Apple could take a 29% earnings bite if China threatened retaliatory ban
Though there's no sign of such action on the horizon, a Chinese ban on Apple business would decimate the company, knocking 29% percent off earnings, according to a Goldman Sachs analyst.
That's factoring in savings on sales and marketing, Rod Hall said in a Wednesday investor memo. Goldman Sachs is lowering its stock price target for Apple from $184 to $178, making it one of the more pessimistic Wall Street firms.
Hall did note that several of the iPhone's core parts come from outside mainland China. Intel's 4G iPhone modems are reportedly made in the U.S., while Taiwan's TSMC manufactures A-series processors, and firms like Samsung and LG are responsible for screen components. The issue however is that much of Apple's supply chain is still based in China, and it would be hard to shift manufacturing elsewhere in time to avoid a serious financial blow -- even putting aside the matter of local sales.
Assembly partners Foxconn and Pegatron are working on expanding Indian production, and could potentially move into countries like Vietnam. India would likely be Apple's best bet for replacing China given not just an existing footprint, but government incentives, the size of its market and workforce, and a democratic government less prone to censorship and spying.
The fears stoked by Goldman Sachs derive from the White House's recent actions against Huawei. Last week the Trump administration leveled a dual attack, blocking Huawei from acquiring American technology while simultaneously preventing American telecoms firms from using Huawei equipment. That immediately jeopardized its status as a smartphone giant, since several of its suppliers are American and Google decided to suspend the company's Android license. The administration temporarily eased off on Monday.
While Apple is a minor player in the Chinese smartphone market, the sheer size of the country currently makes its revenues vital. In the March quarter alone Apple reaped $10.22 billion there, the bulk of that from iPhones even though shipments have declined.
That's factoring in savings on sales and marketing, Rod Hall said in a Wednesday investor memo. Goldman Sachs is lowering its stock price target for Apple from $184 to $178, making it one of the more pessimistic Wall Street firms.
Hall did note that several of the iPhone's core parts come from outside mainland China. Intel's 4G iPhone modems are reportedly made in the U.S., while Taiwan's TSMC manufactures A-series processors, and firms like Samsung and LG are responsible for screen components. The issue however is that much of Apple's supply chain is still based in China, and it would be hard to shift manufacturing elsewhere in time to avoid a serious financial blow -- even putting aside the matter of local sales.
Assembly partners Foxconn and Pegatron are working on expanding Indian production, and could potentially move into countries like Vietnam. India would likely be Apple's best bet for replacing China given not just an existing footprint, but government incentives, the size of its market and workforce, and a democratic government less prone to censorship and spying.
The fears stoked by Goldman Sachs derive from the White House's recent actions against Huawei. Last week the Trump administration leveled a dual attack, blocking Huawei from acquiring American technology while simultaneously preventing American telecoms firms from using Huawei equipment. That immediately jeopardized its status as a smartphone giant, since several of its suppliers are American and Google decided to suspend the company's Android license. The administration temporarily eased off on Monday.
While Apple is a minor player in the Chinese smartphone market, the sheer size of the country currently makes its revenues vital. In the March quarter alone Apple reaped $10.22 billion there, the bulk of that from iPhones even though shipments have declined.
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“As America wages war on his company, Huawei CEO Ren Zhengfei has made an unlikely intervention in support of one of his biggest rivals. In an interview with Chinese state TV on Tuesday, Ren confirmed he is a fan of Apple.
"iPhone has a good ecosystem and when my family are abroad, I still buy them iPhones, so one can't narrowly think love for Huawei should mean loving Huawei phones," Ren said, according to The South China Morning Post.”
Throughout this whole thing China has always tried to portray itself as the calm, upstanding, victim.
crfcom said: Could not disagree more. The US has a huge amount of things, right down to rare earth materials, and up to cheap consumer products like clothing that they only get from China. Walk into a Target, or Walmart, or any of the other common stores. They are full of Chinese products. Much of the US economy is based on selling Chinese products. China on the other hand can sell to anyone. They are pushing very hard to become dominant in SE Asia, Africa, central Asia, and more. Within a few years they won't need the US at all.
Wait we have people in the US running for president who are saying the Government should supply everything to everyone.
Keep in mind the US is the largest consumer market in the world, China needs products sourced on China in order to grow they will not see the growth elsewhere.
However the US, while is the largest consumer market now, likely won't be for long,
https://asia.nikkei.com/Economy/China-to-surpass-US-as-world-s-biggest-consumer-market-this-year
And even then, it comprises only something like 20% of the world market. China is pushing very hard to gain ground in the other 80%. This will replace the falling US share. In the long run, China won't need the US.
Right now I believe that it is time to slow dividends down in order to maintain operations at current levels. Basically we need to hold out until January 2021 when hopefully there will be a new President who can get to work rebuilding international relations,
Apple has always been at risk by basing so much of their manufacturing in China. There was a time when the conventional wisdom had it that China would grow out of its corruption, thievery and autocratic ways. But membership in the WTO and adoption of market economics haven’t had the effect people thought they would.
And so, Apple is in a tough spot that I have no doubt Tim Cook wishes the company were not in. So far he has maintained a balance of good relations with political entities in both countries. But forces he has no control over may upset that balance, and Apple could become an unfortunate casualty.
Apple will have to diversify its manufacturing base more and more. This is an expensive proposition as it is less efficient. But putting so many eggs in the Chinese basket could have catastrophic consequences for its business if the trade war goes south.
I don’t like trade wars. They are generally lose/lose situations. But something has to change with how China operates with the rest of the world. If Tim has any influence with the Chinese leadership, now would be a good time to start bending ears.