Kuo: Apple Likely to Absorb Any US Tariff Cost Increases on iPhone, iPad, and Mac

[MacRumors]

Apple's domestic pricing and shipment forecasts aren't likely to be impacted by U.S. tariffs thanks to "proper preparations" made by the tech giant, according to a new investor note by Apple analyst Ming-Chi Kuo and obtained by MacRumors.

Financial markets were rattled last week by President Donald Trump's surprise announcement of 10 percent tariffs on $300 billion of Chinese imports, effective September 1, in retaliation for moves by the Chinese government.

It's still unclear if Apple's products will come under the tariffs on toys, games, and consumer electronics, but if they do, Kuo believes Apple will absorb most of the additional costs in the mid-short term while increasing its non-Chinese production locations to avoid rising costs in the long run.

In the mid-short term, if Apple absorbs most of the additional costs due to tariffs, there will be a negative impact on its profits from its hardware business, but the company will reap benefits in its brand image and relationships with suppliers. We also believe that the negative impact on Apple are limited and temporary because the profit from service business is growing, and non-Chinese production locations will gradually increase.

Apple has been expanding production in India and Vietnam as part of a strategy to diversify product manufacturing beyond China. Kuo thinks Apple's non-Chinese production locations could meet most of the demand from the U.S. market after two years. Specifically, he believes iPhone, iPad, and Apple Watch manufacturing could meet demand as early as next year, but adequate Mac production outside of China won't be achieved before 2021.

The predictions stand in contrast to recent comments made by Apple CEO Tim Cook during his July earnings call, in which he was asked about Apple potentially moving out of China. Cook responded: "There's been a lot of speculation about this, [but] I wouldn't put much stock in it. Parts come from everywhere, including the U.S. We currently make the Mac Pro in the US and would like to continue that."

Earlier last month, Apple asked for a U.S. import tariff exemption on parts for the new Mac Pro, which President Trump said would be denied.

Note: Due to the political nature of the discussion regarding this topic, the discussion thread is located in our Politics, Religion, Social Issues forum. All forum members and site visitors are welcome to read and follow the thread, but posting is limited to forum members with at least 100 posts.

Article Link: Kuo: Apple Likely to Absorb Any US Tariff Cost Increases on iPhone, iPad, and Mac

 

[drumcat]

Bull. There's no way I'd eat a tariff if everyone knows who's the cause. This isn't some minor, slip it in a bill from Congress. This is Trump doing Trump. Tim is going to go nearly the full +10, and he's going to point at Don the Con.

 

[Textime]

Cause they know that people won't accept higher prices on the iPhone anymore

 

[Stiss]

Cause they know that people won't accept higher prices on the iPhone anymore

Well yes this is true.
It puts Apple in a bit of a jive, sure they've got the pockets to do this but they shouldn't really have to.
Trump needs to go already.

 

[jayducharme]

If true, maybe Cook really is the right CEO for Apple at the right time. This kind of management is his specialty.

 

[Kabeyun]

Too bad farmers don’t have the same insulation from tariffs.

 

[JPack]

Apple will likely "absorb" it by keeping base storage at 64GB for iPhone and keeping 5W charging. Basically absorb any drop in component prices.

When the iPhone 5G comes around, you can bet Apple will make up for it.

 

[G4DPII]

There is clearly room in the profit margins Apple has in place to do. Will they though, that is another matter.

 

[Southern Dad]

Bull. There's no way I'd eat a tariff if everyone knows who's the cause. This isn't some minor, slip it in a bill from Congress. This is Trump doing Trump. Tim is going to go nearly the full +10, and he's going to point at Don the Con.

You could do that, if you had no competition in the marketplace. If the price of your goods went up 10% but the competitor did not, you will lose business.

Apple won’t move assembly back to the USA at this time, but they have proven that they will move assembly to avoid tariffs.

 

[Classie]

It’s almost unfathomable how big corps/business work. There are so much preparation and future planing!
I think Apple is quite pleased with not having a product guy at the steering wheel

 

[hoon2999]

what if Apple knew this all along and increased the prices of iPhones ahead of time so that customer will think Apple is doing their favor?? *mind-blown*

 

[genovelle]

You could do that, if you had no competition in the marketplace. If the price of your goods went up 10% but the competitor did not, you will lose business.

Apple won’t move assembly back to the USA at this time, but they have proven that they will move assembly to avoid tariffs.

Competitors will all go up. They are all built in China. Even Samsung. They also have little profit to loose.

 

[dantroline]

Competitors will all go up. They are all built in China. Even Samsung. They also have little profit to loose.

Production is moving to other countries, not just because of tariffs but because of wages. The trade war is just accelerating the inevitable.

 

[BarredOwl]

Apple will not absorb the tariffs totally. No way.

For yet to be revealed products and updates, you can bet the prices will go up.

Apple is definitely not a charity, and they’ll pass this sh*t right on to the customer.

 

[Phonzoxd]

what if Apple knew this all along and increased the prices of iPhones ahead of time so that customer will think Apple is doing their favor?? *mind-blown*

Was my exact thought

 

[iReality85]

Well which is it? Is Apple "absorbing" the tariffs, or "properly preparing" for them? Because the latter seems to imply that Apple will avoid the tariffs, which is quite a bit different than absorbing them.

 

[PlayUltimate]

what if Apple knew this all along and increased the prices of iPhones ahead of time so that customer will think Apple is doing their favor?? *mind-blown*

IMO, the problem is less about maintaining the price and more about maintaining margins. AAPL will take a hit due to decreased margins if Apple goes this route.

 

[yakapo]

Bull. There's no way I'd eat a tariff if everyone knows who's the cause. This isn't some minor, slip it in a bill from Congress. This is Trump doing Trump. Tim is going to go nearly the full +10, and he's going to point at Don the Con.

Is it unreasonable to at least request parity in regards to tariffs? Read Musk’s comments on the exorbitant regulations for US car manufacturers in China.

 

[ReanimationLP]

Competitors will all go up. They are all built in China. Even Samsung. They also have little profit to loose.

Err... most of Samsung's phones are built in Vietnam or Korea. They do some production in China, but that's easy to solve... the ones heading for the US will just come from the Vietnam or Korean factories instead.

 

[BarrettF77]

What everyone here seems to forget is the disproportionate amount in trade with a China. They steal our IP regularly, no one polices them as heavily as they should, and all in the name of cheaper labor.

For everyone blaming Trump, grow up and stop being a band wagoner. Since when has more government and any government been a good thing or been done correctly?

The FCC finally pushing to stop these robo callers took how long? And why?.... only because it impacts them is why.

For the first time someone in the Oval Office in a long Time is there who doesn’t need the pay check. Yes he may do things for Corp America, but show me a few company’s who’s CEOs who aren’t about ever increasing their revenue and income?

Government used to be viewed as a role to serve the country. Now it’s a self serve and everyone goes along in blaming one person when it’s certainly not.

 

[tridley68]

I don't trust Tim Apple for one bushel.

 

[Falhófnir]

Still unclear if they will be affected by tariffs on consumer electronics? I mean, they could try to claim the watch is medical equipment, and by extension the iPhone as it's a requisite part of using the watch, but I don't somehow think the good old reality distortion field is quite that powerful...

 

[TheFluffyDuck]

Yeah Right. Apple will absorb the $150 tariff cost by charging us $500 extra. Come on, its Tim Cooks luxury brand Apple. Just ask Any Australian user what the "Apple tax " is.

 

[kingofwale]

What everyone here seems to forget is the disproportionate amount in trade with a China. They steal our IP regularly, no one polices them as heavily as they should, and all in the name of cheaper labor.

For everyone blaming Trump, grow up and stop being a band wagoner. Since when has more government and any government been a good thing or been done correctly?

The FCC finally pushing to stop these robo callers took how long? And why?.... only because it impacts them is why.

For the first time someone in the Oval Office in a long Time is there who doesn’t need the pay check. Yes he may do things for Corp America, but show me a few company’s who’s CEOs who aren’t about ever increasing their revenue and income?

Government used to be viewed as a role to serve the country. Now it’s a self serve and everyone goes along in blaming one person when it’s certainly not.

people's hatre for trump is blinding their common senese... what else is new?

 

[hagjohn]

IMO, the problem is less about maintaining the price and more about maintaining margins. AAPL will take a hit due to decreased margins if Apple goes this route.

It would be good PR for Apple to take the hit and it will be a bad PR hit for this administration.