Apple Earnings Amid Rising Geopolitical Risk and Tariffs
Has Apple Done Enough to Reduce China Supply Chain Dependency?
The dependence of Apple on the Chinese supply chain was reduced right after Covid-19. A Reuters article published in November 2022, shows this happened between 2019 and 2022. This reliance dropped from about 47% to about 36% in 2022. Much of this difference was picked up by increases in supply chain shifts to Japan, US and Taiwan and to a lessor extent in South Korea, Vietnam, India and other countries.
The recent results from Apple were released recently. Its China sells fell by 2.3% to $16 Billion USD amid increasing regularory bans and pressure from local competitors. Tariffs are estimated to increase costs by about $900 Million USD. To mitigate tariff effects, Apple is shifting some production to India and Vietnam from China. Iphone sales went up by about 2% with half the phones manufactured in India. A key segment to watch is the services revenue which increased by 12% to $26.7 Billion USD. This more than offset the decline in China revenue. A summary of the key highlighs are shown below:
Apple Inc. Q2 2025 Earnings Report Summary
Financial Highlights:
Revenue: $95.36 billion, up 4% YoY
Earnings Per Share (EPS): $1.65, beating analyst expectations
Gross Margin: 47.1%, slightly down from previous quarter
Net Income: $24.8 billion, reflecting strong operational efficiency
Segment Performance:
iPhone: Revenue increased by 2% to $46.84 billion, driven by strong demand for iPhone 15 models.
Services: Record revenue of $26.65 billion, a 12% increase, driven by growth in App Store, Apple Music, and iCloud subscriptions.
Mac: Revenue up 7%, reflecting robust sales of the new MacBook Pro models.
iPad: Revenue up 15%, boosted by the launch of the latest iPad Air with M3 chip.
Wearables, Home, and Accessories: Declined 5%, impacted by supply chain constraints and weaker demand for Apple Watch models.
Key Challenges:
Tariffs: $900 million in increased costs due to tariffs imposed on Chinese imports, impacting gross margins.
Supply Chain: Strategic shift in manufacturing from China to India, Vietnam, and the U.S. ongoing to mitigate geopolitical risks.
Market Conditions: Weakened demand in China and broader geopolitical uncertainties contributed to cautious investor sentiment. China represents 16% of global sales.
Stock Market Reaction:
Shares dropped approximately 4% in after-hours trading following the earnings announcement, reflecting investor concerns over tariff impacts and China market softness.
Apple’s services segment, which includes the App Store, iCloud, and Apple Music, showed steady growth but faces increasing regulatory scrutiny, especially in Europe. Investor sentiment remains mixed as the market weighs the impact of external pressures against Apple’s strong brand loyalty and robust cash flow. Analysts suggest that while near-term challenges may persist, Apple’s long-term prospects remain solid due to its commitment to innovation and strategic market expansion. A concern is that iPhones are less innovative along with the need to speed up AI resulting in less incentive for consumers to upgrade.
Can Apple Succeed in Navigating Geopolitical Risk?
Overall, Apple faces geopolitical and competitive pressures impacting growth, especially in China and from tariffs, while preparing product and AI advances ahead.
Looking ahead, Apple is cautiously optimistic but acknowledges that global economic uncertainties and regulatory scrutiny remain significant risks. The company plans to continue investing heavily in research and development, particularly in artificial intelligence, augmented reality, and health technologies, which are seen as key drivers for future growth. Additionally, Apple is focusing on expanding its services ecosystem to create more recurring revenue streams beyond hardware sales.
Investors will be watching closely how Apple navigates supply chain challenges and geopolitical tensions, especially as the tech giant seeks to diversify its manufacturing footprint. The upcoming launch of the foldable iPhone and enhancements in AI capabilities are expected to be critical catalysts for the company’s next phase of innovation.
While short-term headwinds have impacted Apple’s performance, its strong brand loyalty, robust services business, and commitment to innovation position it well for long-term success in an increasingly complex global market. However, we caution that geopolitical risk is not short-term in the coming era of de-globalization.
In short, Apple had is slowly mitigating its previous supply chain risk that relied heavilily on assembly in China. This was a flawed strategic choice. Investors largely ignored this risk in the past but it is all too real during Trump 2.0 and escalating tensions between the US an China.
