Apple (AAPL, Financials) may face pressure on its gross margins if President-elect Donald Trump implements tariffs on Chinese imports, according to an analysis by Jefferies.
Jefferies analyst Edison Lee noted that Apple was tariff-free from 2016 to 2020 under Trump. Since then, the corporation has diversified its manufacturing by relocating certain operations to India. Even said, 90% of iPhones are made in China, leaving the business susceptible if tariff exemptions are not extended.
Jefferies predicts a 3.0 to 6.7 percentage point drop in Apple's gross margins, lowering its discounted cash flow value by 5% to 10%. These predictions assume no changes in its product average selling prices or volumes.
Apple's current quarter gross margins were 46.2%.
As an example, Jefferies estimated the 256GB iPhone 16 Pro Max cost of materials at $486. 12% of components come from the US, 29% from China, and 59% from Taiwan, Korea, and Japan.
A 60% tax on all non-U.S. content would cost $256 per phone, lowering gross margins by 6.7 percentage points. Assuming no price hikes, taxing Chinese material at 60% and other non-U.S. content at 10% would reduce gross margins by 3 percentage points.
Though the margin reduction is not catastrophic, Apple is under pressure to localize manufacturing in important areas, which might hurt long-term profitability. Apple has not commented on these manufacturing plan changes or issues.
