Apple, other hardware companies, face risks from Trump tariffs: Bernstein
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Apple (NASDAQ:AAPL), along with several other U.S. hardware companies, face significant risks to earnings if President-elect Donald Trump installs high tariffs on China.
“Trump has pledged to raise tariffs … proposing a universal tariff of 10-20% across imported goods regardless of country of origin, as well as a 60% tariff on all goods from China and as much as 200% on goods from Mexico,” according to Bernstein Société Générale Group analysts, led by Toni Sacconaghi, in an investor note. “Raising tariffs may not require Congressional approval.”
Companies with the highest exposure to Chinese manufacturing and imports obviously face the highest risks.
“For example, if Apple did not raise prices and volumes were unchanged, proposed Trump tariffs could negatively impact company gross profits by an estimated 13% and EPS by $1.44 (or 19%),” Sacconaghi said. “The impact could be more pronounced if other countries — such as China — responded with their own tariffs on US companies.”
Apple also relies on 17% of its revenue from sales to mainland China, Bernstein highlighted.
If companies increased prices by 20% in response to these proposed tariffs, Bernstein noted that Dell Technologies (NYSE:DELL) appears especially vulnerable, as its low product gross margins could impact EPS by as much as 90%. However, IBM (NYSE:IBM) appears to be highly insulated from potential tariffs, taking only a 2% hit to its EPS in this scenario.
Hardware companies could also react by speeding up supply chain migrations away from China to reduce operating expenses.
However, if these steep tariffs come to fruition, they would likely not be permanent, and could face legal headwinds. For example, the Trade Act of 1974 allows the president to impose a 15% tariff without Congressional approval, but the tariffs only last for 150 days.
All these potential at-risk companies saw shares trend higher on Wednesday. Apple inched up 0.5% by noon trading, while IBM and Dell both climbed 2%.