Tariffs Leave Apple With a Cost Conundrum

Summary

WSJ Tech News Briefing: "Tariffs Leave Apple With a Cost Conundrum" – April 4, 2025

Hosted by Victoria Craig for The Wall Street Journal, this episode delves into the significant impact of President Trump's tariff policies on Apple Inc., explores broader implications for major tech companies, and provides an update on Intel's former CEO, Pat Gelsinger.

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1. Tariffs and Their Impact on Apple

Victoria Craig opens the discussion by highlighting the ramifications of President Trump’s tariffs on Apple, emphasizing that the cost burdens extend beyond corporate balance sheets to affect everyday consumers. Apple’s intricate supply chain, which spans countries like China, India, the Philippines, and Japan, makes it particularly vulnerable to these new levies.

Dan Gallagher, a WSJ columnist, provides a detailed analysis of the financial strain on Apple:

“I have some estimates that like about a quarter or 25% of its earnings per share this year could get hit by this. And if you took at a higher level... that could be like a 9% hit.” ([01:35])

Gallagher explains that Apple’s robust profit margins, which are a significant draw for investors, are under threat. The dilemma facing Apple is whether to absorb the increased costs, thereby reducing profits, or pass these costs onto consumers through higher prices.

When questioned about consumer reactions to potential price hikes, Gallagher notes:

“It’ll definitely have an impact. I think it'll hurt demand for that.” ([03:06])

He elaborates that while some consumers will purchase essential upgrades like new iPhones, others might opt for cheaper models or delay purchases altogether, especially since Apple products are already priced at a premium.

2. Supply Chain Diversification and International Negotiations

Isabel Bousquet discusses Apple’s ongoing efforts to diversify its supply chain, particularly focusing on India:

“Apple has tried for a while now... to diversify its supply chains.” ([04:04])

Apple is seeking to increase its reliance on India to mitigate the impact of tariffs from other countries. However, the uncertainty remains as Bousquet reveals India’s stance:

“It wasn’t going to retaliate. It wants to negotiate with the Trump administration.” ([04:23])

Gallagher points out the precarious balance Apple must maintain:

“If countries decide to retaliate by putting their own tariffs on things... it could hurt their demand even more than they might see in the US right now.” ([05:27])

This potential for retaliatory tariffs poses a significant risk not only for Apple but also for its standing in global markets.

3. Broader Implications for Major Tech Companies

The conversation shifts to the broader technology sector, where giants like Amazon and Meta are also feeling the pinch of the new tariffs.

Isabel Bousquet notes the stock market's reaction:

“We’ve seen a big stock market reaction to Amazon and Meta, these so-called magnificent seven tech companies are also in the crosshairs.” ([05:29])

Gallagher explains the unique challenges faced by these companies:

“Amazon and Meta have a unique bit of exposure to essentially Chinese e-commerce merchants that are trying to sell to American customers.” ([05:37])

The removal of the de minimis rule, which previously exempted low-priced items from tariffs, means that cheaper goods are now subject to taxes, potentially altering advertising strategies and consumer pricing expectations.

4. Impact on Consumers

Dan Gallagher underscores the inevitable rise in consumer costs:

“Consumers are going to see prices go up. There's no getting around that.” ([06:21])

He emphasizes that the extent of the price increases remains uncertain, but the foundational effect of tariffs is an unavoidable rise in costs for consumers.

5. Pat Gelsinger’s Continued Influence in the Chip Industry

Transitioning from tariffs, the episode explores the trajectory of Pat Gelsinger, Intel's former CEO, who remains a pivotal figure in the semiconductor industry despite his ousting.

Isabel Bousquet provides background on Gelsinger’s tenure at Intel:

“Pat Gelsinger's sort of big bet was that he could double down on manufacturing... but there were a lot of challenges, especially on the manufacturing side.” ([07:45])

Although he was removed from his position before fully executing his strategy, Gelsinger continues to influence the industry through his role at Playground Global.

Gelsinger shares insights into his new ventures:

“What we know about Gelsinger is that he's not afraid to make big, seemingly impossible bets.” ([09:06])

At Playground Global, Gelsinger focuses on investing in startups that push the boundaries of technology, particularly in hardware and semiconductor fields, which are traditionally challenging for venture capital firms.

Moreover, Gelsinger is expanding his impact into the intersection of technology and religion through his involvement with Glue, a startup aimed at integrating advanced technology into faith-based organizations:

“It's working to basically provide this large language model that's trained on the Bible and will answer questions about Scripture.” ([10:02])

This move reflects Gelsinger’s personal commitment to his faith and his desire to leverage technology to support religious communities.

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Conclusion

The April 4th episode of WSJ Tech News Briefing presents a comprehensive analysis of how President Trump's tariffs are reshaping the landscape for Apple and other major tech companies. The discussions highlight the delicate balance between maintaining profit margins and managing consumer expectations in a volatile economic environment. Additionally, the spotlight on Pat Gelsinger illustrates the enduring influence of key industry leaders as they navigate new ventures and integrate personal values with technological advancements.

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Notable Contributors:

• Victoria Craig – Host, The Wall Street Journal
• Dan Gallagher – WSJ Columnist
• Isabel Bousquet – WSJ Reporter

Transcript Reference Times:

• Apple’s earnings impact: [01:35]
• Consumer behavior on price hikes: [03:06]
• Supply chain diversification: [04:04]
• Risks of retaliatory tariffs: [05:27]
• Broader tech implications: [05:29]
• Pat Gelsinger’s new ventures: [07:38], [09:06], [10:02]

Transcript

[Comcast Business]

With leading networking and connectivity, advanced cybersecurity and expert partnership, Comcast business helps turn today's enterprises into engines of modern business. Powering the engine of modern business. Powering possibilities Restrictions apply.

[Victoria Craig]

Welcome to Tech News briefing. It's Friday, April 4th. I'm Victoria Craig for the Wall Street Journal. If you think you're immune to the cost of President Trump's tariff blitz, think again. Higher costs of critical components and manufacturing could wallop the wallets of everyday tech consumers across the country. Then Intel's former CEO, unseated for failing to usher in a corporate turnaround, has some unfinished business in the chip world. First, hard choices and no easy answers. That's the situation Apple now finds itself in as it wakes how to move forward with Trump's new levies on trillions of dollars of US Imports. Though the tech titan's supply chain is a diverse one, it is still reliant on other countries, including China, India, the Philippines and Japan to make and ship supplies and products like iPhones and Apple watches to America. WSJ Heard on the street columnist Dan Gallagher explains the cost of these tariffs that might just land in your lap. Dan, you have some really big numbers in this story about the hit that Apple could experience to its business because of these tariffs. Can you just walk us through those?

[Dan Gallagher]

Well, it's substantial and right now there's a lot of estimates because there's a lot of complicated factors in. I have some estimates that like about a quarter or 25% of its earnings per share this year could get hit by this. And if you took at a higher level, you know, what's called the gross margins, which is what's essentially what's left in profits after you make your stuff, that could be like a 9% hit. And those are really important for Apple because Apple has the biggest profit margins amongst other makers of essentially consumer electronics. Their margins are the envy of that world. And they're a very big appeal to investors because for investors, Apple's kind of been a slow growth business for a while. The iPhone's very mature. Other businesses don't grow as much. So it's been this low grower. So one big appeal for investors is that it's just so incredibly profitable. So if these costs go up, Apple is faced with this dilemma of do they eat the cost, they have the margins so they could actually just make less profits and keep prices the same, or do they raise prices to keep their profit margins and each one would actually cost the company something?

[Victoria Craig]

And then the next question is if they do rely on price increases because that seems to be the easiest and most immediate lever that they can pull.

[Isabel Bousquet]

To offset this tariff impact.

[Victoria Craig]

How likely is it that consumers will pay that, that higher price? It's usually these big ticket items, these more discretionary purchases that are the ones that consumers just put off.

[Dan Gallagher]

It'll definitely have an impact. I think it'll hurt demand for that. If you think about it, people who have iPhones and need to upgrade them, our mobile phones now are like vital pieces of technology that we use. So there's a point at which you're going to pay what the price is because you need a new phone, but you also might choose to get the cheaper phone because now everything's gone up. Or you might stretch the life of your iPhone for another year as long as you can, instead of getting that newest thing just because you like the new thing. So there's a lot of ways that can have an impact. Even if sales, you know, are still there. At one point, they're selling some pretty important stuff that people use every day. But it comes to the question of how long can people stretch it out and how much are the prices going to go up? If they only go up a little bit, they probably wouldn't see that big of an impact. But if they go up a lot, and Apple's already not the cheapest products out there, most of the iPhones now sell for over $1,000. So how much more can they keep going up? There is a really good question.

[Isabel Bousquet]

Apple has tried for a while now.

[Victoria Craig]

Many years since the first Trump administration.

[Isabel Bousquet]

To diversify its supply chains. You mentioned how many different countries it relies on to get components and completed products. One of those countries is India, where it tried to build a more robust supply chain over the last few years. And that country on Thursday said that.

[Victoria Craig]

It wasn't going to retaliate.

[Isabel Bousquet]

It wants to negotiate with the Trump administration.

[Victoria Craig]

Could something like that potential be a bit of a balm for Apple where.

[Isabel Bousquet]

A place that it could look to even further increase its reliance there instead of other countries that have much higher tariffs?

[Dan Gallagher]

That's certainly a possibility, and that's the big question mark everybody faces now is these tariffs are seemingly really bad news and seen as kind of a way to maybe make countries negotiate to bring them down. So if that happens, that certainly could help them. But the risk on the other side of that is if countries decide to retaliate by putting their own tariffs on things, because, remember, bigger majority of Apple's sales are actually not in the US The US Is a huge market for them. But if all of a sudden its products in other countries get a lot more expensive because those countries have put on their own tariffs that could hurt their demand even more than they might see in the US right now. Just the extent of the tariffs and the extent of which it's hitting all the markets where Apple produces its stuff in is seen as pretty bad for investors. And that's why you're seeing the significant stock impact.

[Victoria Craig]

And Apple isn't the only one that.

[Isabel Bousquet]

We'Ve seen a big stock market reaction to. Amazon and Meta, these so called magnificent seven tech companies are also in the crosshairs.

[Dan Gallagher]

They're different businesses, so they play out in different ways. Amazon and Meta have a unique bit of exposure to essentially Chinese e commerce merchants that are trying to sell to American customers. They advertise a lot on both platforms and both are pretty substantial advertising platforms. One of the changes that happened was the elimination of this rule called de minimis, which allowed items priced below a certain level to not face a tariff. And that's now been closed. So now these really cheap items that American consumers have come to expect from some of these places aren't going to be as cheap. So that might affect the way those merchants decide to advertise how much advertising they put towards platforms like Facebook. And that could be a problem for them because those have been pretty substantial.

[Isabel Bousquet]

Big questions then, not just for the two companies, but for consumers. Now it is.

[Dan Gallagher]

Consumers are going to see prices go up. There's no getting around that. Like how much they go up. We'll see because there's so much. Now that's a question. But tariffs raise prices.

[Victoria Craig]

That was WSJ columnist Dan Gallagher coming up. Down but not out. Intel's former boss isn't calling it quits on big bets just yet. That story after the break.

[Comcast Business]

With leading networking and connectivity, advanced cybersecurity and expert partnership Comcast business helps turn today's enterprises into engines of modern business powering the engine of modern business powering possibilities. Restrictions apply.

[Victoria Craig]

Pat Gelsinger was a titan in the semiconductor industry and then he was ousted at intel when the board lost confidence in his ability to implement a turnaround strategy. Wall Street Journal reporter Isabel Bousquet explains Gelsinger's renewed focus on chips, this time with a side of religion in the cloud.

[Isabel Bousquet]

For our listeners who maybe don't know or haven't been following, just remind us who Pat Gelsinger is. What's his story? What happened at Intel?

[Pat Gelsinger]

So intel is a company that used to dominate the chip market and in Recent years, it's kind of fallen behind essentially like the direction the chip industry has taken is that some companies are designing chips and other companies are manufacturing chips. It's two extremely different types of businesses and business requirements. And while some companies used to do both, a lot of companies in recent years have just sort of focused on one or the other. So Nvidia, like just designs chips and TSMC just manufactures chips. Intel is one of the few companies that still does both. And Pat Gelsinger's sort of big bet was that he could double down on manufacturing. He was super involved in the chips act and he would build these American factories and essentially intel would chart the course as this company that was both designing and manufacturing chips. He didn't end up getting the full five years to sort of execute on that strategy, but there were a lot of challenges, especially on the manufacturing side. And after about four years he was ousted by the board.

[Isabel Bousquet]

So it seems like Gelsinger really has some unfinished business with intel and maybe that's what will propel him forward. At Playground Global. He said hard, long term problems are his focus there. What can we expect from him at Playground?

[Pat Gelsinger]

What we know about Gelsinger is that he's not afraid to make big, seemingly impossible bets. And it makes sense that he's going to Playgrounds because that's a firm that's known for betting on nearly impossible technology. That's their thesis. They invest in startups that are like really, really out there, but if they end up working, they could change the market. A lot of VC firms are hesitant to invest in hardware and chips and semiconductors because those are just tougher businesses to scale. You need a lot more capital. There are a lot of challenges on sort of like the physical manufacturing side. And Playground is a company that's not sort of afraid to get involved in those situations.

[Isabel Bousquet]

And you reported also that Gelsinger is known to be a religious man who leans on his faith to make business decisions. And that is perhaps in line with another one of his decisions post intel to join a company called Glue, where he's going to focus on bringing technology and religion together.

[Pat Gelsinger]

I didn't really see that one coming. I'm kind of out of left field. But yeah, it's this startup. He's been involved with it behind the scenes for a while, but now he's taking on a little bit more of an active role. And this is a company that tries to bring advanced technology to churches and faith based nonprofits and ministries and other organizations like that. It basically tries to help them get on the cloud, use new software, use new AI capabilities and features. It's working to basically provide this large language model that's trained on the Bible and will answer questions about Scripture. So if you're writing a sermon, you can consult that. Religion is something that's deeply important to him, and he's been vocal about that throughout his career. And now we're seeing him focus a little bit more on the business side of that.

[Victoria Craig]

That was WSJ reporter Isabel Bousquet. And that's it for Tech News Briefing. Today's show was produced by Jess Jupiter. I'm your host, Victoria Craig. Additional support this week from Julie Chang and Matthew Walls. Jessica Fenton and Michael Lavall wrote our theme music. Our supervising producer is Emily Martosi. Our development producer is Ayesha El Mouslim. Scott Salloway and Chris Insinsley are the deputy editors. And Falana Patterson is the Wall Street Journal's head of news audio. We'll be back this afternoon with TNB Tech Minute. Thanks for listening.

[Comcast Business]

With leading networking and connectivity, advanced cybersecurity and expert partnership, Comcast business helps turn today's enterprises into engines of modern business. Powering the engine of modern business. Powering possibilities. Restrictions apply.