The tech company has come under fire within the past few months, first for acknowledging it was secretly slowing the speeds of iPhones to help preserve aging batteries. Later, the company faced scrutiny for poor sales for the iPhone X that some attribute to the steep $1,000 price tag.
The battery controversy escalated on Tuesday, when the Justice Department and SEC requested documents related to the company's decision to slow down its old phones.
Cook has led the company in efforts to move past the situation, offering discounts on batteries, teasing the release of new features and repeatedly promising, "we have never — and would never — do anything to intentionally shorten the life of any Apple product."
Apple still put on a strong show for first quarter earnings, beating analyst expectations on top and bottom lines, but reporting reduced iPhone sales.
Read the full transcript of the interview below.
TIM COOK: Let me give you guys a summary of the quarter and a few points, then take any questions if you'd like to ask. We're really proud to report our best quarter ever in the history of the company. And it was not just by a little bit. Our revenues are $10 billion above our previous record and in addition, our net income went over $20 billion for the first time in the quarter. We had strong double digit growth throughout the geography.
And keep in mind as you look at the year-over-years that may be on the data sheet in front of you, these are comparing this year's 13-week quarter to last year's 14-week quarter. And so the way that we tend to look at that internally, we look at average weekly sales. If you look at it like that, our growth rate, instead of being a really great 13 percent, it was a stunning 21 percent. And so, it was a fabulous quarter regardless of how you look at it.
If you look at iPhone, we sold over 77 million iPhones. iPhone X was our most popular iPhone, despite not beginning to shift until November. We found out in the last few days that analysis tells us that it was the best selling smartphone in the world last quarter. And so we could not be more pleased with the reception of it. The customer sat surveys from third parties tell us the customer sat for the iPhone X is 99 percent, which is just unbelievable. And we sort of made it through a very complex transition, doing three iPhones for the first time with the 8, 8 Plus, and X, the combination of 8, 8 plus, and X set a new record for the new iPhones from a revenue point of view in any quarter and by far, not by a little bit, by $7 billion dollars above, to put it in perspective, so it was a really stellar quarter.
We also passed a milestone in January. We now have 1.3 billion devices that are installed, guys, that's up 30 percent from two years ago, which is phenomenal growth and is a real testament to the reliability of our products, the love customers have for our products, and the loyalty and overall strength of the ecosystem. Services achieved another record at $8.5 billion of revenue, and when you sort of adjust out the 14-week thing, it was also sort of a high water mark, which is fantastic.
In addition to services, we had lots of other things in the company that went extremely well. First, all of the geographic areas had double digit growth, and so greater China for the second consecutive quarter, was in the double digits, was up I believe 11 percent, and that's 11 percent on a 13 vs 14 basis, so it was really much better than that. Also, India hit another high, Japan was an all-time high, Asia-Pacific an all-time high, Europe an all time high, and the Americas an all-time high.
From a product point of view, the Apple Watch, for the fourth consecutive quarter, grew over 50 percent. And if you combine it with wearables you can see in the category called other products on the data sheet, it is the wearables category that is the driver of really phenomenal growth in that area. And the wearables business on a trailing 12 month basis is now approaching a Fortune 300 company. And you think about this, this is a business that didn't exist three years ago. So it's an amazing kind of growth rate there.
iPad grew for the third consecutive quarter and what's probably more important than that is if you look in the emerging markets, iPad had strong double digit growth. So we're incredibly happy there. Mac, on an average sales basis also grew in the quarter. Off of a very tough comp from a year ago because of the Macbook Pro launch, and this is against a PC market that is still contracting. And so, sort of everywhere you look, geographies, products, the most important thing is customers and their satisfaction. It was a really stellar quarter.
From a tax reform kind of perspective, as we've said previously, we'll wind up paying the US government about $38 billion for the repatriation tax. We're going to announce today that our long-term capital structure, optimal capital structure that we can now set a target given we know sort of the lay of the land and, you know, and we're setting a net zero target, meaning that we'll have an equal amount of cash and debt over time. We're not putting a date behind that, but we wanted to give everybody sort of a view of where we're headed, and we'll talk more about that in the April call, which is sort of our normal cadence for talking about the returning cash to shareholders and so forth.
Our guidance for the quarter is 60 to 62 billion, which represents a growth of 13 to 17 percent, which, again, is another acceleration, it would be the sixth quarter of acceleration and we are really, really pleased with that. And so, kind of any way you look at it, the past quarter or the future, we feel really good. Questions?
JOSH LIPTON: Open the floor...
LIPTON: Hey Jim, just start and hop in, man.
JIM CRAMER: No, no, you go, you go.
LIPTON: So, Tim, just to drill down a little harder into the iPhone X's demand trend, you would expect demand for a new iPhone to kind of ease in the quarters after launch, but how does this slope of demand for the X compare to, say, the iPhone 7 last year? Is there some context you can put in there?
COOK: Since we launched it in early November, for every week thereafter, including the weeks in January, it was the top-selling iPhone. Which is pretty phenomenal, if you think about it. So, you know, that is going incredibly, incredibly well and given that it was the top-selling smartphone in the world, it's pretty good. Now, what we do, we ramp really quickly. It was our best ramp in, ever, really. And we were able to achieve supply/demand balance in December and so, the channel filled unlike in previous quarters where we announced and shipped all the new iPhones in September, the channel fill for iPhone X occurred in Q1. And so, when you look at Q1 to Q2, you have to keep that in mind. That's a huge difference in this year versus the historical years. I think some people may not have thought through that.
LIPTON: When you think about the iPhone X, is it a phone designed for mainstream consumers or should investors really think of that device as more of the kind of high end, niche product? How do you think about it?
COOK: Well, you don't become the top-selling smartphone in the world by being a niche product, right, and so, no, we don't think about it as a niche product. We think that it's -- we'd like it to be for everyone, now, it's not for everyone in that, everyone can't spend $1,000. So I don't mean to, I don't have my head stuck in the sand on that, but there's many different types of people that are using them. Some people love the fact that Face ID is even more secure than Touch ID. Some people love the cameras, some people are swayed on the edge-to-edge, super Retina screen. There's a whole bunch of reasons and usually it's sort of all those reasons in one, and the way it makes people feel. So you don't sell the numbers that we're selling by -- by creating something that is only for a few people.
CRAMER: (Unintelligible question about Apple's market share in China)
COOK: We gained share in China last quarter so we are really happy with that. The IDC says the market shrank last quarter, but we grew, so we gained really nice share. If you look at urban China, we had the -- the top five selling smart phones last quarter were iPhones. And that's per-Kantar [China Insights]. That's not me out counting myself. And that's the reason they sort of limit their things to urban China, because they have a difficult time monitoring all the agricultural areas. I can't answer the question about whether there is a macro thing there. If it was there, we didn't see it. I find that hard to believe, because we are sizeable enough to be able to, sort of detect those kind of things, right. But I did see the IDC numbers, and so I can understand what is behind the Qualcomm comment.
LIPTON: The lineup, Tim, of the phones — 8, 8 Plus and X — how does that impact demand? Some say, "It's a positive, you offer customers a broader product portfolio, multiple price-points." Others counter, "Does it confuse consumers? Does it give them less expensive options?" How do you think of that dynamic?
COOK: We always would like to have as few products and as simple choices as possible. But in this particular case, Josh, we knew that not everyone was going to want to be on the leading edge of the technologies, nor everyone was going to spend $1,000. And so, we wanted to create some incredible phones that had the latest technologies in them. And 8 and 8 Plus, I'm really happy with how they did. The way that I kind of look at it is, I look at 8 and 8 Plus and X and compare those to the -- last year's 7 and 7 Plus, and so on, and so forth. Honestly speaking, there's no comparison in the revenue, it's hugely different. In a positive way, obviously. And you can see that in the ASP. The ASP last quarter for iPhone was 796. That's about $100 more than the ASP was a year ago.
CRAMER: I wanted to get a sense of the actual inventory and whether there will be change. You put out a big suite of products, that's kind of what any consumer packaged good company would do.They would have a full suite, they wouldn't be just constantly trying to top themselves. Is that something, is there a change in the way we should view Apple as a provider of the best suite of products of all time?
COOK: Our total focus as a company is to create the best products in the world that enrich people's lives. If you look at the smartphone market, it's a huge market. It's $1.5 billion annual unit sales. And so, at $1.5 billion, you want to be able to offer different choices for customers, and so that's what we've done with the lineup that we have.
LIPTON: A little bit more on China, Tim. Any color you can give on how the X performed in mainland China specifically relevant to other markets?
COOK: Very well. It was one of our highest. We look at mix as being, the mix of X, 8 and 8 Plus, X divided by the total of that group. And it was one of the highest of any country. Not the highest, but one of the highest.
LIPTON: I want to stick with China for one moment, because it was interesting these Chinese smartphone manufacturers recently said they're going to offer 5G, maybe as soon as 2019. And they are doing that by partnering with Qualcomm. If you didn't have Qualcomm as a partner, Tim, would it be harder to compete in that market going forward?
COOK: Harder to compete in China?
LIPTON: Yeah, the fact that Chinese manufacturers are saying, "Listen, we are going to be able to offer this super fast 5G by 2019 by partnering with Qualcomm."
COOK: Obviously 5G is something that is on everybody's roadmap. I don't want to talk about timing, obviously, it's different in different countries. I believe China's plan is a very limited offering in 2019. And I think it is a full, commercial offering in 2020. But regardless of what it is, we moved the iPhone from 2.5G to 3G, and from 3G to LTE, and it will eventually move to 5G, as well.
CRAMER: Any more color on what I call the Marshall Plan -- who might be the kinds of companies you are thinking about giving some of the $5 billion to?
COOK: Not yet, but it will be more the same kind of things that we did last year, except different names of companies. We did something with Corning, we did something with Finisar. Finisar is bringing the true depth module into the United States. And I would anticipate more like that, all in the advanced manufacturing kind of space, which I think is where the U.S. will do its best in the long term will be in that market.
LIPTON: Repatriation, I know you've been planning for a tax holiday. You got one. Does it impact the pace in which now you can give the money back to shareholders?
COOK: It gives us the ability to target an optimal capital structure. And that target, we are going to discuss in the call today. What it will say is that it is a cash-neutral structure, meaning that you have equal parts cash and debt, and that's zero essentially. We are not saying we are going to do it by X date, because we always update the capital return in April, and so we are going to stay on that cadence this year as well.
--CNBC's Ingrid Angulo contributed to this report.