Apple girds for more trade war pain, trims buyback

Apple recently announced a reduction in its share buyback program by $10 billion, citing potential tariff costs of $900 million this quarter as a result of President Donald Trump’s trade war. CEO Tim Cook highlighted the company’s efforts to minimize the impact of the trade war by shifting its supply chain and expanding its U.S. footprint.

Cook revealed plans for a $500 billion spending initiative to enhance Apple’s presence in the U.S., including investments in server and chip factories with manufacturing partners. The company has also begun stockpiling products to ensure that the majority of devices sold in the U.S. this quarter do not originate from China.

Analysts view these strategic moves as Apple preparing for uncertain times ahead. Thomas Monteiro, a senior analyst at Investing.com, noted that the decision to reduce buybacks suggests a cautious approach to future uncertainties.

Following the quarterly results announcement, Apple’s shares dropped by 4.3%. Despite the ongoing trade war, Apple reported strong sales for the fiscal second quarter, with revenue of $95.36 billion and earnings per share of $1.65, surpassing analyst estimates.

Looking ahead to the fiscal third quarter, Apple anticipates low-to-mid single-digit revenue growth, in line with analyst expectations. However, the company foresees a decline in gross margins, citing a range of 45.5% to 46.5%, below analyst projections.

Cook emphasized the impact of tariffs on costs, estimating an additional $900 million in expenses for the current quarter. To mitigate these costs, Apple plans to source the majority of iPhones sold in the U.S. from India and shift production of other devices to countries like Vietnam.

Furthermore, Apple’s commitment to expanding its presence in the U.S. will incur significant costs, with Cook highlighting investments in chip facilities across several states. The company’s services business generated $26.65 billion in revenue for the second quarter, while sales in Greater China reached $16 billion.

In addition to the reduction in the share buyback program, Apple announced a 4% increase in its cash dividend and authorized an additional $100 billion for stock repurchases. These financial decisions reflect Apple’s proactive approach to navigating the challenges posed by the trade war and global economic uncertainties.

Overall, Apple’s strategic moves and financial decisions underscore the company’s adaptability and resilience in the face of evolving market conditions. As the tech giant continues to navigate the complexities of the global supply chain and trade landscape, its focus on innovation and operational efficiency remains key to sustaining long-term growth and profitability.