Wedbush: Trade War Could Mean Supply Chain Disruption, Higher Costs For Tech Sector In 2019

The ongoing trade war between the U.S. and China has been a primary cause of stock market volatility in a disappointing year on Wall Street in 2018.

Heading into 2019, there’s no end in sight to the trade war and Wedbush Securities analyst Daniel Ives said Monday that it's a genuine concern for Apple, Inc. AAPL and other American tech companies. 

Tariff Threats

Tech investors view the 90-day delay of President Donald Trump’s Chinese tariff hikes until March 1 as a ticking clock, Ives said in a note. Over the weekend, U.S. Trade Representative Robert Lighthizer said there will be no additional delays in the tariff hikes beyond March 1 if a trade deal with China is not reached.

The trade war has the potential to significantly increase costs for U.S. tech companies with Chinese suppliers, the analyst said. Apple is extremely reliant on its relationship with Foxconn, and the trade war could also impact Chinese demand for Apple devices, he said.

Trade War Hitting Home

“To this point, over the last month we have spoken to many technology/networking/chip vendors worried that increased tariffs on Chinese-made components could be disruptive to the supply chain and result in higher costs, thus impacting its bottom line and/or passed along to its customer base in 2019 if the U.S./China negotiations are not successful over the coming months,” Ives said.

U.S. tech companies like Palo Alto Networks Inc PANW are already revising their guidance lower due to concerns over rising costs associated with the trade war, the analyst said. 

Despite the trade-war concerns, Ives said he is still bullish on Apple in the long-term given a $400 billion valuation for the company’s Services segment and the company’s roughly $240 billion in cash.

Ives reiterated an Outperform rating on Apple. 

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