Merrill Lynch: A made-in-USA iPhone would cost 20% more

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Apple analyst Wamsi Mohan takes the measure of “demand destruction” under the Trump tariff regime.


From a note to Bank of America clients that landed on my desktop Friday:

Impact from tariffs remains a moving target. On Friday, President Trump indicated possibility of another $267bn tariff on Chinese imports, (beyond the $200bn proposed in the 2nd round). We est. ~$26bn in rev in F19 from “Other Products” (including Watch, AirPods, Beats, HomePod, and Accessories) and MacMini. Assuming a third of such rev is derived from the U.S. (~$9bn), a 25% tariff on the products, could be materially demand destructive (if Apple were to raise prices to preserve margins). Every $1bn of demand destruction could impact earnings by ~$0.05. The incremental costs of products used in U.S. mfg could be an incremental drag to EPS.

Revisiting the U.S. manufacturing challenges. In conjunction with our Asia Analysts we had published the challenges associated with moving production to the U.S. The conclusion was for the iPhone (not currently impacted by Tariffs) moving production (100% of final assembly) to the U.S. would need 20% price increases to offset the incremental labor costs. This excludes impact from importing components that are largely produced in Asia. We est that the incremental costs to manufacture in the U.S. could vary between 15-25% for the products currently impacted by the Tariffs and could lead to some demand destruction.

Maintains Buy rating and $250 price target.

My take: It’s a zero-sum game. Either prices go up or profit margins shrink.