Apple Stock Takes a Hit as President Trump Suggests 10% iPhone Tariff

Apple Stock - Apple Stock Takes a Hit as President Trump Suggests 10% iPhone Tariff

Source: Apple

Apple (NASDAQ:AAPL) can’t seem to catch a break these days. The company has been hammered since October, losing a fifth of its value, and slipping well below the $1 trillion market cap it first hit in August. Now, more bad news. In an interview on Monday evening, President Trump suggested that a 10% tariff on key Apple products, including the all-important iPhone, may be coming. That news drove Apple stock down over 2% in after hours trading.

President Trump Comments on Tariffs

U.S. President Donald Trump is scheduled to meet with Chinese President Xi Jinping on Friday to talk trade. There’s a lot at stake as the two leaders are in the midst of an escalating trade war, with the U.S. scheduled to boost tariffs on $200 billion of Chinese imports from the current 10% to 25% in January. 

When that last round of tariffs was first announced back in June, Apple stock was saved from taking a hit, because there were assurances that the iPhone wouldn’t be in the government’s sights. Even though AAPL’s single most important product is assembled primarily in China.  

However, President Trump appears to have had a change of heart.

In an interview yesterday evening with The Wall Street Journal, President Trump indicated that he may include the iPhone in the next round of tariffs, as well as laptops (which would represent another blow to Apple). As for the rate, he seems unsure, but he was quoted as spitballing 10%:

“Maybe. Maybe. Depends on what the rate is. I mean, I can make it 10 percent, and people could stand that very easily.” 

The news resulted in Apple stock sliding in after-hours trading, dropping over 2% at one point.

iPhone Sales Are Already Disappointing

The problem for AAPL is that signs have been pointing to iPhone sales already being lower than expected. In mid-November, a report that Apple suppliers were facing slashed orders for iPhone components resulted in Apple stock taking a 5% hit. And that was after AAPL announced it would no longer report iPhone unit sales, fueling suspicion that the company’s most critical product — and the primary factor in APPL stock’s massive growth — was entering a period of sales decline.

The company is also facing fierce competition in the flagship smartphone market. Samsung seems determined to make a big splash next year with a slew of new models including a folding smartphone slated for release. In addition, Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google is winning accolades for the camera in its new Pixel 3, which is making the dual-camera setup in the latest iPhones look second rate in comparison, especially in low light photos.

Adding a 10% tariff on iPhones would be more bad news. The company would be forced to either eat the additional cost and cut into its profit margin, or pass the extra cost onto consumers. Given the apparently lackluster sales of new iPhones, neither option is particularly appealing if you’re Apple or an AAPL investor.

Adding to the Apple Stock Threat: App Store Lawsuit 

Making matters worse on Monday was news that the U.S. Supreme Court was showing signs of allowing an antitrust case against Apple to move forward. That lawsuit alleges Apple’s App Store rules that prevent iPhone owners from accessing third-party app sources and its 30% cut of sales amount to a monopoly that artificially inflates prices for consumers.

Apple is increasingly reliant on Services revenue growth to take the sting out of slowing iPhone sales. Any threat to the App Store, which is one of the biggest revenue generators in that Services division, has nothing but downside for the company and for Apple stock.

Will AAPL end up having to work with a 10% tariff on the iPhone and laptops like the hot new MacBook Air? We should have a better idea after Friday’s meeting between American and Chinese leaders. President Trump has put an iPhone tariff on the table, but he’s known to use tactics like these as part of his negotiating strategy. If the company does find itself in the crosshairs, the hit Apple stock took last night is likely to be just a preview of what’s coming next for the beleaguered tech company.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/11/apple-stock-takes-a-hit-as-president-trump-suggests-10-iphone-tariff/.

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