By Stephen Nellis, Akash Sriram
SAN FRANCISCO (Reuters) -Apple on Thursday estimated that tariffs will add about $900 million in costs to the quarter ending in June if rates do not change, with CEO Tim Cook outlining profound changes to the company’s supply chain to minimize the impact of President Donald Trump’s trade war.
Apple shares were down 3.8% after the company released quarterly results.
While the results were better than analysts had expected, investors are focused on how tariff concerns will play out in the coming quarter. Apple executives said that the company expects low-to-mid single-digit revenue growth during its fiscal third quarter, which is in line with analyst expectations of 4.28% growth to $89.45 billion, according to LSEG data.
But Apple did predict a hit to gross margins, which it said will be 45.5% to 46.5% in its fiscal third quarter, which is below analyst estimates of 46.58%, according to LSEG data.
The Cupertino, California-based company said sales and profit for the fiscal second quarter ended March 29 were $95.36 billion and $1.65 per share, respectively, compared with analyst estimates of $94.68 billion and $1.63 per share, according to LSEG data. Sales of iPhones were $46.84 billion, compared with estimates of $46.17 billion, according to LSEG data.
Cook said during a conference call that Apple saw “limited impact” from tariffs during the fiscal second quarter as the company shifted its supply chains and inventory.
But for the quarter ending in June, “assuming the current global tariff rates, policies and applications do not change for the balance of the quarter and no new tariffs are added, we estimate the impact to add $900 million to our cost,” Cook told analysts on the call.
He said the majority of iPhones sold in the U.S. in the current quarter will come from India, and the majority of iPads, Macs and Apple Watches will come from Vietnam, after the company spent extra money to build products ahead of time during the just-ended quarter. Cook said that the vast majority of Apple products for markets outside the U.S. will continue to come from China.
“We have a complex supply chain. There’s always risk in the supply chain,” he said. “What we learned some time ago was that having everything in one location had too much risk with it.”
Jacob Bourne, analyst at Emarketer, said: “The company’s proposed manufacturing shift to India raises pressing questions about execution timeline, capacity limitations, and potentially unavoidable cost increases that will shrink margins, be passed to consumers, or have a mix of consequences.”
The Trump administration has so far spared electronics from tariffs, but Washington has signaled that some levies could come in the weeks ahead. The uncertainty has sent shares of Apple, which makes 90% of its products in China, down about 15% this year, wiping off more than $600 billion from its market value.
Cook told Reuters on Thursday that iPhone inventory levels at the beginning and end of the fiscal second quarter were comparable, meaning there was no large inventory buildup over the period. Cook said handset sales were boosted by the iPhone 16e, the company’s $599 mid-market model that contains its first-ever custom modem chip.
The iPhone 16 is Apple’s most inexpensive model but has a sufficiently powerful processor to run all of the company’s newest AI features.
“When you look at the active (iPhone) installed base, it did hit a new high, and did so in every geographic region,” Cook told Reuters.
Apple said sales in its Greater China segment fell to $16 billion, better than analyst expectations of $15.9 billion, according to data from Visible Alpha. In China, Apple has faced especially tough competition from domestic makers such as Huawei and Xiaomi and has not yet rolled out key AI features that were announced nearly a year ago.
Apple said sales in its services business were $26.65 billion, compared with estimates of $26.69 billion, according to LSEG data. Cook told Reuters that Apple now has more than 1 billion paid subscriptions on its platform.
In Apple’s accessories and wearables segment, which includes products such as AirPods, revenue was $7.52 billion, compared with estimates of $7.85 billion, according to LSEG.
Sales of iPads and Macs were $6.40 billion and $7.95 billion, respectively, compared with analyst expectations of $6.07 billion and $7.92 billion. Cook said that entry-level iPads performed the best during the quarter.
Apple also said it will increase its cash dividend by 4% to 26 cents per share and that its board has authorized an additional $100 billion for its stock buyback program.
Analysts said the $100 billion buyback, down $10 billion from the same period last year, was disappointing because the company regularly maintains or hikes share repurchases.
“We were expecting to see more buybacks,” said Thomas Monteiro, senior analyst at Investing.com. “Knowing the company, this indicates that Tim Cook is hoarding cash for difficult times. While that’s not exactly a problem in itself, it certainly suggests that the company is not as certain about its near-term future as it was in previous quarters.”
(Reporting by Stephen Nellis in San Francisco and Akash Sriram in Bengaluru; Editing by Kenneth Li and Matthew Lewis)
