By Dan Gallagher

That new iPhone will likely cost more soon. How much more, and how obvious Apple makes the price hike, are the real questions.

Apple's latest earnings report shows the company is so far choosing to eat the additional costs imposed by tariffs on goods imported to the U.S. But that is unlikely to last forever, especially given Apple's well-earned reputation on Wall Street for protecting its profit margins.

"Looking ahead, our base case is for Apple to raise prices, which should help offset the tariff impact to an extent," Raymond James analyst Srini Pajjuri wrote in a note following Apple's fiscal second-quarter results last week.

The tariff impact so far is actually pretty slight. In Apple's earnings call Thursday, Chief Executive Tim Cook said the company expects about $900 million in additional costs from tariffs for the fiscal third quarter that ends in June. That would add less than 2% to what Wall Street was projecting for Apple's cost of sales.

But few believe Apple's tariff pain will end there. Cook himself noted that the June quarter includes "certain unique factors" offsetting that hit, which strongly suggests that future periods will see even higher costs if tariffs remain as they are. Additional "sectoral" tariffs on semiconductors would add to the bill.

"Given the prospect of Trump's sectoral tariffs, we think it is prudent to at least double the $900 million hit to COGS [cost of goods sold] for a few quarters beyond June," wrote Ben Reitzes of Melius Research.

Concern about Apple's margins in coming periods helped drive the stock down nearly 4% following its earnings report. The stock lost a further 3% on Monday after The Information reported that the new ultrathin iPhone Apple is planning to launch later this year will include "compromises" such as shorter battery life.

Apple has shed more than $350 billion in market cap since President Trump's announcement of new tariffs on April 2. Most other megacap tech stocks have since recovered from their post-tariff losses.

The company has been making moves to offset the hit from tariffs. Cook said Thursday that most of the devices shipping into the U.S. during the June quarter will come from India and Vietnam. But Apple will be hard-pressed to fully decouple from its longtime manufacturing base in China -- especially as it looks to enhance the iPhone with new cutting-edge designs such as a thinner body or bendable screen that pose more complicated manufacturing challenges.

Over the longer term, price increases are the most likely scenario for a U.S. company that relies on foreign-produced hardware for most of its revenue. This would hardly be new ground for Apple, which has figured out clever ways to lift the average selling price of its iPhone business over the past several years. It has achieved this even while keeping the starting price of each year's flagship model at $999 since 2017.

This has come through a mix of higher-memory configurations and more premium iPhone models. Apple's average selling price for the iPhone was about $755 before the launch of its first iPhone Pro models in late 2019, according to data from Visible Alpha. That jumped to about $963 three years later.

Still, a hard-pressed consumer who is even cutting back on McDonald's will have limits on what they can stomach for smartphones that are pushing well past $1,000 in many cases. And Apple won't be getting much help from the wireless carriers whose subsidies and promotions often cushion the prices it can command. "We will not cover any enormous increase on tariffs on handsets," Verizon CEO Hans Vestberg said on his company's latest earnings call, just a day before the CEO of AT&T expressed a similar sentiment.

Apple's customers will feel its tariff pain eventually.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

May 06, 2025 05:30 ET (09:30 GMT)

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