Market Overview

Wedbush: Substantial Shift In iPhone Production Would Take 2 Years

Wedbush: Substantial Shift In iPhone Production Would Take 2 Years

On Thursday, the Wall Street Journal confirmed that Apple, Inc. (NASDAQ: AAPL) is considering moving up to 30% of iPhone production away from China due to risks associated with Sino-American trade relations.

Wedbush reiterated Thursday that shifting iPhone production outside of China may not be particularly easy for Apple in the near-term.

The Analyst

Daniel Ives reiterated an Outperform rating on Apple with a $235 price target.

The Thesis

In a letter to U.S. Trade Representative Robert Lighthizer dated June 17, Apple asked Lighthizer not to proceed with President Donald Trump’s threats to impose up to 25% tariffs on yet another set of Chinese goods.

Apple said more tariffs would reduce the company’s U.S. economic contribution and would not hurt Apple’s Chinese competitors, who do not have a strong presence in the U.S. market.

“A U.S. tariff would, therefore, tilt the table in favor of our global competitors,” Apple said in the letter.

Apple’s plan to move iPhone production out of China comes with plenty of risks and potential roadblocks, Ives said in a Thursday note. 

Given that Apple is planning to roll out a new lineup of 5G smartphones in the second half of 2020, Ives said the last thing the company needs right now is a major disruption in its supply chain.

The Foxconn factory in China that produces iPhones is at the epicenter of Apple’s trade war concerns, the analyst said. 

The risks associated with disruption at Foxconn have created a $20-25 overhang for Apple stock in the near-term, he said.

If Apple wants to move a significant portion of its iPhone production out of China, Ives said it can’t be in a rush to do so.

“We believe realistically in a best case scenario Apple would be able to move 5%-7% of its iPhone production likely to India in the next 12 to 18 months." 

Given the complexity of the logistics associated with moving additional production, Ives estimates it would take at least two years to move 15% of iPhone production outside of China.

Price Action

Apple shares were up 0.31% at $198.48 at the time of publication Thursday. 

Related Links:

Chinese Brands Are Taking The Global Economy By Storm

Understanding US-China Trade Negotiations: The Ultimatum Game

Photo courtesy of Apple. 

Latest Ratings for AAPL

Jul 2019MaintainsNeutral
Jul 2019MaintainsOverweight
Jul 2019DowngradesNeutralSell

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