Is the US IT hardware industry safe under the tariff exemption? Tama: Policy uncertainty is still high and we need to pay attention to subsequent tariff announcements

The Zhitong Finance App learned that on the evening of April 11, local time, the US Customs and Border Protection announced that the federal government had agreed to exempt electronic products such as smartphones, computers, and chips from so-called “equal tariffs.” In response, Morgan Stanley released a research report on April 14, saying that although this exemption has drastically reduced the tariff costs of US IT hardware companies covered by the bank, since policy uncertainty is still very high, the focus should shift to the impact of the semiconductor tariffs proposed by the Trump administration and the continued impact on hardware demand.

Damo pointed out that the “equal tariff” exemption for electronic products announced by the US federal government on April 11 has significantly reduced the tariff cost burden on US IT hardware companies covered by the bank, from an initial estimated annual tariff cost of more than 50 billion US dollars (equivalent to 30% of the industry's profit before interest and tax) to the current 7 billion US dollars (equivalent to 4% of the industry's profit before interest and tax, but only temporarily). This is because almost all major IT hardware categories — smartphones, personal computers, tablets, and storage arrays — are currently excluded from “equal tariffs,” reducing the average tariff rate of US IT hardware companies covered by the bank from 17% last Thursday and 26% on April 2 to only 5% now, while greatly reducing the risk of these companies significantly increasing prices and passing on tariff costs to end customers.

Damo said that although this is beneficial to the US IT hardware companies covered by the bank, since Apple (AAPL.US) and Logitech (LOGI.US) are mostly concentrated in China, and many of their products are now exempt from “equal tariffs,” the benefits are most significant.

As for Apple, Damo believes that the company's annualized tariff cost burden is currently 7 billion US dollars, which is more “manageable” than the 44 billion US dollars last Thursday, accounting for only 5% of the company's profit before interest and tax. Furthermore, some reports indicate that in the 12 months up to March of this year, Apple's iPhone production in India has increased by 60%. The bank's investigation also showed that Apple prepared millions of iPhones in advance of the original April 11 deadline. The bank believes that 1) Apple may face a relatively small short-term tariff cost burden; 2) In the medium term, Apple may not need to raise the price of similar iPhone products, but can instead make devices cheaper by increasing the production ratio in India, putting pressure on suppliers to share costs, eliminating low-storage SKUs, and cooperating with carriers/trade-in partners.

Damo said that although the bank's expected price-earnings ratio in 2026 for the US IT hardware companies it covers is 10.4 times (higher than the previous 9.3 times), it is still cautious about the entire industry for two reasons:

1) In response to the previous exemption of electronic products from “equal tariffs,” Trump said on April 13, local time, that the US government did not announce any “exemptions” from tariffs; related products were only transferred to another tariff category. Trump also said that in the upcoming tariff investigation involving national security, the US government will evaluate the semiconductor and the entire electronics supply chain and release details of tariffs in the semiconductor sector.

US Secretary of Commerce Lutnick also said that the Trump administration's tariff exemptions for electronic products such as mobile phones, computers, and memory chips are only temporary. These products will soon be included in the so-called semiconductor category, and a special priority tariff will be levied to ensure that these products return to become products made in the US. Tariffs on semiconductor products are expected to be implemented within a month or two.

It is unclear when the tariffs on semiconductors will be implemented, what scope, and whether there are any exceptions, but it is clear that the risk of returning to higher tariff levels still exists.

2) Even before Trump announced “equal tariffs” on April 2, the bank's CIO survey for the first quarter of 2025 had shown caution about hardware spending and suggested that IT hardware revenue would drop 3% year over year in 2025, while the market consensus was a 6% increase (the bank's forecast was a 2% year-on-year decline;). High levels of uncertainty and ongoing unknowns may continue to be a drag on spending plans, although the bank still believes that demand for some key projects may be released early in the second quarter to avoid future tariff risks.

According to Damo, Apple, Dell Technology (DELL.US), and Seagate Technology (STX.US) are currently in an advantageous position among the US IT hardware companies it covers. The bank rated all three stocks as “increase in holdings.” Damo said that Apple is the biggest beneficiary of the US federal government's “equal tariff” exemption for electronic products last week; Dell Technology currently has almost no tariff risk, benefits from increased AI infrastructure spending, and has an advantage over its peers in PC assembly; Seagate's HDD (mechanical hard drive) production capacity has been reserved until the end of the year (HDD is currently exempt from tariffs).

Finally, Damo said that the US federal government's exemption from “equal tariffs” on electronic products last week further validated its core view that it is almost impossible to “return” the assembly of large quantities of IT hardware products to the US. The bank pointed out that these plans require years of preparation. The manufacturing costs (including capital expenses and operating expenses) of hundreds of millions of pieces per year are extremely high. Most importantly, tariff exemptions for finished products have weakened incentives for manufacturing in the US.

Damo said it will continue to keep a close eye on tariff-related announcements. The most critical upcoming issues include: (1) real-time feedback on the supply chain; (2) performance guidance and management comments during the first quarter earnings season; and (3) the US government's announcement on future semiconductor tariffs.