Jim Cramer Says China Will Hit Apple Hard
Jim Cramer believes America’s disintegrating relationship with China will badly hurt Apple stock. He hopes that tariffs will be cut, but he says he will hedge his bets. The post Jim Cramer Says China Will Hit Apple Hard appeared first on 24/7 Wall St..
Apple Inc. (NASDAQ: AAPL) has been among Jim Cramer’s favorite stocks. Recently, he said America’s disintegrating relationship with China would badly hurt it. His concern has two parts. One relates to tariffs that could cause the price of iPhones to soar, and the other is that China is a major iPhone market.
24/7 Wall St. Key Points:
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Jim Cramer believes America’s disintegrating relationship with China will badly hurt Apple Inc. (NASDAQ: AAPL) stock.
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He hopes that tariffs will be cut, but he says he will hedge his bets.
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According to CNBC, “Until Trump became president, our policy was peaceful coexistence and commerce with China, even if they didn’t play by the rules on trade. But now our policy is nothing but scorched earth without military confrontation.” Cramer added that the administration wants Apple products to be made in America. Cramer expressed some hope that the White House would cut tariffs, but he says he will hedge his bets by lowering his position in Apple and Nvidia Corp. (NASDAQ: NVDA).
The first threat to Apple is the so-called $3,500 iPhone. Experts on where iPhone components are made and the cost of labor in the United States and China show that U.S. labor and the factories American companies would need to build would cause retailer prices to skyrocket if Apple wanted to maintain its impressive gross sales margins. Currently, gross margins after cost of sales are about 45%. Higher labor costs would shatter that. Evercore ISI reports that about 90% of iPhones are assembled in China.
Greater China sales are essential to Apple’s revenue. There are around a billion smartphone owners in China, about triple the U.S. figure. In the most recent quarter, revenue from Greater China was $15 billion of the company’s $94.9 billion total. Apple is China’s number three smartphone company based on market share behind local companies Huawei and Vivo. China could increase the price of products and services made by American companies, although it has not yet done so. However, the economic friction between the world’s two largest companies based on GDP continues to grow.
Anxiety about Apple’s relationship with China is why its shares are down 25% this year. More friction could drive the shares much lower.
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