How A Trade War With China Could Impact Apple’s Stock

+2.57%
Upside
174
Market
178
Trefis
AAPL: Apple logo
AAPL
Apple

Apple‘s (NASDAQ:AAPL) stock fell by 2.5% in Monday’s trading, after an editorial in China’s Global Times, a state-run Chinese newspaper, stoked investor concerns that Apple’s prospects in China could be hurt if President-elect Donald Trump follows through on his campaign promise of enacting trade barriers with China. Below we summarize some of the recent developments and examine the potential impact of trade barriers on Apple’s financials and stock price.

Trefis has a $125 price estimate for Apple, which is roughly 20% ahead of the current market price.

See our complete analysis for Apple here

Relevant Articles
  1. Down 10% This Year, Will Gen AI Tools Help Apple Stock Recover?
  2. Down 5% Over The Last Month, Will Strong iPhone Sales Help Apple Offset Mac Headwinds In Q1?
  3. After Over A 40% Rally In 2023, Will Antitrust And iPhone Issues Hurt Apple Stock?
  4. Up 45% Since The Beginning Of 2023, Where Is Apple Stock Headed?
  5. Up 34% This Year, Will Apple Stock Rally Further Following Q4 Results?
  6. Will New iPhones Help Apple Stock Offset A China Slump?

Why Apple Investors Are Concerned

During the presidential campaign, Trump repeatedly threatened to declare a trade war with China, pushing for 45% tariffs on Chinese imports, as well as indicating that the country could officially be declared as a currency manipulator. The China Global Times, a newspaper controlled by China’s Communist party, warned in an op-ed published on Monday that China would enact countermeasures if any tariffs were imposed, noting that it would seriously hurt U.S. industries, explicitly naming firms such as Apple and Boeing. While we believe that the odds of a full-blown trade war emerging are low, given the magnitude of trade between the two countries and also due to China’s massive U.S. dollar holdings, Apple investors are nevertheless concerned considering that the company is dependent on China both as a crucial manufacturing hub and also as a lucrative market for its products.

The Impact of A Trade War

Apple’s total revenue exposure to Greater China (including Hong Kong and Taiwan) stood at about $48.5 billion during FY’16. According to data from IDC, Apple is estimated to have shipped about 47 million iPhones to China over the period, accounting for roughly 22% of its total iPhone shipments. If Apple’s iPhone shipments to China were to decline by half in the event of a trade war, causing Apple’s share of the global mobile phone market to fall and remain at levels of about 10% from 2018 onwards (versus the 11% projected in our model), with shipments of Apple’s other products also declining by about 5% in volume terms, this could result in a 7% downside to our price estimate for Apple’s stock. Further, if Apple is forced limit its use of Chinese contract manufacturers, moving production to more expensive markets, this could drive up production costs and hurt gross margins. For instance, if our projected gross margins for the iPhone decline to levels of about 38% by 2018 (versus about 41% per our base case), with the number falling to around 31% by 2023, this would reduce our price estimate further to about $111 per share, translating into a 12% reduction from our current base case estimate.

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research