A further escalation of the U.S.-China trade war could create a major headwind for Apple as it struggles with sagging iPhone demand, Wall Street analysts warn.
Apple shares tumbled last week after President Donald Trump threatened a 10% tariff on the remaining $300 billion of Chinese goods that are not currently subject to tariffs.
If Trump follows through on the threat, it would be a “clear gut punch” for Apple, technology analyst Dan Ives of Wedbush Securities said.
“While many U.S. companies are impacted by this latest trade tension, the ‘poster child’ for the U.S.-China ‘UFC’ trade battle continues to be Apple in the eyes of the Street,,” he wrote in a client note.
According to Ives, if Apple absorbed the added costs of the tariff, it would reduce fiscal 2020 earnings per share by about 4%, or about 51 cents a share. With 4.52 billion outstanding as of July 19, that would represent a hit of about $2.29 billion to its market cap.
Alternatively, if Apple chooses to pass the tariff along to consumers by raising prices, Ives believes it would reduce iPhone demand by about 6 million to 8 million iPhones in the U.S.
Analysts at Bank of America Merrill Lynch came up with similar numbers. “Our back of the envelope math suggests the impact [of the new tariffs] will be a roughly $0.50-$0.75 [annualized per share] hit to earnings with roughly $0.30-$0.50 from iPhones,” they said.
If Apple raised iPhone prices by around 10%, that would reduce demand by 20% or around 10 million units, BoA predicted.
Apple is expected to release three new editions of the iPhone in September, models with extra power and improved battery performance. Ives doesn’t see Apple pulling back on pricing, even with the threat of tariffs looming.
“They bet the farm on higher pricing, and they’re not turning back,” he said.
Other analysts cautioned, however, that nothing is set in stone. “I just don’t think [the new tariffs] will happen,” Gene Munster, an analyst with Loup Ventures, told USA Today. “There’s a lot of posturing going on.”