For more than a year, Apple avoided major damage from the U.S. trade war with China. Now it faces its first major hit
Employees on the assembly line at Hon Hai Group's Foxconn plant in Shenzhen, China. Hon Hai is the parts supplier for Apple and other U.S. tech firms.
There’s a"very real risk of higher import costs and/or U.S. consumer demand destruction depending on whether Apple decides to pass along some of the tariff cost," Krish Sankar, an analyst at Cowen Inc., wrote Tuesday in a note to investors."Given that the majority of Apple’s hardware products that include the iPhone, iPad, Watch, and Mac systems are assembled and imported from China, the earnings risk could be quite substantial.
The heightened trade tensions are a test for Cook and the global supply chain he helped build and run. Last year, the CEO showed political prowess by meeting with President Trump to argue against tariffs. By late 2018, Apple’s strategy had become less effective. In late November, Trump told the Wall Street Journal he might impose tariffs on mobile phones and laptops, and said consumers"could stand" a 10% increase in prices"very easily." The day after, Cook toured schools in Idaho with Ivanka Trump, the president’s daughter and senior advisor.
That suggests the company may take a similar approach with the iPhone. In its September letter to Lighthizer, Apple said tariffs would increase product prices. This may only apply to U.S. iPhone sales, limiting the damage. About a third of iPhone revenue comes from the U.S., according to Shannon Cross of Cross Research.That won’t address the problem of even more expensive iPhones, though. A series of price increases in recent years has already coincided with declining sales. If Apple passes the whole tariff cost to U.S. consumers, demand could drop by 10% to 40%, Cowen’s Sankar estimated on Tuesday.
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