China Tariff Truce Revitalizes Bull Case for Apple as Half of User Base Approaches Upgrade Cycle
Among the many tech companies that rely on Chinese manufacturing, none is better placed to benefit from the recent thaw in that country’s tariff war with America than Apple (NASDAQ: AAPL). That, at least, is the view of closely followed tech industry analyst Dan Ives of Wedbush Securities.
In mid-May, the White House announced that it and China agreed to drastically reduce certain tariffs and pause others. Ives said in a subsequent interview with Bloomberg that this should lead to a “dream scenario” for the tech giant. Here’s a look at why the analyst thinks Apple has such a monster opportunity, and whether the company can truly take advantage of it.
It’s telling that Apple emphasizes that the iPhone is designed in California. This might be something of a head fake to obscure the fact that the smartphones aren’t made there. Rather, in the most likely case, your latest iPhone was made in China; estimates place the ratio at eight or nine out of every 10 of these products being produced in the massive Asian country.
To put this in some perspective, Apple is hardly the only China-dependent large U.S. tech enterprise. Other notable techies getting many of their goods made there are sector mainstays Intel and Texas Instruments, to name two of many. Also China is a huge market for sales of their finished products.
Apple has a longer made-in-China history than many might realize. In those long-ago days before the iPhone came into being, Apple had been making its products in China in 2001. The lure of notably cheaper manufacturing was impossible to resist for the company, which was in the early stages of its vaunted Steve Jobs-led comeback around that time.
So any sanctions on Chinese manufacturing threaten to put a real hurt on its operations. After all, despite its efforts to crank services revenue higher, the great bulk of the company’s top line still comes from device sales — 72% of the total in the most recently reported quarter.
That’s a high level of dependency, and I think investors worry about this. Even after Apple stock rallied when the pause was announced, its shares are still down more than 19% year to date in price — comparing unfavorably with the 1% rise of the bellwether S&P 500 index.
They won’t stay down at that level, Ives firmly believes. He’s maintaining his outperform (i.e., buy) recommendation on Apple and his price target of $270 per share. That anticipates a rather chunky upside of more than 30%.
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