Apple’s latest earnings report shows that the company is currently choosing to bear the additional tariff costs without raising prices. But that’s unlikely to last long, given Apple’s concern about protecting its profitability. Experts are confident that Apple will raise prices to at least partially offset the impact of the new duties.
For now, the impact of the tariffs is relatively small. Apple said in its earnings report that the company expects about $900 million in additional costs due to the tariffs in its fiscal third quarter, which ends in June. That would add no more than 2% to Apple’s projected cost of production.
But Apple’s tariff woes won’t end there. CEO Tim Cook emphasized that the third fiscal quarter included “certain unique factors” that partially mitigated the situation, but that costs will continue to rise going forward, including due to additional “sectoral” tariffs on semiconductor products.
Given the prospect of these sectoral tariffs, analysts expect at least a “doubling of the $900 million hit to cost of goods sold in the quarters after June.” Concerns about Apple’s margins in the coming quarters have sent shares down nearly 4 percent in the past week. Shares fell another 3 percent yesterday on speculation about poor battery life for the anticipated super-thin iPhone.
Apple has lost more than $350 billion in market capitalization since the new tariffs were announced on April 2. Most other major tech companies have since recovered from their losses, but Apple has yet to do so. The company is taking a number of steps to offset the increased costs of the tariffs. Most of its devices shipped to the U.S. will come from India and Vietnam, but it will be very difficult for Apple to completely abandon its long-standing manufacturing base in China.
In the long term, rising prices are the most likely scenario for a company that makes a significant portion of its products in China. This is hardly new for Apple, which has significantly raised the average selling price of its devices over the past few years, while keeping the starting price of its flagship model at $999 since 2017.
This was due to a combination of higher-storage configurations and the release of more premium iPhone models. According to Visible Alpha, the average selling price of an iPhone was around $755 before the launch of the first iPhone Pro models in late 2019. Three years later, it has jumped to $963.
Experts believe that sales of new Apple smartphones could decline significantly due to the inevitable rise in prices of the devices. This will also be affected by the refusal of mobile operators to provide subsidies and promotions to “soften” prices. The heads of Verizon and AT&T said that they do not plan to “cover any huge increases in mobile phone rates.”