Apple’s second quarter is usually interesting. As has now become customary, the company delivered new records, generated billions in revenue, and grew its services segment once again — generally good news except for the embarrassment of having to open up its app store while delivering the Q2 results.
Apple announced that iPhone shipments increased 13% despite a global slowdown across the smartphone industry, and confirmed plans to make all US iPhones in India. It also suggested that some of the sales it did achieve might have been pushed forward as consumers accelerated upgrades they intended to do later this year in order to avoid US tariffs.
What’s the cost of tariffs?
Apple CEO Tim Cook explained that he expects the Trump Tariff Tax to affect the company’s June quarter, taking a $900 million chunk out of the company’s multi-billion-dollar business. In other words, while the situation isn’t normal, it’s being managed (if not controlled).
Cook also admitted that Apple did “build ahead inventory” to help tide it over Trump’s Tariff Summer. “Obviously, we’re very engaged on the tariff discussions,” he said. “We believe in engagement and will continue to engage.”
What really hurts with tariffs?
People have always complained that Apple’s accessories cost too much. It looks like they will complain even more in the future. During the call, Cook pointed out that the recent 125% tariff on goods from China has most immediately affected things like spare parts for AppleCare and accessories, all of which currently carry a 145% tax in the now high-tax US economy. The situation is similar across third-party chains, which are threatened by much higher costs.
Apple and the supply chain
Apple flagged potential problems to come, but set out a solid bastion from which to defend itself. From making iPhones in India and Macs in Vietnam to strategic investments in the USA, the company has built a great deal of resilience within its supply chain with which it hopes to negotiate the US trade war. All the same, it still faces an uncertain tomorrow.
With future US tariffs uncertain, the situation for the entire consumer software sector is very much in flux. I suggest, however, that Apple has a good news story for Q3 buried in here, as the spike in consumer sales followed the tariff announcements, which mean they occurred in the weekend of April 5 – and the quarter itself ended a week before that.
“For our part, we will manage the company the way we always have, with thoughtful and deliberate decisions, with a focus on investing for the long term, and with dedication to innovation and the possibilities it creates,” Cook said.
Made in the USA
Apple is also increasing its US manufacturing partnerships. Cook confirmed that TSMC’s new manufacturing facility in Arizona will be making tens of millions of processors for Apple’s devices. ”Apple is the largest and first customer to take chips made at that factory,” he said. “All told, we have more than 9,000 suppliers in the U.S. across all 50 states.”
Apple clearly believes the US can be a good home in which to manufacture some highly skilled elements of its supply chain, even if it can’t supply the kind of expertise needed elsewhere in its manufacturing supply chain.
Speaking at a meeting of US business executives this week, Cook said: “I want to take a moment to recognize President Trump’s focus on domestic semiconductor manufacturing, and we will continue to work with the administration as we invest in these areas. Needless to say, we are excited for the future of American innovation and the incredible opportunities it will create, and we are honored to do our part.”
On Made In India (and Vietnam)
There’s also news from India, where the company is accelerating its attempt to build manufacturing. “For the June quarter, we do expect the majority of iPhones sold in the US will have India as their country of origin,” Cook said, “and Vietnam to be the country of origin for almost all iPad, Mac, Apple Watch, and AirPods products also sold in the US.”
Cook also confirmed plans to open new stores in India this year. “The operational team has done an incredible job around optimizing the supply chain and the inventory, and we’ll obviously continue to do those things to the degree that we can,” he said.
Opening the App Store
The financial news comes just after US District Judge Yvonne Gonzalez Rogers forced Apple to make immediate changes to its developer’s agreement, opening up its US store to external payments and app shoppiong services. Apple plans to appeal the judgement.
Opening the store up to third-party competition is likely to chip away at services revenues while delivering additional risk and confusion to customers, but the scale of that impact remains to be seen. Whatever the impact, I expect Apple to find some way to build a new profit center out of whatever it has left.
Cook, whose judgement was called into question by the judge, said that while Apple has complied with the request, there are risks to the company’s business. Spotify, meanwhile, has forced Apple to approve an update with links to make purchases outside the App Store as the flight begins.
What about the enterprise?
Apple also used the financial call to share a little information about its growing status in the enterprise markets, noting KPMG has introduced the iPhone 16 to all of its US employees, “reflecting their confidence in Apple’s security and privacy features.”
He also said that the largest bank in Latin America, NewBank, has selected the MacBook Air as a standard computer for their thousands of employees and highlighted Dassault Système’s decision to integrate Apple Vision Pro into its platform.
What about Apple Intelligence?
Some readers might remember when Apple Intelligence was the biggest Apple story around. In light of tariffs, court cases and regulatory limitations, the service seems to have become a footnote, even though it seems to be running late. “We need more time to complete our work on these features so they meet our high-quality bar,” Cook said. “We are making progress, and we look forward to getting these features into customers’ hands.”
Details from Apple’s Q2
- Quarterly revenue: $95.4 billion, up 5% year-on-year and an all-time second-quarter high (again).
- Products revenue: $68.7 billion, up 3% year-on-year.
- Services revenue: $26.6 billion.
- Company gross margin: 47.1%. Product margin was 35.9%, while services hit 75.7%.
- Profit: $24.8 billion.
- Cash dividend: 26 cents a share.
Estimated June quarter results will see growth in low to mid-single digits, with margins down to around 45.5-46.5% because of the estimated impact of tariff-related costs. You’ll find an excellent image detailing the scope of Apple’s business here.
iPhone
iPhone sales climbed just 2% in the quarter, despite introduction of the iPhone 16e. The category still generated $47 billion, up $1 billion on the same quarter last year. “iPhone was a top-selling model in the US, urban China, the U.K., Germany, Australia, and Japan, and we continue to see high levels of customer satisfaction in the US at 97%, as measured by 451 Research.”
iPhones also accounted for both of the two top-selling smartphones in China, Cook said.
Services
Services grew 11%, generating $27 billion this quarter, up from $24 billion a year ago. Perhaps reflecting how Apple sees this segement, and its future in the current regulatory environment, Apple CFO Kevan Parekh said: “We saw strong momentum in the March quarter, and the growth of our installed base of active devices gives us great opportunities for the future. Customer engagement across our services offerings also continued to grow. Both transacting and paid accounts reached new all-time highs, with paid accounts growing double digits year over year. Paid subscriptions also grew double digits. We have well over a billion paid subscriptions across the services on our platform.”
Mac
Mac sales grew 6% as people rushed to purchase the fantastic M4 MacBook Air. Apple generated $8 billion in Mac revenue, up from $7.5 billion last year. “The Mac installed base reached an all-time high, and we saw strong growth for both upgraders and customers new to the Mac. Customer satisfaction was reported at 95% in the US.”
Wearables
While they generated $7.5 billion in revenue, wearables (which includes AirPods, Apple Watch, and also Vision Pro) are Apple’s weakest segment, down 5% year-on-year. This seems to be the weakest part of Apple’s business in terms of growth.
iPad
iPad sales climbed 16%, thanks to the new iPad Air. The segment generated $6.4 billion, up from $5.6 billion in 2024. “The iPad installed base reached another all-time high, and over half the customers who purchased an iPad during the quarter were new to the product. Based on the latest reports from 451 Research, customer satisfaction was 97% in the US.”
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