Good day everyone, and welcome to the Apple Incorporated Third Quarter Fiscal Year 2015 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, and 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 2014, the Form 10-Q for the first two quarters of fiscal 2015 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. Timothy D. Cook - Chief Executive Officer & Director: Thanks, Nancy. Good afternoon everyone, and thanks for joining us. It's been a busy and exciting quarter and I'm delighted to talk to you about the highlights. Today, we're proud to report record June quarter results with revenues of $49.6 billion and earnings of $10.7 billion. Our year-over-year growth rate in the fiscal third quarter accelerated over the first half of fiscal 2015. Revenues were up 33%, our fastest growth rate in over three years, and earnings per share were up 45%. We achieved these incredibly strong results despite reducing channel inventories across our product lines by over 1 million units and despite the challenging FX environment. Revenue exceeded the high end of our guidance by $1.6 billion as we topped our internal expectations for sales of iPhone, iPad, Mac and Apple Watch.…

Thank you, Tim. Good afternoon, everyone. As we have done for the first half of our fiscal 2015, we are reporting another record quarter today. Revenue for the June quarter was $49.6 billion, an increase of $12.2 billion or 33% year over year. Our growth was driven by the tremendous performance of iPhone, the introduction of Apple Watch and the continued strength of Mac and App Store sales. We achieved these great results in the context of a very challenging foreign exchange environment around the world and a reduction in channel inventory of over 1 million units across our product lines, which makes our growth performance even more remarkable. As Tim mentioned, our results were especially impressive in Greater China, where revenue more than doubled year over year to over $13 billion. Emerging markets overall grew 79% to almost $18 billion and represented 35% of our total company revenue. Company gross margin was 39.7%, better than our expectations, mainly due to strong iPhone sales. Operating margin was 28.4% of revenue and net income was $10.7 billion, a new June quarter record. Diluted earnings per share were $1.85, a 45% year-over-year increase and cash flow from operations was $15 billion, also a new third quarter record. For details by product I'll start with iPhone. We sold 47.5 million iPhones in the quarter, representing 35% year over year growth and demand for iPhone 6 and 6 Plus has continued to be terrific all around the world. iPhone sales more than doubled in Germany, Korea, Malaysia, and Vietnam. We're up over 85% in Greater China and in India, and increased more than 45% in several countries including Italy, Spain, the Netherlands and Turkey. The strong mix of iPhone 6 and 6 Plus led to an iPhone ASP of $660, an increase of $99…

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

[Operation Instructions] First we will hear from Katy Huberty with Morgan Stanley. Kathryn L. Huberty - Morgan Stanley & Co. LLC: Yes, thanks. Good afternoon. While the year on year iPhone growth was very attractive, the sequential unit decline in the June quarter was worse than the past two years. Why do you think that was, and in particular, why drain channel inventory when iPhone 6 is selling so well? And then I have a follow-up. Timothy D. Cook - Chief Executive Officer & Director: Katy, it's Tim. As Luca mentioned, the channel inventory did go down by 600,000. We sold more units than we thought we would and so that was a part of that. The other part of it is that we always run with just the amount of inventory that we think we need. And so to the degree that sales are distributed in the countries with disproportionally with shorter supply chains, or the standard deviation demand is less, we would always choose to have less. And so in this particular quarter, we were able to end basically right at the bottom end of our range and we view that as a good thing, not a bad thing. Obviously the revenues could have been much higher if we would have expanded the channel, but if you don't need to do that, that's not how we think about the business. We run the business for the long term, not the 90-day clock. In terms of what's going on with iPhone, the 35% growth is almost three times the market. And if you look at it at a little narrower regional level, Western Europe grew 30% versus a market of 7%, so four times market. Japan grew over five times market. We doubled in Korea versus a market that…

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

That will come from Bill Shope with Goldman Sachs. William C. Shope - Goldman Sachs & Co.: Okay, great. Thank you. Could you walk us through the key factors behind your gross margin range for the September quarter and in particular how we should think about the sequential ForEx impact this quarter and the impact of a potential product transition cost?

Definitely. This is Luca. So we got into 38.5% to 39.5%, and so just keep in mind last year in Q4, our gross margin declined by 140 basis points sequentially. So this year we're expecting a sequential decline of 220 basis points. I would point to three main factors for the decline. First of all, to your point around foreign exchange, it continues to be a challenging environment given the strengthening of the US dollar. In our case, the impact on margin after the hedges is going to be about 30 basis points for Q4. Also, I want to point to a different mix, which is typical of our seasonality as we enter the back-to-school season during Q4. And thirdly, the transition cost that you've mentioned as we prepare for a busy fall. And so those are the three factors that will have an impact on gross margin sequentially. I would point that in general costs continue to be, particularly commodity costs continue to be favorable and so there would be a partial offset to the factors that I mentioned. William C. Shope - Goldman Sachs & Co.: Okay, thanks. And then could you give us a bit more color on the mix dynamics for the iPhone in the June quarter and how this compares to prior generations and your expectations? Obviously there continues to be an upward bias helping the ASPs as you mentioned, but could you give us a bit more detail on what exactly you're seeing here? Particularly I think it's interesting in the context of a continued tilt towards the emerging regions obviously.

Yeah, so as we mentioned, the ASP for iPhone was up $99, 18% increase year-over-year and this is really driven by the mix, by the fact that we've added iPhone 6 Plus to a new price point and in general, iPhone 6 and 6 Plus are doing extremely well as a percentage of the portfolio. And keep in mind that this $99 was partially offset by $24 of unfavorable foreign exchange. So the number would have been even better. So yes, clearly 6 and 6 Plus. And I think we talked about it in prior calls, the 6 Plus is doing particularly well in the markets that you would expect, Greater China, other Asian markets. Those are markets where our growth rates are particularly strong and the 6 Plus, because of the screen size, is doing extremely well. William C. Shope - Goldman Sachs & Co.: All right. Thank you.

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

That will come from Gene Munster with Piper Jaffray. Eugene C. Munster - Piper Jaffray & Co (Broker): Hi, good afternoon. Luca, you talked a little bit about gross margins in the previous question. But could you talk about how we should think about the trends in the gross margin? In other words is, should the margin trends that we've seen in other cycles continue into next year? And then a follow-up or another question for Tim here, is that the Watch has been under a lot of interest from investors and some may have wanted a little bit more. You outlined some of the opportunities and some of the progress you've had. But any thoughts that you have for investors who may say that the category is just not taking off as fast as they would have hoped?

Okay Gene, let me start with gross margin. As Tim said before, obviously we guide to the current quarter. You know, as we look at it at a macro level. I think there are, you know every cycle is different for a variety of reasons. There are also things that are not necessarily within our control. So for example, currency markets can be very different one year to the next. We know that the next year is going to represent an additional challenge given where the dollar has moved. Commodity markets may be very different from one year to the other. There are things that remain relatively similar as we launch new products. For example, we innovate the products. We want to make them better all the time, and that typically requires additional cost and so the cost structures of our products, new products, tend to be higher than the products that they replace. Having said that, as you know we've got a very, very good track record to reduce those cost factors over the lifecycle of the products. I think this should give you a bit of color. Of course maybe the one thing that I want to point out again as we get into the following year, is that of course currency will be an issue. Eugene C. Munster - Piper Jaffray & Co (Broker): Okay. Thank you. Timothy D. Cook - Chief Executive Officer & Director: Yeah Gene, this is Tim. Let me talk about the Watch some. As you know, we made a decision back in September, quite several months ago not to disclose the shipments on the Watch and that was not a matter of not being transparent, it was a matter of not giving our competition insight that's a product that we've worked really…

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

From Bernstein we'll hear from Toni Sacconaghi. Antonio M. Sacconaghi - Sanford C. Bernstein & Co. LLC: Yes, thank you. Luca, I think in your prepared remarks you talked a little bit about your market share of iPad in the US above $200 being 78%. And I'm wondering if you think about the iPhone and your market share in the premium category, how do you think about it? So I've seen market data that says 60% market share for phones above $300 or you have actually 90% market share for phones above $600. And I'm wondering if, Tim or Luca, you could maybe talk about how you think about your market share, where you play given that your ASP is comfortably above $600? What do you think your market share is above $500 or $600 in smartphones? And how do we think about that, that market share going forward? Timothy D. Cook - Chief Executive Officer & Director: Toni, it's Tim. We look at it a bit differently than you do. We look at it as our job is to grow our products regardless of the price, which means that we need to convince in some cases people to move from one price band to the other. And that we think if we do a great job with the product that people will be willing to spend more because they get so much more out of it. And I think you can look at the results on the iPhone and see that in action. I mean, we grew 87% in China. We grew 90%-plus in India. Emerging markets are growing 65%. These numbers are unbelievable and they're done in an environment where it's not the best of conditions. So that's how we look at. We don't do the MBA analysis…

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

We'll go to Jim Suva with Citi.

Thank you very much. As you look at many of your products have been absolutely fantastic and at different phases in their life, they've seen tremendous high growth, whether it's iPad, iPhone, iPod, and iPhone looks like it's facing some very challenging comps here in the next few quarters. Does this make you shift even more strategic focus into broadening the reliance on a couple products such as you mentioned Apple Radio. There's a lot more content on the Apple Watch and apps and then also Apple Pay. Are you increasingly focusing on hiring and kind of non hardware things (45:32)? Or are these kind of more peripheral activities and still the focus is kind of right now on the phone? Timothy D. Cook - Chief Executive Officer & Director: Jim, it's Tim. We think the phone has a lot of legs to it. I mean, many, many, many years. There's tons of innovation left at the phone. I think we're in the early innings of it, not in the late innings, and I think the market rate of growth over the long haul will also be impressive. And so there will be multiple winners here. And so that's how I see it. In terms of the other things that we're doing, we have some great capability and great teams in Apple. And so we can do more than one thing, and so we have other things that we're working on as well. But at the aggregate level, we still remain very focused because if you look at our size versus the number of projects we have going, it's much smaller compared to most. But that's how we do things and that's how we get the level of quality that we want out of each one of those. And so…

Great. Thank you so much.

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

We'll hear from Steve Milunovich with UBS.

Thank you. Tim, there's some concern about what's going on in China with the stock market and economically. How do you think that plays out for Apple? On one hand you've got more stores, broader distribution, the 4G infrastructure is playing out. On the other hand, the economy might be weakening. Is a phone a discretionary purchase or not? How do you think about going forward in China? Timothy D. Cook - Chief Executive Officer & Director: Yeah, it's a very good question, and we remain extremely bullish on China and we're continuing to invest. Nothing that's happened has changed our fundamental view that China will be Apple's largest market at some point in the future. It's true, as you point out, that the equity markets have recently been volatile. This could create some speed bumps in the near term. But to put it in context, which I think is important, despite that volatility in the Chinese market, they're still up 90% over the last year, and they're up 20% year-to-date, and so these kind of numbers are numbers I think all of us would love. Also, the stock market participation among Chinese household is fairly narrow. And the stock ownership is very concentrated in a few people who put what appears to be a smaller portion of their wealth in the market than we might. And so I think generally this has been, at least as we see it, maybe it's not true for other businesses, that this worry is probably overstated. And so we're not changing anything. We have the pedal to the metal on getting to 40 stores mid next year. As we had talked about before, we're continuing to expand the indirect channel as well. As you point out, and I think this is a major point that many people miss, the LTE penetration in China is only at 12%. And China doesn't possess the level of fiber that some other countries do, and so in order to get the great video performance, et cetera, raising that penetration is really great. I think that really plays to an incredible smartphone future there. Also, and I can't underestimate – I can't overstate this. The rise of the middle class there is continuing, and it is transforming China. McKinsey, I saw a recent study from McKinsey that's projecting the upper middle class to grow from 14% to 54% of households over the ten-year period from 2012 to 2022. So we're within that period at this moment, and you can see for all of us that travel there so much, with every trip you can see this occurring. And so I think we would be foolish to change our plans. I think China is a fantastic geography with an incredible unprecedented level of opportunity there. And we're going to be there.

I also wanted to ask, can you give us any more detail on the switching rate, how much is it up? And I noticed in your advertising there's the shift to the, if it's not an iPhone, it's not an iPhone. And I assume that while you're not as involved as Jobs was, you're approving these ads. So it seems like you're really focused on market share gain right now. Timothy D. Cook - Chief Executive Officer & Director: Yeah, I'm very familiar with the ads. In certain geographies, the way that we win is to get switchers. In other geographies, the way that we win is to get people to buy their first smartphone. In other geographies, the way that we win is to get people to upgrade from their current iPhone. And all of those are very important for us. In many geographies, it's two of those or in some geographies it's all three of those. And so all of those are important. We are very focused on growing iPhone around the world, not just in one geography and getting our message out there through ads is one way to do that.

Thank you.

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

And that'll come from Shannon Cross with Cross Research.

Thank you very much. I wanted to talk about FX but not necessarily from a direct impact. But what are you seeing in terms of demand as you've raised prices in various geographies and how are you thinking about it as you go into sort of the next iPhone cycle in terms of having to sort of normalize the pricing for what some of the currencies have done over the past year?

Yes, Shannon. So obviously FX has been a significant hit in many ways, of course. I mean it reduces our growth rate. We would be 800 basis points higher this quarter from the 33% that we've reported if it wasn't for the movement in currencies around the world. And really when you look around the world, it's really if you exclude China, essentially every single currency has weakened against the dollar. We are pretty careful and thoughtful about where we increase prices and when and by how much during mid-cycle because it's not something that we particularly like to do. We've had circumstances around the world this year where frankly we didn't have many options because the currency movement was so large and so we've had to reprice. I have to say that it's been remarkable. Look, in the long run a strong US dollar is not a positive for our international business. It's normal to see a drop in demand when prices go up. That goes without saying. It has been remarkable so far to see that we did take prices in a few markets. But really remarkable to see how resilient iPhone sales have been, because we have increased, in spite of these price increases, we've increased sales and we've increased market share in all our geographies around the world, without exception.

Great. And then can you talk a bit about linearity during the quarter on a geographic basis? Somewhat going back to the China question, I mean did you see it slow down toward the end of the quarter? Or was it solid through it? And just any other color you can give geographically with Europe and some of the other macro events that are going on. Timothy D. Cook - Chief Executive Officer & Director: Yeah, Shannon, it's Tim. Maybe the best way to talk about this is sort of at the product level. On the Watch, our June sales were higher than April or May. I realize that's very different than what some of the, is being written, but the June sales were the highest. And so the Watch had a more of a back-ended kind of a skewing. The phone itself followed what I would call a normal seasonal kind of pattern. And if you look at the – it sounds like you're honing in on the Greater China results themselves. There is no obvious impact from the last quarter in the Greater China numbers. And obviously with the aggregate or the consolidated number being 112%, it's hard to find a lot of bad things in the numbers.

Thank you, Shannon.

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 for the telephone replay are 888-203-1112 or 719-457-0820 and please enter confirmation code 9957771. And these replays will be available by approximately 5:00 p.m. Pacific Time today. Members of the press with additional questions can contact Kristin 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.

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