Tariffs Could Hurt US Growth, Apple CEO Says; Stock Up After Quarterly Results

Apple is the latest tech interest to decry new U.S. tariffs related to intellectual property disagreements, and those recently proposed by the Trump administration on Chinese goods (see 1807260024 and 1807240031). Tariffs "show up as a tax on the consumer and wind up resulting in lower economic growth” that can sometimes bring about "significant risk of unintended consequences,” said CEO Tim Cook on a quarterly earnings call Tuesday after regular U.S. markets closed.

Double-digit growth in fiscal Q3 ended June 30 shows “lots of good things happening” but trade relationships between the U.S. and other major economies are “very complex,” the executive said. Several trade agreements “are in need of modernizing,” but in most situations, “tariffs are not the approach to doing that,” Cook said. Shares closed up 5.9 percent to $201.50.

Risks of macroeconomic issues such as an economic slowdown or currency fluctuations related to tariffs are difficult to quantity, “and we're not even trying to,” said Cook. None of Apple’s products was affected by the U.S. tariff on steel and aluminum, which took effect in June, nor two other tariffs totaling about $50 billion, he said.

Apple is evaluating the fourth proposed tariff, including goods valued at $200 billion, and will share its views of it with the administration before the comment period ends, Cook said. He cited a “tedious process …because you not only have to analyze the revenue products, which are a bit more straightforward to analyze, but you also have to analyze the purchases that you're making through other companies that are not related to revenue.” Those could include data centers, he said. After Cook spoke, the administration announced the latest proposed batch of tariffs could rise 15 points to 25 percent (see 1808010078).

The company is “optimistic” about a positive resolution “because there is an inescapable mutuality between the U.S. and China that sort of serves as a magnet to bring both countries together,” said Cook. Each country can only prosper if the other prospers, he said, “and, of course, the world needs both U.S. and China to prosper for the world to do well.” Cook said Apple hopes "calm heads prevail.”

Revenue was $53.3 billion, up from $45.4 billion in the year-ago quarter; profit rose to $11.5 billion from $8.7 billion, said the company. Apple’s services business jumped 31 percent to $9.5 billion, with paid subscriptions from Apple and third parties passing 300 million, up 60 percent in the past year, Cook said.

Apple Music has “well over 50 million listeners,” Cook said, including paid subscribers and those trialing the service. He downplayed the numbers game with Spotify (see 1807260056), saying “the real challenge is to grow the market.” With a subscriber market of some 200 million globally, Cook cited an “extraordinary opportunity” to grow that market, which would benefit other companies, too. Pandora also rose Wednesday after quarterly results (see 1808010061)

IPhone sales gained 20 percent to $29.9 billion, units up 1 percent to 41.3 million, with double-digit growth in the U.S., Canada, Germany, Switzerland, Mexico, Hong Kong, Russia, the Middle East and Africa, said Chief Financial Officer Luca Maestri. Average selling price grew to $724 from $606, on sales of X, 8 and 8 Plus, he said.

Despite reports of slowing smartphone growth (see 1808010057), Cook called the market “healthy,” and “enormous sized.” Cook acknowledged some replacement cycles are “lengthening,” attributing that to subsidy plans becoming a “much smaller percentage of total sales." The iPhone X is evidence that “when you deliver a great innovative product," there are enough customers to generate "a really good business,” he said.

Cook cited “major growth” in Apple TV since its 4K model bowed last fall. He noted Charter TV will begin offering the media streaming device to its customers in nearly 50 million U.S. households later this year, bringing access to live channels and “tens of thousands” of on-demand programs via the Spectrum TV app on Apple TV 4K, iPhone and iPad. Also this fall, Apple TV 4K will add support for Dolby Atmos audio and new search features.