Despite Earnings Downgrade, Trump Says Apple Inc. Will Be ‘Fine’

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Apple shares took a massive beating last week after the company reduced its revenue expectations. However, according to President Donald Trump, Apple Inc. (NASDAQ:AAPL) will be just “fine,” and there is no need to worry.

Trump gets it wrong on Apple shares

Apple CEO Tim Cook told investors last week in a letter that they expect lower-than-expected revenue for the company’s first fiscal quarter. It’s rare for Apple to reduce its revenue expectations, considering it is among the most valuable and profitable companies around the globe.  Following the announcement, Apple shares dropped 7% after the market close and about 9% the next day.

When Trump was asked to comment on Apple’s plight at a White House news conference, he said, “Apple was at a number that was incredible and they’re going to be fine. Apple is a great company.”

Trump also took a question about how Apple’s announcement might impact the U.S. economy, but his answer turned out to be factually incorrect. He said Apple shares have increased “hundreds of percent[s]” since he became president. The truth is that Apple’s shares have only gained about 20% since Trump came into office. However, this isn’t the first time he has made an incorrect statement. He has earned a reputation for saying anything anywhere without any factual basis.

Apple shares were trading at around $120.45 in late January 2017 when Trump took the oath of office. Apple shares are currently hovering around $148, an increase of more than 20% over the last two years. Even at its peak, the shares were trading at around $232, an appreciation of over 90%. Although this is impressive, it still is far from the “hundreds of percent” range claimed by Trump.

Is China to blame?

Trump did not stop there; he added that he is not concerned about Apple’s current situation even though the company makes most of its products in China. Such a statement from Trump seems to suggest that Apple’s exposure to China could be the primary reason for its current woes.

“Don’t forget this: Apple makes their product in China. I told Tim Cook, who is a friend of mine, who I like a lot: ‘Make your product in the United States; build those big, beautiful plants that go on for miles it seems; build those plants in the United States,’” he said.

Trump added that Apple is investing about $350 billion in the U.S. via tax reforms and incentives created by his administration.

“He’s going to build a campus and lots of other places,” he said.

As of now, it is not exactly clear how much truth is in the $350 billion number, but the new campus is indeed in the works. Apple is investing about $1 billion into its new expansion into Austin. However, the company’s products will not be manufactured at the Austin campus.

Trump has long wanted Apple to manufacture its products in the U.S. In 2017, Trump claimed that Cook had promised to open three “big, big, big” plants in the country. However, so far we have only heard about Apple supporting Foxconn to open a plant in Wisconsin to manufacture LCD panels.

Why Apple reduced its revenue estimate

In his letter to investors, Cook gave several reasons for lowering their expectations, but none were related to manufacturing products in China. The company slashed its revenue guidance from November’s range of $89 billion to $93 billion to approximately $84 billion. The company blamed the reduction on Chinese consumers because they haven’t been buying iPhones. The reduced demand is unrelated to where these devices are assembled.

Apple also pointed at the timing of its iPhone launch, which was marred by supply constraints, a strong U.S. dollar and weak iPhone upgrades due to low-priced battery replacements and fewer carrier subsidies.

Cook also said the ongoing trade war between the U.S. and China has affected Apple’s bottom line. In November, Trump hinted at levying a 10% tariff on iPhones and laptops imported from China, but so far, Apple products have escaped his tariffs. Apple warned last year that Trump’s tariffs on China could push the prices of its products up. Although iPhones have been exempted from the tariffs so far, the threat of China taking action against Apple in retaliation for Trump’s trade war still looms.




About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com