New tariffs imposed by China could cause Apple’s iPhone production costs to rise as much as 3 percent, and negatively impact the company’s revenues.
According to Fortune, Wedbush analyst Dan Ives told investors that the tariffs would mean a boost in the smartphone’s manufacturing cost by 2 percent to 3 percent. That means Apple would probably need to raise iPhone prices by a similar amount to recoup those costs.
China has warned that it will retaliate if the Trump administration follows through on reported plans to impose trade tariffs on $200 billion in goods from China. Apple’s profits are believed to be vulnerable because of its reliance on China for production and sales, with the country generating almost 20 percent of its revenue last year. In fact, Ives said the U.S. tariffs could cause iPhones to cost an extra $120 each to produce.
Whether or not Apple raises its prices, its profits could still take a beating, according to the analyst. Ives pointed out that if Apple raises prices, fewer consumers will buy the phone, which could send the company’s profits falling 50 cents per share this year. On the other hand, if the company maintains prices and takes on the extra cost, its earnings could drop by as much as $1.30 per share.
Despite these possible scenarios, Ives said that Apple’s shares are “attractively priced.”
“We remain firmly bullish on [Apple] shares, despite many yelling fire into a crowded theater,” Ives told Fortune.
Still, the U.S.’ escalating trade war with China did cause Apple shares to fall as much as 9 percent for the week on Friday (May 10) in response to the U.S. The fall represents the tech giant’s biggest weekly decline for 2019, with the company losing about $75 billion of its market value since Friday. Now, Apple has a market cap of a little less than $900 billion, putting it behind both Microsoft and Amazon.