A dismal quarterly report from Apple raises tariff and China concerns
Apple has reignited concerns regarding tariffs and its relationship with China following a lackluster quarterly report. Apple Inc.’s highly anticipated quarterly earnings report did not alleviate investor apprehensions regarding its significant challenges, such as rising tariff expenses and a deceleration in China. The company’s shares experienced a decline of up to 4.2 percent in late trading on Thursday, following Apple’s release of second-quarter results that revealed sales in China fell short of expectations. The iPhone manufacturer has also indicated that tariffs will elevate expenses this quarter, reflecting the increasing impact of geopolitical tensions on the world’s most valuable enterprise.
During a conference call, Chief Executive Officer Tim Cook indicated that Apple anticipates an increase of $900 million in costs due to tariffs in the current period. Revenue is projected to rise by a percentage within the low- to mid-single digits for the quarter, in contrast to an average analyst estimate of 5 percent. The company refrained from providing any projections regarding the effects of tariffs beyond the present timeframe. “We will manage the company the way we always have, with thoughtful and deliberate decisions, with a focus on investing for the long term,” Cook stated during the call.
Sales from China, meanwhile, decreased by 2.3 percent to $16 billion in the second quarter, which concluded on March 29. Analysts had forecasted $16.83 billion. The shortfall presents a concerning indicator for a market that was previously characterized by growth. Apple has experienced a decline in market share relative to domestic smartphone manufacturers, including Huawei, Xiaomi, and Oppo, while the government has implemented restrictions on foreign technology usage in certain workplaces. Apple’s production model, heavily centered in China, renders it particularly susceptible to the tariffs imposed by the Trump administration.
The company faces challenges in the AI sector, particularly in China, where its Apple Intelligence platform has not yet been launched. The brand is progressively perceived as outdated by consumers in China, where rivals have introduced foldable devices. Apple is set to introduce its AI services in China in the near future, collaborating with partners Alibaba Group Holding Ltd. and Baidu Inc., while a foldable iPhone is anticipated to be released next year.
The company, in its quarterly report, disclosed intentions to augment its share buyback program by $100 billion and elevate the quarterly dividend by 4 percent to 26 cents per share. Apple shares experienced a decline of 15 percent this year up until Thursday’s close. Overall sales increased by 5 percent to $95.4 billion in the last quarter, surpassing the average estimate of $94.6 billion. Apple had anticipated growth rates in the low- to mid-single digits. Earnings reported at $1.65 per share for the second quarter, surpassing the average estimate of $1.62.
Apple generated $46.8 billion in revenue from iPhone sales during the period, surpassing projections of $45.9 billion. Nevertheless, this represents an increase of less than 2 percent from $46 billion in the corresponding quarter of the previous year and is in contrast to $51.3 billion recorded in the same period two years prior. The most recent flagship iPhones do not present significant differences compared to their predecessors, primarily providing the same AI functionalities as the iPhone 15 Pro released in 2023. This has resulted in diminished incentives for consumers to pursue upgrades. The company introduced the iPhone 16E in the quarter, substituting its entry-level SE model priced at $429. The $599 price point of that phone exceeds those of its competitors, a factor that could potentially dissuade certain consumers from making a purchase. Later this year, the company intends to implement more substantial upgrades to the iPhone, featuring a slimmer design. Cook commended the company’s internally developed C1 modem chip, integral to the 16e, asserting that this new element marks the commencement of a “journey.”
The company has been grappling with a variety of challenges — in addition to the impending tariffs. Apple has reorganized its AI management in recent weeks, facing increasing regulatory scrutiny both in the European Union and domestically. On Wednesday, a federal judge mandated that the company allow third-party payment options in its App Store and cease imposing commissions on external purchases. Services, encompassing the App Store and Apple TV+, experienced a 12 percent increase, reaching $26.7 billion in the last quarter — consistent with projections. The business faces challenges in several domains, however. This week’s ruling regarding the App Store is likely to negatively impact the platform’s revenue. The US government is attempting to dismantle Apple’s profitable search agreement with Alphabet Inc.’s Google.
The firm refrained from offering projections regarding future service expansion, citing “uncertainty.”The Mac division, having introduced new MacBook Air and Mac Studio models in the quarter, reported revenue of $7.95 billion. This surpassed projections of approximately $7.8 billion. The iPad generated sales of $6.4 billion, exceeding expectations of approximately $6.1 billion. In March, the company introduced an updated low-end iPad alongside iPad Air models equipped with enhanced M3 processors. Bloomberg News has reported that a new iPad Pro featuring an M5 chip is set to be introduced as early as the end of this year. The Wearables, Home and Accessories segment of the company, which has faced challenges in recent quarters, recorded sales of $7.52 billion. The figure fell short of the average estimate of $8.05 billion.
Tariffs continue to represent a significant area of uncertainty. While it appears that Apple may avoid the 145 percent tariff on imports from China that was initially suggested by the administration, the introduction of new tariffs on electronics remains imminent. The current turmoil poses a significant risk to the company’s supply chain, potentially compelling it to increase prices. Cook stated during the call that he had no announcements regarding potential price increases. Apple is increasingly shifting its production of US-bound iPhones from China to India. According to Cook, that country is currently meeting fifty percent of the demand from the United States. The majority of production for Apple Watches, AirPods, iPads, and Macs sold in the US will be sourced from Vietnam, a country that benefits from a lower tariff level compared to China.
In its quarterly report, Apple emphasized the tariff issue by including “trade and other international disputes” among the risks and uncertainties it faces. This is a detail that is generally included in its annual filings. However, the company based in Cupertino, California experienced a notable increase in demand this quarter due to tariff threats: consumers rushed to Apple retail locations to purchase new iPhones and other products, driven by concerns over potential price increases.
The sales in question are expected to be reflected in the June quarter. Cook indicated that the tariffs did not generate additional demand in the March quarter, and he remains uncertain about the exact effects in the ongoing period. The CEO of Apple navigated inquiries regarding the potential for increased manufacturing within the United States. However, he emphasized that the company plans to utilize tens of millions of US-made device processors this year. Cook further articulated the company’s approach to artificial intelligence. In response to inquiries regarding the postponement of an updated iteration of the Siri voice assistant, he indicated that the company requires additional time to refine the features to align with Apple’s “high-quality bar.” We are making progress,” he stated. “We anticipate the opportunity to deliver these features to our customers.”
