Apple Tops Wall Street's Profit Expectations but Tariff Fears Still Loom

Apple built its business by innovating. But lately, it's been leaning on diplomacy.

Tim Cook, Apple's CEO, recently scored exemptions from tariffs on exports of Chinese-made iPhones. The maneuver freed Apple to focus on business, and lately, business has been good.

A new, lower-priced iPhone, which the company introduced in February, and strong sales of apps and services helped the company make $24.78 billion in quarterly profit, a 4.8% increase from a year ago, Apple said Thursday. The company's sales rose 5% to $95.36 billion.

The results exceeded Wall Street analysts' expectations for $24.37 billion in profit and $94.35 billion in sales. The company said it expected revenue to rise slightly in the current quarter, which ends in June. Shares fell more than 3% in after-hours trading.

Apple's steady performance came amid turbulence. In just a few months, the company has had to navigate internal and external obstacles, including the failures of its much anticipated artificial intelligence system and the challenges of the Trump administration's punishing tariffs on products made abroad.

During a call with Wall Street analysts, Cook said that tariffs had begun to take a bite out of its business. He estimated $900 million in costs in the current quarter because of tariffs, provided the rates of those levies stay the same and no new fees are introduced.

Last month, shares of Apple plummeted after President Donald Trump imposed tariffs of 145% on exports from China, where Apple makes 80% of the iPhones it sells, as well as tariffs on other countries that make iPads and Macs such as Vietnam. The tariffs erased about $770 billion of the company's market value in four days.

Wall Street analysts predicted Apple would have to increase iPhone prices to $1,600, from $1,000. Some customers raced to buy iPhones before prices went up, which is expected to help lift sales in the current quarter that ends in June.

But three months after personally donating $1 million to Trump's inauguration, Cook pressed the White House to relax its tariffs and persuaded the Trump administration to temporarily relent.

Cook said Apple has responded to the tariffs by revamping its supply chain to avoid tariffs on products assembled in China. In the current quarter, he said the company will assemble the majority of iPhones sold in the United States in India. Macs, iPads and AirPods will be assembled in Vietnam.

"We will manage the company the way we always have, with thoughtful and deliberate decisions," Cook said. "As we look ahead, we remain confident."

On Thursday, Apple said sales of iPhones, its most important business, rose 2% to $46.84 billion over the quarter. The company increased iPhone sales by more than 10% in Japan, India and the Middle East, helping it claim the largest share of smartphone sales in the world over a three-month span, according to Counterpoint Research, a market research firm.

The company continues to struggle in China, where it reported its sixth quarter of sales declines. Total revenue from the region was $16 billion in the quarter, down 2% from a year ago. It was the only region where sales declined.

"Everything is OK for right now because no prices have been raised," said Ben Bajarin, principal analyst at Creative Strategies, a tech research firm. "The question is: If more tariffs hit, then what happens?"

The company's services business, which includes sales from apps, Apple Music and Apple Pay, outshined its devices. Apple reported revenue for the business of $26.65 billion, an 11.6% increase from last year.

But the future of Apple's services business is uncertain. In an antitrust case Wednesday, a federal judge rebuked the company for its business practices and ruled it can't collect a commission of 27% on app sales made outside the App Store. Her order allows apps to cut Apple out of their business, muffling one of the company's most important sources of revenue.

Cook said Apple disagreed with the ruling and plans to appeal.

In a separate antitrust case, Apple could lose $20 billion in services revenue that Google pays to be the automatic search engine on iPhone web browsers. A federal judge ruled last year that Google had broken the law to maintain a search monopoly. Last month, he convened a hearing to address its illegal behavior, including remedies that could include restrictions on Google's payments to Apple.

The company's device business also faces questions. Last year, Apple revealed a generative AI system capable of improving emails, summarizing notifications and upgrading its virtual assistant, Siri. It promoted the system, which it called Apple Intelligence, as a major reason to buy a new iPhone. But in March, the company pulled its advertisements promoting the features and said some would be delayed until later this year.

"We just need more time to complete the work, so they meet our high quality bar," Cook said. "It's taking a bit longer than we thought. But we are making progress."

This article originally appeared in The New York Times.