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Apple: Hedging Donald Trump's Threat


In an article on Tuesday, the Financial Times discussed Donald Trump's threat to get Apple to manufacture its products in the U.S.

As the FT notes, and as previous articles in other publications have pointed out, it would be particularly difficult for Apple to increase U.S. manufacturing.

We discuss why, and present a few hedges for Apple shareholders concerned that the increasing prospects of Trump becoming president might weigh on their shares.

Apple Tops Trump's Corporate Hit List

In a recent Seeking Alpha article (Time To Consider Trump Insurance), we mentioned Republican presidential candidate Donald Trump's tariff threat against United Technologies (NYSE:UTX) subsidiary Carrier. Carrier came up in a March 8th Financial Times article (requires registration) - Trump Hits List Of Corporate Targets On Campaign Trail - but so did a company we hadn't mentioned in our Trump Insurance article, Apple (NASDAQ:AAPL). The FT summarized Trump's case against Apple in the

screen-captured below, but the article includes an interesting, earlier Trump complaint about the company.

Back in 2013, the FT reports,

Mr Trump's biggest problem with Apple was with the size of their iPhones. "I have a lot of Apple stock -- and I miss Steve Jobs," he said in a Facebook post. "Tim Cook must immediately increase the size of the screen on the iPhone," he urged, or Apple would "lose a lot of business" to Samsung's larger smartphones.

The article goes on to note that Apple ended up offering larger iPhone screens the following year, "unlocking huge new growth for the iPhone." Trump's suggestion about screen size in 2013 counters the claim made by some that he isn't a savvy businessman. But how would Apple react to a Trump trade policy that punished it for manufacturing most of its products outside the U.S.?

In our earlier Trump insurance article, we mentioned that a company like Carrier, which recently announced plans to shutter an air conditioner plant in the U.S., could decide to reopen that plant to serve the domestic market. But, as the FT suggests, Apple would face more challenges increasing manufacturing here:

Only one Apple product, the high-priced Mac Pro desktop computer, has its final assembly in the US today but the company sources several components domestically [...]

Nonetheless, increasing its US manufacturing base has not been without challenges for Apple. In one high-profile case, in 2013 it invested $578m in an Arizona supplier of sapphire, GT Advanced Technology. But GT filed for Chapter 11 bankruptcy protection in 2014 after struggling to meet Apple's production standards [...]

The FT's description of Apple's manufacturing challenges in the U.S. brings to mind Jordan Weissman's 2012 Atlantic article ("Why the United States Will Never, Ever Build The iPhone"). Weissman quoted Tim Cook's statement that Apple had moved production to China because of Chinese manufacturers' ability to "scale up" faster, and then drilled down to what that actually means:

What does it mean to "scale up" faster? For Foxconn, the global manufacturing behemoth Apple pays to assemble its products, it's the ability to hire thousands of new workers in a single day. It's being able to wake up 8,000 employees, herd them out of the company's on-sight dorms, and order them pull a midnight shift fastening...