Apple Needs A 14% iPhone Price Hike To Offset Higher Tariffs: JPM

Load WordPress Sites in as fast as 37ms!
Fight Censorship, Share This Post!

One of the companies that has been hit the hardest following the latest escalation in trade war between the US and China, and which not only is reliant on Chinese consumers to purchase its products and services on the mainland, but also produces iPhones in China and is thus subject to a double whammy of anti-American sentiment and higher export tariffs, is Apple, with its shares sliding -11% since the start of last week and 5% on Monday, on fresh worries relating to escalating trade war and the imposition of tariffs on imports from China, as well as on concerns over the consequences of the recent Supreme Court decision allowing a lawsuit against Apple practices in the App store.

In a note published this morning, JPMorgan writes that while it is difficult to precisely attribute the magnitude of the share price decline between tariffs and the lawsuits, “it is fair to say that the majority of the share price decline is driven by tariff

Sure enough, according to calculations by JPM’s Samik Chatterjee, Apple would need as much as 14% price increase on iPhones to offset headwinds from scope expansion of tariffs.

Based on a 37% gross margin assumption for iPhones, Apple would need to take as much as 14% price increase on iPhones to pass on the higher costs as a result of potential expansion of tariffs. If Apple is willing to absorb all the tariff and not raise prices, JPM estimates a ~400 bps headwind to margins.

Assuming Apple decides not to raise prices, JPM expects a headwind of up to 50 bps in the worst case. As shown in Scenario 3 in the table below, the bank estimates a headwind of up to 50 bps to total company margins if Apple decides to take a conservative approach to prices and absorb the impact.

With the various scenarios in place, JPM calculates that the expansion of tariff scope to include all hardware products “implies estimated -14% EPS downside.” Assuming similar headwinds on other hardware products, including Mac devices, iPad, wearables, and accessories, JPM warns that “there could be more downside on AAPL shares in the near-term were sentiment around US-China trade talks to worsen further.”

This post has been republished with implied permission from a publicly-available RSS feed found on Zero Hedge. The views expressed by the original author(s) do not necessarily reflect the opinions or views of The Libertarian Hub, its owners or administrators. Any images included in the original article belong to and are the sole responsibility of the original author/website. The Libertarian Hub makes no claims of ownership of any imported photos/images and shall not be held liable for any unintended copyright infringement. Submit a DCMA takedown request.

Fight Censorship, Share This Post!

Read the original article.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.