Apple Faces New Tariffs but Has Options to Soften the Blow [Kuo]

Apple is bracing for a significant challenge as the Trump administration rolls out new tariff policies targeting hardware exports to the US. According to a recent post by TF International Securities analyst Ming-Chi Kuo, these tariffs, set at 34% for China, 26% for India, and 46% for Vietnam, could reshape Apple's cost structure and production strategy. With the majority of its hardware assembly still tied to China, the company has several paths to mitigate the financial hit.

Currently, 85-90% of Apple's hardware assembly happens in China, with the rest split between India and Vietnam. The new tariffs threaten to squeeze Apple's profitability. Kuo estimates that if Apple absorbs these costs without raising prices, its gross margin could drop by 8.5-9%. That's a hefty hit for a company known for its premium pricing and healthy margins.

Shifting production offers one way out. By 2025, Kuo expects at least 15% of global iPhone production to move to India, up from 10-12% in 2024. If India and Vietnam can secure tariff waivers through new US trade deals, Apple could cut the gross margin impact to 5.5-6% without touching retail prices. Push India's share to over 30% of iPhone output with exemptions in place, and the damage shrinks further to just 1-3%.


Kuo highlights that "India and Vietnam are far more likely than China to secure US tariff exemptions," though he doesn't pin down a timeline. This potential advantage could accelerate Apple's ongoing efforts to diversify assembly away from China until non-Chinese production meets most US demand. It's a slow pivot, but one that could pay off.

Another lever Apple might pull is pricing flexibility in the US market. Kuo points out that "high-end iPhones account for 65-70% of new model sales," and buyers of these models are generally more tolerant of price increases. Apple could also lean on tactics like boosting carrier subsidies or trimming discounts in its Trade-In program to offset costs without making price hikes too obvious to consumers.

Beyond that, Apple has the option to tighten the screws on its supply chain. "Apple could offset tariff impacts by squeezing its supply chain, putting greater pressure on most suppliers to cut costs," Kuo writes. It's a strategy that could help maintain profitability without passing the full burden onto customers.

Apple's stock is currently trading down 8% following yesterday's tariff announcement. Please download the iClarified app or follow iClarified on Twitter, Facebook, YouTube, and RSS for more updates.