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Wall Street is worried that the US-China trade war could drive up iPhone prices, which is the last thing Apple needs right now (AAPL)

The price of Apple’s iPhone could climb even higher as a result of the ongoing 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 that starts at $999, could see a price hike of $160 because of the 25% tariff on $200 billion of Chinese goods proposed by President Trump, 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 tariff, which Morgan Stanley views as a more likely scenario, the firm estimates that Apple’s earnings per share could decrease by roughly $3 in the fiscal year 2020.

A report from Wedbush Securities authored by Daniel Ives and Strecker Backe also said that the cost of making iPhones could increase by between 2% and 3% as a result of this tariff.

Apple shares were down nearly 6% on Monday.

Edgar Su/Reuters

“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,” says the note from Wedbush Securities.

Apple largely relies on its Foxconn plant located in China for its iPhone production. But the company could be looking to shift its manufacturing to other areas, such as India and Vietnam. Foxconn reportedly started producing recent iPhone models in India last month as it gears up to start full-scale assembly near Chennai, according to Bloomberg, while Reuters 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 — according to Wedbush, there are roughly 60 to 70 million iPhones in the region that 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 $10.2 billion in the greater China region, which is down 22% from the same period one year ago.

Read more: Huawei, the Chinese tech giant embroiled in controversy, just overtook Apple to become the second-largest smartphone maker

But CEO Tim Cook said that the holiday quarter appeared to be the low point when it comes 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 potential price hikes resulting from the tariff — and encourages investors to “stay the course.” The firm attributed its bullish stance to Apple’s services business, which the firm values at between $400 billion and $450 billion.

The reports come just days after President Trump increased tariffs on $200 billion worth of Chinese-made goods to 25% from the previous 10% rate. The list of goods impacted includes 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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