Tariffs Leave Apple With a Cost Conundrum
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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 weighs how to move forward with Trump's new levies on trillions of dollars of U.S. 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? 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 percent 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? 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 to offset this tariff impact.

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

Apple has tried for a while now, many years, since the first Trump administration 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 it wasn't going to retaliate. It wants to negotiate with the Trump administration. Could something like that potentially be a bit of a bomb for Apple, where a place that it could look to even –

further increase its reliance there instead of other countries that have much higher tariffs. 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, a bigger majority of Apple's sales are actually not in the U.S. The U.S. 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 U.S. 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 a significant stock impact.

And Apple isn't the only one that we've seen a big stock market reaction to. Amazon and Meta, these so-called magnificent seven tech companies, are also in the crosshairs. 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

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. Big questions then, not just for the companies, but for consumers now. It is. 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. 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. 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.

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 Busquets explains Gelsinger's renewed focus on chips, this time with a side of religion in the cloud. 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 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. 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 Global?

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.

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.

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 businesses.

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

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.

That was WSJ reporter Isabel Busquets. 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 LaValle wrote our theme music.

Our supervising producer is Emily Martosi. Our development producer is Aisha Al-Muslim. Scott Salloway and Chris Inslee 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.

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