Apple's better-than-expected March-quarter results provided only a temporary reprieve from the challenges facing the consumer electronics giant. Apple stock fell Friday as investors weighed the impact of tariffs on hardware sales and legal cases threatening its services business.
The Cupertino, Calif.-based company late Thursday said it earned $1.65 a share, up 8% year over year, on sales of $95.4 billion, up 5%, in its fiscal second quarter ended March 29. Analysts polled by FactSet had expected earnings of $1.62 a share on sales of $94.54 billion.
For the current quarter, Apple expects its total revenue to increase by a low to mid-single-digit percentage. Analysts had been modeling for sales to rise 4% to $89.19 billion in the fiscal third quarter.
On a conference call with analysts, Chief Executive Tim Cook said tariffs had a limited impact on the March quarter. However, he predicted $900 million in added costs to the June quarter from tariffs, assuming current rates and policies don't change.
The added tariff cost will shave about 5 cents off Apple's earnings per share in the June quarter, UBS analyst David Vogt said in a report. The impact "could be worse" in the September quarter, he said.
On the stock market today, Apple stock dropped 3.7% to close at 205.35.
The June quarter will benefit from inventory pull-ins ahead of the Trump tariffs and other unique factors, Cook said.
"It's very difficult to predict beyond June," he added.
Tariff Mitigation Efforts
Meanwhile, Apple is using its global supply chain to mitigate the effect of the U.S. tariffs, which mostly target products manufactured in China.
"For the June quarter, we do expect the majority of iPhones sold in the U.S. will have India as their country of origin and Vietnam to be the country of origin for almost all iPad, Mac, Apple Watch and AirPods products sold in the U.S.," Cook said. "China would continue to be the country of origin for the vast majority of total product sales outside the U.S."
Cook declined to discuss whether Apple will raise prices to adjust for the tariffs.
Services Business At Risk
The March quarter was helped by strong services business, but that business is under threat from legal rulings. Apple services include the App Store, Apple Pay, iCloud, Apple Music, Apple TV+ and other offerings. In fiscal Q2, Apple's services revenue surged 12% year over year to $26.65 billion. Services accounted for 28% of Apple's total revenue.
On Wednesday, the judge overseeing a lawsuit brought by Epic Games said Apple willfully violated an order to permit payments outside of the App Store. Apple has continued to demand commissions from app developers that use alternative payment methods. It also has taken steps that interfere with the ability of developers to communicate alternative payment options to users, the judge said.
In Europe, Apple was forced to allow third-party app stores under the European Union's Digital Markets Act, which took effect in March 2024.
Meanwhile, a U.S. Department of Justice antitrust case against Alphabet unit Google threatens a deal that makes Google the default search engine on Apple's iPhone. Google pays Apple about $20 billion a year under the arrangement.
Siri Delays A Sticking Point
Another issue for Apple relates to delays in releasing a new version of its Siri digital assistant powered by artificial intelligence.
"With regard to the more personal Siri features we announced, 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."
Apple Stock Downgraded
Two Wall Street firms downgraded Apple stock after the earnings report. Jefferies lowered its rating to underperform from hold. Rosenblatt Securities moved to neutral from buy.
"For this stock to really work, there needs to be an AI-driven sharp acceleration in iPhone sales," Rosenblatt analyst Barton Crockett said in a client note. "And as time has gone on the argument for that seems to be fading."
In other news, Apple upped its quarterly dividend by 4% and announced a new stock-buyback plan totaling up to $100 billion. Some analysts expressed disappointment with the size of share repurchase authorization.
"The $100 billion buyback announced is below the $110 billion announced a year ago, which we found as a bit of a head-scratcher, as Apple historically either holds its buyback or increases its authorization vs. the prior year," CFRA Research analyst Angelo Zino said in a client note. The lower buyback plan could reflect tariff concerns, he said. Zino rates Apple stock as buy with a price target of 235.
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