We’ve already discussed the possibility of a high and universal imports tax on Chinese goods and how that relates to the demise of the $649 iPhone. But as game plans start steering some level of manufacturing toward the US with thanks to Foxconn and Sharp, there are some worries as to how the whole shebang gets put through.
On Tuesday, Apple will report its holiday quarter earnings and analyst Brian White of financial firm Drexel Hamilton believes that after the waves of positive and negative strains on the iPhone 7 this year, the company will be able to “return to growth” on sales of its flagship device.
“That means iPhone will grow in fiscal ’17 and again in fiscal ’18,” White told CNBC.
The future, though, gets murkier as President Donald Trump takes hold of trade policy with China — Apple’s meat and potatoes are highly contingent on supplier and manufacturer partners that are there. Trump has wielded threats of unprecedented universal import tariffs against the country and has sought to bring in domestic manufacturing of durable goods like the iPhone.
Foxconn, contracted assembler of the iPhone, is willing to help out its biggest customer, Apple, by building and operating a plant in the United States. That means that instead of having Chinese factories send whole iPhones back to the United States for final processing and shipping, multiple bins of components would flow in from China for processing in the US. Depending on how unit value is declared per component or iPhone, we could see little change or an amount of savings with the move. And yet, it takes cash money to plant a seed in the ground, much less a whole factory.
White believes that as Apple will be able to repatriate international funds with looser regulation and taxes, — the company has $216 billion outside of the US, according to the analyst — shareholders will demand and achieve up to four percent extra in their dividends. As for the factories?
“[Apple] can market iPhones made in the US and charge a premium,” White said. “You can actually goose your margins if you did that and you can hire people in the US to manufacture.”
We could see prices go up by $100 or $200 for such a “special edition” phone.
Not to be mistaken, Apple’s supply chain remains firmly in China and the bulk of production will stay there for the foreseeable future. But with the “border tax” looming around between China and the US factory that’s yet to be built, White thinks that Apple will see a “net net negative” effect on its bottom line because of this necessary evil.
“Foxconn, for example, employs a million people who work on Apple products in China. We as consumers, the vast majority of the consumers in the US, enjoy lower prices,” White said. “When you offset those two, I think both countries are winning based on the way things are set up. And so if there is an opportunity to manufacture certain products in the US, Apple will probably do that.”