On Thursday, Apple (AAPL) got an early Christmas gift. President Trump finalized a partial trade deal with China, according to a report from Bloomberg. For now, the company will be able to dodge the 15% tariffs that would have impacted iPhones, iPads, and MacBooks. Wedbush analyst Daniel Ives said that the tentative trade deal would save a $150 tariff for each iPhone 11. He added, “If this tariff went through, it would have been a major gut punch for semi players/Apple and could have thrown a major wrench into the supply chain and demand for the holiday season.”
Yesterday, Credit Suisse analysts discussed how the December 15 tariffs could have impacted Apple, according to CNBC. The firm predicted that the tariffs would have raised the iPhone price by $70 per unit in the US. The analysts said, “Our (and we believe investors’) base case continues to factor in a favorable resolution (i.e., no tariffs); however, we think Apple would have a difficult time pushing through tariff-related price increases to U.S. consumers (~35% of CY18 iPhone units, per Gartner) without a commensurate impact on demand.”
Notably, AirPods, Apple Watch, HomePod, and the iMac are under existing tariffs. We’ll have to see if the new phase of the trade deal gets rid of these tariffs as well.
So far, Apple hasn’t passed on the tariff impact to consumers. On Thursday, we discussed how absorbing these additional costs could impact the company’s gross margins. Thankfully, Apple isn’t going to feel the heat of the next round of tariffs in the short-run.
Turn of events
President Trump met with leading economic advisers on Thursday afternoon to discuss the possibility of waiving the imminent tariffs. As a result, the Trump administration will eliminate the next round of tariffs on Chinese products due on Friday. Meanwhile, CNBC indicated that the White House would cut half of the existing tariffs on Chinese goods worth $360 billion. As part of the deal, President Trump also wants China to vow to purchase more US agricultural goods. China promised to buy $40 billion worth of US farm produce. However, President Trump wants the purchases to be worth $50 billion, according to CNBC. According to Bloomberg, both countries agreed to the deal terms, but the final legal nuances will be announced today.
Apple CEO Tim Cook tried to convince President Trump not to levy tariffs. President Trump acknowledged the reasons in the past. He said that Cook “made a good case” that tariffs could hurt Apple. Samsung’s products wouldn’t be subject to the same tariffs, which Reuters noted in August.
In October, President Trump announced the first phase of the agreement to ease escalating tensions between the two countries. However, the US and China didn’t end up signing a deal. Over the months, there hadn’t been any concrete development on the US-China trade war front. However, over the last few days, President Trump was open to striking a deal soon. On Thursday morning, he tweeted, “Getting VERY close to a BIG DEAL with China. They want it, and so do we!”
China’s iPhone shipments fell 35% in November
Meanwhile, Credit Suisse indicated that China’s iPhone sales fell 35.4% YoY (year-over-year) in November. The analysts also estimated that “China iPhone revenue fell by >17.5% y/y over the past three months (Sept-Nov).” According to the New York Post, the bank cited surging competition from 5G smartphone providers in China as the main reason for declining sales. Apple hasn’t rolled out its 5G iPhones yet.
On Thursday, Apple stock eased initially amid concerns about the December 15 tariffs and Credit Suisse’s report. However, the possibility of a trade deal helped the stock rise by 0.25% and close at $271.46 on Thursday. The latest trade war news gave investors some relief. In the pre-market session, Apple is trading in the positive territory.
Apple stock has had a dream run in the market this year with nearly a 75% year-to-date gain. The lurking December 15 tariff deadline might have kept the stock from ending 2019 on a high note. We’ll have to see if the stock resumes the momentum and continues its bull run in 2020.