Apple Q2 2025 earnings call: Steady amid tariff uncertainty

Apple maintains its position as a tech behemoth with a loyal customer base and a powerful ecosystem. Its revenue growth has decelerated compared to some of its more rapidly expanding counterparts in the technology sector. Despite navigating a complex global economic landscape including tariff uncertainties, the company has demonstrated a degree of stability in its overall financial performance during the recent period.

Revenue increased 5.1% year-on-year to US$95.4 billion in Q2 2025 despite a 2.5% foreign exchange headwind. Quarterly revenue reached record highs in many countries, ranging from the UK to India.

Products revenue increased 2.7% year-on-year to US$68.7 billion in Q2 2o25, driven by growth in iPhone, iPad and Mac. Apple’s installed base of active devices across all products categories and regions reached an all-time high during the quarter, which means more potential revenue growth for the Services segment. Services revenue increased 11.6% year-on-year to an all-time high at US$26.6 billion in Q2 2025, despite a 2% foreign exchange headwind. Services revenue across developed and emerging markets grew at double digits. The company continues to attain high customer satisfaction level and customer loyalty among its products and services. In general, Apple products like iPhone and Mac as well as services are well received by enterprises.

Gross profit margin improved from 46.6% in Q2 2024 and 46.9% in Q1 2025 to 47.1% in Q2 2025, in the middle of the management’s guidance range, driven by a favourable mix. Product gross margin declined from 36.6% in Q2 2024 and 39.3% in Q1 2025 to 35.9% in Q2 2025, driven by an unfavourable product mix, foreign exchange loss, and potentially lower sales volume after a major product launch in the fall. In general, Apple has a track record of reducing manufacturing costs over the product lifecycle. Services gross margin improved from 74.6% in Q2 2024 and 75.0% in Q1 2025 to 75.7% in Q2 2025, driven by a different mix.

The management returned US$3.8 billion to shareholders as dividend and spent US$25 billion buying back 108 million of the company shares from the open market. They plan to spend another US$100 billion on share buybacks in order to be net-cash neutral.

Despite an uncertain Q3 2025, revenue in the coming quarter is expected to grow at low-to-mid-single digits year-on-year with a smaller foreign exchange headwind. Gross margin will hover between 45.5% and 46.5%, including a negative tariff impact of US$900 million. The impact of the tariffs was limited in Q2 2025 as it was partially offset through optimization of its supply chain and inventory.

Amid rising U.S. protectionism, the management plans to spend US$500 billion in the U.S. over the next four years to expand its businesses in several U.S. states. A new factory will be launched in Texas to manufacture advanced servers. It has over 9,000 domestic suppliers in the country. In 2025, more than 19 billion chips will be sourced domestically from the U.S., including millions of advanced chips manufactured in Arizona (via the TSMC initiative). Apple also sources glass from an American company to manufacture iPhone. A detailed breakdown of capital expenditure in specific areas or R&D spending was not provided by CEO Tim Cook.

Apple employs a hybrid data centre strategy, using both third-party providers and their own data centre investments. Regarding AI foundation models, Apple plans to both develop their own models and partner with others, indicating a blended approach rather than relying solely on one method.

Products

In Q2 2025:

• Revenue from iPhone increased 1.9% year-on-year to US$46.8 billion, driven by the sales of iPhone 16 line-ups.
• Mac revenue increased 6.7% year-on-year to US$7.9 billion, driven by the latest MacBook Air, Pro and Mac Mini.
• iPad revenue increased 15.2% year-on-year to US$6.4 billion, driven by the new M3-powered iPad Air.
• Revenue from the wearables, home, and accessories subsegment decreased 4.9% year-on-year to US$7.5 billion.

Apple launched a number of new products during the quarter including iPhone 16e (entry-level phone), Mac Studio, and iPad Air. There was double-digit growth in iPhone upgraders. According to Kantar, iPhone topped the best-selling smartphone chart across the U.S., urban China, the UK, Germany, Australia, and Japan. However, the smartphone market has matured, making it hard to drive further significant sales increases.

The new Mac Studio is able to run large language models entirely in memory and is supported by Apple Intelligence. There was growth in upgraders and first-time Mac customers. More than half of the customers who bought an iPad or an Apple watch during the quarter were first-time purchasers.

Wearables, home, and accessories segment is the only subsegment that recorded a year-on-year decline in revenue in Q2 2025. This is due to the launch of Apple Vision Pro that was well received in the corresponding quarter last year. This segment continues to be supported by other products including Apple Watch Series 10 and AirPods 4. Notably, AirPods Pro 2 is equipped with hearing health/aid features. Apple also provided updates on its Vision Pro spatial computing platform. The introduction of Apple Immersive Video content, featuring an experience with Metallica, demonstrates the device’s entertainment potential. The upcoming visionOS 2.4 will bring Apple Intelligence to the platform, promising enhanced capabilities. Additionally, the new Spatial Gallery app aims to curate and showcase compelling spatial experiences for users.

Two new stores were opened during the quarter. Apple will open one store in the UAE and more in India as well as the online store in Saudi Arabia in 2025.

Services

Apple Services include popular offerings like Apple Pay, Apple Music, Fitness+, Apple Books, and the App Store, among others like iCloud, Apple TV+, and AppleCare. Apple TV+ recorded its highest viewership during the quarter. Viewers can also watch Friday Night Baseball Apple TV+ with MLS Season Pass as well as Formula One Grand Prix on Apple Sports.

Apple Intelligence is designed to deliver intelligent features for everyday use. It is connected to ChatGPT and built with a strong focus on privacy through on-device processing and its Private Cloud Compute. Powered by AI and machine learning, Apple Intelligence has incorporated more languages and localized ones. Overall, the positive impact of Apple Intelligence on iPhone 16 sales was observed in markets where it was available in Q2 2025. The underlying power for enabling these AI capabilities, as well as generative AI in iOS 18.4 and third-party apps, comes from Apple Silicon.

Apple has also delayed the launch of the AI-powered improvements to Siri. This delay is not necessarily a definitive sign of weakness in the company’s overall tech capabilities; it is a point that investors and observers will be watching closely.

In Q2 2025, transacting and paid accounts stood at all-time highs. Paid accounts and subscriptions recorded double-digit year-on-year growth during the quarter. Apple has over 1 billion paid subscriptions across all its platform services.

Key analyst questions

Amid rising nationalism and geopolitical tensions, Apple’s revenue from China dropped 2.3% year-on-year. Cook clarified that the company’s revenue from China was in fact flat excluding the impact of foreign change, which indicated better-than-expected stable underlying demand. Revenue in Q2 2025 improved sequentially from the December quarter, that dropped 11.1% year-on-year. The results were primarily driven by iPhone, followed by Mac, iPad, and Apple Watch.

Nationalistic sentiments and subsidies (a recent national subsidy program to boost consumer spending on smartphones priced under CNY 6,000) present challenges to Apple in China. While many of Apple’s iPhones are priced above the subsidy threshold, the overall program to boost consumer spending can indirectly benefit Apple by stimulating broader market demand. Apple’s strong brand, loyal customer base, and presence in the high-end market have provided some resilience. Despite stiff competition in China and geopolitical uncertainties, iPhone and iPad were still the top two best-selling phones and tablets in urban China.

More questions regarding tariffs were raised during the earnings call. For the June quarter, most iPhones sold in the U.S. will originate from India, while Vietnam will be the origin for almost all U.S.-bound iPads, Macs, Apple Watches, and AirPods. China will remain the primary origin for products sold outside the U.S. Apple’s main tariff exposure in the June quarter is the U.S. 20% International Emergency Economic Powers Act tariff on China-origin products imported to the U.S.Additionally, certain U.S. AppleCare and Accessories imported to China face a total tariff of at least 145%. Importantly, most of Apple’s major products (iPhone, Mac, iPad, Apple Watch, Vision Pro) are currently exempt from the newly announced global reciprocal tariffs due to an ongoing U.S. Department of Commerce investigation.

Cook also replied to an analyst that there is no obvious evidence of consumers accelerating their purchases in the March quarter ahead of the tariffs. Apple increased its overall inventory ahead of the tariffs to reduce costs potentially, the inventory held by their retail partners remained consistent.

Based on Cook’s response, the impact of alternate app stores (resulting from the Digital Markets Act in Europe) appears to be minimal and already factored into their reported results.

In a recent ruling, Apple was ordered to allow US developers to freely communicate alternative payment methods to users and to immediately stop charging fees on those external purchases, a decision Apple ‘strongly disagrees’ and has vowed to appeal. Apple’s services head, Eddy Cue, recently mentioned that traditional search engines like Google Search will eventually be replaced by AI-powered search providers such as OpenAI, Perplexity AI, and Anthropic.

The fifth perspective

Facing plateauing iPhone revenue, Apple’s future growth and valuation hinge on successfully navigating uncertain tariff waters and significantly accelerating its services segment expansion, especially given potential demand pressures. The company’s ability to evolve beyond hardware dependence and demonstrate robust services revenue growth will be crucial for maintaining investor confidence and long-term shareholder value in a complex global landscape.