Apple warns trade war could raise costs, damp consumer confidence

The political uncertainty surrounding trade disputes and protectionist measures could also “have a negative effect on consumer confidence and spending,” Apple said in a filing with the US Securities and Exchange Commission

PUBLISHED : Thursday, 02 August, 2018, 8:08am
UPDATED : Thursday, 02 August, 2018, 12:12pm

Apple Inc., the world’s most valuable company with a market capitalisation just shy of US$1 trillion, warned that global trade tensions could hurt its business if countries raise tariffs and adopt protectionist measures.

“Tariffs could increase the cost of the company’s products and the components and raw materials that go into making them. These increased costs could adversely impact the gross margin that the company earns on sales of its products,” the iPhone maker said in its quarterly filing with the US Securities and Exchange Commission.

“Tariffs could also make the company’s products more expensive for customers, which could make the company’s products less competitive and reduce consumer demand.”

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The political uncertainty surrounding trade disputes and protectionist measures could also “have a negative effect on consumer confidence and spending,” Apple said in the filing, without naming the US or China. The company’s shares jumped 5.9 per cent to US$201.50 as of Wednesday, valuing the company at US$973.2 million.

The warning comes as a reminder of the potential impact that a trade war may have on global companies like Apple, which count on China as a substantial market, manufacturing base and supplier of parts. The Cupertino, California-based company projected sales that beat analysts’ estimates on expectations that consumers will continue to snap up its high-end iPhones, wearable devices and use its digital services.

China and the US have become entangled in a dispute that could undermine global trade and order. The world’s two biggest economies have imposed 25 per cent tariffs on US$34 billion of each other’s products and another US$16 billion is in the pipeline.

What’s at stake for Apple if US-China trade dispute continues to heat up

Apple, whose chief executive officer Tim Cook met with President Donald Trump in April to discuss trade issues, has much at stake in the ongoing trade war. China not only constitues one of the company’s biggest markets, the country is also the prime manufacturing base of primary Apple products like the iPhone, MacBook and iPad.

Revenue from the Greater China market, which includes Hong Kong and Taiwan, made up 20 per cent of Apple’s total revenue of US$229.2 billion in its financial year ended September 30, according to the company’s annual report. That made Greater China the company’s third-largest market after the Americas and Europe.

The Chinese mainland alone is the world’s largest market for the iPhone, Apple’s flagship product that made up 62 per cent of the company’s total revenue in its past financial year. Substantially all of its hardware products are currently manufactured by outsourcing partners that are located primarily in Asia.

Apple also relies on “sole-sourced outsourcing partners in the US, Asia and Europe to supply and manufacture many critical components, and on outsourcing partners primarily located in Asia, for final assembly of substantially all of the company’s hardware products,” according to its SEC filing.

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Taiwan-listed Hon Hai Precision Industry, the world’s largest contract electronics manufacturer known under its Foxconn Technology Group trade name, may have the biggest exposure to Apple. Founded by Taiwanese entrepreneur Terry Gou in 1974, Hon Hai has been the main supplier of the iPhone and iPad for Apple since the devices were introduced in 2007 and 2010, respectively.

Meanwhile, Huawei Technologies overtook Apple in global smartphone shipments in the second quarter this year, putting the Chinese company in second place behind Samsung Electronics among the world’s biggest phone makers. Huawei shipped 54 million handsets, up 41 per cent from a year earlier, compared with 73 million units for Samsung and 41 million iPhones for Apple, according to Canalys, an industry researcher.