Investing.com -- In February, Apple (NASDAQ:AAPL) CEO Tim Cook was at the White House announcing a plan to invest a massive $500 billion in the U.S. over the next four years. Trump lauded the deal and refers to it frequently to highlight his administration's economic success. However, the agreement hasn’t saved the company from Trump’s newly announced tariffs.
Apple shares were in free-fall on Thursday, one day after Trump announced sweeping tariffs. The stock closed down 9.4%, wiping out $311 billion in market value.
Roughly 85% of iPhones are made in China, and the other 15% in India, analysts at Jefferies point out. China will be hit with a 54% reciprocal tariff, and India will be hit with a 26% tariff. Meanwhile, the company sells 33% of its iPhones in the U.S.
Jefferies’ analyst Edison Lee noted that in 2018, Apple was exempt from Trump’s tariffs. This time around, there is no word on if Apple is exempt. Based on the market's reaction, it won't be.
Rosenblatt analyst Barton Crockett said if Trump doesn’t provide an exception, it could “blow up Apple.”
“We estimate that Apple could face $39.5 billion of tariff costs,” Crockett said. “We believe that close to 100% of iPhones sold in the US are made in China, 90% of Macs, 80% of iPads, 90% of Apple Watches, and 35% of Airpods. Most of the rest are made in Vietnam.”
The analyst adds that if Apple eats the costs, the company would take an approximate 32% hit to operating profit and EPS. Apple could also look to raise prices to offset the profit hit. However, the analyst estimates that a 40% price hike on devices would be required to offset tariff costs, which could depress demand fully.
While Apple announced the vast U.S. investment, Wedbush analyst Dan Ives estimates it would take 3 years and $30 billion to “move even 10% of its supply chain from Asia to the US with major disruption in the process.”
If Apple manufacturing eventually moves to the U.S., consumers can kiss their $1,000 iPhones goodbye, Ives says. He said a price around $3,500 would be more realistic for an iPhone made in New Jersey or Texas.
“Price points would move up so dramatically its hard to comprehend and the near-term margin impact on Apple's gross margins during this tariff war could be significant with the Street already factoring in lower numbers ahead,” Ives adds.
Despite the tariffs, Ives is sticking with his bullish view on Apple.
“Our bullish stance on Apple as a stock remains firm and we are seeing through this current Category 5 Hurricane and the long-term growth potential of this tech stalwart over the coming years," he said. "Its a time of panic for Apple (and tech shareholders), but if these tariffs prove to be temporary/negotiated in some form/exemptions then Apple is baking in much worse case scenarios at current levels.”
