Apple (AAPL) Stock: Why Investors Should Not Be Worried By Trump Manufacturing Pressure
By Gene Munster
- In a Friday filing with the U.S. Trade Representative, Apple (AAPL) 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.
Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio.