Apple Inc (NASDAQ: AAPL) has reportedly committed to moving manufacturing of all iPhones it sells in the US to India within the next 8 – 10 months, in a bid to avoid aggressive tariffs on Chinese goods.
But a senior MoffettNathanson analyst warns it may prove to be an “unrealistic goal”.
Craig Moffett noted that escalating trade tensions between China and the US are likely to result in significant increases in both costs and sales challenges.
While moving iPhone assembly to India could help mitigate some of the cost pressures, Moffett suggested that the impact on sales could ultimately prove to be the more significant issue.
Apple shares are currently down more than 15% versus their year-to-date high in late February.
iPhone components would still be made in China
Last week on CNBC’s “Fast Money”, Craig Moffett said the Trump administration’s new tariffs and the subsequently emerging trade war create a myriad of issues for the likes of Apple Inc, and “moving to India doesn’t solve all of them.”
For starters, even if the titan begins to assemble its iPhone in India, many of the components for its flagship smartphones are still made in China. So, “it’s not entirely clear to what extent these iPhones will be able to avoid Chinese tariffs,” he questioned.
Note that Foxconn remains the largest contract manufacturer for AAPL, even if the iPhone itself is being assembled in India.
And in the event of a full-blown trade war, Foxconn could come under immense pressure from the Chinese government to sever its ties with Apple Inc.
Trade war could make Apple lose its share in China
Craig Moffett’s bigger concern is what tariffs and a trade war could ultimately mean for the iPhone maker in terms of demand.
On “Fast Money”, the market expert argued Apple was already losing share to local brands in China even without these macro challenges, adding some of it may have been related to a sense of “nationalism”.
And now that the White House has invoked this trade war against Beijing, that patriotism could lead to a further significant hit to the iPhone demand in the world’s second-largest economy.
For its recently concluded quarter, Moffett expects AAPL to report an 8.0% decline in China.
Is it worth investing in AAPL shares today?
MoffettNathanson’s bearish note on Apple stock arrives only a week before it’s scheduled to report its financial results for the second quarter.
Consensus estimates suggest that Apple (AAPL) is expected to report earnings of $1.60 per share for Q2 on May 1st. This compares to $1.53 per share reported in the same quarter last year.
However, amidst the macro challenges this year, the investment firm expects Apple shares to crash to a low of $141.
Its price target warns of a potential downside of about 30% from here.
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