Moving Apple's assembly out of China to avoid tariffs will take 'multiple years,' analyst ...
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.
"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.
"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.
Comments
This new round of tariffs doesn’t even include Apple, yet the stock gets killed anyway. Idiots. What can you do?
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.
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.
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.
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.
North and South America?
But not Putin? Yeesh, guys....