Apple (AAPL) is caught in the crossfire between the U.S. and China’s trade war, hampered by tariffs that may hike the cost of its flagship device, the iPhone, and President Donald Trump’s threat to “order” U.S. companies to “immediately start looking for an alternative to China.”
But one analyst believes that despite Trump’s comments being a “gut punch to [Apple],” their fundamental long-term outlook remains quite positive.
“When I look at the next 12 to 18 months, there are 350 million iPhones in [for an] upgrade, an opportunity where Apple can go after them on this next cycle,” Dan Ives, Wedbush Securities’ managing director of equity research, told YFi PM.
Ives said that the firm was looking at “China’s 60-70 million iPhones that’s coming for an upgrade” as an added benefit.
“I think this is going to be an unprecedented opportunity for Apple over the next 2 years, especially if 5G ends at the tail of [the cycle],” he said.
Ives maintains an outperform rating on Apple’s stock, despite the overhang from the China tariff situation. That scenario that remains to be the “nightmare that will not go away” for investors.
‘White knuckle scenario’
China is both a pivotal manufacturing hub and a vast market for U.S. multinational corporations such as Apple. Its role in the global supply chain has been jeopardized by the trade war.
“Ultimately, we view it’s more or less impossible for Apple to take more than 10% production outside of China in the next 12-18 months,” he said. “We said the best case 5%-7% of production could go to Vietnam or India.”
But Ives is focused on the core fundamentals of Apple, given the temporary reprieve it gets from the $300 billion of tariffs the U.S. has imposed on China — which affects the tech giant’s iPhones and MacBooks.
“I think right now, the bark is worse than the bite in terms of ultimately how it’s going to impact the cycle especially coming into September,” said Ives.
He said this is a “white knuckle period” for tech investors, but there might be a reward at the end of a wild ride.
“We continue to hold the hand during this rollercoaster period, and we think we’ll end up on the other side with the stock much higher,” he said.
Grete Suarez is producer at Yahoo Finance for YFi PM and The Ticker. Follow her on Twitter: @GreteSuarez