About 62% of Apple’s total revenue comes from overseas markets, making it vulnerable to currency headwinds

Apple has just reported the biggest ever quarterly profit in history. The company sold a staggering 74.5 million iPhones, generating $74.6 billion in sales and $18 billion in profits for Q1, 2015. Apple CFO Luca Maestri said during the earnings call that its revenue would have been 4% higher in the crucial holiday quarter had the currency fluctuations not affected its results.

Currency Fluctuations Cost Apple Inc. $3.73 Billion In Q1 Sales

Apple lost more to currency headwinds that Google earns in a quarter

According to Ben Thompson of Stratechery, currency headwinds reduced Apple’s sales by $3.73 billion during the quarter. By comparison, Google’s net profit in Q3, 2014 was $2.81 billion. That means Apple lost more money to currency headwinds than Google earned in a quarter. It speaks volumes about the mammoth size of Apple.

However, Apple is not the only U.S. firm facing currency headwinds. Procter & Gamble, DuPont and others have showed that a strong dollar has hurt their earnings. Many U.S. exporters have warned that the situation could get worse if the U.S. dollar continues to strengthen. The greenback has surged about 20% against a basket of major currencies since May 2014, reports Sinead Carew of Reuters.

About 62% of Apple’s total revenue comes from overseas markets. The company’s heavy currency hedging has lowered the effect of a strong dollar on its earnings. But Cross Research analyst Shannon Cross estimates that, even if Apple’s hedging strategy halves the impact of currency fluctuations, a stronger dollar could reduce its 2015 revenue by as much as $3 billion. Apple CFO Luca Maestri said that the company has included forex headwinds into its guidance.

Apple’s Q2 guidance reflects 5% forex headwind

For the January-March quarter, Apple has guided revenue between $52 billion and $55 billion, reflecting a 5% currency headwind. To battle currency fluctuations, U.S. companies have two choices. One, maintain the overseas prices even when the dollar rises and take a revenue hit. Another option is to increase prices with fluctuations in currencies and risk losing customers.

Apple prefers taking a hit in the form of reduced revenue and profits rather than passing on the burden to customers. But the company was forced to hike iPhone prices in Russia last month when the ruble plunged more than 30% against the dollar within a matter of days.

Apple shares ticked up 0.82% to $116.26 in pre-market trading Thursday.