Apple margins could be hit by tariffs, but many unknowns still: Jefferies

Apple (NASDAQ:AAPL) could wind up seeing a hit to its vaunted gross margins if President-elect Trump were to institute tariffs on Chinese imports, research firm Jefferies said. However, there are still a great deal of unknowns at this point.

Analyst Edison Lee, who has a Hold rating on Apple, said the Tim Cook-led company was exempted from import tariffs when Trump was president from 2016 to 2020. Since then, Apple has “proactively” diversified its production outside of China, moving some to India, for example. Despite that, only roughly 10% of iPhones are made outside of China and while it’s possible Apple could get another exemption, if it doesn’t, the impact to gross margins could be noticeable, Lee said.

“[Our] analysis indicates AAPL’s [gross margins] could potentially be impacted by 3.0-6.7ppt, and our DCF value by ~5% to 10%, assuming no ASP/vol change,” Lee wrote in a note to clients.

Apple’s gross margins for its most recent quarter were 46.2%.

Using the iPhone 16 Pro Max as an example, the bill of materials on the smartphone are estimated to be $486 for the 256GB model, with 12%, 29% and 59% of content made in the U.S., China and other countries, such as Taiwan, Korea and Japan.

In a “worst case” scenario, where the tariff is 60% for all content made outside the U.S., that would amount to $256 per phone, or roughly 22% of its average selling price, and impact gross margins by roughly 6.7 percentage points, Lee said.

In a scenario where only content made in China is taxed at 60% and other content is taxed at 10%, the hit to gross margins would be 3 percentage points, he added, assuming no additional price hikes.

“Downside far from being disastrous, but local production seems increasingly a requirement for other markets, putting pressure on [long-term] margin,” he wrote.