Apple (AAPL) Stock: Q2 Earnings Beat Estimates but China Sales Miss

TLDR

Table of Contents

Apple stock fell after hours following Q2 earnings despite beating estimates
Company warned of $900 million tariff headwind in the current quarter
iPhone revenue exceeded expectations at $46.8 billion
China revenue disappointed at $16 billion versus $16.8 billion expected
Apple authorized an additional $100 billion in stock buybacks

Apple’s fiscal second quarter earnings report on May 1, 2025, painted a mixed picture that left investors concerned despite overall strong numbers.

The tech giant beat Wall Street’s expectations with earnings per share of $1.65 and revenue of $95.4 billion. Analysts had predicted $1.62 EPS and $94.2 billion in revenue.

But the stock still took a hit. Shares fell 4% after the earnings call on Thursday and continued dropping another 3% in pre-market trading Friday.

So what happened? While iPhone sales were strong, two factors seemed to spook investors.

First, Apple’s Greater China revenue came in at $16 billion, below the $16.8 billion analysts expected. This underperformance comes as trade tensions heat up.

Second, and perhaps more concerning, was Apple’s warning about tariffs. The company expects a $900 million headwind from tariffs in the current quarter.

APPLE $AAPL Earnings…
📉 Apple shares drop 4% after earnings
✅ Beat on revenue & EPS
💸 Announced $100B buyback
⚠️ Warns of a $900M tariff headwind this quarter
🇮🇳 Now sourcing most iPhones from India pic.twitter.com/69tksx1kxJ
— Trader Edge (@Pro_Trader_Edge) May 2, 2025

Production Geography Shifting

Apple is actively reconfiguring its global production map in response to trade pressures.

CEO Tim Cook revealed that the “majority” of iPhones sold in the US market now come from India rather than China.

He also noted that “almost all” iPad, Mac, Apple Watch, and AirPods products destined for the US would now be sourced from Vietnam.

Products sold outside the US will continue to primarily originate from China, maintaining Apple’s manufacturing presence there.

When asked about future production allocation plans, Cook was noncommittal: “I wouldn’t want to predict the mix of production in the future.”

Apple also announced plans to source more than 19 billion chips from the US this year. This move reduces reliance on foreign suppliers and aligns with the company’s strategy to diversify production.

The company clarified that most of its products aren’t yet subject to the reciprocal tariffs announced in April. However, the situation remains fluid.

The White House is developing a plan for duties on semiconductors that could potentially extend to smartphones and computers, creating uncertainty for Apple’s supply chain.

Cook pushed back on the idea that consumers rushed to buy products before potential tariff-related price increases. He stated, “We don’t believe that we saw obvious evidence of a pull forward in demand in the March quarter due to tariffs.”

Financial Picture

Looking beyond the headlines, Apple’s core business remains strong by most measures.

iPhone revenue reached $46.8 billion, beating expectations of $45.6 billion and showing growth from $45.9 billion in the same quarter last year.

Mac sales hit $7.9 billion, outperforming the expected $7.7 billion. iPad revenue was $6.4 billion, also above the anticipated $6.1 billion.

Services revenue came in at $26.6 billion, just shy of the forecasted $26.7 billion, but still representing a vital and growing revenue stream.

For the upcoming June quarter, Apple expects revenue growth in the low-to-mid single digits compared to last year’s $85.8 billion.

This guidance suggests third-quarter revenue of between $86.7 billion (1% growth) and $91.0 billion (6% growth). The midpoint of $89.2 billion aligns with Wall Street’s consensus.

Apple also projected gross margins between 45.5% and 46.5% for the quarter. Based on these figures, Apple’s net income would be approximately $21.3 billion.

The company noted it was providing this guidance “despite the overall uncertain environment,” acknowledging the challenges of forecasting amid trade tensions.

In a move that typically pleases investors but wasn’t enough to offset other concerns, Apple authorized an additional $100 billion in stock buybacks.

During the earnings call, Cook opened by highlighting Apple’s US manufacturing efforts, emphasizing the company’s commitment to domestic production.

When pressed about AI development, particularly regarding Siri improvements, Cook was measured in his response, simply stating “We need more time.”

Apple’s stock traded at $206.88 in pre-market trading on Friday, down 3.02% from its Thursday close of $213.32.

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