Apple Inc. reported worse-than-expected sales in China and warned that tariffs will increase costs this quarter, a sign that geopolitical tensions are taking a growing toll on the world’s most valuable company.
Apple expects US$900 million in higher costs from tariffs in the current period, the company said during a conference call to discuss quarterly results. Revenue will increase by a percentage in the low- to mid-single digits in the quarter, Apple added. Analysts have estimated 5 per cent on average.
Revenue from China, meanwhile, fell 2.3 per cent to $16 billion in the fiscal second quarter, which ended March 29. Analysts had predicted $16.83 billion.
That shortfall is an ominous sign for what was once a growth market. Apple has lost ground to local phone brands, such as Huawei, Xiaomi and Oppo, and the government there banned foreign-made technology from some workplaces. Apple’s China-centric production also makes it especially vulnerable to tariffs announced by the Trump administration.
This is a modal window.
The media could not be loaded, either because the server or network failed or because the format is not supported.
Apple is struggling in artificial intelligence as well, especially in China, where its AI platform isn’t yet available. And the company is increasingly seen as behind the times by consumers in China, where competitors have rolled out foldable devices and other new designs.
Apple shares declined more than 2 per cent in late trading after the results were released. They had been down 15 per cent this year through Thursday’s close.
As part of the quarterly report, the company announced plans to increase its share buyback program by $100 billion and boost the quarterly dividend 4 per cent to 26 cents a share.
Overall sales gained 5 per cent to $95.4 billion, ahead of the $94.6 billion average estimate. Apple had projected percentage growth in the low- to mid-single digits. Earnings came in at $1.65 a share in the second quarter, compared with an average estimate of $1.62.
Apple sold $46.8 billion worth of iPhones in the period, exceeding estimates of $45.9 billion. Still, that’s up less than 2 per cent from $46 billion in the year-earlier quarter and compares with $51.3 billion in the same period two years ago.
The latest flagship iPhones aren’t markedly different than the prior models and mostly offer the same AI features as the iPhone 15 Pro from 2023. That’s given consumers less reason to upgrade.
The company debuted the iPhone 16e during the quarter, replacing its low-budget SE model. But that phone’s $599 price is higher than competitors’ offerings — something that may have deterred some shoppers. Later this year, the company is planning more significant iPhone upgrades, including a skinnier design.
The company has been contending with a range of challenges — beyond the looming tariffs. Apple is playing catch-up in artificial intelligence, forcing it to shuffle management in recent weeks. It’s also under mounting regulatory pressure in the EU and its home country. On Wednesday, a federal judge demanded that the company open up its App Store to third-party payment options and stop charging commissions on outside purchases.
Services, which includes the App Store and Apple TV+, grew 12 per cent to $26.7 billion last quarter — in line with estimates. That business is under threat in a few areas, though. This week’s App Store ruling is poised to hurt the platform’s revenue. And the U.S. government is trying to break up Apple’s lucrative search deal with Alphabet Inc.’s Google.
The company didn’t provide guidance on future services growth due to “uncertainty.” Chief Executive Officer Tim Cook, speaking on the conference call, also said there was nothing to announce about price increases.
Tariffs remain one of the biggest question marks. Though Apple is likely to sidestep the 145 per cent China levy that the administration originally proposed, new tariffs on electronics are still coming. The turmoil threatens to upend the company’s supply chain and potentially force it to raise prices. Already, Apple is looking to make more of its U.S.-bound iPhones in India rather than China.
Highlighting this concern, Apple cited “trade and other international disputes” in the list of risks and uncertainties in its quarterly report.
But the Cupertino, California-based company got one boost from the tariff threats in the current quarter: Customers flooded Apple retail stores to buy new iPhones and other products out of fear that price hikes were coming.
Mark Gurman, Bloomberg News
