Apple Faces 30% Earnings Drop Amid New Tariffs

President Trump's tariffs could lead to a 30% fall in Apple's EPS, causing concerns among investors. This decline stems from potential cost escalations linked to Apple’s reliance on overseas manufacturing, significantly impacting the stock.

Date: 14-04-2025

AI Rating: 4

Impact of Tariffs on Apple’s Earnings
Apple's stock has notably declined by over 15% following President Trump's announcement regarding new tariffs affecting numerous countries, particularly those integral to Apple’s supply chain such as China, Vietnam, and India. The report suggests that the iPhone, primarily manufactured overseas, faces a significant risk of cost increases, with a potential worst-case scenario estimating a near 30% decrease in EPS.

**Earnings Per Share (EPS):** Reports estimate that EPS could drop by 25% to 30%, influenced by the escalation of tariffs that hinder Apple's profit margins. Given that the Americas segment contributes approximately 43% of Apple's total sales, a decline in EPS could have substantial implications on overall stock performance.

**Profit Margins:** The tariffs threaten to compress gross margins dramatically, with estimates suggesting margins could decrease to about 13% for the iPhone. This margin compression creates a dire outlook for net income, as Apple's operating costs remain unaffected by falling product margins.

While there are strategies to mitigate these effects, including raising prices and adjusting production locations, the initial response from investors indicates significant apprehension. Apple's established services segment offers a buffer, especially as it grows at a rate of 14%, but the hardware business, especially in the U.S., remains a critical concern.

Looming uncertainties and potential retaliations some countries may impose could further exacerbate the situation for Apple. Investors should closely watch how Apple maneuvers through these financial challenges, adapting their strategies to avoid significant losses while competing in the global market effectively.

Stocks: AAPL