Trump’s China tweet a ‘clear shot across the bow at Apple,’ analyst

The President’s iPhone does it again, taking the market down 2.6% and Apple down 4.6%.

shot across apple bowFrom a note to clients by analyst Daniel Ives that landed on my desktop Friday afternoon:

Trump’s comments/tweets around China today specifically around “ordering US companies to immediately start looking for an alternative to China” is a clear shot across the bow at Apple and the semi space with stocks down heavily in light of this latest news.

For Apple, as we have discussed at length the company in a best case scenario would be able to move away 5%-7% of iPhone production out of China and it would take at least 3 years to move 20% of iPhone production outside of its core Foxconn/China footprint based on our analysis with 50% of iPhone production moving out of China taking more than 5 years in our opinion.

On the supply chain, we believe Apple is aggressively looking at alternative options within the supply chain in light of this US/China UFC trade battle around moving 5%-7% of iPhone production to India and/or Vietnam, away from China, which would in a best case scenario be ready to roll 18 months from now in our opinion…

We believe the China tariff situation is a $20-$25 stock overhang on shares of Apple as this remains the nightmare that will not go away for investors (as well as Cupertino now clearly caught in the crossfire).

Maintains Outperform rating and $245 price target.

My take: If history is any guide, we’ll get a counter-tweet before too long. If only we knew when…

UPDATE: At 5 pm Friday, Trump doubled down, tweeting this…

China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30%… Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%. Thank you for your attention to this matter!

Apple lost another $1.09 (0.54%) in after-hours trading.

25 Comments

  1. Dave Ryder said:
    China is doing what I’d expect: playing hardball. There’s a U.S. presidential election coming up and the squeeze will be on.

    2
    August 23, 2019
  2. Gianfranco Pedron said:
    “Trump’s China tweet a ‘clear shot across the bow at Apple,’ analyst”

    Whatever … all I know is Trump keeps tweeting post consumer Big Macs into my bowl of Corn Flakes. Ⅎµ©ǩ!

    Glad to hear all these jobs are coming back. /s Sounds like I’ll be needing one of them if he keeps it.

    3
    August 23, 2019
  3. Fred Stein said:
    Sorry Daniel, it’s not just about Apple. It’s much bigger.

    Who knows with Trump. What difference does it make if a product is made in China, Vietnam or South Korea, etc? The only difference is the country of company selling the product, i.e. sending the profits to our economy. And companies like Sony and Samsung trade on our exchanges. So we can own them, fractionally. No company will make long term investments in tooling up a new factory based on a tweet du jour. Moving manufacturing to one of China’s neighbors does make sense and is already happening. It’s happening anyway because of rising labor costs in China.

    All the above is obvious. The big uncertainty is China’s reaction.

    2
    August 23, 2019
    • Turley Muller said:
      He wants companies to move production to the US. Apple products are just assembled in China. It would be impossible to find Americans to who would take a job assembling 1000 iPhones every day. Wouldn’t matter how much you paid them. The president doesn’t get it. He is stuck in a pre-modern mindset. US doesn’t even have enough workers as it is. There are 2x as many open positions than there are people looking for work. Just as an example, in my hometown of Memphis there are 2 job fairs this weekend. FDX is trying to fill 500 positions and a hotel 40 positions.

      Japan, Korea, and Taiwan have the capital intensive plants and foundries to make displays, chips, cpu’s etc. Apple designs them and provides the schematics and code. They are basically just 3D printers. The environmental aspect of those plants is not good. Not good at all. We don’t want those plants in the US. The current system works great as it is. The ironic part is that there are some components made in the US that get shipped to China which get taxed when imported back to the US.

      I think it’s an ego thing for the president. Like he once said, he asked TC to build a factory in the US bigger than those in China, even if it’s just a foot bigger.

      Companies have been moving production out of China, but lately they have been running into capacity issues. And quality issues in those other countries, I just read in the WSJ. So some are staying put for now.

      4
      August 23, 2019
    • Mark Visnic said:
      I expect the PRC will allow the Yuan to weaken further. Tariffs don’t work. They inflict as much friendly fire damage as they do on the intended target. McKinley, the original “Tariff Man” acknowledge as much, before he was assassinated a few months into his second term.

      Trump seemed to go off the rails faster and farther on Friday. He’s beginning to smack of desperation for pursuing a flawed, failing policy.

      2
      August 24, 2019
  4. Gregg Thurman said:
    “Given the unrest in Hong Kong, I can’t foresee a scenario where China relents.”

    China is between a rock and a hard spot in Hong Kong. Severy-five percent of the total Hong Kong population turned out for the latest demonstration. That had to have an impact on GDP, especially if this continues.

    China’s dilemma is that Hong Kong is highly visible to the international traveler. A Tiananmen Square scenario would be disastrous to international relations with the Chinese government.

    1
    August 23, 2019
    • Turley Muller said:
      @ Gregg,
      Absolutely. China has its hands full. It’s certainly crushing HK GDP since tourism is a significant portion. HK isn’t included in China’s GDP. It’s included in Apple’s Greater China segment. TC often mentions Mainland China because HK can have a large impact on the GC segment. Even though HK is separate, it has to drag down China’s GDP from weaker cross-border economic activity.

      0
      August 23, 2019
  5. John Konopka said:
    What fraction of Apple’s China production goes to the US? 30%? Maybe they could just absorb the cost? That might be about 3% spread out over all iPhones. Only product bound for the US is subject to tariffs.

    I’m skeptical there will be more tariffs. Trump already capitulated and postponed them till December. Primary voting starts soon after. Hard to imagine he will want to further damage his re-election chances entering the election season.

    1
    August 23, 2019
    • Turley Muller said:
      He just raised the tariffs after the markets closed. We’ll see.

      0
      August 23, 2019

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