Apple’s Ability to Mitigate Tariffs Is ‘Underappreciated,’ JPMorgan Analyst Says

The trade war between the U.S. and China has heated up in the past week, putting pressure on Apple (AAPL) shares, but one analyst says the tech giant has a greater ability to weather potential tariffs than the market currently recognizes.

U.S. tariffs on additional goods from China, including smartphones and other electronics, are scheduled to go into effect Dec. 15, and President Trump on Friday threatened to raise the level of those tariffs from 10% to 15% in response to the Chinese government imposing its own additional tariffs on U.S. goods. He also ordered U.S. companies to look for ways to not do business with China, sending shares of Apple, which assembles the majority of its iPhones in China, down 4.6% on Friday.

Apple analysts have outlined how planned tariffs would impact Apple’s profits, based on whether it chooses to absorb the higher costs or pass them along to consumers through price increases.  Cowen analyst Krish Sankar outlined in an early August note that 10% tariffs would have a negative earnings per share impact on Apple of anywhere between 0.5% and 4%.

But JPMorgan analyst Samik Chatterjee wrote in a note on Monday that “we see certain silver linings relative to timing that might allow Apple to navigate the challenging dynamic better than investors currently expect.” He noted that Apple’s ability to mitigate the potential tariffs is “underappreciated.”

One factor Chatterjee says investors aren’t much considering is the decline in memory chip prices, which reduces its own costs. He mentioned that the total year-over-year decline for those costs for the launch of new phones in September would amount to roughly $30 to $50 per phone. This is due primarily to a decrease in the cost of DRAM and NAND prices, Chatterjee said, a decrease that has hurt Micron’s (MU) revenue growth.

This is “allowing the company to absorb a large portion of the tariffs without a retail price increase for the American consumer,” said Chatterjee. He said Apple would have had an 8% hit to EPS from absorbing 10% tariffs, but that the EPS hit could now be less than that with the memory cost decrease partially offsetting the tariffs.

Chatterjee’s belief that Apple can maintain last September’s iPhone profit margins without lifting prices would be good news in terms of sales expectations. Cowen’s Sankar thinks higher iPhone prices would equate to 5% to 20% “demand destruction,” while Wedbush Securities analyst Dan Ives sees 6 million to 8 million fewer iPhones sold in the event of a price increase.

As for Apple’s non-iPhone hardware products, which include AirPods, Apple Watches and iPads, “pricing power is higher given limited competition” for these devices, Chatterjee argued. These products represent about 28% of Apple’s total revenue. “In addition, we see a significant memory price benefit on Mac devices,” Chatterjee added.

Aside from footwork around price and cost, Apple could also move some of its production out of China. Ives has pointed out Apple is trying to move 5% to 7% of iPhone production out of China, which would take at least 18 months. Moving 30% of such production out of the country would take roughly three years.

Apple shares were rising 2% to $206.67 on Monday and are up about 31% year-to-date.

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