Apple got a much-needed iPhone and China boost, but expects a $1.1 billion tariff hit this quarter

By Lisa Eadicicco, CNN

(CNN) — Apple reported strong iPhone sales and rebound in revenue from China, giving a much-needed boost to two parts of the company’s business that had struggled over the past year.

That better-than-expected performance reassured Wall Street investors that key parts of its business are holding steady as Apple struggles to keep pace with rivals in the artificial intelligence race and navigates President Donald Trump’s looming tariffs. Apple could incur $1.1 billion in tariff-related costs in the September quarter, CEO Tim Cook said on a call with analysts, which would be up from the $800 million this past quarter.

The iPhone generated $44.5 billion in revenue for the quarter that ended in June, beating analyst expectations of $40 billion and last year’s results of $39.3 billion for the same period. Overall revenue came in $94 billion in the quarter, marking a 10% increase year-over-year.

Sales of iPhones also grew in China, where the company has underwhelmed recently, growing from $14.7 billion in the third quarter of 2024 to $15.3 billion this past quarter.

Apple shares were up a little more than 2% in after-hours trading. But that’s a much smaller boost than tech giants Microsoft and Meta, which saw there shares surge by nearly 7% and over 9% respectively on Wednesday thanks to their AI investments. Apple has woefully underperformed its rivals. The stock is down nearly 15% this year, missing out on the market’s big rally over the past several months.

There was a time when surging iPhone sales would have been enough to excite Wall Street. But analysts pressed Apple CEO Tim Cook about the company’s vision for how AI will shape future products and how the company views the iPhone’s relevance in the AI age.

But Cook believes the iPhone will continue to be essential even as AI plays a bigger role in everyday life.

“It’s difficult to see a world where iPhone’s not living in it,” he said in response to a question about how Apple is preparing for a scenario in which people rely more on voice assistants and less on screens. “And that doesn’t mean that we are not thinking about other things as well, but I think that the devices are likely to be complementary devices, not a substitution.”

Big quarter for the iPhone

The iPhone generates more revenue than any other Apple product, making it the company’s most important business in Wall Street’s eyes. Apple CEO Tim Cook said on a call with analysts that the company set a June quarter record for iPhone sales, growing 13% year-over-year.

But Trump’s whipsaw tariff policies have required Apple and other tech giants to rethink how they manufacture and ship devices like smartphones and computers. Investors are also eager for Apple to make a bigger splash in artificial intelligence as other tech behemoths like Google, Meta and Microsoft push forward.

Apple shifted most production of US-bound iPhones from China to India earlier this year to avoid Trump’s tariffs. Smartphones were exempt from the previous reciprocal levies on China that would have increased the tariff rate to a staggering 145%, but Trump has also said companies like Apple and Samsung could face a 25% tariff unless they make their smartphones in the US. A temporary trade deal between the two powerhouse economies will keep tariffs at 30% until August 12, while Trump threatened India with tariffs as high as 25% earlier this week.

When asked about how the company is handling its product assembly based on the tariff situation, Cook said there hasn’t been a change since last quarter; the “vast majority” of iPhones sold in the United States have India as their country of origin.

He also reiterated that Apple has a strong presence in the United States, with roughly 19 billion chips coming out of the US currently.

AI struggles

Beyond tariffs, Apple faces broader challenges to the future of its business. Apple is perceived to be behind in artificial intelligence, a critical technology that many believe will impact the economy and change the way people work, communicate and find information.

The company indefinitely delayed a major upgrade to Siri that would have brought it up to speed with modern AI agents like OpenAI’s ChatGPT and Google’s Gemini. Cook said on the call with analysts that Apple was making “good progress” with its upgraded Siri and that it plans to release the new version next year. In the meantime, Apple’s suite of AI features includes functions spread across various features and apps – such as a custom emoji maker, the ability to summarize text and an image generator – tools that provide some convenience but are far from being as impactful as a service like ChatGPT.

“We are also significantly growing our investments,” Cook said during the call. “Apple has always been about taking the most advanced technologies and making them easy to use and accessible for everyone. And that’s at the heart of our AI strategy with Apple Intelligence.”

Apple has also been losing key AI researchers to Meta in recent weeks as the social media giant aggressively expands its AI efforts, according to Bloomberg. Cook said the company is reallocating “a fair number of people to focus on AI.”

“We have a great, great team, and we’re we’re putting all of our energy behind it,” Cook said.

Apple has also been acquiring companies in the AI space; Cook said it’s bought seven companies this year, although not all of them are AI-related.

Two analysts from Lightshed Partners made waves earlier this month when they questioned whether Apple should replace Cook with a more product-oriented CEO.

“He’s a supply chain guy. They need a tech visionary,” Ted Mortonson, managing director and technology sector strategist at financial services company Baird, previously told CNN. “I think they’re in a lot more trouble than some people think.”

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