Apple projects tariff costs will hit $1.1B next quarter

Apple anticipates a significant rise in tariff-related expenditures, projecting costs to reach $1.1 billion in the upcoming July-to-September fiscal quarter. This figure represents an uptick from the previous period, as revealed by CEO Tim Cook during the company’s recent earnings call with investors.

While these projections are based on current rates and policies, there’s a possibility they could be lower than anticipated, similar to the preceding quarter. For the June quarter, Apple’s tariff-related costs amounted to approximately $800 million, which was notably less than the $900 million estimate initially provided by the company in May.

According to Cook, the majority of tariffs impacting Apple originate from the International Emergency Economic Powers Act (IEEPA). Earlier this year, amidst escalating trade tensions, the U.S. and China entered an agreement imposing a 30% tariff on imports from China. This pact also saw a reduction in “reciprocal” tariffs from 125% to 10%, alongside an additional 20% duty against China linked to fentanyl-related issues. This agreement is set to remain in effect until August 12.

Despite sales growth that might suggest a ‘pull forward’ effect driven by tariff concerns, Cook minimized this impact, attributing consumer motivation primarily to the inherent ‘strength of the product’ itself.

Cook highlighted the robust performance of the iPhone, stating, “If you look at iPhone, the 16 family grew double digits, as opposed to the 15 family from the year-ago quarter.” He further emphasized, “And so we did set an upgrade record… I think it directly is because of the strength of the product.”

iPhone sales saw a significant 13% year-over-year increase, contributing $44.5 billion in revenue. This sum accounts for nearly half of Apple’s total revenue for the quarter, which collectively reached $94 billion.

Nonetheless, the impact of tariffs remains a tangible concern and is expected to persist, even as Apple explores strategies to diversify its manufacturing across countries with more favorable tariff structures.

Apple’s global manufacturing footprint primarily spans India, China, and Vietnam. It’s noted that nearly half of all iPhones sold in the U.S. are produced in India, while Macs, iPads, and Apple Watches destined for American consumers are manufactured in Vietnam. Both India and Vietnam are currently subject to tariffs of 25% and 20%, respectively, impacting production costs.

Former President Trump had previously voiced his disapproval of Apple’s increased reliance on India for its supply chain, reportedly threatening a 25% tariff unless iPhone production was repatriated to the U.S.

In response, Cook reaffirmed Apple’s steadfast commitment to the U.S. during the investor call, highlighting the company’s pledge to invest over $500 billion in the country over the next four years, focusing on domestic production of chips and semiconductors.