Apple has had its market value reduced by $44 billion following the continued trade war between the United States of America and China.
The President of the United States of America, Donald Trump was at the heart of this matter after he made an order to American Companies to look for an alternative to manufacturing that would exclude China. This move will greatly cripple Apple’s patronage in China where all the world’s iPhones are made.
What this means: Apple could witness an added 71 base points of gross margin pressure If Donald Trump carries out his threat to increase tariffs on U.S. imports from China.
Apple’s stock price took two big hits on Friday in the wake of Trump’s latest announcements. This new move came to Apple as a shock according to an analyst, David Ives of Wedbush Securities Inc. He stated that Apple might find it difficult moving its iPhone production out of China.
“In a best-case scenario, Apple would be able to move away 5-7%% of iPhone production out of China over the course of 18 months. The company would require three years to move 20% out, which is still less than the 25% of iPhone production that Apple needs for its domestic U.S. market.”
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According to Ives, American tariffs on goods from China would therefore directly impact Apple’s biggest moneymaker and this move is a big blow to the CEO, Cupertino stated in his reaction to the ongoing developments.
Foxconn, Apple’s manufacturing partner, said it could help build Apple another manufacturing plant outside China but the process will take a lengthy period, in the light of all indications.
Stumbling block
- Several people familiar with iPhone production have identified the impossible reality of relocating Apple based on the availability of skilled labour that Apple will require elsewhere.
- The challenges of replicating complex production lines and necessary infrastructure are part of the major hurdles. While Apple moved to enlist new suppliers for proposals on ex-China production, there is still no sign the company will ever migrate. In one case, Apple rejected a location an assembler proposed outside of China. That move backfired and the supplier redirected his business to expand in China.
- Even GoerTekt shift of its AirPods production to Vietnam was done by its own volition, people familiar with the decision said.
The bottom line: While China is still coming to terms with the order, the Chief Executive Officer’s (CEO) ability to lobby Washington for tariff relief will be tested over the coming weeks.
He has only been able to obtain a temporary reprieve for iPhones, iPads and Apple laptops, which won’t be subject to U.S. tariffs until December 15. If nothing is done concerning this trade war, Apple will be left no choice than to leave China, no matter what it may cost them.
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