Under The Heavy Pressure Of Tariffs, Where Will Apple's Smartphone Supply Chain Enterprises Go

 

Under the heavy pressure of tariffs, where will Apple's smartphone supply chain enterprises go

 

In the first trading week of April, Apple became one of the hardest hit stocks in the technology industry. On April 3rd Eastern Time, Apple's stock price plummeted by 9.25%, and on April 4th, it plummeted again by 7.29% in a single day, evaporating nearly $533.36 billion (about 3.88 trillion yuan) in market value, marking the largest decline since 2020.

 

At the beginning of the month, the latest tariff policy "reciprocal tariffs" issued by the United States brought huge shocks to the world economy, especially in sectors such as communications, electronics, and pharmaceuticals. Among them, the most affected and representative is Apple, which relies heavily on Chinese production and a large number of key components in its supply chain depend on factories in China and Asian countries. After the imposition of tariffs in the United States, it faces the dilemma of double taxation, and companies in its supply chain will also face the pressure of skyrocketing costs.

 

Since the implementation of the tariff policy, the concept of Apple in A-shares has continued to plummet. On April 7th, the sector (885376) fell by 11.03%, with 131 out of 134 constituent stocks falling, including over 30 individual stocks hitting the limit down.

 

In the "equivalent tariffs", the United States has set a "minimum benchmark tariff" of 10% for more than 40 countries that believe there is a trade deficit, while the most severely affected countries are mostly in Asia. Among them, tariffs in Cambodia, Vietnam, and Myanmar are as high as 49%, 47%, and 44%, respectively. Meanwhile, import tariffs on goods from Japan, South Korea, and EU countries have also been raised to over 20%.

The US emphasizes that the tariffs imposed on Chinese goods are an additional 34% on top of the existing 20%, bringing the total to 54%. It seems that China has undoubtedly been subject to the highest tariffs and is the most critical target of the United States.

 

For Apple, which heavily relies on China and Asia for its global supply chain, in addition to a total tax rate of up to 54%, some American made components need to be imported into China for assembly before being exported to the United States, resulting in the same component being covered by dual tariffs from China and the United States. For example, the AirPods assembled in Vietnam need to import chips from Taiwan, China, China, and also face double taxation.

 

In addition, the intensification of tariff policies has brought enormous cost pressure to Apple's supply chain.

 

According to calculations, the imposition of tariffs will result in an increase of approximately $120 in the cost of each iPhone. If the cost is fully passed on, the price of iPhones in the United States may increase by 30% to 43%. For example, the basic price of iPhone 16 may increase from $799 to $1142, and the flagship model Pro Max will surpass $2300.

 

It is reported that Apple has transferred some of its production capacity to India, Vietnam and other places in recent years, but the United States has imposed 46% and 26% tariffs on Vietnam and India respectively, directly offsetting the cost advantage of transferring production capacity. The yield rate of Indian factories is 5-8 percentage points lower than that of China, and Vietnam lacks skilled workers and local suppliers, leading to an increase in transfer costs instead of a decrease. The only Mac Pro assembled domestically by Apple in the United States also relies on custom screws imported from China, and the cost has been steadily rising after China imposed taxes. The domestic selling price may increase from 55999 yuan to over 70000 yuan.

Supply chain may face cost shifting difficulties

 

Due to the fact that 90% of Apple's phones are assembled in China, and Apple's supply chain involves multiple links such as raw material procurement, component production, product assembly, logistics distribution, and after-sales service, it is a vast and complex global network.

 

The increase in tariffs this time has a direct impact on Apple's supply chain enterprises. On the one hand, it cannot be ruled out that Apple may transfer some of the tariff costs to suppliers in order to maintain profits. Chinese enterprises bear a large number of component production and assembly tasks in Apple's supply chain, and are the first to face cost pressure. For example, if Apple requires suppliers to share the cost of tariffs, Chinese companies need to digest it themselves or transmit it to Apple by increasing their quotes, but Apple may compress suppliers' profit margins due to cost sensitivity; On the other hand, tariff policies have triggered global supply chain turbulence, which may lead to fluctuations in the renminbi exchange rate and rising commodity prices, further pushing up the raw material procurement and operating costs of Chinese companies.

 

According to estimates, if Apple completely transfers 25% of the tariff cost to suppliers, the profit margin of Chinese companies may decrease by 5% to 10%. It is reported that these supply chains are currently waiting for notification from Apple. If Apple chooses to transfer the costs to the supply chain, the company will not continue to cooperate, otherwise it will face losses.

 

More importantly, Chinese companies in Apple's supply chain are likely to face the risk of Apple's "de Sinicization". To avoid tariffs, Apple may accelerate the diversification of its supply chain layout and reduce its dependence on Chinese suppliers. If Apple adjusts its supply chain, Chinese companies will face problems such as customer loss, overcapacity, and idle equipment. Some companies may need to maintain orders through price reductions or technological upgrades, but it is difficult to make up for the losses in the short term.

 

Overall, the core concern of the market is the unsustainable profit model of Apple, as tariffs have almost indiscriminately hit all Asian countries. In the future, Apple may no longer be the most profitable technology company.

 

Historical experience has proven that excessive tariffs cannot effectively solve economic problems, but may instead deepen economic isolation, harm the interests of domestic consumers and businesses, and cause serious damage to the global economy. But from the current situation, the least secure is still the Apple supply chain enterprise. For many years, they have relied on their big customer Apple for a living. If Apple's orders are no longer stable, they will face a very difficult situation.

Taking Lixun Precision, which has continuously hit the limit down, as an example, its cooperation with Apple began in 2011. After more than ten years of deep cooperation, the two sides have established a close supply chain partnership, covering product manufacturing, technology research and development, supply chain integration and other aspects of cooperation. At present, Luxshare Precision has fully participated in the manufacturing of Apple's entire product line, including core products such as iPhone, Apple Watch, AirPods, and Vision Pro. For example, Luxshare Precision undertook the production task of the entire iPhone 16 series, while also being responsible for the manufacturing of the Apple Watch Series 10 and AirPods 4.

 

In the past two years, the Apple business of Lite On Precision has grown by more than 50%. In 2024, the Apple business achieved a revenue of approximately 174.5 billion yuan, accounting for 75.24% of Lite On Precision's total revenue.

 

 

GoerTek, which has also been continuously hitting the limit down, has been providing acoustic components such as miniature microphones and speakers to Apple since 2010, and is one of the important suppliers of Apple's AirPods series earphones.

 

In 2018, GoerTek became the second largest manufacturer of AirPods worldwide, responsible for the assembly and production of AirPods, AirPods Max, HomePod, and other products. The cooperation with Apple has driven the rapid growth of GoerTek's performance, with revenue and net profit increasing by 800% and 700% respectively in 2018 due to AirPods orders.

 

In 2024, GoerTek's net profit reached 2.665 billion yuan, a year-on-year increase of 144.93%, mainly benefiting from its long-term cooperation with Apple. On March 24th, Jeff Williams, the Chief Operating Officer of Apple, visited Weifang, Shandong. Jiang Bin, the Chairman of GoerTek, accompanied him on a tour of the iPhone 16e speaker production line and mold center.