Apple Inc. shares experienced another decline for the second session in a row on Thursday, raising concerns about the company’s business in China. However, some analysts believe that these fears may be exaggerated.
According to a report from The Wall Street Journal, China has recently banned government officials from using iPhones for work purposes. Additionally, Bloomberg News suggested that this ban could potentially extend to government-backed agencies and state companies. This raises questions among investors about whether this issue will only affect state-affiliated employees in their work settings or if it signifies broader challenges in China that could potentially impact Apple’s revenue.
Following a 3.6% drop in Wednesday’s session, Apple’s stock declined by 2.9% on Thursday.
While the headline appears to be negative for Apple, Evercore ISI analyst Amit Daryanani argues that its actual impact remains uncertain. He states, “Party officials have likely been avoiding American products in the workplace long before the official ban was enacted (i.e. self-banning out of political awareness).”
Apple’s Revenue in China: An Unlikely Scenario
Recent concerns over Apple’s presence in China have sparked anxiety in Wall Street. Given that Greater China contributes to nearly 19% of Apple’s revenue, any significant restrictions could severely impact its bottom line. However, experts believe that such drastic measures are unlikely unless Apple begins relocating its supply chains out of China at a pace that causes discomfort within the country.
To support this argument, reference can be made to a disclosure by Apple in 2019, which stated that the company was responsible for generating over 5 million jobs in China. Consequently, any substantial action taken against Apple by the Chinese Communist Party would inadvertently affect Chinese employment rates.
It is crucial to note that these concerns regarding China’s influence on Apple have been blown out of proportion. According to Wedbush analyst Dan Ives, the issue may only impact around 500,000 iPhones, out of the estimated 45 million units expected to be sold in China over the next year.
Contrary to popular belief, Apple has actually experienced significant market share growth in the Chinese smartphone market. Ives reveals that the company has acquired approximately 300 basis points of market share in the region over the past 18 months. Furthermore, with the launch of the highly anticipated iPhone 15, Apple’s traction in China is expected to further increase.
The iPhone 15 is scheduled to be unveiled at an upcoming event on Tuesday.
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