Apple Is At The Mercy Of The US-China Trade War

Back in January Apple warned investors that its revenue in the fourth quarter of 2018 would be lower than expected, blaming the US-China trade war for disappointing iPhone sales.

Apple suffered its biggest single-day loss in 6 years and the stock closed the day at its lowest price level since July 2017 after cutting revenue guidance.  At that time, shares of Apple have fallen from a high of $234 at to sub-$150, a 37% decline.

Fast forward several months and Apple was once again valued at $1 trillion after the company’s better-than-expected earnings report that exceeded Wall Street’s expectations on both the top and bottom lines on for the 1st quarter of 2019. 

BAML analyst’s Wamsi Mohan, said that a “large reversal of inventory overhang” for Apple iPhones, as well as stability in the group’s global supply chain and “modest” acceleration in services revenue growth has improved the group’s valuation.

It appears analysts are going to have to potential update their valuation models for Apple if the US-China trade war intensifies in the coming months because most if not all iPhones are made assembled in China.

“With iPhones and many other electronics, toys, shoes, etc. currently exempt from this latest round of stepped up tariffs, IF the Trump administration decides to levy a tariff on the additional $325 billion of Chinese goods over the coming weeks/months this would be more of a potential game changer from the perspective of the incremental costs to Apple and its iPhone production with expenses that could escalate by roughly 10%+ over time in a more draconian scenario,” WedBush Securities analyst Dan Ives wrote in a note out Monday evening.

Ives wrote that the 2020 earnings per share hit attributable to tariffs could be $1.00 to $1.30, if Apple absorbs the cost. Wall Street is expecting Apple’s EPS for 2020 to be $12.81, according to FactSet. Morgan Stanley analyst Katy Huberty wrote in a Friday note that an additional round of tariffs would significantly impact its supply chain, and if Apple absorbed those added costs, as she expects, it would shave $3 off of her 2020 EPS estimate of $12.67.

“If Apple passes the entire tariff cost to U.S. consumers, consumers would spend roughly $160 more per iPhone XS, which likely would dampen iPhone demand, and lead to further lengthening of the iPhone replacement cycle,” she said. The current price of an iPhone XS is $999, so a $160 increase would represent a 16% price bump.


If the trade talks intensifies, the chart suggests price can retest the daily demand at $166.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

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