High prices already led Apple’s iPhone sales to plateau during the typically strong holiday season, and now a new round of U.S. tariffs against Chinese-manufactured products are seriously endangering its upcoming revenues.
A new report from CNBC, the tariffs, threatened at a 25% rate, would require Apple to raise its prices in the United States by roughly 14 percent to keep margins constant across its suppliers — one of several scenarios that could hurt iPhone sales.
“We estimate Apple would need to take as much as 14 percent price increase on iPhones to pass on the higher costs as a result of potential expansion of tariffs,” J.P. Morgan analysts said in a note to investors on Tuesday.
This leaves Apple with a few options. The company, for example, could simply pass along the cost to consumers. This strategy, though, seems to be a non-starter as it would have a huge impact on demand and would arguably tarnish Apple’s reputation a bit as well. Further, with Apple already struggling to boost iPhone demand, a price increase seems like a very bad idea.
A more likely scenario, according to J.P. Morgan, is for Apple to bear the brunt of the increase, something it could afford to do with its wildly large bank account.
“But J.P. Morgan said Apple is more likely to absorb the cost of tariffs and take a hit on its earnings rather than raise the price of the phone,” reads the report. “The bank estimates a total iPhone gross margin decrease of 4% if Apple doesn’t pass the tariff costs on to customers.”
A second option for Apple is to move production to the United States and thus avoid the new tariffs, but in this case, the final cost of the iPhone could go even higher. Bank of America analysts said that the iPhone manufacturing cost could be increased by as much as 25 percent should production be transferred to the US.