Apple Earnings: Limited Impact From China Tariffs, BofA Says

Apple Inc. (AAPL) reported its fiscal first-quarter earnings on Thursday, with revenues rising 4% year-over-year to a record high of $124.3 billion. Despite the strong results, the company's stock price fell slightly, reflecting investor concerns about the impact of U.S.-China tariffs on the iPhone maker's earnings. However, Bank of America (BofA) analysts have a different perspective, suggesting that the tariffs will have a limited impact on Apple's earnings in the long term.



BofA analysts believe that Apple's supply chain diversification strategies will help mitigate the impact of U.S.-China tariffs on its earnings. The company has been expanding its supply chain to countries like Vietnam, Malaysia, and India, which will allow it to avoid tariffs on imports from China. Additionally, Apple has been increasing its sourcing from India, which is expected to become a significant production hub for the company. By diversifying its supply chain, Apple will be able to reduce its exposure to tariffs and maintain its competitive edge in the global market.



Moreover, Apple's Services business has been a significant driver of growth for the company, with revenues rising 14% in the fiscal first quarter of 2025. The segment's gross margin also increased to a record high of 75%, up 1 percentage point sequentially. This high-margin business has contributed to Apple's overall gross margin rising to a record high of 46.9% in the previous quarter. As iPhone sales sagged in China, Apple's Services business has been a bright spot, with revenues rising by "low double digits" in the current quarter. The company's management has also expressed optimism about the potential for iPhone 16 sales to be boosted by the rollout of Apple Intelligence features in more regions.

However, Apple faces headwinds in China, where its hardware sales have been declining. In the fiscal first quarter of 2025, Apple's revenues in the Greater China region fell over 11% year-over-year, with half of the decline attributed to a change in channel inventory. The company also faces competitive pressure in the region, as well as regulatory hurdles that prevent it from offering its Apple Intelligence features in China.

Despite these challenges, Apple's Services business has the potential to offset some of the headwinds faced by its hardware sales in China. As the company continues to expand its Services offerings and increase its gross margin, it is well-positioned to maintain its earnings growth even in the face of declining hardware sales in China.

In conclusion, while Apple faces headwinds from U.S.-China tariffs and market competition in China, its supply chain diversification strategies and strong Services business position the company to mitigate the impact of these challenges on its earnings in the long term. As Apple continues to innovate and adapt to changing market conditions, investors can expect the company to maintain its competitive edge and deliver strong earnings growth.