Jim Cramer Says China Will Hit Apple Hard

By Douglas A. McIntyre Published Apr 22, 9:10AM EDT

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Jim Cramer believes America’s disintegrating relationship with China will badly hurt Apple Inc. (NASDAQ: AAPL) stock.
He hopes that tariffs will be cut, but he says he will hedge his bets.

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Jim Cramer Says China Will Hit Apple Hard — © Jimcramerphoto (CC BY 2.0) by Tulane Public Relations

Apple Inc. (NASDAQ: AAPL | AAPL Price Prediction) 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.

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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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.