The Strategist

Trump tariffs harm Apple’s market performance

11/30/2018 - 11:32

Apple, whose financial performance is not pleasing investors, faced another problem: the trade war with China caused the price for iPhone to rise by 10%. At the same time, the American leader believes that buyers will “easily cope” with price increases, which means that nothing terrible will happen.

Dru Bloomfield
Dru Bloomfield
Since October, Apple Inc. has lost one fifth of its value and ceased to be a trillion-dollar company due to low sales of new iPhone models. Analysts continue to cut their forecasts for Apple's capitalization, and suppliers of parts for the American brand have revised their future quarterly financials for the worse.

As it turned out, the company’s financial failures had just begun. US President Donald Trump did not rule out that Apple iPhones and laptops manufactured in China would be subject to a duty as part of the trade war with the PRC, which is another blow to Tim Cook’s company.

The size of the tax has not yet been established - it is reported that it range from 10% to 25%. When a journalist asked if the new duty would cause a negative reaction from American consumers, Donald Trump answered “maybe”. He also advised companies to postpone their production to avoid higher tariffs for their products,.

“I recommend building factories in the United States and producing goods here. There are many other alternatives, ” the American leader told The Wall Street Journal in an interview.

The United States plans to raise import tariffs on Chinese goods from January 1, 2019. Previously, only Apple products from the category “Other Products” could be taxed by the new scheme, for example, Apple Watch, AirPods, HomePod. Now it is likely that the sanctions will affect the most popular Apple product, the iPhone.

The situation is complicated by the fact that the average price of an iPhone is almost $ 800. “The last thing Tim Cook and investors need now is additional duties on iPhones that will affect demand,” said Daniel Ives, analyst at Wedbush Securities.

Practically all production of Apple is located in China, from where it is subsequently imported to other countries. In recent years, the company tried to assemble old iPhone models in India and Brazil to avoid taxes, but the production volumes in these countries are too small to affect anything.

Earlier, Donald Trump repeatedly hinted to Cook to transfer his factories to the United States.

“Apple prices may increase due to the huge duties that we impose on China, but there is a simple solution that does not need to pay tariffs because of tax breaks. Make your goods not in China, but in the USA. Start building plants now. Great! ”Trump tweeted.

However, Apple is obviously not ready for such a dramatic change. Labor in China is much cheaper than in the States, so the possible transfer of factories to America will mean an even greater increase in the cost of the company's products, which are among the most expensive in the market anyway.

The low sales of the new iPhone XS, iPhone XS Max and iPhone XR models pushed Apple to resume production of the last year’s iPhone X gadget, which was decided to abandon immediately after the September presentation.

Thus, the company intends to compensate for its losses by selling a large number of “dozen” at a favorable price for buyers.

In addition, it is reported that Apple has signed a contract with Samsung for the supply of a certain number of OLED-screens, the conditions of which cannot be met due to low demand for new models. Returning to the sale of the iPhone X should help Apple honor the contract with the South Korean manufacturer.

Meanwhile, Apple has cut orders for the production of the iPhone XS, iPhone XS Max and iPhone XR due to difficulties in forecasting demand. The company also intends to hide the statistics on the sales of three new iPhone models, as these data are supposedly "not of interest." Analysts believe that such a move may indicate a very low interest in the new line of Apple gadgets.