Due to new duties, iPhones will cost $ 75-100 more
17.08.2019 0 Comments
President of America Donald Trump recently announced the introduction of 10 percent duties on goods imported from China with a total value of $ 300 billion. Since September 1, most of the electronics, including smartphones, computers and game consoles, should have risen sharply in price, which would mark a new round of economic war between the United States and China.
But now, the U.S. Presidential Administration has announced that the introduction of duties is delayed until December 15, 2019, which will prevent problems for the technology industry. At the same time, the period of uncertainty is extended, during which large trading and manufacturing market participants can suffer serious financial losses.
It is worth remembering how Apple, Microsoft and Intel stocks collapsed after the first posts on this topic appeared on Donald Trump's Twitter account. Then the value of securities seriously dipped, which has already become vivid evidence of the emerging chaos in the market. After the announced delay in the introduction of economic sanctions, the cost of securities returned to its original position, but this is only a temporary phenomenon. After all, an increase in import tariffs in the amount of 10% will still lead to the fact that commodity prices will soar in order to compensate for the losses of producers.
Currently, companies have received a slight delay in time. They need to decide what to do with higher import tariffs after December 15th. Manufactures and distributors have 3 ways to resolve the issue:
Compensate for expenses from own funds, which will affect the reduction in net profit. Export part of its products from China to another country, which will not be subject to increased duties. To place the burden of compensation on the wallets of ordinary consumers.
Most likely, we will get a combined solution that will include elements from all three proposed items.
Gary Shapiro, the president of the US Consumer Technology Association, said: “Tariffs are taxes, and increasing costs for companies puts ordinary consumers at the center of Donald Trump’s economic war with China.”
Expected Implications for Apple and iPhones
Apple is one of the first corporations to suffer after the introduction of new tariffs. The company receives almost 17% of the total revenue from the Chinese market, and production is located in the country, which produces almost half of all gadgets.
It is likely that Apple will survive the first round of fee increases without increasing the cost of the device. This was stated by Apple Wedbush Securities analyst Dan Ives in a note addressed to corporation investors on Tuesday morning. But if the tariff bar will be maintained during 2020, then the brand will have no other choice but to inflate the price tag on devices by about 75-100 dollars. Even the initial compensation of losses will bring the company huge losses, since its shares will fall in price by 0.50 dollars per share.
However, Ives noted that price increases for iPhones and other product lines will also have consequences. The analyst predicts that sales of the main iPhone models will fall by about 6-8 million copies a year. Only one thing is clear that the loss of the introduction of new tariffs cannot be avoided, but the release of new models will help stimulate sales (in the event of an increase in the price of goods).
Transfer of production from China
The main goal of Trump, who voted for the new tariffs, is to return a huge share of production back to America. However, many analysts (including Dan Ives) note that such a decision will cost the United States and ordinary citizens too expensive. Companies have spent decades building up indestructible production chains and selling finished products, while the American leader wants to completely destroy this system. What was built over the years cannot be taken apart for several days. Yes, and investing in such a project will not be too rational means, since the implementation will require the largest possible financial injections.
If the companies decided to export their production and equipment from China, then most likely the same countries of Southeast Asia would become the end point of the route. According to some rumors and information, Apple is already considering such an option to move abroad, but not to move away from the existing supply chains of components for production, and not to destroy established ways for selling their goods.
In June 2019, the executive director of Foxconn, which manufactures and delivers the lion's share of components for Apple, said that most parts can be manufactured outside of China. But Tim Cook himself at a meeting with investors said that they were in no hurry to invest additional funds in the "relocation". This will take too long and, nevertheless, will lead to higher prices for “iPhones” and other devices.
According to Ives, it will take Yabloko 18 months to transfer 5-7% of total production to India or Taiwan. You can calculate how much effort and time it will take to move all of the corporation's facilities.
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