With its stock bordering on free-fall territory since October, the last thing Apple (AAPL) needs is a 10% tariff slapped on its iPhones and iPads imported from China at the hands of the Trump administration.
At this juncture, that tariff would likely tip the one-time $1 trillion tech pioneer’s stock into a free fall.
“Maybe. Maybe. Depends on what the rate is,” said President Donald Trump in an interview with The Wall Street Journal on the potential for a 10% tariff on iPhones and computers. “I mean, I can make it 10%, and people could stand that very easily.” Some numbers crunched by investment bank Baird suggest people may not be so willing to pay an extra $120 for the privilege to own the latest iPhone. After all, iPhone prices have already crept to the $1,000 level and scared off many from upgrading or getting into the Apple ecosystem.
A big bite would be taken from Apple’s bottom line if Trump’s 10% tariff is implemented.
Assuming the 10% tariff is put into effect, Baird sees at least a 10% negative impact to consumer demand in the United States. Each 5% reduction in U.S. product revenue, to account for demand elasticity impacts, drops Apple’s earnings per share by roughly $0.25-0.30 according to Baird’s calculations. Baird would cut its 2019 profit estimate to $13 a share from $13.57 assuming the new tariff rate.
Wall Street analysts currently have Apple producing $13.47 a share in 2019, according to Yahoo Finance data. So if the tariff Trump hints at were to kick in, Apple’s stock would have to be re-rated for a sharply lower profit outlook.
“While we take the negative supply chain comments with the proverbial grain of salt, there’s little question that higher iPhone prices due to potential tariffs would likely negatively impact demand and profitability at some level,” said Baird analyst William Power.
Apple didn’t immediately return a request for comment.
The president’s comments come at a precarious time for Apple. Shares have plunged 20% over the past three months on fears of slowing iPhone demand and peak innovation. Microsoft briefly passed Apple on Monday for the title of the world’s most valuable company.
On Tuesday, RBC Capital Markets became the latest investment bank (it’s a growing list) to cut its profit outlook on Apple citing demand worries.
“While Apple’s stock has substantially corrected (down 21% since the company reported vs. S&P 500, which is down 2%), we think investors will wait for data points/noise level to stabilize before getting more positive on the name (dynamic we think should occur in early 2019),” wrote RBC Capital Markets analyst Amit Daryanani.
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Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi
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