US WeChat ban could cut global iPhone shipments by 30%, says Ming-Chi Kuo
Analyst Ming-Chi Kuo has warned investors that the Administration's decision to ban US companies from having business relationships with firms including WeChat, may have a significant impact on Apple's sales worldwide.
WeChat is available everywhere, but totally dominates in China
In a research note seen by AppleInsider, Kuo cautions that the ban means WeChat being removed from the App Store worldwide. Even if the ban solely meant its removal for users in China, however, the mass popularity of WeChat there would mean a drop in iPhone sales.
"Since WeChat is very critical to Chinese users, integrating communications, payments, e-Commerce, social software, news reading, and productivity functions," writes Kuo, "we believe that the move will tank iPhone shipments in the Chinese market."
Kuo has previously been one of the most reliable sources for information about future Apple hardware products. He is less well known for pricing or software issues, however, in this case he sees the potential impact as being serious enough to caution the readers of his investment notes.
Currently, the wording of the Executive Order forbidding dealings with specific Chinese companies is open to interpretation. "We think it implies that Apple will have to remove WeChat from the App Store," says Kuo. "Apple removed WeChat from the App Store in India in response to a government request. Therefore, we won't be surprised if the U.S. government asks Apple to do the same thing."
"[So] According to the executive order, Apple may have to remove WeChat from worldwide App Stores because the order prohibits Apple from allowing transactions involving WeChat," he continues. "However, the order doesn't clearly define how broadly the ban will be. Maybe the U.S. government will ask Apple to remove WeChat from only the US App Store."
The ban takes effect on September 20, 2020. If the order is to remove WeChat from the whole App Store, Kuo believes Apple will see a drop of as much as 30% of its iPhone shipments worldwide.
Kuo's note is specifically for investors and in it he suggests that they "reduce specific Apple supply chain stocks for lowering risks, including Genius and LG Innotek."
"Theoretically, the US government will not hurt Apple," he explains. "However, the U.S. presidential election is approaching, and we think [President] Trump may adopt more aggressive strategies for the election, including asking Apple to remove WeChat from worldwide App Stores."
Kuo has concentrated on WeChat because of its enormous popularity in China, but the US ban does also affect TikTok. While WeChat has not commented publicly, TikTok's owners have said they intend to sue to have the ban revoked.
WeChat is available everywhere, but totally dominates in China
In a research note seen by AppleInsider, Kuo cautions that the ban means WeChat being removed from the App Store worldwide. Even if the ban solely meant its removal for users in China, however, the mass popularity of WeChat there would mean a drop in iPhone sales.
"Since WeChat is very critical to Chinese users, integrating communications, payments, e-Commerce, social software, news reading, and productivity functions," writes Kuo, "we believe that the move will tank iPhone shipments in the Chinese market."
Kuo has previously been one of the most reliable sources for information about future Apple hardware products. He is less well known for pricing or software issues, however, in this case he sees the potential impact as being serious enough to caution the readers of his investment notes.
Currently, the wording of the Executive Order forbidding dealings with specific Chinese companies is open to interpretation. "We think it implies that Apple will have to remove WeChat from the App Store," says Kuo. "Apple removed WeChat from the App Store in India in response to a government request. Therefore, we won't be surprised if the U.S. government asks Apple to do the same thing."
"[So] According to the executive order, Apple may have to remove WeChat from worldwide App Stores because the order prohibits Apple from allowing transactions involving WeChat," he continues. "However, the order doesn't clearly define how broadly the ban will be. Maybe the U.S. government will ask Apple to remove WeChat from only the US App Store."
The ban takes effect on September 20, 2020. If the order is to remove WeChat from the whole App Store, Kuo believes Apple will see a drop of as much as 30% of its iPhone shipments worldwide.
Best-case scenario
"The best-case scenario is that Apple will only remove WeChat from the App Store in the US," continues Kuo. "If this is the case, the negative impacts will be on WeChat users who are in the US mainly. We estimate that global iPhone will decline by 3-6%. Global shipments of other Apple hardware products, including AirPods, iPad, Apple Watch, and Mac, will decline by less than 3%."Kuo's note is specifically for investors and in it he suggests that they "reduce specific Apple supply chain stocks for lowering risks, including Genius and LG Innotek."
"Theoretically, the US government will not hurt Apple," he explains. "However, the U.S. presidential election is approaching, and we think [President] Trump may adopt more aggressive strategies for the election, including asking Apple to remove WeChat from worldwide App Stores."
Kuo has concentrated on WeChat because of its enormous popularity in China, but the US ban does also affect TikTok. While WeChat has not commented publicly, TikTok's owners have said they intend to sue to have the ban revoked.
Comments
https://citizenlab.ca/2020/05/we-chat-they-watch/
At a minimum, Apple should remove WeChat from the U.S. App store before they are required to by the Administration.
I mentioned the other day that Spanish media were picking up on the requirement that US software not be made available in AppGallery and today they are reporting that these latest moves could provoke a wide ranging counter attack from China given the amount of investments Tencent has worldwide. They are claiming that the damage would be more than US attempts to derail Huawei.
Now that the US is losing out on many fronts and the threats (to allies!) haven't paid off, Trump is going all out to derail the non-US system in the false hope that it will somehow help the US.
He is in for a rude awakening.
The rest of the world (allies) knows what 'America first' means and are quietly moving to protecting themselves from becoming 'untrusted' in a tantrum five minute tweet fest.
As it is, we have had Google begging for a licence to do business with Huawei and now they must be tearing their hair out at the thought of not being able to install GMS (US software) on potentially ANY Chinese phone.
Qualcomm has already lost billions in lost Chinese trade and currently puts the impact at $8 billion dollars. Of course they are begging to do business with Huawei too.
Why? Because they know perfectly well, that Chinese vendors will simply accelerate plans to eliminate US technology from supply chains and that they have already banded together on several fronts to mitigate US actions. That will just continue at an accelerated pace.
Expect Tim Cook to request dinner with Trump very, very soon.
There is a lot to talk about. And not just Apple's potential exposure to these measures. It is the tech sector in general.
Huawei has announced a massive drive into new technological areas and is absorbing 'geniuses' in all fields to push its plans ahead and in true US fashion: by offering big bucks.
When US R&D starts to slip because it sees less investment and revenues from that (globalised) business setup with China, and that those missing billions go straight to non-US competitors someone will surely realise 'my god! What did we do?' By then though, Trump will be long gone.
Various US companies seeing share price falls and business lost to competitors.
https://www.thestreet.com/investing/stocks/neophotonics-plunges-on-huawei-related-downgrade-14963851
https://www.engadget.com/qualcomm-lobbies-us-for-huawei-phone-chips-201751252.html
https://www.businessinsider.com/google-is-fighting-to-keep-doing-business-with-huawei-2019-6
2019. Announcement of GMS replacement by Huawei. All Google Mobile Services (revenue streams) lost on Huawei phones. Revenue going to non-US competitors.
https://developer-tech.com/news/2020/jul/29/huawei-replacement-google-mobile-services-nicely/
https://www.xda-developers.com/here-wego-maps-and-navigation-huawei-appgallery-available/amp/
2019. Announcement of HarmonyOS. Already shipping on TVs, watches, routers, cars and coming to PCs this year. Formal announcement of HarmonyOS 2.0 Sept 5th
https://phonemantra.com/huawei-will-release-harmonyos-2-0-for-pc-smart-watches-and-cars-in-september/
Chinese vendors open to collaboration:
https://www.reuters.com/article/us-china-mobile-exclusive/exclusive-chinas-mobile-giants-to-take-on-googles-play-store-sources-idUSKBN20018H?feedType=RSS&feedName=technologyNews
Huawei signs with US competitors:
https://www.mobileworldlive.com/asia/asia-news/huawei-forges-deal-in-europe-to-protect-chip-supply
No mind reading in sight.
The other parts of my post can only be speculation at this point because the US hasn't clarified what this means.
However, the damage is already done.
But seriously, this is going to involve court cases, delays, law suits, injunctions, etc. It could easily drag out until January and therefore be moot.
In theory, the US has some jurisdiction over Apple's activities overseas, since Apple is a US company, but I have no idea under what legislative framework the president is operating so it basically impossible to guess if it would allow the US to force Apple to stop hosting a Chinese app in China.
If this is limited to the US only, it's hard to imagine that it would result in a 3% worldwide decline in anything. What percent of US iPhone buyers would switch to Android just because Toktok and WeChat aren't available (and wouldn't they also be unavailable on Android?). I seriously doubt that number is even 3%--and that's 3% of US sales which is, what, 1% of worldwide sales? 1.5%?
My prediction is this with either be resolved before the deadline or a court will step in and put a hold on it. If it goes into effect, the worst case scenario is a major trade incident with China that ends of seriously impacting Chinese manufacturing and all aspects of the US economy. So, hopefully that won't happen.
However, this one is too important to Apple for them to remove Wechat from the Chinese app store. Literally nobody in China would buy a phone that can't install Wechat. It is your everything app for a lot of day to day life that would be hard to be without (payments, communications, ticketing, public transport and a ton of other things). I expect Apple will do some mental gymnastics around what 'doing business with' means and just not process in app purchases for them. I'm sure they would go as far as allowing side-loading of apps for this or just take any US fines rather than remove it as it would be the end of their iPhone sales in China instantly.
More to the point, Huawei is known to use PRC state support to undercut competition, which absolutely has been happening with the knowledge of the EU, and it is illegal. Fortunately, it looks like Huawei is finding increasing resistance in the EU, leaving the 3rd world as it's growth base.
Meanwhile, the biggest drag on the U.S. economy has been COVID19, not China, and even as fucked up as the current administration is, the U.S. is a very resilient and innovative country, and still dominates China, and the EU.
Maybe instead of your constant and undying support of Huawei, and the PRC, you might cheer your local teams, Ericsson, Nokia, and Siemens, but whatever.
https://asia.nikkei.com/Spotlight/Huawei-crackdown/France-places-de-facto-5G-ban-on-Huawei-gear-by-2028
"ANSSI, France's national cybersecurity agency, told operators this month that it will only grant licenses authorizing use of Huawei equipment for three to eight years. The licenses will not be renewed once they expire.
In other words, ANSSI has essentially given telecommunications operators until 2028 to eliminate Huawei equipment from their networks. Carriers Bouygues Telecom and SFR will likely be pressed to comply with the order since they both sourced 4G tech from the Chinese supplier."
The UK has banned Huawei entirely, and will require complete removal of existing equipment by 2025.
Now, Germany has to make a decision.
https://www.voanews.com/east-asia-pacific/voa-news-china/after-britain-germany-emerges-next-5g-battleground
"But Buetikofer said his objections to the Chinese company are not influenced by the pressure from Washington. “I oppose Huawei’s playing a part in the German 5G network not because I want to do the U.S. a favor, but because I think it is a threat to German national security,” he said."
Fun fact. Did you know that 50% of China's economy lies downstream of the Three Gorges Dam? That's another major source of risk of sourcing from China.
Neither Nokia nor Ericsson have anything like the breadth of Huawei in their business groups and Nokia is on very shaky financial ground. Therefore neither of them even come into consideration in the bigger picture. They just don't have the business or product portfolio that Huawei has.
Huawei has already signed a huge amount of 5G contracts and says it can satisfy them.
Before COVID-19 struck the trade war had decimated US agriculture to the tune of requiring two multi billion dollar hand outs from government. That didn't stop many farms going out of business.
As I said, billions have been lost in revenues to US technology companies (again, pre-COVID) and even if they can recoup some lost business, it is taken away from other companies and directly hits their bottom lines. That, means less to invest in future R&D and less competitiveness against foreign rivals. That is exactly what Qualcomm is claiming in its lobbying efforts.
If Apple were to be forced to remove WeChat access from Chinese phones, it would have a huge impact on iPhone sales and, once again, benefit rivals.
You might want to note the "National Security" issue that I posted in the link. That you even doubt that there are National Security concerns with Huawei is one of the reasons that I dismiss your POV.
Oh, and of course, there is China's blatant and ongoing influence operations continuing against the West, which belie's "China's Sovereignty" meme.
Heck, China is only using equipment from ZTE and Huawei for its 5G buildout, not because it is better, but because both those companies will support PRC policies.