Apple got a much-needed iPhone and China boost

CNN

4 days ago

Apple reported strong iPhone sales and rebound in revenue from China, giving a much-needed boost to two parts of the company's business that had struggled over the past year.
That better-than-expected performance reassured Wall Street investors that key parts of its business are holding steady as Apple struggles to keep pace with rivals in the artificial intelligence race and navigates President Donald Trump's looming tariffs.
The iPhone generated $44.5 billion in revenue for the quarter that ended in June, beating analyst expectations of $40 billion and last year's results of $39.3 billion for the same period. Overall revenue came in $94 billion in the quarter, marking a 10% increase year-over-year.
Sales of iPhones also grew in China, where the company has underwhelmed recently, growing from $14.7 billion in the third quarter of 2024 to $15.3 billion this past quarter.
Apple shares were up a little more than 2% in after-hours trading. But that's a much smaller boost than tech giants Microsoft and Meta, which saw there shares surge by nearly 7% and over 9% respectively on Wednesday thanks to their AI investments. Apple has woefully underperformed its rivals. The stock is down nearly 15% this year, missing out on the market's big rally over the past several months.
The iPhone generates more revenue than any other Apple product, making it the company's most important business in Wall Street's eyes. Apple CEO Tim Cook said on a call with analysts that the company set a June quarter record for iPhone sales, growing 13% year-over-year.
But Trump's whipsaw tariff policies have required Apple and other tech giants to rethink how they manufacture and ship devices like smartphones and computers. Investors are also eager for Apple to make a bigger splash in artificial intelligence as other tech behemoths like Google, Meta and Microsoft push forward.
Apple incurred approximately $800 million in expenses due to tariff-related costs, which is lower than the $900 million Apple CEO Tim Cook said the company was expecting in May. For the September quarter, assuming current tariff policies and rates remain the same, Apple expects that number to climb to $1.1 billion, Cook said on a call with analysts.
Apple shifted most production of US-bound iPhones from China to India earlier this year to avoid Trump's tariffs. Smartphones were exempt from the previous reciprocal levies on China that would have increased the tariff rate to a staggering 145%, but Trump has also said companies like Apple and Samsung could face a 25% tariff unless they make their smartphones in the US. A temporary trade deal between the two powerhouse economies will keep tariffs at 30% until August 12, while Trump threatened India with tariffs as high as 25% earlier this week.
Beyond tariffs, Apple faces broader challenges to the future of its business. Apple is perceived to be behind in artificial intelligence, a critical technology that many believe will impact the economy and change the way people work, communicate and find information.
The company indefinitely delayed a major upgrade to Siri that would have brought it up to speed with modern AI agents like OpenAI's ChatGPT and Google's Gemini. Cook said on the call with analysts that Apple was making 'good progress' with its upgraded Siri and that it plans to release the new version next year. In the meantime, Apple's suite of AI features includes functions spread across various features and apps – such as a custom emoji maker, the ability to summarize text and an image generator – tools that provide some convenience but are far from being as impactful as a service like ChatGPT.
'We are also significantly growing our investments,' Cook said during the call. 'Apple has always been about taking the most advanced technologies and making them easy to use and accessible for everyone. And that's at the heart of our AI strategy with Apple Intelligence.'
Apple has also been losing key AI researchers to Meta in recent weeks as the social media giant aggressively expands its AI efforts, according to Bloomberg. Two analysts from Lightshed Partners made waves earlier this month when they questioned whether Apple should replace Cook with a more product-oriented CEO.
'He's a supply chain guy. They need a tech visionary,' Ted Mortonson, managing director and technology sector strategist at financial services company Baird, previously told CNN. 'I think they're in a lot more trouble than some people think.'
Apple's lucrative services business – its second largest business behind the iPhone – is also under threat as regulators impose new rules that impact how Apple runs its App Store to address antitrust concerns.