Apple Inc. has said it wants to move at least some of its production from China to India by the end of next year. This decision follows a wave of growing public resentment against the company in China due to pressure from U.S. tariffs. This strategic pivot is aimed at addressing the major drop in iPhone sales in the Chinese market. Apple in particular is getting crushed by the likes of Huawei and Vivo.
Nevertheless, the ongoing trade tensions between the U.S. and China have cast an uncertain shadow over Apple’s fortunes. Even the titans of the foreign business community in China, like Disney and Apple, are feeling the backlash from Chinese consumers. Furthermore, local carriers are hesitant to pass on tariff-related costs. In other words, Apple’s sales are going to fall off a cliff in China. This drop would compound the challenges the company faces in maintaining its foothold in the world’s largest smartphone market.
Craig Moffett, a highly regarded independent analyst, has long been sounding alarm bells on these issues. He expressed concern with the plan to move all production to India. Then you run into a massive set of issues created by tariffs. Moving to India won’t fix everything, but it will fix a good bit of it.
Moffett cautions that China will continue to play an outsized role in Apple’s supply chain. This dependence will carry over even if the assembly processes are moved to other cities. He underscored that moving some production home would go a long way to alleviate some of these issues. Yet, it does not address the broader impacts of the global trade war on costs and revenues.
The bottom line is a global trade war is a two-front battle. It is shooting the costs up while scorching one of their most lucrative markets. Shifting assembly to India would raise the possibility of accounting for the former. The latter might eventually be the larger problem,” Moffett wrote.
Apple’s predicament in China is made worse by its lagging stock performance. Since Moffett called for a “sell” on January 7, Apple’s stock has cratered over 14%. He recently slashed his price target on Apple shares from $184 all the way down to $141. If passed, that would imply a 33% decrease from the company’s closing price on Friday.
Moffett highlighted the broader effects of rising prices on consumer behavior, stating, “You have the demand destruction that’s created by potentially higher prices. Remember, you had AT&T, Verizon, and T-Mobile all this week come out and say we’re not going to underwrite the additional cost of tariff on handsets.” For one, he warned this might result in longer holding periods for devices and slower upgrade rates by consumers.
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