Apple May Implement Global iPhone Price Increases to Mitigate Tariff Impacts [Report]

Apple may implement global iPhone price increases to mitigate tariff impacts, according to a new report from GF Securities analyst Jeff Pu. In a recent investor note, Pu outlines the potential effects of new U.S. tariff policies under the Trump administration on Apple's iPhone production and pricing strategy, as well as the broader PC market. With tariffs on Chinese goods rising and production capacity constraints in non-China regions, Apple faces challenges that could lead to higher costs for everyone.

Following a 90-day pause on reciprocal tariffs announced by the Trump administration, a baseline 10% tariff applies to most countries, but for China, tariffs have increased from 104% to 125%. These tariffs, enacted under the International Emergency Economic Powers Act of 1977, are unlikely to offer exemptions for individual companies like Apple. The report notes, "We believe any exemptions would likely apply to broad product categories rather than individual firms." For Apple, this means a significant portion of iPhone production, which relies heavily on China for 83-84% of global capacity, will face higher costs. Right now, India handles about 16-17% of iPhone production, but with the U.S. accounting for 30% of total sales, Apple has to keep shipping a large chunk of units from China, where they'll face those higher tariffs.

To cover the added costs, Pu notes that Apple might shift 50% of the tariff burden to consumers by raising iPhone prices globally. The report estimates that for an iPhone 16 Pro Max with 256GB of storage, the bill of materials (BOM) cost is $485. After accounting for manufacturing value add (MVA), import costs, and channel expenses, the total cost rises to $928. With the new tariffs, this cost increases by $404, or 34% of the current selling price of $1199, bringing the new price to $1401. This adjustment would reduce Apple's gross margin on the iPhone from 50% to 27%.

Historically, price increases have affected iPhone demand. The report references a 2019 price hike for the iPhone 11, which saw the selling price rise from $849 to $899 for the 64GB model and from $999 to $1149 for the 256GB model. That adjustment led to a 9% decline in sales growth. The current analysis predicts a steeper impact, stating, "We expect iPhone shipment to decrease by 12%, under our neutral assumption." This decline is attributed to global price adjustments, which could amplify demand contraction. The report adds, "While U.S. consumers demonstrate lower price sensitivity due to prevalent carrier subsidies, a global price adjustment would likely magnify demand contraction."

For Apple's supply chain, the report highlights potential shifts. Non-China production, such as in India, is being prioritized, and companies like Foxconn's FII under Hon Hai are expected to benefit. The report states, "We expect share gain for FII, under Hon Hai, for its India production layout." However, the limited non-China production capacity (16-17% for iPhones) means Apple cannot fully avoid the tariff hit. The report also contrasts the iPhone's situation with the PC market, noting, "We expect a sharper sales decline in PC (16%) due to more price-sensitive enterprise customers."

The report concludes that this could benefit competitors, stating, "We expect iPhone's pricing action would benefit Chinese Android manufacturers such as Xiaomi and Huawei, and Android suppliers including MediaTek." For Apple, balancing cost increases with market demand will be a critical challenge as the new tariff environment takes hold.

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