Moving Apple's assembly out of China to avoid tariffs will take 'multiple years,' analyst ...

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in AAPL Investors
If Apple is indeed hit by proposed U.S. tariffs on Chinese imports, it could take the company "multiple years" to move assembly outside of China, according to a Morgan Stanley investor memo.

Foxconn robots


"Apple has one of the most significant exposures to Chinese exports to the U.S. in our IT Hardware coverage group, given final assembly for many of its consumer electronic devices is located in China," said analyst Katy Huberty. "And given the reliance on China's established, low-cost labor force and expertise in manufacturing/tooling, a large-scale move out of the country would not only be costly, but could take multiple years to complete, potentially raising the odds of execution risk, in our view."

The impact of existing tariffs on Apple has been "minimal," Huberty noted. On Friday however the U.S. raised some of those tariffs from 10 to 25 percent, and President Donald Trump has said the company is working on expanding the 25 percent levy to another $325 billion in Chinese goods.

Over a third of Apple's total cost of goods sold is connected to Chinese imports, Huberty estimated. Passing the cost of the Trump tariffs onto customers could therefore push the price of an iPhone XS up $160 to $1,159.

That would probably "dampen iPhone demand" and "lead to further lengthening of the iPhone replacement cycle," Huberty argued. Some existing iPhone owners are now waiting 3 years or more between upgrades, which may be related to rising prices combined with a lack of substantial new features. While 2017's iPhone X introduced Face ID and an edge-to-edge display, the product was not the first phone with an edge-to-edge screen, and Face ID is mostly an improvement on earlier facial recognition.

In a "worst case" scenario, said Huberty, Apple's fiscal 2020 earnings per share (EPS) could drop by almost $3. She commented though that Apple and its suppliers have had months to prepare for an escalated trade war, and its main assembly partner -- Foxconn -- has already been making motions toward building outside of China.

Foxconn is preparing for mass production of iPhones in India, joining Pegatron there, and has reportedly considered setting up a factory in Vietnam. The main goal in India is avoiding a 20 percent import duty, but it will "very likely serve as a test case for iPhone production outside of China," potentially leading to "more geographic dispersion" among Apple partners, Huberty concluded.
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Comments

  • Reply 1 of 39
    Well they should have control situatin and not to make themselves hostage of one place or one vendor. Smart decisions pay off. Also diversification is old school safe approach that someone forgot obviously.
    jbdragonracerhomie3shrave10
  • Reply 2 of 39
    suddenly newtonsuddenly newton Posts: 13,765member
    The iPhone X (and its XS follow-up) was a “super cycle” so even without price pressure from tariffs, it will be hard pressed to motivate iPhone users to upgrade so soon, especially since these phones were already hitting the $1K price point. The 2019 and 2020 iPhone have to do more than incrementally bump the specs. I’d like to see more “smarts” that really leverage the Bionic chip.
    sdw2001
  • Reply 3 of 39
    lkrupplkrupp Posts: 7,463member
    Well they should have control situatin and not to make themselves hostage of one place or one vendor. Smart decisions pay off. Also diversification is old school safe approach that someone forgot obviously.
    There’s really nowhere else to manufacture other than India and that’s just getting started. Eventually the same issues will raise their heads there too. It’s about labor availability and labor costs. The developed economies of the western democracies simply cannot compete with the labor forces and costs in China. Unless and until Apple can invent an almost fully automated assembly line for iPhones they are stuck in China.
    edited May 10 sdw2001edred
  • Reply 4 of 39
    ralphieralphie Posts: 14member
    Apple only pays the tarrifs on phones coming into the US, not every phone made in China. So it’s not a big as deal as everyone makes it out to be.
    jbdragonSpamSandwichSoundJudgmentsdw2001toysandmeurahara
  • Reply 5 of 39
    jbdragonjbdragon Posts: 2,189member
    ralphie said:
    Apple only pays the tarrifs on phones coming into the US, not every phone made in China. So it’s not a big as deal as everyone makes it out to be.
    The US is s big market for Apple. 50% of the market.  While these tariffs May effect Apple, they will Also effect Android phones also, most of which are made in China also.  If China stops screwing the US as they have for years, the tariffs will end.  

    sdw2001macseekerracerhomie3mwhitedee_deepscooter63LordeHawk
  • Reply 6 of 39
    SpamSandwichSpamSandwich Posts: 31,504member
    Anything to crash the stock price, eh?

    This new round of tariffs doesn’t even include Apple, yet the stock gets killed anyway. Idiots. What can you do?
    edited May 10
  • Reply 7 of 39
    lkrupplkrupp Posts: 7,463member
    Anything to crash the stock price, eh?
    Which is actually a good thing for the intelligent investors who buy low at every opportunity. With the wild market swings going on over trade sanctions for example, the smart one know it will recover. The market value of my retirement IRA swings along with the swings in the stock market. I’m okay with that because when dividends are issued they are being reinvested in cheaper shares. When prices recover my portfolio looks even better. And so on and so forth.
    toysandme
  • Reply 8 of 39
    jimh2jimh2 Posts: 186member
    The tariff are temporary at best. China and the US will come to some understanding where the USA is not getting completely screwed. China needs the US and will have to capitulate or they will suffer. Like Trump or not he is at least standing up for the USA to stop the rest of the world from pushing us around as they did for the 8 years prior to him taking office. It's odd and un-American to me when the media keeps telling everyone it's a bad idea to implement tariffs or higher tariffs and not negotiate for better terms or more mutual benefit. I'd equate not negotiating to staying a crappy job versus pursuing a better and higher paying job. Status quo is for losers.
    SpamSandwichsdw2001macseekerLordeHawkshrave10
  • Reply 9 of 39
    genovellegenovelle Posts: 982member
    Well they should have control situatin and not to make themselves hostage of one place or one vendor. Smart decisions pay off. Also diversification is old school safe approach that someone forgot obviously.
    They are hostage to our White House. A lot of  Trade from China allows our economy to flourish because our companies conceptualize and design the products and the have them made cheaply in China. So the real profit to us is the executive, design, support, marketing, and sales jobs here make excellent salaries, the companies make a good profit, and consumers pay lower prices. It’s why even the MAGA Hats were made in China. Tariffs only hurt us in a global market that we currently dominate. 
  • Reply 10 of 39
    apple ][apple ][ Posts: 8,743member
    I remember many, many years ago on this forum, I was saying that Apple would be smart to diversify their production countries and not put all of their eggs into the same basket. And I wasn't the only one saying it either. It's pretty much common sense. The headline in the OP states that it will take 'multiple years'. Well, they could have started the process multiple years ago.

    If somebody is building a stock portfolio, it's probably not smart to put 100% of your money into one stock, and if somebody is building smart phones, you probably don't want to be overly reliant on one country, especially if that country is called China. :#

    But I do think that there will be a deal made eventually. Just keep punishing them hard, until they come to their senses. Eventually they will reach the capitulation point. It hurts them more than it hurts us.
    macseeker
  • Reply 11 of 39
    SpamSandwichSpamSandwich Posts: 31,504member
    genovelle said:
    Well they should have control situatin and not to make themselves hostage of one place or one vendor. Smart decisions pay off. Also diversification is old school safe approach that someone forgot obviously.
    They are hostage to our White House. A lot of  Trade from China allows our economy to flourish because our companies conceptualize and design the products and the have them made cheaply in China. So the real profit to us is the executive, design, support, marketing, and sales jobs here make excellent salaries, the companies make a good profit, and consumers pay lower prices. It’s why even the MAGA Hats were made in China. Tariffs only hurt us in a global market that we currently dominate. 
    China flourishes because of IP theft, mandatory technology transfer and product dumping. It’s completely reasonable to make demands of thieves.
    racerhomie3
  • Reply 12 of 39
    apple ][apple ][ Posts: 8,743member
    genovelle said:It’s why even the MAGA Hats were made in China. 
    100% wrong and incorrect.

    The official ones are made in the USA.

    Fake ones could very well be made in China, but that's a different story. There's all sorts of counterfeit crap being made there.
    edited May 10 SpamSandwichmacseekerracerhomie3mwhitepscooter63
  • Reply 13 of 39
    sdw2001sdw2001 Posts: 17,080member
    genovelle said:
    Well they should have control situatin and not to make themselves hostage of one place or one vendor. Smart decisions pay off. Also diversification is old school safe approach that someone forgot obviously.
    They are hostage to our White House. A lot of  Trade from China allows our economy to flourish because our companies conceptualize and design the products and the have them made cheaply in China. So the real profit to us is the executive, design, support, marketing, and sales jobs here make excellent salaries, the companies make a good profit, and consumers pay lower prices. It’s why even the MAGA Hats were made in China. Tariffs only hurt us in a global market that we currently dominate. 

    That's been the traditional wisdom.  While there is some truth to it, it's not entirely representative of reality.  China is eating our lunch in more ways than one.  They tariff.  They do forced tech transfers.  They have non-tariff barriers.  We have a massive trade deficit.  They, along with NAFTA, have decimated our manufacturing and steel industries, which are only now just starting to recover.   They engage in outright corporate espionage and hacking.  What Trump is doing is using our economic power (which is still far greater than theirs) and our own trade deficit against them to bring them into line.  He's squeezing them with tariffs, and it's having a substantial negative effect on their economy.  We have some downside too, but it seems very minor thus far.  Inflation is low.  Interest rates are still low.  GDP is strong and apparently rising.  Unemployment is extremely low.  I suspect that when we finally do make a deal, things will only get better.  
    SpamSandwich
  • Reply 14 of 39
    ralphieralphie Posts: 14member
    jbdragon said:
    ralphie said:
    Apple only pays the tarrifs on phones coming into the US, not every phone made in China. So it’s not a big as deal as everyone makes it out to be.
    The US is s big market for Apple. 50% of the market.  While these tariffs May effect Apple, they will Also effect Android phones also, most of which are made in China also.  If China stops screwing the US as they have for years, the tariffs will end.  

    Not even close to 50%, maybe 35%.
  • Reply 15 of 39
    racerhomie3racerhomie3 Posts: 1,169member
    jbdragon said:
    ralphie said:
    Apple only pays the tarrifs on phones coming into the US, not every phone made in China. So it’s not a big as deal as everyone makes it out to be.
    The US is s big market for Apple. 50% of the market.  While these tariffs May effect Apple, they will Also effect Android phones also, most of which are made in China also.  If China stops screwing the US as they have for years, the tariffs will end.  

    Not 50% , it’s 40% 
  • Reply 16 of 39
    sdw2001sdw2001 Posts: 17,080member

    genovelle said:
    Well they should have control situatin and not to make themselves hostage of one place or one vendor. Smart decisions pay off. Also diversification is old school safe approach that someone forgot obviously.
    They are hostage to our White House. A lot of  Trade from China allows our economy to flourish because our companies conceptualize and design the products and the have them made cheaply in China. So the real profit to us is the executive, design, support, marketing, and sales jobs here make excellent salaries, the companies make a good profit, and consumers pay lower prices. It’s why even the MAGA Hats were made in China. Tariffs only hurt us in a global market that we currently dominate. 
    China flourishes because of IP theft, mandatory technology transfer and product dumping. It’s completely reasonable to make demands of thieves.

    I agree.  As I've stated before, I generally oppose tariffs.  Truly free trade is great for everyone.  But what the Bushies and Clintonistas called "free trade" turned out to be nothing of the kind...not with China.   We need to use our economic leverage to get a better deal.  
    SpamSandwich
  • Reply 17 of 39
    donjuandonjuan Posts: 41member
    Apple should move back home. The Chi-Coms are the enemy.
  • Reply 18 of 39
    lkrupplkrupp Posts: 7,463member
    donjuan said:
    Apple should move back home. The Chi-Coms are the enemy.
    And how would they do that, exactly? Where would Apple locate its factories? Where would the literally hundreds of thousands of workers come from when our unemployment rate is around 3.4% now? What would Apple have to pay these workers? Would you work in an Apple factory 16 hours a day for $15/hr? Do you even have the required skills to assemble an iPhone? How much would domestic labor raise the price of an iPhone? Why do you think so many companies moved their manufacturing to China in the first place? Think, man, think.
    tht
  • Reply 19 of 39
    sacto joesacto joe Posts: 801member
    lkrupp said:
    Well they should have control situatin and not to make themselves hostage of one place or one vendor. Smart decisions pay off. Also diversification is old school safe approach that someone forgot obviously.
    There’s really nowhere else to manufacture other than India and that’s just getting started. Eventually the same issues will raise their heads there too. It’s about labor availability and labor costs. The developed economies of the western democracies simply cannot compete with the labor forces and costs in China. Unless and until Apple can invent an almost fully automated assembly line for iPhones they are stuck in China.
    "There’s really nowhere else to manufacture other than India..."

    North and South America?
    SpamSandwich
  • Reply 20 of 39
    sacto joesacto joe Posts: 801member

    donjuan said:
    Apple should move back home. The Chi-Coms are the enemy.
    But not Putin? Yeesh, guys....
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