Trump’s new tariffs would ding Apple earnings — BofA
A new set of US tariffs could strike another blow to the iPhone and take a bite out of Apple’s bottom line, according to analysts at Bank of America Merrill Lynch.
President Donald Trump roiled the market on Thursday with his announcement that the US plans to levy a 10 per cent tariff on $300bn worth of Chinese goods starting next month, escalating trade tensions with Beijing amid high-stakes negotiations between the world’s two largest economies. The news hit shares in Apple, whose 2.2 per cent decline on Thursday outpaced a 0.9 per cent loss for the broader S&P 500.
Apple, which retreated another 2.9 per cent in early trading on Friday, is seen as particularly vulnerable to the new tariffs given the tech giant’s manufacturing footprint in China.
BofA said its “back of the envelope math” suggests that Mr Trump’s threatened tariffs could cut earnings per share at Apple by roughly 50 cents to 75 cents on an annual basis, depending on whether Apple chooses to offset the impact through higher prices or absorb costs associated with the tariffs. The iPhone — which suffered a 12 per cent decline in revenue during the most recent quarter — would account for 30 cents to 50 cents of the damage, the bank estimated.
But analysts believe the overall risk to earnings would be “manageable”, with Apple reporting diluted earnings per share of $11.91 in its last fiscal year.
“In the broader context of the tailwinds that [Apple] has we view this as a relatively small amount over the next several quarters and would use the pullback as an especially attractive opportunity to buy shares of Apple,” BofA analysts wrote in a note to clients.
BofA expects Apple’s annual earnings per share to lose up to 50 cents if the company passes tariff costs on to consumers. In this scenario, analysts noted that iPhone prices could increase by around 10 per cent, which would knock demand by 20 per cent.
Should it absorb the entire hit from tariffs, the impact could rise to 75 cents a share.
It remains uncertain if any Apple products would ultimately fall under the planned 10 per cent tariff. In June, Apple told the US trade representative that a proposed tariff list would cover major products including the iPhone, iPad and Mac. However, the California-based company can apply for exemptions from the import duties.
Last month, the Trump administration denied Apple’s request for a waiver that would have excluded Chinese-made Mac Pro parts from a separate 25 per cent tariff.