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Apple cannot pass price increase this year



As we near the release of the next iPhone, it has been a bad news parade for Apple. While their quarterly results announced last week were ok, they had a mini-scandal over entrepreneurs who listened to recordings of Siri interactions. Worse, the stock price has fallen significantly over the past two days of trading, based on news of a recent round of tariffs on goods manufactured in China.

These additional duties are a blow to not only Apple, but pretty much the entire tech industry. All of these companies use Chinese components, and most of them have some, if not all, of their devices manufactured there as well. As such, it's not just Apple's share price that is dropping right now. In fact, this blowing area for the tech sector has reverberated throughout the US stock market.

Knowing Apple's typical focus on profit margins, you would think that they would only pass this 1

0% increase on to their higher-priced customers. When you consider that their iPhone revenue has fallen for a year and that sales this year are expected to be flat at best, I certainly expected it. However, Ming-Chi Kuo reported today that Apple could take a different course. He believes Apple will NOT pass on the additional costs, but will absorb most of them.

“In the short term, if Apple incurs most of the additional costs due to customs duties, it will have a negative impact on the profits of the hardware business, but the company will reap benefits in the brand image and relationship with the suppliers. We also believe that the negative impact on Apple is limited and temporary because the profits from the service business are growing and non-Chinese manufacturing sites will gradually increase. "

This doesn't sound like Apple we've come to know under Tim Cook, but it could end up being the best move for the company. Whatever Apple will give up in margin and revenue, they will definitely return customers' goodwill. Their suppliers will also be satisfied if unit sales are steady. You can bet that a move like this will not be noticed as it is likely to keep sales and revenue on iPhones stable. Despite all this, I still can't help but feel that it is out of left field for Apple.

I came across another article today on Seeking Alpha that could potentially relate to this situation. It talks about how Apple has used its cash reserves when needed to clear losses and "build a bridge" past the iPhone's huge drop in sales for the next release and rollout of their new services. I couldn't help but wonder if Apple could end up using some of its still plentiful cash reserves to offset any additional customs losses. It seems quite likely for a company to use the final Rainy Day Fund as a potentially difficult storm is rolling through.

This report does not guarantee that Apple will pick up the tab for Trump's latest tariff round. Ming-Chi Kuo is a supply chain expert, but these kinds of decisions reach far beyond their normal territory. The report can only educate speculation on his part. However, it assumes that it is also possible that Apple assures their parts suppliers that they are doing what they can to keep unit sales stable. It is a reasonable way for a supply chain expert to tell a story like this.

With the new iPhone just over a month away, it won't be long before we find out whether Kuo is right or wrong. If this report is true, it will probably also be repeated by other Apple experts with sources in the company, such as at Bloomberg's Mark Gurman, so this will not be the last thing we hear about how Apple will handle these new tariffs. [19659009] Related


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