Dell, HP And Apple Face Tariffs. ‘Raising Prices’ Is Their Best Option: Analyst

The research arm of Morgan Stanley explains why President Trump’s across-the-board tariffs could prompt hardware companies such as Apple, Dell Technologies and HP Inc. to raise prices and why it’s ‘unlikely’ for these vendors to ever shift production to the U.S.

The research arm of global banking giant Morgan Stanley called President Trump’s across-the-board tariffs a “lose-lose” situation for hardware companies such as Apple, Dell Technologies and HP Inc., saying that “raising prices” for products is their “most viable path forward.”

Morgan Stanley Research delivered the assessment in a research note last Thursday, a day after Trump announced so-called “reciprocal tariffs” ranging from 25 percent to 54 percent for goods coming out of roughly 60 countries and regions, which he said are meant to boost the U.S. economy and “protect American workers.”

[Related: ‘Confusion,’ ‘Uncertainty,’ ‘Pain’: Solution Providers Grapple With Trump’s Tariff Regime]

These new tariffs are set to go into effect Wednesday, with goods from Asian manufacturing hubs such as Vietnam, Taiwan and Thailand expected to face tax rates of 46 percent, 32 percent and 36 percent, respectively.

Since the report came out, Trump has warned that he will impose an additional 50 percent tariff on Chinese goods, which would bring total import taxes to 104 percent for such things, in response to China’s counter-tariffs on U.S. products.

While some of the targeted countries and regions have said they are seeking new trade deals with the U.S. to remove tariffs, China said Tuesday it would “fight to the end” and continue countermeasures in response to Trump’s latest threat, the Associated Press reported.

Trump has indicated he is open to striking trade deals, saying on Tuesday that he spoke with South Korea’s acting president about a potential deal while saying that China “wants to make a deal, badly, but they don’t know how to get it started.”

Dell, HP Say They Have ‘Agile’ And ‘Resilient’ Supply Chains

A Dell spokesperson told CRN on Monday that the Round Rock, Texas-based company is “reviewing and assessing the impact of the tariffs announced last week.”

“Dell has a strong track record of leading through any environment with our globally resilient and agile supply chain,” the representative said in a statement.

In a statement to CRN, an HP spokesperson said Tuesday that the Palo Alto, Calif.-based company “has an agile and resilient supply chain that helps us adapt to the evolving economic landscape to ensure we deliver for our partners and customers.”

“Our strong relationships with supply chain partners around the world allow us to remain agile and responsive to changes, as we are not tied primarily to company-owned infrastructure or factories in countries heavily impacted by tariffs,” the representative said.

“We will continue to monitor developments and have the ability to adjust operations as needed,” the HP spokesperson added.

Apple did not respond to a request for comment.

Why And How Tariffs Will Hit Apple, Dell And HP

Morgan Stanley Research said the tariffs “add to the growing list of concerns” it has for the hardware companies it covers, which include Apple, Dell and HP. Other companies in the firm’s coverage that will be impacted by tariffs include Logitech, Sonos, Garmin and GoPro.

“As we highlighted last week, policy uncertainty, deteriorating business/consumer sentiment, and worsening macro data have resulted in slowing enterprise hardware spending growth and persistently negative consumer electronics spending intentions since late February,” the firm wrote.

“Yesterday's reciprocal tariff announcements will likely amplify these headwinds,” it added.

That’s because companies like Apple, Dell and HP “rely on extensive international manufacturing, with the large majority of finished goods sold into the U.S. assembled in [southeast] Asian Nations, making them [the] worst positioned” among the companies it covers, according to Morgan Stanley Research.

Many of these hardware companies, including Apple, Dell and HP, started reducing their reliance on manufacturing in China in 2018 during the first Trump administration, the firm said. Cupertino, Calif.-based Apple, for instance, has moved roughly 15 percent of iPhone production to India since then, and all its MacBooks for the U.S. market are now made in Vietnam.

Dell and HP, on the other hand, “diversified U.S.-bound notebook production to Vietnam and Thailand, respectively,” Morgan Stanley Research added.

While shifting production outside China was previously seen as a way for these vendors to lower their exposure to tariffs, this is no longer the case, the firm said.

That’s because Trump has cast a wide net with his latest round of tariffs, hitting countries like Thailand and Vietnam that were previously seen as safe for U.S. vendors to use as manufacturing hubs, according to Morgan Stanley Research.

“With yesterday's reciprocal tariff announcement, there becomes very little differentiation in friend shoring vs. manufacturing in China—if the product is not made in the U.S., it will be subject to a hefty import tariff,” the firm wrote.

Given Apple’s exposure to tariffs due to its reliance on Asian manufacturing hubs, the iPhone giant would face an estimated additional cost of $33 billion annually, which would represent 26 percent of its earnings before interest and taxes, according to Morgan Stanley Research.

For Dell and HP, “the added tariff cost could equate to nearly the entirety of their expected net [incomes] in 2025,” the firm added.

Why ‘Raising Prices Is The Most Viable Path Forward’

Morgan Stanley Research said that “raising prices” for products” is the “most viable path forward” for hardware companies it covers.

That’s because the widespread nature of the tariffs makes most of their other mitigation tools “ineffectual,” according to the firm.

For instance, “there is little flexibility to pull forward/stockpile inventory, and diversifying supply chains takes too long,” Morgan Stanley Research said.

As for absorbing the extra costs created by tariffs, this would guarantee a “significant margin headwind” for impacted vendors, the firm added.

These companies could consider redirecting products to markets without tariffs, “but it would depend on the usable infrastructure available,” Morgan Stanley Research said.

As a result, the firm considers the tariffs a “lose-lose” situation for hardware vendors.

“Raising prices is the most likely mitigation tool, in our view (all imports now face tariffs, so the playing field has been somewhat leveled), but it's inflationary and guaranteed to negatively impact demand, given the severity of some pricing increases,” it wrote.

Could Shifting Production To The U.S. Be The Answer?

Morgan Stanley Research said it’s “unlikely” that hardware companies would ever shift production to the U.S., citing cost, time and resources as well as expertise and policy uncertainty as “barriers to entry.”

The firm said it would cost “hundreds of billions of dollars” to stand up manufacturing plants in the U.S., “not even counting the wage disparities between [southeast] Asia and the U.S.” For example, Apple supplier Foxconn spent more than $1.5 billion, inclusive of perks like lower power costs and subsidies as well as tax breaks, to build a manufacturing complex in China that produces roughly 50 percent of the world’s iPhones, it said.

“Standing up a manufacturing facility in the U.S. would take, at the very minimum, 9 months with a running start and labor availability. Most likely, it would take years. And then there is the question of available labor in the U.S.,” the firm said.

“We'd presume that even with automation/humanoids/robots, there aren't enough skilled workers in the US with expertise in tooling,” it added.

The uncertainty over U.S. policy will also hold back companies from investing in domestic manufacturing capacity, according to Morgan Stanley Research.

That’s because with Trump in his second term as president, policy “could be vastly different” in four years, the firm said.

“For an industry facing hundreds of billions of dollars in costs to set up shop in the U.S. [versus] tens of billions in tariffs, tariffs still feel like the less bad choice,” it wrote.