Over the past week or so, Apple AAPL announced that it is opening up to the idea of third-party repairs and apologized for its privacy missteps; newly published data showed that the trade war is a tangible headwind, especially with respect to cost and competition; and the product launch event date was announced. Here are the details-
Apple Opens Up About Third-Party Repairs
Apple will supply parts to third-party repair shops as long as they have a company-certified technician, to take care of out-of-warranty iPhone repairs. The company has been testing the service over the past year at 20 organizations across the U.S. International repairs, repair of other Apple products or of more complicated problems will still be handled by Apple itself.
There are a number of advantages to doing this of course. For one, it will ease some of the pressure on Apple and speed up the time taken for repair. Second, it ensures that people stick with their iPhones rather than switching to a competing platform, broadening the base for offering Apple services. A phone stuck in repair is not consuming Apple services, which is another reason why this would make sense. Third, the voices calling for right-to-repair laws are getting louder. If Apple already has a system in place, it can argue that it is already compliant. It also helps argue that it isn’t engaged in anti-competitive behavior and is in fact creating more employment in the country (the repair shops will get the parts cheaper, they can also set their own prices, but will have to return spoilt parts to Apple for refurbishment/recycling or disposal.)
One possible downside could be that its own repair services will suffer, but the impact shouldn’t be material, since this is only a very small percentage of products and there are kickbacks in the form of more services being sold (due to faster repair).
Separately, the company has said that qualifying Watches with cracked screens will be repaired free of cost.
What China Tariffs Mean For Apple
Reuters came out with a report after analyzing five years of Apple’s published data on its supply chain. The data appears opaque, because although the number of sources appears to be clearly mentioned as 750, nothing is said about how much each place contributes to which product. More importantly, China’s contribution to the total doesn’t even get a mention. But judging from the fact that supplier locations in China jumped from 44.9% in 2015 to 47.6% by 2019, the country accounts for the bulk of it.
As far as these supplier locations go, its leading Chinese partner Hon Hai Precision Industry Co Ltd's Foxconn, Pegatron Corp, Wistron Corp, etc. have rapidly expanded Chinese operations: Foxconn went from 19 in 2015 to 29 in 2019, Pegatron went from 8 to 12. Apple’s diversification attempts include smaller facilities in Brazil and India, that too in partnership with its Chinese counterpart.
So even if Apple moves production outside China, where it has the benefit of proximity to other components such as chips, glass, aluminum casings, cables, circuit boards, etc., China will still benefit through Honhai’s profits. So the whole point of the exercise appears unclear.
To top it all, Apple has no intention of absorbing the extra cost arising from the 15% tariff imposed by Trump, so it will pass on the cost to consumers, which will of course hurt its competitive position with respect to Samsung and fast-growing Chinese players.
The problem is that the democratic system, which was supposed to promote citizens’ welfare, is tied down by the need to win elections. So even in dealing with a harmful aggressor, you have to show results pretty quickly. You can’t take a longer-term, strategic decision, because you may not remain in power to see it through.
Untangling the two economies that have been purposefully entangled for mutual benefit for years, is an uphill battle. It will take many years and there will be short-term pain to bear.
In this case, the president can’t force Apple to move production back to the U.S. Apple can charge consumers anything and take the government to court to protect its own interest. So other than raising some cash, the government can’t do much for people. That’s why Trump is “thinking about it”.
Apple Launch Event on Sep 10
Apple is inviting members of the press to its Sept. 10 event at the Steve Jobs Theater in the company's Cupertino, California campus. The company is expected to launch new iPhone models (“Pro” successors to the iPhone XS and iPhone XS Max and an iPhone XR upgrade) with new colors. It will also livestream the event, which begins at 10 a.m. local time, on its website.
Apple usually announces new Apple Watches at its September event. Pricing plans for Apple TV+ and Apple Arcade streaming services could also be announced this year.
Apple Apologizes for Privacy Gaffe
In a recent blog post, Apple said, "We know that customers have been concerned by recent reports of people listening to audio Siri recordings as part of our Siri quality evaluation process - which we call grading…We heard their concerns, immediately suspended human grading of Siri requests and began a thorough review of our practices and policies... As a result of our review, we realize we haven't been fully living up to our high ideals, and for that we apologize."
Apple wasn’t alone in this. Alphabet GOOGL and Amazon AMZN, who have the more popular smart speakers, have been doing the same thing. A whistle blower mentioned that contractors employed for the purpose, regularly listened to conversations involving confidential information, criminal activity and sex.
Apple also said that it was in the process of reviewing its Siri audio program and would reintroduce it later this year as part of a software update.
Globalfoundries And Apple Parts
California-based Globalfoundries, which is privately owned by Mubadala, the investment arm of the government of Abu Dhabi, has sued Taiwan Semiconductor Manufacturing Company (TSM).
In complaints filed with the U.S. International Trade Commission (ITC) in Washington and through civil lawsuits at federal courts in the U.S. and Germany (where it has operations), the company positions TSM as an Asian company illegally using U.S. and German inventions, charges TSM with patent infringement, and seeks to stop its imports into the U.S. or pay licensing fees.
Companies using TSM products such as Apple, Broadcom, Qualcomm QCOM, Xilinx XLNX, NVIDIA NVDA and their device-maker customers including Cisco CSCO, Google and Lenovo have also been named because the products they import into the U.S. incorporate TSM products.
The reason for including ITC is to speed things up, because the ITC works faster than U.S. courts to ban imports. German courts work faster and at times, even stop imports until the case is decided.
The patents in question relate to 7nm technology, where TSM has taken an early lead and Globalfoundries has dropped behind. A TSM spokeswoman said that the company wasn’t aware of the actions, that it hadn’t been served any court papers, that it always respected intellectual property and that it had developed all its technologies internally.
The lawsuit has the potential to restrict the availability of Apple parts at a time when components are anyway a concern due to the ongoing trade war.
Apple shares carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Xilinx, Inc. (XLNX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research