03 June 2019
Apple Inc may have to increase prices of iPhones significantly due to the ongoing trade war between the US and China. President Donald Trump may slap tariffs on the remaining billions of dollars’ worth of Chinese goods, which could lead to an increase in iPhone prices significantly to offset the higher costs of parts, believe market analysts.
“We estimate a price increase of around 14% is required to absorb the impact of a 25% tariff, keeping margin dollars for all players in the supply chain constant,” J.P. Morgan stated in a note.
The report stated that the iPhone XS which costs about $1,000, will see an increase in prices of 25% on China-made parts. This would increase the price of the iPhone to $1,142 approximately, which is significant.
The news comes after a new round of tariffs were proposed by the U.S. earlier this week, which would come in effect from June. The new tariffs also include mobile phones, which will come under a 25% import levy. This will affect Apple’s other products as well, like laptops and tablets. The company will have to make a difficult choice of increasing prices of its already-pricey products, which would affect sales, or simply absorb the extra cost and let its profits suffer. Apple could also think of shifting its production to other countries, like India, where it has been in talks to build its manufacturing plant.
There’s a "very real risk of higher import costs and/or U.S. consumer demand destruction depending on whether Apple decides to pass along some of the tariff cost," Krish Sankar, an analyst at Cowen Inc. stated. "Given that the majority of Apple’s hardware products that include the iPhone, iPad, Watch, and Mac systems are assembled and imported from China, the earnings risk could be quite substantial."