Tariff threat may compound Apple's iPhone woes

Apple could see a hit to its annual earnings from U.S. President Donald Trump’s newly proposed 10% tariff on Chinese imports from Sept. 1, analysts from Bank of America Merrill Lynch said on Friday.

“Our back of the envelope math suggests the impact (of the new tariffs) will be roughly $0.50-$0.75 (annualized per share) hit to earnings with roughly $0.30-$0.50 from iPhones,” the brokerage said.

Shares in Apple, which reported a surprise improvement in its fortunes in China earlier this week, sank 2.5% in morning trade, adding to similar losses a day earlier after Trump tore up a trade truce with China that had lasted just over a month.

The United States and China have been locked in a trade war marked by tit-for-tat tariffs since last year. The tensions have disrupted global supply chains and roiled financial markets.

The BofA note also provided for the possibility that Apple might raise prices of iPhones by around 10%, reducing demand by 20% or around 10 million units.

Apple effectively cut iPhone prices in China earlier this year after currency exchange rates had made the phones too expensive for many Chinese consumers.

Globally, iPhone sales fell 12% to $25.99 billion in the latest reported quarter, after dropping 17% in the second quarter.