Apple Inc Earnings - Q2 2025 Analysis
Positives
- Revenue was $95.4 billion in Q2, up 5% YoY, and at the high end of the range provided last quarter.
- Net income was $24.8 billion and diluted EPS was $1.65, up 8% YoY and a March quarter record.
- Revenue for the quarter was $6.4 billion, up 15% YoY.
- Services revenue was $26.6 billion, up 12% YoY, with strong performance across all categories.
- Company gross margin was 47.1%, in the middle of the guidance range and up 20 bps sequentially, driven by favorable mix.
Q&A Highlights - Q2 2025
Analyst asked about the mix of India-sourced iPhones for the US by the end of fiscal year and if the goal is to source 100% of US-bound iPhones from India.
Tim Cook explained that the existing tariffs apply to Apple products based on their country of origin, and for the June quarter, India is expected to be the country of origin for the majority of iPhones sold in the US, while Vietnam is expected to be the country of origin for most iPad, Mac, Apple Watch, and AirPods products sold in the US. China will continue to be the country of origin for the vast majority of total product sales outside the US. The company's tariff exposure relates to the February IEEPA-related tariff at the rate of 20% and an additional 125% tariff for imports of certain categories of products announced in April. The company estimates the impact of global tariffs to be $900 million to their costs for the June quarter.
Analyst asked about the unique factors that benefit Apple in the June quarter related to the $900 million impact to their cost of goods sold.
Tim Cook mentioned that one unique factor that benefited Apple in the June quarter was the build ahead in manufacturing purchase obligations. He did not provide further details on other unique factors.
Analyst asked about the gross margin trajectory as Apple sources more from the US and other supply chain changes, including in India.
Tim Cook responded that the company is excited about bringing more production to the US and has already made progress in this area, with TSMC's project in Arizona and glass and Face ID modules coming from the US. He also mentioned that there are 19 billion chips coming out across 12 states, down to the resistor and capacitor level. He added that some of the cost structure changes are already built into the margins, and the company does not forecast beyond the current quarter.
Analyst asked about the company's supply chain resiliency and risk in the near term, specifically regarding potential export control issues.
Tim Cook acknowledged that the supply chain has risks, but the company has taken steps to mitigate those risks by diversifying its sources of supply.
Analyst asked about the impact of demand on the company's performance over the past month.
Kevan Parekh stated that the company's best thinking is reflected in the range provided in the outlook, which assumes that global tariff rates, policies, and macroeconomic outlook remain the same as they are today.
Analyst asked about the impact of delays in Siri personalized features on consumer willingness to upgrade.
Timothy Donald Cook stated that during the March quarter, the company saw stronger performance on the iPhone 16 family in markets where Apple Intelligence was available, compared to those where it was not. He also mentioned that some of the languages were rolled out in April, which were in Q3.
Analyst asked about the impact of tariffs on US consumers and the reaction to the GDP shrinkage in Q1.
Timothy Donald Cook stated that he is not an economist and does not want to predict the future. However, he noted that the company's results accelerated sequentially to the 5% level, with the US being the vast majority of the Americas segment, and that the company is pleased with the results from Q2.
Analyst asked about the evolution of edge devices and whether the current smartphone specs are sufficient to meet future Edge LLM requirements.
Tim Cook responded that Apple is excited about the opportunities in the space and is making progress towards delivering on its promises, including the integration of ChatGPT with the iPhone 16. He mentioned that the company continues to be excited about the roadmap and is pleased with the progress it is making.
Analyst asked about the delays in delivering the new Siri Assistant and the factors contributing to them, including organizational factors, legacy software stack, and R&D spending.
Tim Cook responded that the company has delivered a lot of the features promised at WWDC, including Writing Tools, seamless integration with ChatGPT, Genmoji, Image Playground, Image Wand, Clean Up, and Visual Intelligence. However, he acknowledged that the more personal Siri feature is taking longer than expected to deliver and attributed the delay to the need to meet the company's high-quality bar. He also mentioned that the company continues to invest significantly in R&D, which is growing.
Analyst asked about the gating factors investors should look for to have a sense that Apple can deliver on some of the promises of the announcements at the prior WWDC.
Kevan Parekh responded that the company does not underestimate its R&D investments and continues to grow its R&D investment. He mentioned that the company is making all the necessary investments to enable its roadmap.
