Apple faces rise in iPhone costs

FILE PHOTO: A visitor uses his iPhone X to take photos of the stage at the Apple Worldwide Developer conference (WWDC) in San Jose

INTERNATIONAL – Apple could see the production costs for its flagship iPhone rise 2-3percent given the impact that trade tensions between the US and China are having on input materials like lithium batteries, according to Wedbush analyst Daniel Ives. Ives cautioned that the impact could easily get worse for Apple, which he described as the “poster child” for companies facing trade-related headwinds. 

The company relies on Chinese labour for the production of nearly all of its devices, and it derived nearly 20percent of its 2018 sales from the Chinese market, according to data compiled by Bloomberg. If the Trump administration levies additional tariffs, “this would be more of a potential game-changer from the perspective of the incremental costs to Apple and its iPhone production,” Ives wrote. 

Under this “more draconian scenario,” expenses could escalate “by roughly 10percent+ over time.” Last week, Morgan Stanley estimated that Apple’s fiscal 2020 earnings could drop by about 23percent in a worst-case trade scenario. Shares of Apple rose 1.1percent in pre-market trading. However, this comes after a three-day decline, including a 5.8percent slump in Monday’s session that was the company’s biggest one-day drop since January, when it cut its revenue forecast. Last week, Apple shares had their biggest weekly decline since December. Apple and chief executive Tim Cook are “seeing pressure on both ends of the spectrum”, Ives wrote.