EU and US could reach trade deal this weekend - Reuters
Investing.com -- UBS analysts estimate that about one-third of Apple’s iPhone business could be directly impacted by newly announced U.S. tariffs on China, Canada, and Mexico, with a potential hit to earnings and gross margins.
According to UBS, iPhones assembled in China and shipped to the U.S. account for roughly a third of annual iPhone units and slightly more in revenue due to a mix favoring higher-end models.
“Without an offset to the 10% tariff applied to China, we would expect Apple (NASDAQ:AAPL) gross margins to face 100 bps of pressure and a roughly 3% hit to annual EPS just from the iPhone business.”
While Apple’s risk is the most quantifiable, UBS notes that many tech hardware and networking companies face varying levels of exposure due to their reliance on contract manufacturers in tariff-affected regions.
“Tech supply chains have been significantly diversified from China over the past decade but have also shifted to regions that are now facing tariffs like Mexico and Canada.”
Among networking firms, UBS highlights that some companies are relatively insulated while others are more exposed.
“Extreme has limited exposure as its CMs have sites in Taiwan, Vietnam, the Philippines, and Thailand,” said the bank. They add that NetApp (NASDAQ:NTAP) is also largely protected, having relocated most of its manufacturing outside China to countries such as the U.S., Netherlands, Hungary, and Singapore.
However, other companies face material risks. “On the other hand, EMS company Jabil has a large square footage footprint in both Mexico (15%) and China (20%).” Similarly, Arista and Celestica (NYSE:CLS) are noted for having significant operations in Mexico and China.
UBS expects the tariffs to remain in place for an extended period, with Canada and Mexico’s heavy reliance on U.S. exports giving the U.S. “some degree of negotiating leverage.”