On July 26, President Donald Trump tweeted that Apple (AAPL) wouldn’t be spared from tariffs for the MacBook Pro components it makes in China. Interestingly, he used Apple’s iPhone to make the tweet. He insisted that Apple should make the MacBook Pro in the US to avoid tariffs. The development comes as investors await Apple’s fiscal 2019 third-quarter earnings results, which are scheduled for release next week.
Despite Trump’s tweet, Apple was up 0.63% at 11:02 AM ET on July 26. Its second-quarter US GDP came in better than expected at 2.1%, driving US stocks. Apple’s rival, Google (GOOG) (GOOGL), was up 10.6% on better-than-expected earnings on July 25. Google reported revenue of $38.94 billion and EPS of $14.21 in the second quarter. The S&P 500 Index (SPY) was up 0.6% at 11:46 AM ET on July 26, while the Nasdaq (QQQ) was up over 1% at the same time.
Will this force AAPL to look elsewhere?
We wrote last month that Apple was looking to move 15%–30% of its production away from China. Trump’s tweet may accelerate that process. Apple already tried shifting production of its MacBook Pro back to the US, but the decision failed due to a lack of scale and issues with component availability. Thus, Apple will be forced to look elsewhere amid the prolonged trade war.
Some other tech companies are also looking to shift away from China. Amazon (AMZN), which is also facing Trump’s wrath, is looking to shift the production of its Kindle e-book reader and its Echo smart speaker out of China. While Kindle and Echo command a small fraction of Amazon’s revenue, the latter is a fast-growing segment.
Qualcomm (QCOM) has also signed an agreement with a Vietnamese company to manufacture 5G equipment. Qualcomm derives two-thirds of its revenue from China. Working with a new partner should help Qualcomm diversify its revenue sources. Dell has already started pilot production of notebooks in Vietnam, and it’s also looking to the Philippines as an option.
Microsoft and HP are looking at Thailand to manufacture and assemble their products. Microsoft is also considering Indonesia for production relocation.
As we mentioned, AAPL is scheduled to release its earnings results next week. It will be the last among the FAANG stocks to do so. Analysts expect it to report EPS of $2.1 on revenue of $53.4 billion. Apple’s financial year ends in September.