Wedbush: Apple, Huawei and Fort Sumter, again

From a note to clients by analyst Daniel Ives that landed on my desktop Wednesday:

The news earlier this evening around the Trump administration’s ban on Huawei products in the US is just the latest Fort Sumter moment with 5G at the center of this divisive issue on the technology front between the two countries with now worries that more retaliatory tactics can be deployed by China. To this point, while we expect a lot more sand to be thrown in the sand box between the Beltway and Shanghai until the G-20 talks in late June…

Based on our analysis the way the tariff situation stands today on some lithium batteries and other input materials the cost of making iPhones currently will go up by roughly 2%-3%…

Many are yelling fire in a crowded theater saying this tariff issue will be a major fundamental blow to Apple which based on the current situation is a view we strongly disagree with. Taking a step back, we ultimately believe there is a low likelihood that Apple and its iPhones feel the brunt of the tariffs given its strategic importance domestically as well as Cook’s ability to navigate these issues in the past with Trump and K Street. We believe the more concerning issue is around any hit in demand if Apple feels the noise in China and any pro Huawei sentiment negatively impacting sales in the near term which we believe is a contained situation for Cupertino the way things stand today.

Maintains Outperform rating and $235 price target.

My take: The first “Fort Sumter” moment for Apple, according to Ives, came when the U.S. blocked Broadcom’s $117 billion bid for Qualcomm over 5G national security issues.

One Comment

  1. Fred Stein said:

    The Fort Sumter (or Pearl Harbor) metaphor may be more applicable than many think. Both were based on the idea that first strike is all that is needed to deter a foe. Just the opposite happened, triggering massive escalation and casualties. Our Civil War was our worst war in terms of casualties in our history, by a wide margin. Japan likewise suffered large civilian deaths even before Hiroshima and Nagasaki.

    Regardless of the specific impact to Apple’s supply chain or their sales in China, the macroeconomic impacts could be big. No one really knows what the leaders on both sides will do, nor how it may destabilize the complex global financial structure.

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    May 16, 2019

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