US-China Trade War Could Impact Apple Earnings

The ongoing trade war with China has affected Apple shares negatively, according to a report by Reuters. 

Apple could see tariffs affect annual earnings adversely, as President Trump’s tariffs are proposed at 10 percent on Chinese imports, Bank of America Merrill Lynch said Friday (Aug. 2).

“Our back of the envelope math suggests the impact [of the new tariffs] will be roughly $0.50-$0.75 [annualized per share] hit to earnings with roughly $0.30-$0.50 from iPhones,” the brokerage said.

Apple shares reacted poorly to the news. They dropped 2.5 percent Friday, a trend that has been ongoing since the trade war began.

The trade war has been disruptive to the global economy, and has lasted more than a year. Global supply chains and financial markets have all been affected.

There’s the possibility that Apple could raise iPhone prices by around 10 percent, which could affect demand by 20 percent, or 10 million devices.

Apple slashed prices of iPhones this year in China following trouble with currency exchange rates. And iPhone sales dropped 12 percent to $25.99 billion after the last reporting quarter, following a 17 percent drop in Q2.

Recently, the iPhone stopped being the majority of Apple’s revenue.

After providing the majority of Apple’s revenue since 2012, the iPhone accounted for only 48.3 percent of Apple’s overall revenue in FYQ3, the first time that it hasn’t contributed over half of Apple’s sales in over seven years.

Still, it would be hard to say it was a particularly bad day for Apple, which managed to beat analysts’ earnings forecasts on the top and bottom line and saw bigger than expected growth in both its wearables and services departments.

CEO Tim Cook was, as is normal, excited about Apple quarterly results — particularly in terms of the firm’s expanding ecosystem, the “absolutely blowout quarter for wearables” just reported and for all the things that are coming next.

“On so many fronts there’s an enormous amount to look forward to over the next few months, including the launch of new services like Apple Arcade, Apple TV+, and Apple Card. And without giving too much away, we have several new products that we can’t wait to share with you,” Cook told investors on the post-release call.