Apple beats expectations but faces soaring tariff costs

Apple exceeded market expectations in the first quarter, buoyed by a rebound in iPhone sales. However, the company warned that newly imposed tariffs by Donald Trump could significantly increase costs in the coming months. CEO Tim Cook indicated during the earnings call that tariffs could cost Apple up to $900 million this quarter.

For its fiscal second quarter, Apple reported a net profit of $24.8 billion, up 4.8% year-over-year. Earnings per share reached $1.65, slightly ahead of analysts’ forecast of $1.62, according to FactSet.

Sales of the iPhone rose by 1.9%, reversing a 0.8% decline in the previous quarter and surpassing market projections. Analysts viewed this as a positive sign for product demand, especially as investors closely monitor the performance of the iPhone 16, which has faced criticism for lacking many AI features promised earlier.

To mitigate the impact of U.S. tariffs of up to 145% on Chinese imports, Apple plans to shift most of its iPhone production for the U.S. market to India. Other products like iPads, Macs, Apple Watches, and AirPods will be sourced from Vietnam. Cook noted that most Chinese-made Apple products are currently exempt from the bulk of the tariffs (125% out of 145%) pending a U.S. government review.

Despite this temporary relief, some uncertainty remains. Analyst Matt Britzman emphasized that even a 20% tariff could have a significant financial impact. Meanwhile, Apple’s services division—comprising the App Store, Apple Music, Apple TV, and iCloud—continues to grow, with a 11.7% increase in revenue. Services now represent 28% of the company’s income, reflecting a shift from hardware-centric revenues.

Geographically, Apple saw strong growth in the U.S. (+8%), modest gains in Europe (+1%), but a decline in China (-2%). Overall revenue rose 5.1% to $95.4 billion, beating analyst estimates.

For the third fiscal quarter, Apple anticipates a gross margin between 45.5% and 46.5%, a slight decline from 47% in the previous quarter due to tariff effects. The company’s stock dipped roughly 4% in after-hours trading following the earnings release.

Cook acknowledged the challenges in forecasting supply chain dynamics beyond the current quarter. He reaffirmed Apple’s strategy of diversifying production away from any single location to reduce risk, a move that raises questions about timing, capacity, and potential cost increases that could impact margins or be passed on to consumers.

Analysts believe pricing strategies will be under close scrutiny as Apple prepares for its next product launch cycle amid ongoing economic and supply chain uncertainty.