Apple’s Quarterly Earnings Beat Expectations, but Tariff Uncertainty Looms Large
Apple’s second-quarter financial results, reported on Thursday, came in slightly higher than Wall Street’s expectations, with the tech giant revealing revenue of $95.4bn, up more than 4% over last year, and earnings-per-share of $1.65 per share, up more than 7%. According to The Guardian, analysts had predicted revenue of $94.5bn and earnings of $1.62. The company, worth $3.2tn, has beaten Wall Street’s expectations for the previous four quarters.
Investors have been keeping a close eye on Apple as it prepared to report its financial results, with the tech giant working to calm nervous analysts after Donald Trump levied sweeping tariffs on countries around the world that are likely to complicate supply chains for consumer electronics. Since the beginning of the year, Apple’s stock has slumped 16%. During a call with investors on Thursday, Apple CEO Tim Cook said that he expects the tariffs to add $900m to its costs for the upcoming quarter that ends in June. That’s assuming, he said, that the global tariff rates don’t change again. Cook declined to speculate further into the future, saying: "I’m not sure what will happen with the tariffs … It’s very difficult to predict beyond June."
The iPhone maker is heavily reliant on Chinese manufacturing for its phones, tablets and laptops. Days after Trump instituted soaring tariffs on China, at one point as high as 245%, the president said he would make an exception for consumer electronics. Cook spoke to senior White House officials around this time, according to the Washington Post. It was after these conversations that Trump announced his exception for consumer electronics. Apple’s stock rose 7% in the days after the announcement. However, it is unclear how lasting the reprieve may be. Howard Lutnick, the US commerce secretary, has called the exemption "temporary", and even Trump later said on social media that there’s been no "exception".
As reported by The Guardian, Trump’s tariffs have significant implications for Apple’s business, with JP Morgan estimating that costs would skyrocket for Apple if it moves production to the US, potentially driving a 30% price increase in the near-term, assuming a 20% tariff on China. The investment bank and other analysts have suggested that Apple could continue to move more of its manufacturing to India, which only faces a 10% tariff. Apple chartered jets to airlift some $2bn worth of iPhones from India to the US earlier this month to boost inventory in anticipation of price hikes from Trump’s tariffs and panic-buying by worried consumers.
In the short term, analysts say the tariff confusion could benefit Apple as people rush to buy more of its products in fear that prices will rise. "What remains to be seen in the longer term is how much of any increased cost will be passed on to consumers," said Dipanjan Chatterjee, principal analyst for Forrester. "And if [consumers] will absorb these price increases without pulling back on demand for Apple products." Cook remained positive, however, saying that the company was reporting "strong quarterly results" and "we’re very engaged on the tariff discussions".
The company’s services division, which covers iCloud subscriptions and revenue from various licensing deals, reported revenue that missed Wall Street’s expectations, despite growth over last year. Sales in China also missed estimates. Apple’s stock dropped by more than 4% in after-hours trading, likely due to the tariffs news and the weaker-than-expected revenue from its services division. Despite this, Cook expressed optimism about the company’s prospects, saying that China would continue to be a major manufacturer for Apple, but that India would be producing more iPhones for the company and Vietnam would make more iPads and Macs in the June quarter. According to The Guardian, India and Vietnam have lower tariffs than China, which could help mitigate the impact of Trump’s tariffs on Apple’s business.
