HSBC has cut its price target on Apple based on concerns about the company’s uncertain future in China.
Specifically, it is worried that Apple may ramp up the (already steep) price of iPhones in the U.S. if new import tariffs from China are implemented.
“Apple has one of the most significant exposures to Chinese exports to the U.S, given final assembly for many of its consumer devices is located in China,” HSBC analyst Katy Huberty wrote.
Apple has started building its iPhones in other places, such as India. However, Huberty notes that China remains, “one of the only countries that can provide such a large and low-cost labor force with the expertise in manufacturing and tooling that is required.” As a result, she thinks that it is, “largely inconceivable” that Apple would shift manufacturing elsewhere.
Could customers take the price hike?
Huberty thinks that the cost of an iPhone could increase by $160 should the latest round of proposed tariffs on Chinese imports take place. HSBC isn’t the only one to think this way, either. Other analysts have suggested tariffs could increase by around 14% or more.
Due to Apple’s reliance on China, HSBC analyst Nicolas Cote-Colisson has lowered his price target on Apple from $180 to $174. At time of writing, AAPL looks set to open at $185.27. That would show a decline of 12% since President Trump first threatened tariffs on May 5.
Apple has shown in recent quarters that it can deliver business growth elsewhere to make up for falling iPhone sales. But at a time when iPhone growth in the U.S. is at its slowest growth in history, a price hike would still be bad news for customers — even if investors could weather the storm.
Apple COO Jeff Williams last year said that Apple is “very aware” of concerns over the rising cost of the iPhone and Macs. Would another $160 be a nail in the company’s coffin? That’s unlikely. But it could push a number of customers, still getting used to the new high iPhone prices, one step too far.
Source: The Street