The Trump administration’s new 10% levy on Chinese-made goods is poised to squeeze Apple at an already-challenging time, when it’s suffering from sluggish iPhone sales and playing catch-up in artificial intelligence. — Reuters
Apple Inc, which counts China as its biggest manufacturing hub and the US as its largest market, is now at the centre of an escalating geopolitical fight that threatens to span tariffs and regulatory probes.
The Trump administration’s new 10% levy on Chinese-made goods is poised to squeeze the company at an already-challenging time, when it’s suffering from sluggish iPhone sales and playing catch-up in artificial intelligence. And in China, the country’s antitrust watchdog is weighing a probe into App Store policies, though that process began months before Trump took office.
The company’s smartphone archrival, meanwhile, has one immediate advantage. Unlike Apple, Samsung Electronics Co makes most of its devices outside China – in places like Vietnam and India. That means it won’t face the tariff dilemma of either raising prices or lowering its profit margins, though a broader trade war is likely to engulf countries well beyond just the two main antagonists.
Apple successfully sought an exemption to iPhone tariffs during the last Trump administration by arguing that Samsung would benefit. But it’s unclear if that trick will work a second time around. Another potential headwind: President Donald Trump has floated the idea of a tariff on chips, including those produced in Taiwan, where Apple gets most of the processors that power its products.
Beyond increased hardware costs, there’s the risk of Apple losing further ground in China, where it’s already seen sales decline in recent quarters.
"The hardware part is not the worrisome part – it’s the backlash toward Apple because of an increase of anti-US rhetoric,” said Bloomberg Intelligence technology analyst Anurag Rana. "The bigger issue is the scrutiny of the App Store, which is a longer-term problem for one of the company’s most profitable businesses.”
For now, Wall Street isn’t predicting a major impact on profit from the tariffs. Evercore ISI analyst Amit Daryanani put the potential earnings reduction at 3% to 4% a share. But it’s one more headache for Apple’s US$300bil (RM1.33 trillion) device business and adds further urgency to efforts to expand production in other countries, including the US.
Apple shares were down 7.2% this year through Wednesday’s close.
A representative for Cupertino, California-based Apple declined to comment.
Apple, whose vast Chinese ecosystem employs an estimated million-plus across the country, had long enjoyed stable relations with Beijing. But that dynamic has wavered in recent years as tensions with Washington escalate and local firms such as Tencent Holdings Ltd and Huawei Technologies Co chip away at its business.
A full-scale manufacturing shift would take years and come with its own drawbacks.
For one, a dramatic move away from China could upset the local government, which lets Apple operate mostly uninhibited while limiting other foreign entities. Already, Beijing is applying pressure on companies including Apple to tap the brakes on that shift to India and elsewhere. Moreover, its partners in China and Taiwan have achieved quality levels that are hard to match in new countries. That’s why its most complex products are still mostly made there.
Still, Apple has been slowly moving production of some devices to places such as Malaysia, India, Vietnam, Thailand and Brazil. And its main chipmaking partner, Taiwan Semiconductor Manufacturing Co, is stepping up production in Arizona, providing access to made-in-the-USA processors.
The chip shift has been limited so far. The vast majority of iPhones are still made in China, while nearly all of Apple’s chip production remains in Taiwan. There are small signs of progress in chips, with TSMC starting to produce a number of A16 iPad and S9 Apple Watch processors, according to a person with knowledge of the matter. Culpium earlier reported on which chips are being produced.
Still, those aren’t Apple’s latest processors, the quantities are minuscule and they use older generation production technology. Components for its higher-end devices like iPhones, premium iPads and Macs likely won’t be able to move outside Taiwan for a number of years.
The specter of Trump tariffs on goods from Canada and Mexico – something that’s currently on hold – is less of a threat to Apple.
The company doesn’t rely heavily on Mexican production, though it does have three suppliers – Molex LLC, Yageo Corp and Skyworks Solutions Inc – that make some parts in the country. Apple doesn’t have any major component makers in Canada, according to its list of top suppliers.
Apple could also choose to offset tariffs by raising device prices – a lever the company has pulled internationally during major currency fluctuations. But such a move would be tougher in the US, where many iPhones are already priced at more than US$1,000 (RM4,441) amid the toughest competitive landscape in years.
Apple is less likely to make major pricing adjustments locally. Instead, the company could enact less noticeable changes to services or peripheral products to make up for the shortfall.
A lingering question is whether chief executive officer Tim Cook will be able to negotiate his way out of the tariffs. He met with Trump at the president’s Mar-a-Lago resort after his November victory and attended the inauguration in Washington. During Trump’s previous term, Cook fostered a relationship with the president and was in a position to negotiate on policy.
There’s also the possibility of Trump working out a truce with China’s Xi Jinping. "History tells us it is likely that Trump and Xi reach an agreement to pause the tariffs,” said Evercore ISI’s Daryanani.
Trump has said, however, that he’s in "no rush” to talk to China.
Apple’s iPhone still accounts for the majority of its revenue, though demand has been shaky lately. Sales unexpectedly fell about 1% during the holiday season. In China, overall revenue fell 11%, driven by a decline in iPhone sales.
The company’s much-touted Apple Intelligence platform also isn’t yet available in much of the world, including China. And the technology lags behind that of competitors. AI is an area where Samsung already has an edge: That company, which relies on Google’s Gemini as the foundation, just unveiled new AI features that exceed what Apple is offering.
On the plus side: The growth of Apple’s services business has made it more resilient to tariffs. That unit, which includes digital offerings and online subscriptions, generates US$100bil (RM444.05bil) annually and isn’t affected by Trump’s new levies. Phone installment and promotion plans are now more common, potentially encouraging upgrades and cushioning the effect of price increases.
At least for the current quarter, Apple isn’t predicting a material impact on its business. It didn’t cite tariffs as a headwind when announcing its earnings results last week and said margins this quarter would be typical.
Cook was asked about tariffs on a conference call and punted on giving an answer. "We are monitoring the situation and don’t have anything more to add than that,” he told analysts.
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