Apple (AAPL) - Get Report shares traded higher Tuesday after the company's key iPhone assembler said it can make the tech giant's flagship product outside of China, easing concerns that tariffs might disrupt its supply chain.
Han Hai Precision Industry Co., better known as Foxconn, told investors Tuesday that "our production capacity outside China is enough to meet demand from the U.S.", while noting that the trade situation between the world's two biggest economies is "increasingly tough". Apple CEO Tim Cook told CBS News last week that he doesn't expect China to target his company with specific tariffs, but several Wall Street analysts have warned of the impact they could have on Apple's most lucrative product.
Young Liu-Way, an incoming member of Foxconn's re-vamped board of directors, told an investor conference in Taipei that around 25% of the group's production capacity sits outside of China, allowing it the ability to "respond to (Apple's) needs in the U.S. market.
Apple shares were up 0.7% on Tuesday to $193.83.
Last month, Goldman Sachs analysts pegged the downside risk to Apple's earnings, based on its China exposure, at around 29%, adding that a move to restrict iPhone production in China would force it to move elsewhere, but cautioned that would take time and hurt profits.
"If there were a ban or some other restriction on Apple products in mainland China, we estimate that Apple's annual total EPS exposure is about $3.35/share," Goldman's Bala Reddy wrote. "We are not assuming restrictions on iPhoneproduction in Mainland China at this point."
Goldman pegged the downside risk to Apple's earnings, based on its China exposure, at around 29%, a figure it said represents "100% of estimated Apple earnings exposure to Mainland China and Hong Kong combined with some offset assumed for Sales & Marketing cost savings." Goldman trimmed its 12-month price target on Apple to $178 from $184 with a forward price-earnings multiple of 14.7 time.
"Well, currently, the Chinese have not targeted Apple at all. And I don't anticipate that happening, to be honest," Cook told CBS, adding that levies on iPhones assembled in China but shipped to the United States would likely impact sales of its most important product.
"I'm hoping that doesn't happen. And I don't anticipate it happening. I know people think the iPhone is made in China," Cook said. "The iPhone is assembled in China. The truth is, the iPhone is made everywhere. It's made everywhere. And so a tariff on the iPhone would hurt all of those countries, but the one that would be hurt the most is this one."