Two Ways Apple Would Be Hurt by 10% Tariffs -- What Apple Can Do

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Forget Apple's (AAPL) - Get Report strong quarter. 

The tech giant that recently crossed the $1 trillion market cap threshold is now worth $940 billion, as the threat of Trump's 10% tariffs on $300 billion worth of Chinese goods would put a dent in Apple's profits. 

If Apple Absorbs Costs

Apple could absorb the added cost that is the tariff. "We ultimately believe if fully absorbed this tariff would negatively impact fiscal year 2020 EPS by roughly 4% and be a clear overhang on numbers," WedBush Securities analyst Dan Ives wrote in a note. Analysts polled by FactSet is looking for 2020 adjusted EPS of $14.09. A 4% hit to that number indicates EPS of $13.52. That could bring the stock down below $180. The stock currently trades at just above $200. 

If Apple Passes Costs Through

If Apple makes consumers pay for the tariffs -- or increases device prices to maintain gross margins over the higher costs -- the EPS hit is still existent. " If Apple passes through the 10% tariff to consumers we could see a hit to iPhone demand by roughly 6 million to 8 million iPhones in the US based on our analysis over the next 12 months based on our overall unit forecast of 185 million iPhones globally for fiscal year 2020," Ives said. Unless management controls costs incredibly well, Apple likely sees a hit to earnings with the lower sales. 

Anti-American Sentiment?

In June, when Trump was threatening tariffs, Ives and several other analysts were warning that the Chinese consumer could turn on American products as Trump and Chinese leader Xi Jinping continue their stare off. Ives didn't mention this in his note Friday morning, but has noted the threat previously. 

What Can Apple Do?

It can move production out of China. 

Problem? That's really hard to do. Most of Apple's production is centered at FoxConn, a huge factory that employs a discernible fraction of the Chinese population. Moving to Vietnam, which smaller American manufacturers have done, would take years, by which time the tariffs could be off. 

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