the growth of WeChat and some of the other developments that are happening there? Thank you.

Yeah. Thanks, Shannon. We were very encouraged by the results this quarter. We improved as we thought we would from the previous quarters a little more than I thought we would. If you look underneath the numbers, mainland China was actually flat year-over-year during Q3. And in constant currency terms, we were actually up 6% in mainland China. And so we're very encouraged about that. iPad grew dramatically more than the market. The Mac grew much more than the market. iPhone was relatively flat year-on-year, similar as the market was. And so we see all of those as very encouraging signs. On top of that, Services grew extremely strongly during the quarter. Hong Kong continued to drag down the total Greater China segment. But on a sequential basis, we're probably at the trough of that, which is nice. With the peg to the dollar there from a currency point of view and tourism being what it is, I don't really know when that market will come back. But what we see on the mainland is definitely much more encouraging. It's interesting to note that upgraders both for the quarter and actually for the full fiscal year to-date was our highest ever, and so that we felt very good about. In terms of WeChat, the way that I look at this is because our share – because iOS share is not nearly a majority of the market in China, the fact that a lot of people use that, it makes the switching opportunity even greater. And I think that's more the case than the risk that a lot of folks have pointed out. And so I see Tencent as one of our biggest and best developers. They've done a great job of implementing a lot of iOS features in their apps and we're looking forward to working with them even more to build even greater experiences for our mutual users in China.

Great. Thank you. And then can you talk a bit about the composition of the installed base of iPhones at this point, as obviously we're getting close to a refresh? Just you brought in the iPhone SE. You've obviously had strength at the high end. I'm just trying to think about what percent do you think have upgraded in the prior generation, any color you can give us on that?

From an absolute quantity point of view, the upgrades for this fiscal year are the highest that we've seen. And so we feel good about that. However, if you look at it from an upgrade rate point of view instead of the absolute number, the rate is similar to what we saw with the previous iPhones, except for iPhone 6, which as we called out in the past had an abnormally high upgrade rate. We do think that based on the amount of rumors and the volume of them that there is some pause in our current numbers. And so where that affects us in the short-term, even though we had great results, it probably bodes well later on.

Thank you, Shannon. Could we have the next question, please?

Steve Milunovich with UBS.

Thank you. I wonder if you wanted to make any comments about switching this quarter.

Sure. Switching outside of China was up year-on-year, and so we're happy with that. We continue to see people moving over to iOS and it helped with us making the results that Luca announced earlier, including the channel inventory reduction.

Okay, and then a government question. First of all, the President suggested that you may build three big beautiful plants. I wonder if you can comment on if that's a possibility either directly or indirectly. And then in China, I think, we all understand that you have to work within the regulations, but maybe you could comment a bit on how you feel your working relationship is with the government and if there is certain lines that you can't cross.

Sure. Starting with the U.S., let me just take this question from what are we doing to increase jobs, which I think is probably where it's rooted. We've created 2 million jobs in the U.S., and we're incredibly proud of that. We do view that we have a responsibility in the U.S. to increase economic activity, including increasing jobs, because Apple could have only been created here. And so as we look at that 2 million, there are three main categories of that, and we have actions going on in each of them to further build on that momentum. The first category is app development. About three-quarters of the 2 million are app developers. And we're doing an enormous amount of things to deliver curriculum to both K-12 with Swift Playgrounds in the K-to-6 area, other curriculum as you proceed beyond grade 6 under the Everyone Can Code area. And just a couple months ago, we announced a new curriculum that's focused on community schools and community colleges, junior colleges, technical colleges, for kids that did not have coding in their elementary and high school years. And so we're excited about that because we think it could increase the diversity of the developer community and the quantity. And I think this area in general and all the things we do for the developer community will be the largest contribution that Apple can make because this is the fastest growing job segment in the country, and I think will be for quite some time. If you look at the second area, we have purchased – or we purchased last year about $50 billion worth of goods and services from U.S.-based suppliers. Some significant portion of those are manufacturing-related, and so we've asked ourselves what can we do to increase this. And…

Thank you.

Thank you, Steve. Could we have the next question, please?

We'll hear from Kulbinder Garcha with Credit Suisse. Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC: Thank you, a question for Tim maybe on the iPhone install base. At various points in the past you've told us the rate at which that was growing. At the end of the first half, what is that up year on year? At what rate is it growing? Can you give us some sense of that? And on upgrade rates over the longer term, there are lots of moving parts, and I get that there's I guess geographic mix shift of your base. There's many new phones that you may or may not bring out. There's how carriers promote your products. But do you think this upgrade rate is sustainable? Do you think it gets faster all the time? How should we think about the major drivers that you want to see for it? Many thanks.

I think the upgrade rate is a function of many, many different things, from the size of the installed base, the age of the installed base, the product that is new at the time, the regional distribution, the upgrade plans that are in various markets around the world. And so I think there are many, many factors in that. It's not a simple thing that you can apply a set formula to or one variable or a couple of variable formula in my opinion. But I think in general, because our installed base was up strong double digit once again, there's a lot of factors that are very positive for us. And between the upgraders and the switchers that we see, and the first-time buyer category is still out there too in several countries, including some that you may not think there is, there's still a sizable base in some. Between those three areas, I think we have a lot of opportunity. Kulbinder S. Garcha - Credit Suisse Securities (USA) LLC: Thank you.

Yes.

Thank you, Kulbinder. Could we have the next question, please?

Toni Sacconaghi with Bernstein. Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC: Yes, thank you. I have one for Luca and one for Tim, please. Luca, typically in the fiscal Q4, Apple builds considerable iPhone channel inventory, like 2 million or 3 million units. You're starting from a very low point at the end of fiscal Q3, as you mentioned on the call, with the drawdown. As we think about what's embedded in your guidance for fiscal Q4 for channel inventory for iPhone, should we be expecting a normal seasonal build, or is it likely to be significantly higher given the very low starting point?

As you know, Toni, we do not guide on channel inventory. We've never done that. We are providing a fairly wide range from a revenue standpoint, so obviously that also has an impact on potential channel inventory levels. One thing that I would tell you is that we feel very good about the performance of the business right now. We think that our Services business will continue to grow well. We've got a lot of momentum on iPad and Mac because we refreshed the lineups of those products. Watch and AirPods are doing incredibly well. We're getting a lot of positive customer feedback. And I think in general, even the performance in China, Tim has mentioned it. We think that the performance will continue to improve. So those are the drivers of our guidance range for the quarter. Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC: Okay, thanks. Tim, I was wondering if you could maybe talk a little bit about two things that you mentioned in public before. One is television, which you have described as an area of intense interest, but I don't even think there was an update on Apple TV on this call. So perhaps you can talk to us about how you're thinking about content. I know you're doing some original content creation, and how that area is evolving in your thinking. And then recently you talked about how Apple is focusing on autonomous systems for automobiles. And there has been press reports that Apple has been testing autonomous vehicles for potentially up to a year. I was wondering if you could talk a little bit more about Apple's interest in autonomous vehicles and whether self-driving is really likely to be Apple's principal focus in the near to medium-term.

On the first part of your question about original content, we have done some original content. It's focused on Apple Music. Currently, we have some more that's launching in a week or so that will be made available on Apple Music. The objective of this is really twofold. One is for our own learning, given that we're new in the video space in terms of creation. And two is to give the Apple Music subscriber some exclusive content and hopefully grow our subscriber base. And we've recently hired two great folks with lots of experience in creating content like Breaking Bad and The Crown and some really top-notch content. And so we'll see how this area goes, but it is still an area of great interest. In terms of autonomous systems, what we've said is that we are very focused on autonomous systems from a core technology point of view. We do have a large project going and are making a big investment in this. From our point of view, autonomy is the mother of all AI projects. And the autonomous systems can be used in a variety of ways and a vehicle is only one. But there are many different areas of it and I don't want to go any further with that. But thank you for the question.

Thank you, Toni. Could we have the next question, please?

That comes from Mike Olson with Piper Jaffray. Michael J. Olson - Piper Jaffray & Co.: Good afternoon. I just have one question for Tim. This may be a hard question to answer in a condensed way, but how would you describe what you expect the most near-term applications will be for developers to target using ARKit? Will it be consumer iPhone and iPad applications, enterprise applications, or I guess some combination of the two? And basically, how does this come to market in the most significant way in the next few quarters as Apple becomes the largest global platform for AR as you've talked about? Thanks.

Mike, that is a great question. And I could not be more excited about AR and what we're seeing with ARKit in the early going. And to answer your question about what category it starts in, just take a look at what's already on the web in terms of what people are doing and it is all over the place. From entertainment to gaming, I've seen what I would call more small business solutions. I've seen consumer solutions. I've seen enterprise solutions. I think AR is big and profound and this is one of those huge things that we'll look back at and marvel on the start of it. So I think that customers are going to see it in a variety of ways. Enterprise takes a little longer sometimes to get going. But I can already tell you there's lots of excitement in there. And I think we'll start to see some applications there as well. And it feels great to get this thing going at a level that can get all of the developers behind it, so I couldn't be more excited about it. Michael J. Olson - Piper Jaffray & Co.: Thank you.

Thanks, Mike. Could we have the next question, please?

We'll go to Amit Daryanani.

Thanks a lot. Good afternoon, guys. I guess to start off with, on your Services segment, revenues actually I think accelerated by 400 basis points to worse than what you guys had in the first half of this year. Could you just help us understand what's driving this? Is there a way to think about ARPU in a traditional manner within that Services business versus the installed base growing?

Amit, Luca. Our Services business is very broad. We've got multiple categories in the Services business, so it's difficult to talk about ARPU in general. It doesn't make a lot of sense. The reason for the acceleration also here is multiple factors. One that is very, very important for us is the fact that the App Store, which is the largest of our Services categories, is seeing an increasingly larger amount of paying accounts. On a year-over-year basis, the number of accounts that are actually transacting and paying on the App Store is growing very, very well. It is happening for a variety of reasons. One of them, for example, is the fact that we are making it easier for customers to pay on the App Store. Outside the United States, in many markets, not every form of payment is accepted. We are making it easier all the time. We launched on Alipay, for example, in China during the December quarter. That has obviously helped a lot with the growth in the number of paid accounts. And we continue to bring more and more forms of payment in the App Store around the world. That's a big reason for that. The other reason why the number of paying accounts is growing is the fact that the quality and the quantity of content continues to improve. And so there's many more ways of experiencing games and entertainment and other apps on the store. We have other businesses like the Apple Music streaming service, which is growing very fast because we just started it a couple of years ago, so we are getting a lot of new subscribers there. Our iCloud storage business continues to grow very, very fast. So it's multiple services. The number of people transacting on our stores continues to grow. In terms of ARPU, maybe I can make a comment on ARPU specifically related to the App Store. What we're seeing and we've seen over a long period of time as we keep track of these cohorts of customers, we see that as customers get on the App Store and start spending on it, we see the spending profile is very similar across generations of customers. People tend to spend more over time. Obviously, you have different spending profiles in different geographies around the world, but in general you see that trend across the board.

Got it, that's really helpful. And if I could just follow up, on the iPhone side, there's been a large amount of discussion in blogs and among your component suppliers that the timing this time may be somewhat different and delayed versus past. Your guide almost seems you're more excited about this iPhone launch versus historically because the sequential growth is better. So I guess beyond the fact we probably shouldn't read every blog and believe every blog, what do you think is different with this product launch or product availability through the cycle versus what you've seen historically?

We have no comment on anything that's unannounced.

Fair enough, I figured it was worth a shot. Thank you.

Thank you, Amit. Could we have the next question, please?

That will come from Brian White with Drexel.

Yes. Tim, growth in the smartphone market is now crawling along at about a low single digit percentage. I know iPhone grew about 2% year over year this quarter, and it looks like you had about a mid-teens market share in units in 2016. So as we look forward maybe three to four years, do you think Apple can expand its unit market share? And if so, what will be the drivers be? And my second question is just about India, general thoughts about India in the quarter. Thank you.

The answer to your first question is yes. I do think that we can grow both in units and market share. We don't predict those things, but yes, if you ask me what I think, that's what I think. And so what are the drivers? The installed base is growing. It's still growing very strongly. That will generate more upgrades over time. I feel good about our ability to convince people to switch. And where the developed markets the first-time buyer rates are down other than places like Japan perhaps, the emerging markets, we haven't even gotten started yet, really. From a revenue point of view, we had very strong growth there. Emerging markets ex-China were up 18% year on year. It was a record for us, so we see a lot of opportunity in these markets. We are investing in India. As you mentioned in your second point, we've already launched an app accelerator center. That's on top of working with the channel and looking at expanding our go-to-market in general. And we began to produce the iPhone SE there during the quarter, and we're really happy with how that's going. And so we're bringing all of our energies to bear there. I see a lot of similarities to where China was several years ago. And so I'm very, very bullish and very, very optimistic about India.

Great, thank you.

Thanks very much, Brian. A replay of today's call will be available for two weeks as a podcast on the iTunes Store, as a webcast on apple.com/investor, and via telephone. And the numbers to the telephone replay are 888-203-1112 or 719-457-0820. Please enter confirmation code 6376964. And these replays will be available by approximately 5:00 PM Pacific Time today. Members of the press with additional questions can contact Kristen Huguet at 408-974-2414. And financial analysts can contact Joan Hoover or me with additional questions. Joan is at 408-974-4570 and I'm at 408-974-5420. Thanks again for joining us.

Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation.