Apple's tariff costs and iPhone sales are soaring - how long until device prices are too?

Elyse Betters Picaro / ZDNET

ZDNET's key takeaways

• Tariffs cost Apple approximately $800 million last quarter.
• That bill will go up to about $1.1 billion this quarter.
• Apple says 1 in 10 iPhone sales in April were due to tariff fears.
  

Apple earnings calls usually have a theme, and there's usually a word associated with that theme that ends up being repeated many times throughout the call. During yesterday's call, the theme and repeated word was "tariffs."

iPhone sales were up

Because of the negative aura that surrounds that T word, Apple was keen to keep things upbeat, and with good reason. After all, iPhone sales were up 13% year over year, generating a colossal $44.6 billion in revenue.

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The feeling among investors prior to the earnings release was that the iPhone would enjoy a bump in sales as consumers pulled the trigger on an upgrade ahead of any tariff-related increases. Apple tried to deflect from this during the earnings call by pointing out the iPhone saw "growth in every geographic segment and double-digit growth in emerging markets."

But headlines suggested tariffs could push the price of the iPhone to stratospheric levels, and that no doubt helped encourage some people to upgrade. 

In fact, when Apple CEO Tim Cook was asked about this during the Q&A, he said that the company estimated that "the pull forward of demand into April, specifically to be about 1 point of the 10 points in terms of people buying because of discussions about tariffs."

How, or even whether, this will affect iPhone 17 upgrades remains to be seen.

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During the last earnings call, Cook was keen to point out that tariffs would have an impact of around $900 million. It turned out that the impact was a little less, "approximately $800 million," but over the following quarter, it would increase to $1.1 billion -- and that number assumes nothing changes. Quite a big assumption.

That's a big chunk of change, even for a company that just posted revenues of $94 billion and a gross margin of nearly half that.

And so far, Apple is shouldering that cost. 

But for how long?

Well, as you'd expect, Apple is keen to avoid talking about price rises.

Instead, it would rather we focus on the ways the company intends to mitigate the impact of the tariffs -- such as changing the country of origin of the iPhone from China to India -- and pointing out the company's $500 billion investment in the US over the next four years. (That four-year timescale is interesting, because the company is focused on this being a plan for the lifecycle of this presidential administration, and that thinking or planning beyond is moot.)

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But Apple could offset the tariffs with either covert price rises or savings. For example, it's already rumored that the upcoming iPhone 17 will drop the Plus model that hasn't proved all that popular and replace it with a pricier Air model. And the new models landing later this year also give Apple the ability to tweak prices and make savings on the bill of materials.

One thing's for sure: With cash flowing into Apple's coffers at the rate that it is, the company is far from doomed.

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