Apple may suffer a 29% drop in earnings if China retaliates against the U.S.
May 23, 2019 (China Knowledge) - One-third of Apple earnings at stake if the Chinese government were to step in and retaliate against the U.S. for restricting Huawei Technologies, Goldman Sach has warned.
Apple, which is touted as U.S. smartphone tech giant, is at risk of suffering a 29% dip in earnings per share or USD 3.35 if China restricts the sale of Apple products, Goldman estimated in a report on Wednesday.
In the most recent quarter, Q1 2019, Greater China contributed 17.6% of Apple’s net sales. Citing market research firm Gartner, Goldman based their calculations on the assumption that 95% of these sales come from mainland China and Hong Kong.
While Goldman does not foresee China banning Apple, the investment bank thinks that production activity in the country will not be affected. Goldman also lowered its price target for Apple to USD 178 from previously USD 184.
Swiss investment bank, Credit Suisse said on Tuesday in their equity research report on Apple that it sees “increased risk of retaliation” from China after Huawei’s inclusion on Trump’s blacklist. The report also estimated that every 5% decrease in Greater China sales for Apple equates to about a 15% drop in earnings per share.
Apple’s position in the Chinese market has been shaken in recent quarters. Sales in the Greater China market declined 22% on the year during Q1 2019, which the second consecutive quarterly slowdown.
In the Credit Suisse report, the investment bank commented that “Apple’s deeper structural issues, including aggressive local competition and a narrower ecosystem advantage, will likely take more than a trade war detente to solve.”
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