Apple’s profits could plunge more than a quarter if China bans iPhone in retaliation for US restrictions on Huawei, analyst says
- Cowen analyst said China iPhone ban could cut Apple earnings 26% in FY2020
- Trade tensions escalated after US put sharp restrictions on Huawei in the US
- Apple is among the companies most vulnerable to Chinese retaliation
- But analyst Krish Sankar believes an iPhone ban would be an ‘extreme case’
- China represented 18 per cent of Apple’s net sales for the last quarter
Apple is among the U.S. companies vulnerable to Chinese retaliation after the U.S. Commerce Department recently placed Huawei on its ‘Entity List,’ effectively barring U.S. firms from selling their technology to it without government approval.
Federal agencies and contractors are also barred from using Huawei equipment due to security concerns, a law that the Chinese tech giant challenged in court this week.
Cowen analyst Krish Sankar wrote in a recent note that a Chinese iPhone ban represented an ‘extreme case’ scenario for how the trade war could play out, according to Bloomberg.
Scroll down for video
People visit an Apple store in Shanghai earlier this month. A new research note predicts that a total Chinese ban on iPhones could cut Apple’s profits by 26 per cent in fiscal year 2020
The more likely outcome, Sankar wrote, is that Apple would see a ‘material but manageable’ hit to earnings.
‘Apple’s iPhone, iPad, and Mac systems are at risk of experiencing demand destruction due to collateral damage from the sales ban to Huawei,’ Sankar wrote.
Sankar wrote that, even without an official government ban on iPhones, Chinese consumers may ‘retaliate as patriotism leads them to support domestic brands while products and services from U.S. companies fall out of favour’ if they feel Huawei is being ‘unfairly punished’ by the U.S.
Shares of Apple were down slightly in pre-market trading on Wednesday, after losing nearly four per cent over the past five days of trading.
A one-year view of Apple’s share price shows a dip this month among trade tension with China
Last quarter, Apple’s net sales in China were down 22 per cent over the same period the year prior.
The company said in financial filings that declining iPhone sales drove the China slump, blaming currency headwinds.
For the quarter ended March 30, ‘Greater China’ represented 17.6 per cent of Apple’s net sales, according to financial filings.
Huawei is the biggest global maker of network equipment and enjoys a lead in 5G, or fifth-generation, technology. It also is the No. 2 maker of smartphones.
The Trump administration claims the company could use its equipment to spy on behalf of the Chinese government and is thus a threat to international cybersecurity.
Apple’s net sales by geographic region are seen for the last quarter. China represents 17.6%
‘Huawei is an instrument of the Chinese government,’ Secretary of State Mike Pompeo said in an interview with Fox Business Network on Wednesday.
‘They’re deeply connected. It’s something that’s hard for Americans to understand.’
On Tuesday, Huawei filed a motion late for summary judgment in its lawsuit against the U.S. government’s prohibition on agencies and contractors using its equipment.
Pompeo did not comment on the lawsuit in the interview, which was taped on Tuesday, but highlighted what the U.S. government says is the company’s threat to national security.
‘Our companies cooperate with the United States government. That is, they comply with our laws. But no president directs an American private company. That’s very different in China. They just simply operate under a different set of a rules.’