Apple warns of $1.2 billion in escalating tariff costs, posts disappointing China sales

SAN FRANCISCO – Apple’s much-awaited quarterly earnings report failed to soothe investor concerns about its biggest challenges, including escalating tariff costs and a slowdown in China.

The company’s shares fell as much as 4.2 per cent in late trading on May 1 after Apple released second-quarter results that included worse-than-expected sales in China.

The iPhone maker also warned that tariffs will increase costs this quarter, a sign that geopolitical tensions are taking a growing toll on the world’s most valuable business. 

Apple expects US$900 million (S$1.2 billion) in higher costs from tariffs in the current period, chief executive Tim Cook said during a conference call.

Revenue will increase by a percentage in the low- to mid-single digits in the quarter, compared with a 5 per cent average analyst estimate. The company did not offer any guidance on the impact of tariffs beyond the current period.

Sales from China fell 2.3 per cent to US$16 billion in the second quarter, which ended March 29. Analysts had predicted US$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.

The company is struggling in artificial intelligence (AI) as well, especially in China, where its Apple Intelligence platform is not yet available. The brand is increasingly seen as behind the times by consumers in China, where competitors have rolled out foldable devices.

Apple is preparing to launch its AI services in China in the coming months – relying on partners Alibaba Group Holding and Baidu – and a foldable iPhone is due in 2026.

As part of the quarterly report, the company announced plans to increase its share buyback programme by US$100 billion and boost the quarterly dividend 4 per cent. Apple shares had been down 15 per cent in 2025 as at the May 1 close.

Overall sales gained 5 per cent to US$95.4 billion last quarter, above the US$94.6 billion average estimate. Apple had projected percentage growth in the low- to mid-single digits. Earnings came in at US$1.65 a share in the second quarter, compared with an average estimate of US$1.62.

Apple sold US$46.8 billion worth of iPhones in the period, exceeding estimates of US$45.9 billion. Still, that is up less than 2 per cent from US$46 billion in the year-earlier quarter and compares with US$51.3 billion in the same period two years ago.

The latest flagship iPhones are not markedly different from prior models and mostly offer the same AI features as the iPhone 15 Pro from 2023. That has given consumers less reason to upgrade.

The company did not provide guidance on future services growth due to “uncertainty”.

Tariffs remain one of the biggest question marks. Though Apple is likely to sidestep the 145 per cent China levy that the Trump 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.

Mr Cook said during the call that he had nothing to announce about possible price increases due to tariffs.

Already, Apple is looking to make more of its US-bound iPhones in India rather than China. That country is now fulfilling half of US demand, Mr Cook said. He said that the majority of production for Apple Watches, AirPods, iPads and Macs sold in the US will be made in Vietnam, which has a lower tariff level than China. 

Highlighting the tariff concern, Apple cited “trade and other international disputes” in the list of risks and uncertainties in its quarterly report. That is something it typically mentions in its annual filings.

But the 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.

Those sales would show up in the June quarter. Mr Cook said the tariffs did not create extra demand in the March quarter, and he is unsure of the precise impact in the current period. 

The Apple CEO sidestepped questions about bringing additional manufacturing to the US. But he touted that the company will use tens of millions of US-made device processors in 2025.

He also defended the company’s AI strategy. He was asked about delays to a new version of the Siri voice assistant and said the company needed more time to work on the features so they meet Apple’s “high-quality bar”. 

He said: “We are making progress. And we look forward to getting these features into customers’ hands.” BLOOMBERG