Apple Won’t Be Materially Impacted by Trump Manufacturing Pressure
- In a Friday filing with the U.S. Trade Representative, Apple outlined how proposed U.S. tariffs on $200 billion of Chinese goods would impact Apple Watch, AirPods, Beats, and other smaller product lines.
- While Apple does not break out the contribution from these products, we estimate they will account for 4% of revenue in FY18 and grow at 35% in FY19 reaching 5% of sales.
- If passed, we believe these tariffs could lower the profitability of Apple Watch and AirPods by 10-20%, resulting in just under a 1% negative impact on Apple’s profits in FY19.
- We believe, beyond 2 years, these tariffs will go away.
- More importantly, the filing appears to have triggered a renewed challenge from President Trump for Apple to move more production from China to the U.S.
- Apple may fractionally increase production in the U.S. over the next 5-10 years, but we expect the share of manufacturing in the U.S. to remain small (<10%). We estimate that about 5% of Apple’s manufacturing and assembly takes place in the U.S today.
- Despite the pressure from Trump, Apple remains in good standing with the Trump administration and, earlier this year, committed to investing $350 billion in the U.S. over the next 5 years.
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