Apple, Other Hardware Companies Face Revenue Risks if Trump Tariffs Advance, Bernstein Says

Apple (AAPL, Financials) and other U.S.-based hardware manufacturers face potential earnings impacts if President-elect Donald Trump enacts proposed high tariffs on goods from China, according to analysts at Bernstein Societe Generale Group.

With particular intentions to impose a 60% tax on Chinese goods and up to 200% on items from Mexico, Trump has proposed imposing a universal tariff between 10% and 20% on all imports. Analysts believe this action might be implemented without Congressional clearance.

"Companies with the highest exposure to Chinese manufacturing and imports obviously face the highest risks," Bernstein's Toni Sacconaghi noted to analysts in a note. Should Apple absorb the tariffs without increasing prices, he pointed out, the effect on gross profits might be an estimated 13%, lowering earnings per share by $1.44, or 19%. Should volumes remain steady, the impact on gross profits may be assessed at 13%. Sacconaghi cautioned that if China or another country levies retaliatory tariffs on American companies, the consequences could be more severe.

Bernstein noted Apple's reliance on China, where 17% of its sales come from mainland business. Additionally heavily exposed is Dell Technologies (DELL, Financials); a 20% price rise resulting from tariffs may lower Dell's earnings per share by as much as 90% depending on its poor product gross margins, the paper notes. IBM (IBM, Financials), on the other hand, is thought to be more robust and might only see a 2% drop in EPS in this situation.

Given these dangers, some businesses might speed up shifting components of their supply chains out of China in order to minimize effects on operations from tariffs.

Bernstein also pointed out that legal challenges could prevent the permanency of such tariffs even if the Trade Act of 1974 lets the president apply a 15% tax for up to 150 days without Congress.

This article first appeared on GuruFocus.