Ongoing trade tensions between the U.S. and China should not have a significant impact on sales of Apple Inc.'s newest iPhones, but still pose a risk to the tech giant's long-term position in China, analysts said.
Apple is gearing up to unveil a fresh slate of iPhone models with enhanced camera features at an event next month, as the U.S. and China continue to trade jabs in a lengthy trade battle. China recently hit back against U.S. President Donald Trump's intentions to slap tariffs on an additional $300 billion of Chinese goods, announcing plans to impose its own tariffs on $75 billion worth of U.S. products. Meanwhile, Trump has ramped up calls for Apple and other U.S.-based companies to begin looking for production alternatives to China.
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Analysts said Apple should be able to avoid passing along potential tariff costs to consumers with sales of its newest iPhones. However, they said if trade uncertainties continue, it could force Apple to move more of its production away from China, which will not be easy.
September launch
J.P. Morgan tech hardware analyst Samik Chatterjee said in a recent research report that he expects Apple to avoid a bill-of-materials cost increase of between $30 to $50 with the September iPhone launch, allowing the company to absorb a large portion of any potential tariffs without raising prices for consumers.
Chatterjee attributed the production cost savings to an industrywide decrease in prices for memory chip components that go into iPhones.
"Apple can largely offset the tariff impact while keeping retail prices for 2019 iPhones consistent with 2018 iPhones," Chatterjee wrote.
Trump recently delayed imposing his planned $300 billion of tariffs on certain Chinese goods, including Apple's cellphones and laptops, until Dec. 15. The tariffs previously had been set to take effect Sept. 1.
This "temporary reprieve" also will keep Apple from having to push any additional costs onto customers for the September iPhone launch, Wedbush Securities technology analyst Daniel Ives noted in an Aug. 23 report.
Nevertheless, Ives said the current China tariff situation is a "$20-$25 stock overhang on shares of Apple as this remains the nightmare that will not go away for investors."
Production concerns
Some analysts are more concerned about how the current trade situation could impact Apple's production operations in China than they are about the price of iPhones.
Mike Paxton, an analyst with Kagan, a media market research group within S&P Global Market Intelligence, noted that the vast majority of Apple's production occurs in China, and to move that elsewhere would be costly and time-consuming.
"It would take 10 to 15 years before Apple could quit relying on those China-based companies to not be involved in the manufacturing, production and assembly of its products," said Paxton, who covers consumer electronics industries. "It's not something that can happen overnight."
The escalating U.S.-China trade war has resulted in several news outlets speculating that Apple may consider moving production away from China and to parts of Southern Asia, including India and Vietnam. Apple CEO Tim Cook, however, recently urged against placing "a lot of stock" in those rumors, saying that the "vast majority of our products are kind of made everywhere."
China market and beyond
Greater China remains Apple's third-largest market for net sales, behind the Americas and Europe. Even though trade tensions have weighed on the company's sales in the region during recent quarters, those numbers appear to be improving.
Apple during the June quarter reported quarterly sales in China of $9.16 billion, down 10.4% sequentially from the March quarter. While the double-digit drop was significant, it was much smaller than the 26.7% drop the company saw in the region between the March and June quarters in 2018.
"I think for investors, the larger concern with the tariffs and the trade war is if Apple is unable to grow its user base and its services business in large growing countries like China. So it's not what they make on each individual phone, it's trying to get more and more phones into the hands of more and more people," said Timothy Lesko, partner and portfolio manager at Granite Investment Advisors, an investment advisory firm. "Global growth and a path towards better earnings in the future is much more important than whether or not your processor costs 10% more in the phone."

