In the face of geopolitical turbulence, rising tariffs, and a radically shifting technology landscape, Apple has delivered a quarterly performance that was both steady and strategic. The company reported a revenue of US$95.4 billion for its fiscal year second quarter—up 5% year-over-year—with services, iPads, and Macs powering growth even as the iPhone business faced tariff headwinds and rising production costs.
Beneath the surface, however, CEO Tim Cook laid out a vision that involves reshoring semiconductor production, expanding its AI footprint, and reducing China's dependence without triggering further instability.
Tariffs threaten margins, but Apple holds line
The most pressing concern for Apple and its investors is the escalating cost of doing business in a world fractured by trade disputes. The company expects US$900 million in added costs in the current June quarter due to tariffs—particularly those stemming from recent U.S. actions against Chinese-origin goods. That figure, while not devastating, is likely the thin edge of the wedge.
"Our estimate assumes no change to current global tariff rates," Cook said during the earnings call. "We've taken steps to optimize our supply chain and inventory in anticipation."
Cook declined to speculate on future quarters, citing ongoing investigations by the U.S. Commerce Department under Section 232, which could impose reciprocal tariffs on semiconductor-related products. The full effect, especially post-June, remains unpredictable. Still, Apple's preemptive inventory build-up, already reflected in its manufacturing purchase obligations, softened the blow.
India rises, China recalibrates
One way Apple is mitigating tariff exposure is by accelerating its shift away from China as a manufacturing hub for US-bound goods. Cook revealed that the majority of iPhones sold in the US during the June quarter will be manufactured in India.
Meanwhile, Vietnam has emerged as the primary source for iPads, Macs, Apple Watches, and AirPods destined for American consumers.
Yet Apple remains deeply intertwined with China—especially when it comes to sales outside the US and component sourcing. While revenue from Greater China declined 2% year-over-year, Cook emphasized that after adjusting for foreign exchange, the business was roughly flat, marking a significant recovery from the 11% drop in the December quarter. iPhone remained one of the top two smartphone models in urban China, and iPads maintained their leadership in the tablet segment.
Government subsidies in China may have helped, Cook acknowledged, though the scope of support for Apple products—particularly those priced above CNY6,000 (approx. US$825)—was limited. Still, other product categories like Mac, iPad, and Apple Watch continue to attract first-time buyers in China, indicating underlying brand strength.
A US$500 billion bet on America—and TSMC
Cook also unveiled a sweeping plan to invest $500 billion in the United States over the next four years. That includes expanded operations in a dozen states, ranging from server manufacturing in Texas to chip and component sourcing from facilities in Arizona, Michigan, and North Carolina.
A key element is Apple's deepening collaboration with TSMC, whose Arizona fab is now shipping advanced chips for Apple. These US-made semiconductors—down to the resistor and capacitor level, as Cook noted—are expected to exceed 19 billion units this year. It's a strategic win for Apple, which now counts itself as the "largest and first customer" of TSMC Arizona and a critical partner in the broader US reshoring agenda.
While reshoring is politically advantageous and strategically prudent, it's not without cost. CFO Kevan Parekh said some of the supply chain changes are already embedded in Apple's gross margins. At 47.1%, margins remain strong, though product gross margin declined 340 basis points sequentially due to seasonal effects and unfavorable mix. "Over time, we have a strong track record of cost optimization," Parekh reminded investors.
Apple Intelligence: Small steps, ambitious vision
The other defining theme of the quarter is Apple's AI strategy—described by Cook as a hybrid model rooted in privacy and accessibility. Apple is shipping its own foundation models capable of running on-device or in its private cloud compute, with third-party integrations (including ChatGPT) handling world knowledge queries. This model balances efficiency, user experience, and Apple's stringent privacy standards.
Cook highlighted that the iPhone 16 lineup, powered by the A18 chip and the new in-house C1 modem, is already seeing improved performance in markets where Apple Intelligence has launched. A host of generative AI features—image editing, smart replies, memory movies, and notification summaries—are now live, with more personal Siri upgrades still under development.
Apple's AI trajectory, while deliberate, is intensifying. "We're not gating our investment," said Cook. "We continue to be very excited about the roadmap."
Resilience in volatile world
From the outside, Apple appears to be walking a tightrope—navigating trade policy uncertainty, inflationary pressure, and competitive regulatory environments in Europe and the US. Despite that, the company's Q2 results and strategic signals suggest that the company is walking it with unusual steadiness.
Cook didn't overpromise. He reiterated that Apple's long-standing approach—disciplined investment, relentless innovation, and operational finesse—remains intact. Whether dealing with legal battles over its App Store, pricing pressure in Europe, or uncertainty over U.S.-China relations, Apple is playing the long game.
"In a complex supply chain, there's always risk," Cook said. "But we're confident in our ability to run this company in a way that has always set Apple apart."
As Apple gears up for its Worldwide Developers Conference (WDC) in June, expectations are high—not just for new products, but for clarity on its next phase.
Article edited by Jack Wu
