By Akash Sriram and Zaheer Kachwala (Reuters) -Long seen as the safest Big Tech bet, Apple is heading into Thursday's earnings with its business facing pressure from U.S. tariffs, tough competition in
Apple Faces Earnings Pressure from Tariffs and AI Challenges
By Akash Sriram and Zaheer Kachwala
(Reuters) -Long seen as the safest Big Tech bet, Apple is heading into Thursday's earnings with its business facing pressure from U.S. tariffs, tough competition in China and a high-stakes artificial intelligence race it has been late to enter.
Wall Street expects the company to post a 4.2% rise in revenue for the April-June quarter to $89.34 billion. Still, the focus will be on how Apple plans to adjust to a landscape that has turned its global supply chain, long a strength, into a potential liability.
U.S. President Donald Trump has targeted the consumer electronics giant for its reliance on overseas manufacturing, threatening 25% tariffs on foreign-made iPhones. To limit the damage, Apple shifted production of U.S.-bound iPhones to India, further drawing Trump's ire.
The total volume of Indian-made smartphones jumped 240% in the second quarter, largely driven by Apple's supply chain shift, according to research firm Canalys.
Analysts and investors are now expecting the strategy to help Apple limit the hit from tariffs to well below $900 million it had estimated in May.
IPhones are "a very high-profile product that both the Chinese and the U.S. governments understand they have a lever over," D.A. Davidson analyst Gil Luria said. "So until the tariff rates get settled, Apple is very much at risk of being impacted by the current trade dispute."
Analysts also said Apple, like many other firms, potentially overestimated tariff costs to leave room for an earnings beat.
"Most companies we follow have made conservative assumptions by overestimating tariff costs as the goal of management is generally to beat its own guidance," said Jamie Meyers, senior analyst at Apple shareholder Laffer Tengler Investments.
Sales of iPhones are expected to have risen 2.2% in Apple's fiscal third quarter, according to data compiled by LSEG, helped by an improvement in demand in China, Apple's third-largest market. In the fiscal second quarter, this increased 1.9%.
Counterpoint Research data shows iPhone sales in the world's largest smartphone market jumped 8% in the quarter, fueled by steep discounts during the 618 shopping festival, government-backed trade-in subsidies and targeted iPhone 16 Pro promotions.
Sales of Apple's other devices are expected to have slowed in the April-June period, while revenue from services - its fastest-growing segment in recent years - is likely to rise to 10.7%. In the January-March period, services revenue grew 11.6%.
Doubts still remain over Apple's prospects in China, where domestic companies including Honor are rolling out smartphones packed with AI features such as generative AI photo editors.
Apple's cautious approach to AI has fueled concerns it is sitting out what could be the industry's biggest growth wave in decades. The company was slow to roll out its Apple Intelligence suite, including a ChatGPT integration, while a long-awaited AI upgrade to Siri has been delayed until next year.
(Reporting by Akash Sriram and Zaheer Kachwala in Bengaluru; Editing by Aditya Soni, Sayantani Ghosh and Anil D'Silva)
