Apple has argued that Trump’s additional tariffs, effective September 1, could have a wide range of negative impact on its earnings while tilting the playing field in favor of its global competitors, but one analyst is out with a new report predicting that the iPhone maker will absorb most of the additional costs stemming from tariffs.
From the investor note by analyst Ming-Chi Kuo of TF Securities, obtained by MacRumors:
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.
The “if Apple absorbs” indicates Kuo is not sure at all that this is what Apple will do so take his prediction with a healthy does of skepticism.
Kuo thinks Apple’s non-Chinese production locations could meet most of the demand from the US 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.
My take is that of course Apple, with its vast cash, is going to sacrifice some of its high margins that are the envy of the industry to avoid raising its already high prices. Increasing prices of gadgets that are now on the verge of being too expensive even for Apple’s affluent consumers is a move that could backfire and cost the company dearly in the long run. Bw that as it may, it is interesting to learn that Apple maybe willing to absorb the cost instead of passing it on to the consumer (which would be an obvious path for any company to take).
Trump’s trade war with China has already prompted Apple to start moving some of its production out of China. AirPods production is now being trialed in Vietnam, for example, and Apple’s iPhone XR screen supplier Sharp is also investing in its manufacturing plant in that country.
Trump has denied Apple’s request for exempting Mac Pro components from the next wave of tariffs. In an attempt to save Apple’s face, Cook told investors on last week’s conference call that his company wants to continue doing Mac Pro assembly work in Texas.