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Apple Roundup: Tariff Exemptions, Up to date Recs & Extra – jj

Apple Roundup: Tariff Exemptions, Up to date Recs & Extra


Apple (AAPL Free Report) announced that the USTR approved 10 out of 15 exemptions requested on Mac pro components from China, submitted its position on DACA to the Supreme Court, saw a number of positive analyst reports and some commentary from Apple bull Mark Gurman.

Apple Getting Some Exemptions

The U.S. Trade Representative (USTR) has approved 10 out of the 15 exemptions Apple requested for its Mac Pro parts that were being sourced from China.

In granting the approvals, the USTR considered whether the products are made only in China, are strategically important for Chinese industrial programs and whether the duty would cause severe harm to the company or U.S. interests in general.

So it was determined that Apple “failed to show that the imposition of additional duties” on things like optional wheels for Apple’s Mac Pro, a circuit board for managing input and output ports, power adapter, charging cable and a cooling system for the computer’s processor “would cause severe economic harm” to itself “or other U.S. interests.” So these requests were rejected.

On the other hand, the Mac Pro frame was exempted, presumably because these things are so complicated that only China can make them with the added advantage that China’s industrial progress isn’t dependent on them. Note: Apple doesn’t sell that many Mac Pros.

The whole drama was started by the WSJ, which stated that Apple was planning on moving production from the plant it has been operating since 2013 to China. After that, Trump initially said he wouldn’t make compromises, then said that they were working on it. Finally, they patted their own backs with Trump announcing that Apple was keeping production in the U.S. and Apple announcing how it had won important exemptions.

What About DACA?

Ahead of the Nov 12 Supreme Court hearing on President Trump’s 2017 plan to rescind the Deferred Action for Childhood Arrivals (DACA) program, it was opposed by Apple CEO Tim Cook and HR head Deidre O’Brien.

The two made a written submission to the court saying things like “We are distressed at the prospect of ripping our DACA colleagues from the fabric of our company,” and that its 443 DACA colleagues from across 25 countries “spark creativity and help drive innovation. They are among our most driven and selfless colleagues,” and further that “We did not hire them out of kindness or charity…

“We did it because Dreamers (as they’re called) embody Apple’s innovation strategy. They come from diverse backgrounds and display a wide range of skills and experiences that equip them to tackle problems from different perspectives.

“Because they thrived in the face of adversity, they often exhibit extraordinary levels of grit and drive… They have earned the right to continue to contribute to our company and to our society.”

And to drive the point home, they said, “Apple would quite literally not exist without a brilliant and driven population of immigrants,” noting that even Steve Jobs was a Syrian migrant.

Of course legal migration is not the issue here. DACA relates to children belonging to people (mostly Hispanics) who crossed the border without legal papers.

Analysts Turn Positive on Apple

Samik Chatterjee, a JPMorgan analyst, raised his 2019 and 2020 iPhone volume estimates and said that improving sales led by the iPhone 11 family would raise Apple share prices by more than 20%. Maintaining his Overweight rating, he raised his price target from $243 to $265.

iPhone units are now expected to be a million  units more in the current quarter and 3 million units more in the December quarter. The introduction of a 5G-enabled device in 2020 will drive demand for high-end devices in North America and ensure buoyancy in prices. As a result, iPhone units will touch 198 million in 2020 and 200 million in 2021.

Earlier, Jeffries analysts Kyle McNealy and George Notter took their price target to $260 and asked investors to buy Apple shares. They are optimistic about 5G, saying that “current expectations for Apple’s first 5G iPhone lineup are too low. They underestimate Apple’s competitive position for 5G devices.”  Their iPhone unit forecast is 190 million in 2019 and 208 million in 2020.

The reasons for their optimism include the huge marketing push for 5G across the industry that Apple will also benefit from; the scope for differentiation the new-generation devices will allow, increased smartphone penetration across the world and expansion of Apple’s own line with mid-range offerings.

Deutsche Bank analyst Jeriel Ong sees average selling price declines in 2020, driven by the lower price points of iPhone 11, which starts at $699 compared to the iPhone XR starting price of $749 and lower pricing on older generation iPhones. The analyst thinks that lower-priced models will account for 40% of iPhone shipments in the next 12 months. He also expressed uncertainty about the lower prices yielding higher unit sales because we don’t know how feature additions in new models will be taken up by the market.

Apple Growing Walled Garden

So what else is new?

Long-time Apple bull, Bloomberg’s Mark Gurman, recently pointed out that the list of pre-installed, default apps on the iPhone had jumped from 17 in 2007 to 38 in the latest edition. So whether you want to message a friend, look up a map, check your email, search information in the browser, or a host of other things, you really have no choice except to go with Apple. And nothing else, no matter how good or useful or preferred, gets to be the default. Something like what Microsoft (MSFT Free Report) was earlier.

On the other hand, IDC data shows that the company had a 35% share of the U.S. smartphone market while Sensor Tower data shows that consumers spent $25.5 billion on Apple devices in first-half 2019, or a two-third share.  

It’s definitely an antitrust situation, even considering that Apple eased up a bit on messaging after the Bloomberg report, allowing Siri to pick the platform most commonly used with a particular contact. For example, if you asked Siri to send a message to X, it will check out the platform you normally use to send messages to X. If that happens to be WhatsApp, it will send the message on that platform.

No wonder that regulators have started taking a closer look at Apple.



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