- The price of Apple’siPhones could increase as a result of the Trump administration’s 25% tariff rate on $US200 billion worth of Chinese-made goods, according to analysts.
- Apple’s biggest iPhone supplier is located in China, but the company may be looking to move production to countries such as Vietnam and India.
- A price hike would come as the smartphone industry grapples with slowing sales worldwide.
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The price of Apple’s iPhone could climb even higher as a result of the trade discord between the United States and China, according to analysts at Morgan Stanley and Wedbush Securities.
Apple’s iPhone XS, the company’s current flagship, which starts at $US1,000, could see a price hike of $US160 because of the 25% tariff rate introduced last week on $US200 billion worth of US imports from China, according to a team of analysts at Morgan Stanley led by Katy Huberty.
That would be the case if Apple were to pass the additional cost on to consumers, which Morgan Stanley says would “dampen iPhone demand” and “lead to further lengthening of the iPhone replacement cycle.”
If the company were to absorb the cost resulting from the tariffs, which Morgan Stanley views as a more likely scenario, the firm estimates that Apple’s earnings could decrease by roughly $US3 a share in the 2020 fiscal year.
A report from Wedbush Securities by Daniel Ives and Strecker Backe also said the cost of making iPhones could increase by 2% to 3% as a result of the tariffs.
Apple shares were down nearly 6% on Monday.
“While many US companies are impacted by this latest trade tension, the ‘poster child’ for the US/China UFC battle continues to be Apple in the eye of the Street,” the note from Wedbush Securities said.
Apple largely relies on a Foxconn plant located in China for its iPhone production. But the company could be looking to shift its manufacturing to other countries, such as India and Vietnam. Foxconn is preparing to start full-scale iPhone assembly near Chennai in southern India, according to Bloomberg, while Reuters has reported that Foxconn is planning to open a factory in Vietnam, citing local media reports.
China represents a sizable market for the iPhone upgrades this year – Wedbush estimates that 60 million to 70 million iPhones in the region are due to be upgraded over the next 12 to 18 months. That would account for about 20% of all iPhone upgrades going into 2020, the report says.
It would be a critical upgrade cycle for Apple is it struggles with slowing sales in the region. In its second-quarter earnings report, the company recorded sales of $US10.2 billion in the greater China region, down 22% from the same period one year ago.
But CEO Tim Cook said the holiday quarter appeared to be the low point when it came to Apple’s iPhone troubles in China. “We certainly feel a lot better than we did 90 days ago,” he said on the earnings call.
Wedbush maintains its outperform rating for Apple – despite the possibility of tariff-induced price hikes – and encourages investors to “stay the course.” The firm attributed its bullish stance to Apple’s services business, which the firm values at $US400 billion to $US450 billion.
On Friday, President Donald Trump increased tariffs on $US200 billion worth of Chinese-made goods to 25% from 10%. The goods affected include a wide array of electronic devices, in addition to food items, chemicals, and other materials.
Smartphone makers across the board continue to grapple with slumping sales as prices increase and consumers hold on to their smartphones for longer periods of time. Smartphone shipments worldwide declined by 6.6% year-over-year in the first quarter of 2019, according to the International Data Corporation, marking the sixth consecutive quarter of decline.
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