Apple Inc. · 10-Q · Item 2 MD&A

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Item and other sections of this Quarterly Report on Form 10-Q (“Form 10-Q”) contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. For example, statements in this Form 10-Q regarding the potential future impact of macroeconomic conditions and tariffs and other measures on the Company’s business and results of operations are forward-looking statements. Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms.

Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of the 2025 Form 10-K and Part II, Item 1A of this Form 10-Q, in each case under the heading “Risk Factors.” The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Unless otherwise stated, all information presented herein is based on the Company’s fiscal calendar, and references to particular years, quarters, months or periods refer to the Company’s fiscal years ended in September and the associated quarters, months and periods of those fiscal years.

The following discussion should be read in conjunction with the 2025 Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) and the condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Form 10-Q.

Available Information

The Company periodically provides certain information for investors on its corporate website, www.apple.com, and its investor relations website, investor.apple.com. This includes press releases and other information about financial performance, information on corporate governance, and details related to the Company’s annual meeting of shareholders. The information contained on the websites referenced in this Form 10-Q is not incorporated by reference into this filing. Further, the Company’s references to website URLs are intended to be inactive textual references only.

Business Seasonality and Product Introductions

The Company has historically experienced higher net sales in its first quarter compared to other quarters in its fiscal year due in part to seasonal holiday demand. Additionally, new product and service introductions can significantly impact net sales, cost of sales and operating expenses. The timing of product introductions can also impact the Company’s net sales to its indirect distribution channels as these channels are filled with new inventory following a product launch, and channel inventory of an older product often declines as the launch of a newer product approaches. Net sales can also be affected when consumers and distributors anticipate a product introduction.

During the third quarter of 2026, the Company announced iOS 27, macOS® 27 Golden Gate, iPadOS® 27, watchOS® 27, visionOS® 27 and tvOS® 27, and introduced Siri AI.

Macroeconomic Conditions

Macroeconomic conditions, including inflation, interest rates, component pricing and currency fluctuations, have directly and indirectly impacted, and could in the future materially impact, the Company’s results of operations and financial condition.

T1The Company is experiencing a period of supply constraints and increasing costs for components driven by factors such as industry supply-demand imbalances for components, including advanced semiconductors, storage (NAND) and memory (DRAM). T2The Company expects these trends to intensify, which may materially negatively impact the Company’s revenue, costs, gross margin, results of operations and financial condition. Actions, such as price increases, that have been and may in the future be taken by the Company may not effectively mitigate these negative impacts, and may also reduce demand for the Company’s products and materially adversely affect the Company’s revenue, costs, gross margin, results of operations and financial condition.

Tariffs and Other Measures

Beginning in the second quarter of 2025, new tariffs were announced on imports to the U.S., including additional tariffs on imports from China, India, Japan, South Korea, Taiwan, Vietnam and the European Union (“EU”), among others. In response, several countries have imposed, or threatened to impose, reciprocal tariffs on imports from the U.S. and other retaliatory measures. On January 14, 2026, initial results were published of the previously announced U.S. Department of Commerce investigation under Section 232 of the Trade Expansion Act of 1962, as amended, into imports of semiconductors, semiconductor manufacturing equipment, and their derivative products, including downstream products that contain semiconductors. The announcement of the initial results of the investigation did not impose any additional tariffs affecting the Company’s products.

Separately, on February 20, 2026, the U.S. Supreme Court (“Supreme Court”) issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act of 1977. The Company has applied for a refund of tariffs paid, following the processes established by U.S. Customs and Border Protection, and has recognized any refunds received as a reduction of products cost of sales. Various modifications to U.S. tariffs have been announced, including the recent imposition of tariffs under Section 301 of the Trade Act of 1974, and further changes could be made in the future, which may include additional measures under the Section 232 semiconductor sector investigation, additional sector-based tariffs, further actions under Section 301, or other measures.

T3Tariffs and other measures that are applied to the Company’s products or their components can have a material adverse impact on the Company’s business, results of operations and financial condition, including impacting the Company’s supply chain, the availability of rare earths and other raw materials and components, pricing and gross margin. The ultimate impact remains uncertain and will depend on several factors, including whether additional or incremental U.S. tariffs or other measures are announced or imposed, to what extent other countries implement tariffs or other retaliatory measures in response, and the overall magnitude and duration of these measures. Trade and other international disputes can have an adverse impact on the overall macroeconomic environment and result in shifts and reductions in consumer spending and negative consumer sentiment for the Company’s products and services, all of which can further adversely affect the Company’s business and results of operations.

Segment Operating Performance

The following table shows net sales by reportable segment for the three- and nine-month periods ended June 27, 2026 and June 28, 2025 (dollars in millions):

Three Months Ended

Nine Months Ended

Change

Change

Americas

$

$

$

$

Europe

Greater China

Japan

Rest of Asia Pacific

Total net sales

$

$

$

$

Americas

Americas net sales increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 primarily due to higher net sales of iPhone, Services and Mac.

Europe

Europe net sales increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 primarily due to higher net sales of iPhone, Services and Mac. The strength in foreign currencies relative to the U.S. dollar had a net favorable year-over-year impact on Europe net sales during the first nine months of 2026.

Greater China

Greater China net sales increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 primarily due to higher net sales of iPhone. The strength in the renminbi relative to the U.S. dollar had a favorable year-over-year impact on Greater China net sales during the third quarter and first nine months of 2026.

Japan

Japan net sales increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 due to higher net sales of iPhone. The weakness in the yen relative to the U.S. dollar had an unfavorable year-over-year impact on Japan net sales during the third quarter and first nine months of 2026.

Rest of Asia Pacific

Rest of Asia Pacific net sales increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 primarily due to higher net sales of iPhone, Services and Mac. The strength in foreign currencies relative to the U.S. dollar had a net favorable year-over-year impact on Rest of Asia Pacific net sales during the third quarter of 2026.

Products and Services Performance

The following table shows net sales by category for the three- and nine-month periods ended June 27, 2026 and June 28, 2025 (dollars in millions):

Three Months Ended

Nine Months Ended

Change

Change

iPhone

$

$

$

$

Mac

9%

iPad

(6)

%

3%

Wearables, Home and Accessories

6%

2%

Services

Total net sales

$

$

$

$

iPhone

T4iPhone net sales increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 primarily due to higher net sales of Pro models.

Mac

Mac net sales increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 due to higher net sales of laptops.

iPad

iPad net sales decreased during the third quarter of 2026 compared to the third quarter of 2025 primarily due to lower net sales of iPad mini® and iPad Air®. Year-over-year iPad net sales increased during the first nine months of 2026 primarily due to higher net sales of iPad, partially offset by lower net sales of iPad mini.

Wearables, Home and Accessories

Wearables, Home and Accessories net sales increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 due to higher net sales of Accessories and Wearables.

Services

Services net sales increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 primarily due to higher net sales from advertising and cloud services.

Gross Margin

Products and Services gross margin and gross margin percentage for the three- and nine-month periods ended June 27, 2026 and June 28, 2025, were as follows (dollars in millions):

Three Months Ended

Nine Months Ended

Gross margin:

Products

$

$

$

$

Services

Total gross margin

$

$

$

$

Gross margin percentage:

Products

%

%

%

%

Services

%

%

%

%

Total gross margin percentage

%

%

%

%

Products Gross Margin

T5Products gross margin and gross margin percentage increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 primarily due to a different mix of products and tariff refunds, partially offset by higher costs, including memory.

Services Gross Margin

Services gross margin increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 primarily due to higher Services net sales and a different mix of services, partially offset by higher costs.

Services gross margin percentage was flat during the third quarter of 2026 compared to the third quarter of 2025. Year-over-year Services gross margin percentage increased during the first nine months of 2026 primarily due to a different mix of services, partially offset by higher costs.

The Company’s future gross margins can be impacted by a variety of factors, as discussed in Part I, Item 1A of the 2025 Form 10-K and Part II, Item 1A of this Form 10-Q, in each case under the heading “Risk Factors.” As a result, the Company believes, in general, gross margins will be subject to volatility and downward pressure.

Operating Expenses

Operating expenses for the three- and nine-month periods ended June 27, 2026 and June 28, 2025, were as follows (dollars in millions):

Three Months Ended

Nine Months Ended

Change

Change

Research and development

$

$

%

$

$

%

Percentage of total net sales

%

9

%

9

%

8

%

Selling, general and administrative

$

$

%

$

$

9

%

Percentage of total net sales

7

%

7

%

6

%

7

%

Total operating expenses

$

$

%

$

$

%

Percentage of total net sales

%

%

%

%

Research and Development

Research and development (“R&D”) expense increased during the third quarter and first nine months of 2026 compared to the same periods in 2025 primarily due to higher infrastructure-related costs, including investments in artificial intelligence, and headcount-related expenses.

Selling, General and Administrative

Selling, general and administrative expense increased during the third quarter and first nine months of 2026 compared to the same periods in 2025. The increases were driven by various factors, none of which were significant individually or in the aggregate.

Provision for Income Taxes

Provision for income taxes, effective tax rate and statutory federal income tax rate for the three- and nine-month periods ended June 27, 2026 and June 28, 2025, were as follows (dollars in millions):

Three Months Ended

Nine Months Ended

Provision for income taxes

$

$

$

$

Effective tax rate

%

%

%

%

Statutory federal income tax rate

%

%

%

%

The Company’s effective tax rate for the third quarter and first nine months of 2026 was lower than the statutory federal income tax rate primarily due to a lower effective tax rate on foreign earnings, including the impact of changes in unrecognized tax benefits, the impact of the U.S. federal R&D credit, and tax benefits from share-based compensation, partially offset by state income taxes.

The Company’s effective tax rate for the third quarter of 2026 was higher compared to the third quarter of 2025 primarily due to a higher effective tax rate on foreign earnings, partially offset by the impact of changes in unrecognized tax benefits and tax benefits from share-based compensation. The Company’s effective tax rate for the first nine months of 2026 was higher compared to the same period in 2025 primarily due to a higher effective tax rate on foreign earnings, including the impact of changes in unrecognized tax benefits, the impact of foreign currency loss regulations issued by the U.S. Department of the Treasury in December 2024, and the tax impact from foreign currency revaluations in the first quarter of 2025 related to the State Aid Decision.

Liquidity and Capital Resources

T6The Company believes its balances of cash, cash equivalents and marketable securities, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.

The Company’s contractual cash requirements have not changed materially since the 2025 Form 10-K, except for manufacturing purchase obligations, other purchase obligations, and deemed repatriation tax payable.

Manufacturing Purchase Obligations

The Company utilizes several outsourcing partners to manufacture subassemblies for the Company’s products and to perform final assembly and testing of finished products. The Company also obtains individual components for its products from a wide variety of individual suppliers. As of June 27, 2026, the Company had manufacturing purchase obligations of $57.0 billion, with $56.2 billion payable within 12 months.

Other Purchase Obligations

The Company’s other purchase obligations primarily consist of noncancelable obligations related to supplier arrangements, licensed intellectual property and content, distribution rights, and the acquisition of capital assets related to product manufacturing. As of June 27, 2026, the Company had other purchase obligations of $29.3 billion, with $9.2 billion payable within 12 months.

Deemed Repatriation Tax Payable

During the first nine months of 2026, the Company paid the remaining $8.8 billion balance of the deemed repatriation tax payable imposed by the U.S. Tax Cuts and Jobs Act of 2017.

Capital Return Program

In addition to its contractual cash requirements, the Company has authorized share repurchase programs. The programs do not obligate the Company to acquire a minimum amount of shares. As of June 27, 2026, the Company’s quarterly cash dividend was $0.27 per share. The Company intends to increase its dividend on an annual basis, subject to declaration by the Board of Directors.

T7During the third quarter of 2026, the Company repurchased $25.8 billion of its common stock and paid dividends and dividend equivalents of $4.0 billion.

Recent Accounting Pronouncements

Internal-Use Software

In September 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”), which modernizes the accounting for internal-use software. ASU 2025-06 removes all references to software development stages and requires capitalization of software costs when management has committed to the software project and it is probable the software will be completed and perform its intended use. ASU 2025-06 will be effective for the Company in its first quarter of 2029, and early adoption is permitted. The Company is currently evaluating the timing and method of its adoption of ASU 2025-06.

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”) and in January 2025, the FASB issued ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date, which clarified the effective date of ASU 2024-03. ASU 2024-03 will require the Company to disclose the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization, as applicable, included in certain expense captions in the Consolidated Statements of Operations, as well as qualitatively describe remaining amounts included in those captions. ASU 2024-03 will also require the Company to disclose both the amount and the Company’s definition of selling expenses. The Company will adopt ASU 2024-03 in its fourth quarter of 2028 using a prospective transition method.

Income Taxes

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which will require the Company to disclose specified additional information in its income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 will also require the Company to disaggregate its income taxes paid disclosure by federal, state and foreign taxes, with further disaggregation required for significant individual jurisdictions. The Company will adopt ASU 2023-09 in its fourth quarter of 2026 using a prospective transition method.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with GAAP and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and in the Notes to Consolidated Financial Statements in Part II, Item 8 of the 2025 Form 10-K describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the 2025 Form 10-K.