Good morning. Tariff wars may cause many Apple customers to rethink their loyalty to avoid high prices.
“If the 145% China tariffs came into play, we believe Apple would have no choice but to start charging $2,000-plus for iPhone Pro once inventory levels came down,” Wedbush Securities analysts wrote in a note on Sunday.
The tech giant has developed a loyal fan base of customers willing to pay premium prices for their products, like iPhones. Product differentiation, brand equity, and perception of value are part of the company’s strategy. However, research shows that increasing prices can negatively impact customer loyalty. And adding exorbitant costs to Apple customers would be a dealbreaker for many, Dan Ives, Wedbush Securities managing director, told me.
Ives put it to me this way: “If someone charged you $7 for a slice of pizza, even the best slice of pizza, you wouldn’t buy it. So everything has a price.” As someone who grew up eating New York pizza, that resonated with me.
It seems Apple may have some breathing room before considering raising prices for U.S. customers. The Trump administration announced late Friday that some electronics, such as smartphones, were temporarily exempted from the 145% import tariffs on goods from China. That’s some relief for Apple, a company that assembles devices in China and imports them.
However, the break could be short-lived as in a social media post on Sunday, President Trump said “NOBODY is getting ‘off the hook’” while adding that the exempted products are “just moving to a different tariff ‘bucket.’”
The impending tariffs and uncertainty could mean a change to Apple’s pricing strategy, which its new CFO had no intention to alter. Apple SVP and CFO Kevan Parekh began on Jan. 1, succeeding former CFO Luca Maestri, who held the role for over 10 years. Maestri leads the corporate services teams. Parekh participated in his first earnings call on Jan. 30 regarding the quarter that ended Dec. 28. An analyst noted that one of Maestri’s legacies was maintaining consistent pricing across the product range.
“I don’t think we’re going to really depart from what served us pretty well,” Parekh said on the call. Apple has had a “disciplined pricing strategy,” he said. “We’re going to continually kind of stick with that as far as I can tell.”
Amid ongoing tariff uncertainty, many Apple customers are flocking to stores to make purchases before any potential price bumps. “When you create that level of uncertainty, it causes chaos in the supply chain,” Ives said.
Apple is facing a situation where CEO Tim Cook knows what is coming down the road and needs to make some adjustments, Wedbush analyst wrote in the Sunday note. “Cook being 10% politician and 90% CEO is an asset for Apple (and its investors) in this situation,” according to the note.
Sheryl Estrada
sheryl.estrada@fortune.com
Leaderboard
Armin Zerza was appointed EVP and CFO of Warner Music Group Corp. (Nasdaq: WMG), effective May 5. He will succeed current EVP and CFO Bryan Castellani. Zerza comes to WMG with three decades of experience across the entertainment, technology, and consumer goods industries. During his time at Activision Blizzard, he served as CFO, chief commercial officer, and played a key role in the company's acquisition by Microsoft.
Ben Rodgers was appointed EVP and CFO of APA Corporation (Nasdaq: APA) an energy company, effective May 12. Rodgers joined APA in 2018 and previously served as SVP of finance and treasurer. He also served as CFO of Altus Midstream and later as a director on the board of Kinetik Holdings Inc.
Big Deal
A new Gallup survey released by the Walton Family Foundation and GSV Ventures finds 79% of Gen Z respondents say they have used artificial intelligence tools on their own. However, in the workplace, Gen Zers lack AI guidance.
One in four (39%) Gen Z adults report that AI use is permitted at their workplace, only 30% report using it for work, and over half say (55%) their workplace has not instituted a formal AI use policy, according to the report.
The research also highlights opportunities for greater guidance on use the cases and benefits of AI in the workplace. Almost one in three Gen Z adults (29%) believe AI does not exist for their work. And even when AI is used, 36% of Gen Z workers say the risks of AI in the workplace outweigh the benefits.
The findings are based on a survey of 3,465 respondents living in the U.S. ages 13 to 28.
Going deeper
“Why Chipotle won’t raise prices because of tariffs, according to CEO Scott Boatwright” is the latest episode of Fortune’s Leadership Next podcast. Cohosts Diane Brady, executive editorial director of the Fortune CEO Initiative and Fortune Live Media, and editorial director Kristin Stoller talk to Scott Boatwright, the CEO of Chipotle. They talk about AI’s future at the restaurant chain through the Ava Cado AI program; why Chipotle won’t raise prices in response to tariffs; and Boatwright’s relationship with Brian Niccol, his predecessor and the current CEO of Starbucks.
Overheard
“Panic is the enemy of good decisions. It clouds your thinking and makes you overreact.”
—Benoit Dageville, cofounder and president of products at Snowflake, writes in a Fortune opinion piece about how he learned to not panic under pressure and avoid making bad decisions.
