Apple analyst Ming-Chi Kou sent a note to investors on Sunday saying not to worry about any consumer-facing price hike on iPhone, iPad, or Mac. Kou predicts that due to Apple CEO Tim Cook's spreading out of its reliance on supply chains more globally will help the company absorb the cost of any immediate tax on imported goods from China instead of passing the cost along to consumers.
In the mid-short term, if Apple absorbs most of the additional costs due to tariffs, there will be a negative impact on its profits from its hardware business, but the company will reap benefits in its brand image and relationships with suppliers. We also believe that the negative impact on Apple are limited and temporary because the profit from service business is growing, and non-Chinese production locations will gradually increase.
Kuo also notes that in the long-term, Apple should be able to meet market demands of iPhone assembly outside of China by 2020, but that it will take longer to get Mac assembly on track due to a higher market share.
iPhone. Expanding non-Chinese production capacity is challenging due to the low degree of production automation. We expect that non-Chinese production locations to meet U.S. market demand in 2020.
iPad. It's not difficult to expand non-Chinese production capacity to meet U.S. demand because of the higher degree of production automation and the smaller U.S. market share.
Mac. Though its degree of production automation is higher than the iPhone's, the Mac's non-Chinese production locations can't meet demand from the U.S. market until 2021 because of higher market share of U.S. market .
Apple Watch. We expect there will be non-Chinese production locations, starting in 2020.
AirPods. We estimate that the change of AirPods' internal design from SMT to SiP will enhance the level of production automation.
So the next time you hear someone say that the iPhone XI is going to cost $100 more because of the U.S.-China trade war, just remember that Cook and Apple have been planning for this and are in a better position to keep things running without hurting our wallets.