China May Ban Apple Products, Earnings Could Drop By 30%

In the "tit for tat" trade war between the United States and China, if the latter bans iPhone maker Apple’s products, the tech giant’s earnings will plunge at least 30 percent, noted a Goldman Sachs analyst.

Rod Hall of Goldman Sachs explained how China ban may wipe off 30 percent of Apple’s earnings. Consequently, the analyst lowered Apple’s target price outlook to $178 per share from $184. Apple closed Tuesday trading at $186 a share.

Hall is not alone in raising concerns over Apple’s exposure to China. Recently, HSBC analyst Erwan Rambourg also cut the price target on the tech giant to $174 per share from $180.

Credit Suisse analyst Matthew Cabral said Apple’s earnings per share would fall by an average 15 cents for every 5 percent drop in Greater China sales.

China factor in Apple’s iPhone business

China accounts for more than 17 percent of Apple’s sales as was noted in the fiscal second quarter. It was valued $10.22 billion. The company sells billions of dollar worth iPhones in China.

“Should China restrict iPhone production we do not believe the company would be able to shift much iPhone volume outside of China on short notice,” Hall said.

Noting that Apple could be in the peak of the annual ramp for new iPhone launch for Fall, Hall said, even a short term action affecting production could trigger long term consequences for the company.

The iPhone components made outside China include Intel.’s XMM modems in the U.S, A-series chips in Taiwan, and display components in other locations outside China.

But Hall also noted that any punitive action by China will also injure its own “tech ecosystem” and local jobs. This is because the bulk of Apple’s supply chain is located in mainland China including the final assembly of iPhone’s manned by Foxconn.

China’s aims patronage for local smartphone players

By acting against Apple, China can indirectly support local smartphone players.

According to the data by China’s Customs, mobile phone exports from China to the U.S. were $35 billion in 2018. This shows a four times growth since 2008.

Now China is looking to tilt more of that roaring market to favor its own domestic brands, including Huawei.

At present, Apple iPhones are dominating shipments from China. The iPhones exports from China to the U.S. were $31 billion in 2018.

Apple stocks down

Meanwhile, the China impact has already pulled down Apple shares in May by an average of 7 percent.

In the latest flare-up in the trade war, the U.S. hiked tariffs on $200 billion worth of Chinese goods and China retaliated by raising duties on $60 billion worth U.S. imports.

The U.S followed it up with the blacklisting of China’s telecom major Huawei over security issues.