For two executives who have nothing in common with each other, President Donald Trump and Apple CEO Tim Cook have many meetings. Of course, both are trying to get something from each other. Trump wants Cook to commit to building Apple devices in the U.S. (He also intends to invent a story about Apple that builds three “beautiful plants” in 2017), on the other hand, Cook wants to make sure the iPhone doesn’t become collateral damage in the trade war between the U.S. and China.
Yesterday, the pair had a meeting and is said to have spoken of Trump’s threat to impose 25% tariffs on another level of products from China. This new group of imports to get taxes supposedly includes the Apple iPhone. And while the president tweets that China is paying the rates, it’s not true; Rates are a tax paid by US companies and some of them pass the highest costs to consumers. For example, Apple pays 25% taxes in the case of iPhones and iPads but has paid the additional costs to keep the price the same for consumers. However, Morgan Stanley analyst Katy Huberty says that if the iPhone XR is hit with an import tax, the retail price will increase by $160.
Other issues besides the tariffs were on the agenda. According to White House spokesman Judd Deere, Trump and Cook talked about trade, investment in the U.S., immigration, and privacy. Privacy is a hot topic in Washington these days with companies like Apple, Google, Facebook and Amazon under the attack of lawmakers. Members of both sides in the House and the Senate talked about forcing big technology companies to split into smaller, more independent companies like AT & T was forced to do in 1982. These politicians fear the power the big companies hold. Meanwhile, Cook says Apple should not be in that conversation because it has only a moderate share in the smartphone market.
In addition to trying to avoid having to raise prices on the iPhone, Apple’s CEO has another reason to try to convince Trump not to intensify the trade war with China. Bloomberg reports that an analyst sees a financial gain for Apple shareholders after the trade war ends. Many Apple executives benefit from a higher share price through the allocation of limited unit shares (RSU). These are distributed by the company’s board of directors and some Apple executives such as the head of marketing Phil Schiller, head of software and services Eddy Cue, software engineer Craig Federighi and former retail sales head Angela Ahrendts are on the line for a large payment depending on where the shares are in 2022. Keeping the upside momentum will help these executives get big rewards.
Moving iPhone production out of China may take some time
An analyst at Wedbush Securities, Daniel Ives, says the end of the US-China trade war would add $25 to Apple’s share price. The company closed the week at $192.74 at the NASDAQ and a $25 pop would bring Apple to $217.74 and once again gave it a valuation above $1 trillion. With a current value of 887 billion dollars, Apple became the first company listed in the United States to overcome this goal last August when the shares reached 207.05 dollars. Then it was drastically reduced while the technology sector was corrected.
The analyst told customers in a note that the end of the trade war would eliminate China’s main risk, which is now a black cloud on the title. Ives adds that investors are considering an escalation of the trade war in Apple’s share price. While he points out that if the U.S. bring the trade war to the next level would be a “potential game changer”, since the company could move only a small amount of production from China in the next year.
Remember, while the iPhone and iPad are designed in the U.S. by Apple, they are actually produced in China by companies like Foxconn, Wriston, and Pegatron. Foxconn produces some iPhones in India for local consumption, it may take some time before they can establish a sufficient number of assembly lines in the country to produce the required number of units to meet global demand.
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