U.S. President Donald Trump on Wednesday announced that massive tariffs will be applied to imports from many countries, starting April 9. The tariffs will significantly impact Apple's supply chain, with iPhones and other products imported to the U.S. from China, India, and Vietnam set to face 54%, 26%, and 46% tariffs, respectively.
Apple supply chain analyst Ming-Chi Kuo today said that if Apple does not raise prices, its overall gross profit margin could face a significant drop of 8.5% to 9%, due to the tariffs significantly raising costs. However, he outlined five ways in which Apple can reduce the impact of the tariffs on its gross margins going forward:
- Apple can boost iPhone production in India. Kuo said if India can secure tariff exemptions through new trading agreements with the U.S., and Apple boosts its iPhone production capacity there to over 30% of its global supply, the negative impact on gross margins could shrink to just 1% to 3%.
- Apple could raise prices on iPhone Pro models. In the U.S. market, Kuo said high-end iPhones account for 65-70% of new model sales, and he believes that "high-end consumers are relatively more accepting of price increases." So, the Pro and Pro Max models could see price increases, if absolutely necessary.
- Apple could increase carrier subsidies for iPhones.
- Apple could reduce trade-in values to partially offset the costs of tariffs.
- Apple could put even greater pressure on its suppliers to cut costs.
Apple's overall gross margin was 46% in the 2024 fiscal year. Gross margin is a profitability metric that indicates the percentage of money that Apple earns on a product like an iPhone after subtracting the costs of making the product. Even if Apple's gross margin drops below 40%, Kuo believes this dip "should be short-lived."
Apple's stock price dropped more than 9% since Trump's announcement.
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