How the UK's Brexit vote to leave Europe affects Apple

Posted:
in AAPL Investors edited June 2016
Yesterday's referendum on the United Kingdom exiting the European Union was widely expected to fail, but instead surprised markets globally by narrowly passing. The Euro and British Pound both subsequently dropped significantly, and markets worldwide recoiled in shock. Here's a look at how will this affect Apple going forward.




The Brexit news helped send the price of Apple's shares downward by 2.8 percent, from an already low valuation hovering around $96 over the past week to close at $93.40 today. However, Apple's shares buffeted the news better than most.

The NASDAQ stock market (where Apple's shares trade) was down by more than 4 percent overall. Amazon, Microsoft and Google all saw their shares drop by between 3.2 and 3.95 percent.

That probably says more about the excessive valuation of other tech firms. Apple is currently valued with a P/E of 10.39, while Google is priced at 28.44 times its earnings, Microsoft is valued at 38 times, and Amazon has an absurd valuation that's 287.73 times its actual ability to earn money.

The British Pound plummeted against the U.S. dollar, collapsing from $1.50 to close at $1.37, a massive move for a major currency and resulting in the Pound's lowest point in more than 30 years. The Euro also fell, but by a much smaller amount (close to 3 percent against the dollar). Currency exchange rates play a major role affecting the price of Apple's exports, so the weakening of any foreign currency against the dollar is generally a problem for Apple.

Known Unknowns



Going forward, the UK's departure from Europe will continue to roil the markets simply due to the uncertainty involved. No country has ever left the EU before, and the leave vote was promoted emotionally through a campaign centered on rejecting the advice of "elite experts."

It's unclear how such an unprecedented leap will actually happen and what unforeseen changes it will introduce related to trade, employment visas and future currency valuations.

It also means companies doing business in the UK will have to face an unknown set of new trade agreements and other regulation changes. The change is expected to hurt UK startups, both because it impacts their ability to hire EU citizens and introduces a lot of new complexity related to their ability to sell their products to Europe. But it's also a benefit in the sense that local firms can sell their products at a favorable exchange rate.

ARM Holdings, the UK firm Apple licenses silicon IP from for use in its Ax Application Processors (and owns a minority stake in) was spared any immediate downward movement in its stock price on the London Stock Exchange (in stark contrast to most other UK stocks), largely because its primary customers are not in Europe, and its revenues generally originate in dollars, making the falling Pound good news for its profitability.

Further, despite the Brexit vote, the UK continues to remain part of the EU for now, and the official declaration of an intent to leave -- as stipulated in the triggering of article 50 of the Lisbon treaty has not yet occurred. This notification, which would start an irreversible timetable for leaving the EU, was purposely delayed by UK Prime Minister David Cameron, who announced that he would resign in October and that invoking article 50 trigger should be handled by his successor.

That provides the UK government with three months of time to consider its options, which could involve a parliamentary approval vote or even a subsequent referendum related to negotiating a more limited association with the EU rather than leaving completely. Extracting itself from the EU would involve massive legal work related to transferring EU related legislation and civil service programs into an independent sphere.

Upon further reflection, the UK may actually seek to retain its current EU status, particularly if its own member states, including Northern Ireland and Scotland, initiate their own efforts to leave the UK as a direct result of its decision to leave the EU.

Apple in the UK



Apple operates its primary European headquarters in Cork, Ireland, but does have offices in the UK, including a corporate office and R&D center in Cambridge the company set up in late 2014 in parallel with the hiring of five former Pin Drop employees, followed by the acquisition of VocalIQ last year.

Pin Drop was a mapping startup. Its former employees are now working on a variety of tasks for Apple, including multiple positions related to Maps. VocalIQ was a speech recognition startup that originated with the University of Cambridge Dialogue Systems Group; it focused upon automotive projects with carmakers including General Motors.


Apple R&D site in Cambridge, UK


In job postings, Apple has described its Cambridge office as including "a team of highly talented software engineers and speech scientists [working] to expand the capabilities of Siri."

Apple prominently stressed the importance of its Siri voice assistance at this summer's WWDC, opening up new access to developers in iOS 10, expanding Siri's capabilities on tvOS and watchOS and bringing the service to the Mac desktop with macOS Sierra. Apple also highlighted new features of Maps on its platforms, including a new App Extensions architecture allowing third party apps to incorporate their own functionality into iOS 10 Maps, such as car sharing or restaurant bookings.

Having teams from both important initiatives based in the UK may result in Brexit-related complications for Apple pertaining to hiring qualified people, although any changes likely won't take meaningful effect for several months.

Apple also has 39 Retail Stores in the UK, and the region generates significant sales of iPhones and other Apple gear. A dramatically lower Pound means that UK citizens will face lower buying power, likely resulting in higher prices and therefore blunted demand for Apple's products and services.


Apple Store, London Covent Garden


At the same time, the lower Pound also means that Apple can hire employees and build out new offices and retail stores in the UK at a discount. Apple could also take advantage of panicked markets and newly conservative investors to offer new bonds in the UK, increasing its debt leverage to effectively use foreign earnings to fund American investments, dividend payments and stock buybacks.

Apple does not break down its regional sales within Europe, and will certainly continue to count UK sales within its "Europe" segment (which includes other non-EU nations as well as all of India, the Middle East and Africa). That entire segment contributed $29.4 billion in net sales over the last six months ending in March, and $9.3 billion in operating income.

That makes Apple's "Europe" only slightly smaller in importance to Greater China (which contributed $30.8 billion in revenues and $12.4 billion in earnings over the same six month period).

Apple in Europe



Outside of the UK, Apple conducts business across EU member states as well as countries such as Switzerland and Norway who are not EU members but do have close associations with the EU. That will likely make an independent UK familiar territory for Apple, which has done business in Europe for many years prior to the establishment of the EU.

A weaker Euro is a similar problem for Apple outside of the UK, although the Euro dropped far less than the Pound has. Despite the recent Brexit-related drop, the Euro is still within its recent trading range, and has actually strengthened by nearly 7 percent since hitting lows last winter that had a significant impact on European buying power and Apple's product prices in Europe, contributing to declining sales in the March quarter.

Two years ago, the European Commission initiated an investigation against Ireland for allegedly providing "state aid" to Apple related to how it taxes the company's profits related to two of Apple's Irish subsidiaries.

Apple fillings with the U.S. Securities and Exchange Commission noted that "if the European Commission were to conclude against Ireland, the European Commission could require Ireland to recover from the Company past taxes covering a period of up to 10 years reflective of the disallowed state aid. While such amount could be material, as of March 26, 2016 the Company is unable to estimate the impact." Apple has also stated that it "believes the European Commission's assertions are without merit."
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Comments

  • Reply 1 of 314
    prokipprokip Posts: 133member
    I don't often disagree with you DED, but I do this time.  You say "really quite unthinkable and ill considered-leap" by the British people to leave the Eurozone.  This is totally NOT TRUE !! The Brits have had it with the unelected Eurocrats of Brussels for many years.  They have been thinking about this for over 30 years since being cleverly taken into the Common Market in the 70's.  Now finally they have flicked the birdie at the unrepresentative socialist swill in Europe that has tried to control so much of their society for so many years.  And as the 5th largest economy in the world they will have bugger-all trouble making their own way quite successfully, if not better than they have in the past 30 years.

    The British bulldog is back in business!!   Go Britain, go !!

    And a warning to you dear in the USA.  This is another reason why Trump will be elected in November in a landslide.  People ares sick of being treated like fools by the PC arrogance of the political elite.
    bdkennedy1002apple ][meteoramwhiteLoneStar88equality72521thewhitefalconentropyslkruppmj web
  • Reply 2 of 314
    After hundreds of years, the UK decided that the past 30 years wasn't working for them. Good for them.
    meteoramwhiteequality72521entropyscrapdayTurboPGT
  • Reply 3 of 314
    jfc1138jfc1138 Posts: 3,090member
    Trump will totally get the United States out of the EU!!!!

    oh. 

    Wait

    the United States isn't IN the EU so, unlike BritLand we don't need freeing from under Brussel's thumb. 

    Oh oh and Trump praising Scotland for getting their country back when they'd voted to STAY in each and every voting region? Embarrassingly moronic. 
    edited June 2016 Solixamaxcorrectionsmobiusappleemplchialostkiwiirelandanantksundaramfrankie
  • Reply 4 of 314
    crapdaycrapday Posts: 19member
    jfc1138 said:
    Trump will totally get the United States out of the EU!!!!

    oh. 

    Wait

    the United States isn't IN the EU so, unlike BritLand we don't need freeing from under Brussel's thumb. 

    Oh oh and Trump praising Scotland for getting their country back when they'd voted to STAY in each and every voting region? Embarrassingly moronic. 
    No but you do need freeing from the do gooders and the PC brigade. Scotland did not get its own vote. The vote was for the whole of the UK. The UK (of which Scotland are part off) voted to leave. So the Donald was right. Should one of the State in the US get independence if they don't vote for Trump, but he gets elected. All the states get to vote for the one cause, just like the 4 countries in the UK.
    edited June 2016 meteoramwhitetallest skilkpomindyfx
  • Reply 5 of 314
    staticx57staticx57 Posts: 394member
    DED is VERY partisan and it shows. This needs to be labeled as opinion not feature.
    meteorairelandsingularitytallest skillord amhranSpamSandwichrevenantr2d2indyfx
  • Reply 6 of 314
    meteorameteora Posts: 15member
    Normally I love DED pieces, but this is a poor article. The U.K. is fighting for their identity and rights back. I congratulate them on this HUGE fight to leave such an overreaching, failed Union. Europe has been through so much oppression and it's so refreshing to see the strong-willed take their countries back. 

    This piece screams "rank-and-file" socialism. Time to think outside the box on this one, DED. Maybe stick to Samsung articles..
    canukstormtyler82mwhiteequality72521cnocbuithewhitefalconentropystallest skilkpomlord amhran
  • Reply 7 of 314
    apple ][apple ][ Posts: 8,360member
    Apple and the new, free and improved UK will be just fine.

    Imagine citizens wishing to regain control over their own country again and decide things for themselves? What a radical and crazy idea. :#




    edited June 2016 tyler82mwhiteequality72521thewhitefalconentropystallest skilmeteorakpomcrapday
  • Reply 8 of 314
    wizard69wizard69 Posts: 12,465member
    meteora said:
    Normally I love DED pieces, but this is a poor article. The U.K. is fighting for their identity and rights back. I congratulate them on this HUGE fight to leave such an overreaching, failed Union. Europe has been through so much oppression and it's so refreshing to see the strong-willed take their countries back. 

    This piece screams "rank-and-file" socialism. Time to think outside the box on this one, DED. Maybe stick to Samsung articles..
    Frankly this piece stinks just about the same as every other DED piece. I'm surprised that people haven't started to object to his articles. Then again DED just demonstrates how gullible people are. As for rank and file socialism, one of my biggest fears with the Democrates right now is that they want to force socialism upon the American people. There attacks on guns and other rights outlined in the Constitution and the Bill of Rights is just a way to soften people up. Sleazy practices like calling people racists because they don't agree with the behavior of certain groups is just one example of overreach by the Democrats. In any event I think the problem Appleinsider has is that DED erodes any credibility they had as a publication. The sooner they get rid of him the better off they will be article wise. The age of fluff in journalism has passed, it is time to get back to real news and real reporting with solid research behind the reporting.
    canukstormalanhcnocbuisingularitythewhitefalconmeteoralord amhran
  • Reply 9 of 314
    sirlance99sirlance99 Posts: 1,083member
    prokip said:
    I don't often disagree with you DED, but I do this time.  You say "really quite unthinkable and ill considered-leap" by the British people to leave the Eurozone.  This is totally NOT TRUE !! The Brits have had it with the unelected Eurocrats of Brussels for many years.  They have been thinking about this for over 30 years since being cleverly taken into the Common Market in the 70's.  Now finally they have flicked the birdie at the unrepresentative socialist swill in Europe that has tried to control so much of their society for so many years.  And as the 5th largest economy in the world they will have bugger-all trouble making their own way quite successfully, if not better than they have in the past 30 years.

    The British bulldog is back in business!!   Go Britain, go !!

    And a warning to you dear in the USA.  This is another reason why Trump will be elected in November in a landslide.  People ares sick of being treated like fools by the PC arrogance of the political elite.
    The UK is NOT the 5th largest economy anymore since last night. 
    lolliverfrankiemessagepad2100latifbpdsdbaconstangAnicopelandoseame
  • Reply 10 of 314
    hawkerhawker Posts: 12member
    prokip said:
    I don't often disagree with you DED, but I do this time.  You say "really quite unthinkable and ill considered-leap" by the British people to leave the Eurozone.  This is totally NOT TRUE !! The Brits have had it with the unelected Eurocrats of Brussels for many years.  They have been thinking about this for over 30 years since being cleverly taken into the Common Market in the 70's.  Now finally they have flicked the birdie at the unrepresentative socialist swill in Europe that has tried to control so much of their society for so many years.  And as the 5th largest economy in the world they will have bugger-all trouble making their own way quite successfully, if not better than they have in the past 30 years.

    The British bulldog is back in business!!   Go Britain, go !!

    And a warning to you dear in the USA.  This is another reason why Trump will be elected in November in a landslide.  People ares sick of being treated like fools by the PC arrogance of the political elite.
    Unelected Eurocrats? What about the House of Lords, are they elected by the people? The UK made a big mistake and it will have great implication for years. Instead of being part of a united Europe many people in the UK still dream of an Empire that does`t exist anymore.
    chiamobiuslostkiwilolliveriqatedofrankiemessagepad2100command_fbobschlobdsd
  • Reply 11 of 314
    correctionscorrections Posts: 1,159member
    prokip said:
    I don't often disagree with you DED, but I do this time.  You say "really quite unthinkable and ill considered-leap" by the British people to leave the Eurozone.  This is totally NOT TRUE !! The Brits have had it with the unelected Eurocrats of Brussels for many years.  They have been thinking about this for over 30 years since being cleverly taken into the Common Market in the 70's.  Now finally they have flicked the birdie at the unrepresentative socialist swill in Europe that has tried to control so much of their society for so many years.  And as the 5th largest economy in the world they will have bugger-all trouble making their own way quite successfully, if not better than they have in the past 30 years.

    The British bulldog is back in business!!   Go Britain, go !!

    And a warning to you dear in the USA.  This is another reason why Trump will be elected in November in a landslide.  People ares sick of being treated like fools by the PC arrogance of the political elite.
    It's ill considered in the sense that the campaign was based on a series of lies, and planned out about as well as the Bush II Iraq War. Which is to say, there was no strategy beyond 'lets do this!" resulting in a clusterfuck of backwardly implemented strategy that wasn't even anticipated by those pushing for it. 

    You can suggest that leaving the EU has some ideological merits, but if you had any real knowledge of the issues involved you couldn't be so ignorantly confident that everything is great.

    Essentially, a bunch of ignorant, ill informed old white people were asked to make a decision they didn't understand in the slightest, based on largely false propaganda, and the result is that the working class youth of the UK is now screwed over because many of their options are now erased. Also, those white rural people now have limited buying power and their property is plunging in value. Going forward, none of the things they were promised (free money, an end to immigration, and end to bureaucracy and rule by an elite class of morons) will materialize. They're all just screwed by their own simpleminded conservative credulity.  

    Which is pretty much what middle American Fox watchers hope to do to the United States, if they are given the opportunity. 

     
    propodmobiuschialostkiwiroundaboutnowiqatedobrometheusmessagepad2100jahbladecommand_f
  • Reply 12 of 314
    hawkerhawker Posts: 12member
    meteora said:
    Normally I love DED pieces, but this is a poor article. The U.K. is fighting for their identity and rights back. I congratulate them on this HUGE fight to leave such an overreaching, failed Union. Europe has been through so much oppression and it's so refreshing to see the strong-willed take their countries back. 

    This piece screams "rank-and-file" socialism. Time to think outside the box on this one, DED. Maybe stick to Samsung articles..
    Oppression? Is the EU now a dictatorship? The UK should have never been accepted into the EU in the first place. So, good riddance. 
    GrimzahnAni
  • Reply 13 of 314
    correctionscorrections Posts: 1,159member

    meteora said:
    Normally I love DED pieces, but this is a poor article. The U.K. is fighting for their identity and rights back. I congratulate them on this HUGE fight to leave such an overreaching, failed Union. Europe has been through so much oppression and it's so refreshing to see the strong-willed take their countries back. 

    This piece screams "rank-and-file" socialism. Time to think outside the box on this one, DED. Maybe stick to Samsung articles..
    The EU is certainly a flawed organization, but the political leaders in the UK are not even slightly better, they're just right wing criminals rather than left wing incompetents. Leaving the EU will cause major and every expensive disruptions that far outweigh any purported benefits. That's already obvious to anyone looking at reality, but may become even more obvious as reality begins to sink in. The exit may not even happen because of this. But who knows. Pretty clear that conservative austerity didn't solve the UK's problems. Leaving the EU was supposed to be a protest vote intended to fail. There is no real strategy involved. It was a huge fuckup and now those in charge are skirting accountability. 
    propodchiamobiuslostkiwimessagepad2100jahbladebobschlobdsdpscooter63baconstang
  • Reply 14 of 314
    hawkerhawker Posts: 12member

    apple ][ said:
    Apple and the new, free and improved UK will be just fine.

    Imagine citizens wishing to regain control over their own country again and decide things for themselves? What a radical and crazy idea. :#




    Not so easy. Some implication will come to light fairly soon but many only after many years. The pro brexxit camp thinks that they can just leave but safeguard all the benefits. What hypocrites! Anyway, that will not happen. The real ramifications of the exit will not be shouldered by the adults in the UK now but by their children in years to come.
    mobiuschialostkiwijahbladedsdbaconstanglogic2.6iosenthusiastr2d2
  • Reply 15 of 314
    wizard69wizard69 Posts: 12,465member
    I'm actually happy for the UK!   

    As as for the EU, screw them.   They are the one responsible for lead free solder in electronics.  The directive that resulted in lead free electronics is a prime example off over reach by a bunch of government ministers. 

    By by the way it isn't a matter of of lead being good, it obviously isn't.  The problem is rather that you shouldn't mandate something until a viable replacement is at hand.  Instead we got years of unreliable electronics.   

    To to some this may seem extreme but the lead free solder is alone one good reason to want to see the breakup of the EU.   When you have regulators drawing up new laws just for the hell of it, or without thought about the conchs quenches of their actions, you have problems.   I feel for the people of the U.K., living on a Small island isnt the same as living on the mainland.   You need enough local control to address the realities placed upon you by the land.   
    entropystallest skil
  • Reply 16 of 314
    bluefire1bluefire1 Posts: 784member
    apple ][ said:
    Apple and the new, free and improved UK will be just fine.

    Imagine citizens wishing to regain control over their own country again and decide things for themselves? What a radical and crazy idea. :#




    Fully agree. Not only was being in the EU costing Britain 20 billion a year while getting back only 10 billion in return, but voters didn't want to have open borders determined by Belgium. What a radical and crazy idea indeed. And quite liberating too.
    entropystallest skilmeteoraapple ][
  • Reply 17 of 314
    I view this as an Apple investor of about 30 years, and the effect on world economies will be short lived in the long term view. Buy Apple low and hold for many years and enjoy dividends. that's always been my new mantra (since dividends came back), old mantra was buy and hold. This is a good time to load up if you don't have a hand in Apple. I'll be waiting for around $80 before I buy, I loaded up long ago, but I would consider reinvesting some dividend income.
    entropysanantksundaram
  • Reply 18 of 314
    Rayz2016Rayz2016 Posts: 3,770member
    Much of the Leave Campaign's advertising was geared around the £350million a week that is paid to the EU. They said that if Britain left Europe then that money could be used to fund the National Health Service. Many people voted based on that claim (though at least two people in Barnsley voted 'leave' because they thought it would keep the Muslims out). 

    The morning after the vote, Nigel Farage went on telly and said that he never said that, and the campaign was wrong to say that.


    Solichiapropodmobiuslostkiwijahbladeai46dsdbaconstangAni
  • Reply 19 of 314
    apple ][apple ][ Posts: 8,360member
    bluefire1 said:
    apple ][ said:
    Apple and the new, free and improved UK will be just fine.

    Imagine citizens wishing to regain control over their own country again and decide things for themselves? What a radical and crazy idea. :#




    Fully agree. Not only was being in the EU costing Britain 20 billion a year while getting back only 10 billion in return, but voters didn't want to have open borders determined by Belgium. What a radical and crazy idea indeed. And quite liberating too.
    Open borders is suicide. I don't blame the Brits for not wanting to take part in Merkel's suicidal and psychotic plans.
    entropystallest skilmeteora
  • Reply 20 of 314
    mobiusmobius Posts: 374member
    prokip said:
    I don't often disagree with you DED, but I do this time.  You say "really quite unthinkable and ill considered-leap" by the British people to leave the Eurozone.  This is totally NOT TRUE !! The Brits have had it with the unelected Eurocrats of Brussels for many years.  They have been thinking about this for over 30 years since being cleverly taken into the Common Market in the 70's.  Now finally they have flicked the birdie at the unrepresentative socialist swill in Europe that has tried to control so much of their society for so many years.  And as the 5th largest economy in the world they will have bugger-all trouble making their own way quite successfully, if not better than they have in the past 30 years.

    The British bulldog is back in business!!   Go Britain, go !!

    And a warning to you dear in the USA.  This is another reason why Trump will be elected in November in a landslide.  People ares sick of being treated like fools by the PC arrogance of the political elite.
    Speak for yourself! Please don't label all Brits as being in your camp because we're not. I disagree with you that this move is not "I'll-considered". I don't think anyone, let alone any pro-Brexit voters really know what the hell is about to hit us after this decision. After listening to many opinions of people who voted to leave - they are ill-informed. There has been a dirty campaign (on both sides I might add) which has been deliberately liberal with the truth, spreading misinformation about immigration figures and EU membership costs vs saving once we leave. Many voters have also been swayed by the xenophobic immigrant-hating gutter press and the weak pro-remain campaign hasn't helped. Remember, the decision has effectively been made by just 2% of the electorate - that's how close it was. That means almost half of the U.K. wish to remain.

    The Pro-Brexit camp are playing fast and lose with our economy. So far it's looking pretty bad and I fear for the future - especially for young people who were far more pro-remain than the older population.

    And if Trump gets in then the world really has gone mad!
    edited June 2016 propodjonllostkiwiroundaboutnowradarthekatiqatedojahbladeai46dsdcreek0512
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