Apple planning to 'sit tight' on Chinese iPhone production unless tariffs spike

Posted:
in iPhone
Apple and its suppliers will allegedly hold onto the current Chinese-based production model for iPhones even if the U.S. imposes a 10 percent tariff, but may re-examine the situation if that rises to 25 percent, according to one report.

Foxconn iPhone production


The company appears to be in a "wait-and-see" mode, Bloomberg sources said on Wednesday. One unspecified Apple partner has suggested alternative locations for non-iPhone production, but been met with Apple's indication that there's not much need at the moment.

Reports of a possible move by Apple's two main assembly partners, Foxconn and Pegatron, aren't new. The pair are believed to be considering or already planning moves to other countries in order to avoid the impact of tariffs.

Although iPhone production is complex, suppliers risk losing Apple's business if remaining in China would force the company to raise already high iPhone prices. An iPhone XR starts at $749 in the U.S., and an iPhone XS is at least $999.

President Donald Trump has repeatedly threatened to impose tariffs on both smartphones and laptops made in China if the country doesn't concede to trade war demands. It's unknown how severe tariffs might actually be.

Citing RBC analyst Amit Daryanani though, Bloomberg noted that Apple could absorb a 10 percent tariff and see its earnings per share fall just $1. That loss might intensify to $2.50 with a 25 percent tariff, which Apple would likely consider unsustainable. Demand for 2018 iPhones may already be weaker than anticipated.

The company has so far been spared from tariffs on Chinese-made goods, even on lesser products like AirPods and the Apple Watch. Relatively few of its products have any assembly done outside of China.

Comments

  • Reply 1 of 7
    Which means that the iPhones built in China have such a high profit margin that moving production to another country was more costly than keeping it in place with the tariffs!!
  • Reply 2 of 7
    dotcomcto said:
    Which means that the iPhones built in China have such a high profit margin that moving production to another country was more costly than keeping it in place with the tariffs!!
    Your math is rusty (or faulty logic).
    The margin has nothing to do with the decision whether to move to another country.

    The financial sence of the relocation to another country: If the tarif eats X profits, then I compare this X vs the profits Y (minus the relocation cost) which I could earn in another country.
  • Reply 3 of 7
    knowitallknowitall Posts: 1,231member

    Although iPhone production is complex, suppliers risk losing Apple's business if remaining in China would force the company to raise already high iPhone prices. An iPhone XR starts at $749 in the U.S., and an iPhone XS is at least $999.
    ...
    Not at all.
  • Reply 4 of 7
    regarding the absorption topic...maybe Apple once decides to choose its customers over its shareholders...the simple truth is that iPhones are too expensive compared to the (premium) competition because profit margins are too high ! 
  • Reply 5 of 7
    sflocalsflocal Posts: 4,492member
    bohler said:
    regarding the absorption topic...maybe Apple once decides to choose its customers over its shareholders...the simple truth is that iPhones are too expensive compared to the (premium) competition because profit margins are too high ! 
    Customers buying iPhones in droves and each quarter bring a record-breaker proves your logic is wrong.

    They may be costly to you, but not to many others.
  • Reply 6 of 7
    bohler said:
    regarding the absorption topic...maybe Apple once decides to choose its customers over its shareholders...the simple truth is that iPhones are too expensive compared to the (premium) competition because profit margins are too high ! 
    Another thing you got wrong:  Assuming customers are not also shareholders. Speaking for myself, I was a customer first and that has never changed.
  • Reply 7 of 7
    My personal theory is that Apple set the current prices to absorb the 10% tariff already.  As along-term Apple customer (and yes shareholder), the iPhone prices seem $50-100 higher than I expected, especially with the stremgth of the dollar.  I suspect politically they didn’t want to be in the position of increasing prices after the tariff went into effect.
Sign In or Register to comment.