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Investing.com -- Deepwater Asset Management’s Managing Partner, Gene Munster, has previewed Apple (NASDAQ:AAPL)’s upcoming earnings report, highlighting the company’s long-term positioning in four key areas: Tariffs, manufacturing in China, demand in China, and Apple Intelligence.
The potential impact of U.S. tariffs on Apple’s margins is a significant concern. A 20% tariff could reduce overall margins by about 2%, assuming Apple raises prices by 5% and absorbs 15% of the cost increase. Currently, Apple products are subject to a 20% duty, but the final rate remains uncertain.
Apple’s dependence on China for manufacturing is another major issue. Deepwater estimates that 40–45% of Apple’s overall revenue is linked to products manufactured in China, including 80% of iPhones, 50% of Macs, and 75% of iPads. However, Apple has been diversifying its supply chain, with production in India now accounting for 20% of global iPhone assembly. Despite this, Deepwater estimates it will take Apple 3-5 years to reduce their manufacturing exposure to China to below 25%.
China also accounts for about 16–17% of Apple’s total revenue. However, demand in China has been declining due to macroeconomic conditions and a shift towards domestic smartphone brands. Despite this, Munster believes Apple can absorb some declines in China and still grow overall revenue in FY25 in line with the Street’s 4% expectation.
Finally, the development of Apple Intelligence is a key issue for the company. Internal development appears mixed, with reports suggesting Apple’s in-house generative AI technology is lagging behind industry leaders like Google (NASDAQ:GOOGL) and OpenAI. However, Munster believes Apple’s leadership is strong and expects them to deliver a significant AI experience within the next three years.
In summary, the upcoming earnings report will provide a forward-looking view of Apple’s long-term positioning, highlighting the company’s strategies in managing tariffs, manufacturing in China, demand in China, and the development of Apple Intelligence.
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