China Bans Apple On Sept. 7, 2023, it was reported by The Wall Street Journal and Reuters that China has banned the use of iPhones at government agencies and for any government business. At the same time, Huawei launched their new Mate 60 Pro phone, which is reportedly competing with 5G smart phones, and made with domestic chips. How much of an impact could the ban have on Apple’s sales and profitability? U.S./China Trade Tensions and Chip War U.S. technology companies have sold a lot of products in China over the last two decades. However, over the past five years, the relationship has gotten more complicated, with both the U.S. and China restricting sales and banning certain companies and products. The U.S. blackballed Huawei in 2018. China banned Micron Technology in May of this year. As I mentioned in my Artificial Intelligence blog, Nvidia warned in their 2Q 2023 earnings call that the current U.S. chip restrictions will negatively impact their Chinese sales in the future, which accounts for 22% of the company’s revenue, unless the roadblocks are eased or removed. With 19% of Apple’s sales coming from Greater China, will China’s new restrictions on iPhones use be a problem for Apple? Is this a preview of more severe actions to come? Investors' Reaction Investors responded to the news by selling. Apple shares dropped almost 3% on Thursday, Sept. 7, 2023. The share price stabilized on Friday. However, that could be as a result of Apple buybacks. The company leads the S&P500 in share repurchases. Apple repurchased $18 billion worth of shares in the most recent quarter, and had $94.6 billion remaining in authorized share repurchases, as of July 1, 2023. Apple bought back over $90 billion in stock over the last two years, with a 5-year total of $417 billion. Apple’s CEO Tim Cook hasn’t made a statement on the Chinese ban yet. However, if the new anti-Apple policy starts to impact revenue, Cook will be forced to make an announcement to that effect. The last time that happened, the stock sank by 10% in one day. U.S. China Trade Tensions were Hot in 2018-2019 This isn’t the first time that China news has hurt Apple. In the March 2019 quarter, Apple’s revenue in Greater China dropped by -21.5%, from $13.024 billion in 2018 to $10.218 billion. Total revenue slipped by -5% year over year, largely as a result of the disappointing sales in China. Before the earnings report was released, Tim Cook, the CEO of Apple, published a letter to investors on January 2, 2019 warning that the quarter was going to be disappointing. He wrote, “We did not foresee the magnitude of the economic deceleration, particularly in Greater China… We believe the economic environment in China has been further impacted by rising trade tensions with the United States.” Investors sold immediately after the announcement. The 10% correction amounted to a one-day plunge of $74 billion. At today’s $2.74 trillion valuation, a 10% nosedive would cost Apple investors $274 billion. Global Smart Phone Sales One thing that Tim Cook failed to mention in his January 2, 2019 letter was that Apple’s iPhone had slipped to 3rd in global smart phone shipments in the 2nd quarter of 2018 (source: IDC.com), behind Samsung (#1) and Huawei (#2). Chinese smart phones were a lot more affordable than Apple’s and were on fire with sales in China and Europe. (I visited England during that period, where a great deal of people used Huawei smart phones.) December 2018: The Worst December Since the Great Depression Another interesting thing that this event teaches us is that Apple does curtail buybacks in times of uncertainty. December of 2018 saw the worst drop in the S&P500 since the Great Depression, with losses of -9.18%. Apple ceased its buybacks that December, and the entire market plunged. Apple is Currently #2, with 16% Global Market Share (by Units) In the 2nd quarter of 2023, iPhone was back to #2, behind Samsung with a 20% global market share. As you can see in the chart below, Huawei is not ranked in the top six smart phone companies. The U.S. Declares War on Huawei Huawei and Apple have been in an all-out war for the smart phone consumer, not just in China, but in Europe and other Asian countries as well. After Huawei surpassed iPhone sales (by units) in the 2nd quarter of 2018, there were a series of very aggressive actions taken by the U.S. (presumably at the request of Cook). Before the year was out, on December 1, 2018, Huawei’s CFO Meng Wanzhou was arrested in Canada on U.S. charges of wire fraud. (The U.S. Department of Justice dismissed all charges against Wanzhou on Dec. 1, 2022.) Huawei products were banned in the U.S., and the U.S. put pressure on European allies to ban Huawei (without much success at the time). Then the U.S. banned certain chips and U.S. technology in China. Those combined efforts took Huawei out of the running in smart phone sales… until now. On the same day that China banned Apple smart phones for government officials, Huawei dropped their Mate 60 Pro smartphone for presale. With chips made by China’s top chipmaker, Semiconductor Manufacturing International Corp, the phone is able to compete with 5G speeds, according to Bloomberg’s Technology editor Vlad Savav. U.S. industry experts were shocked. US representative Mike Gallagher, chair of the U.S. House of Representatives committee on China, reportedly wants to ban all technology exports to Huawei and SMIC, according to Reuters. He believes that the Chinese chip breakthrough could not have been achieved without hijacking banned U.S. technology. Clearly, the U.S./China Chip War is showing signs of heating up, rather than cooling off. Apple Forecasts for 3Q 2023 Apple’s second quarter 2023 revenue was down -1.4%. Revenue in Greater China was actually 7.9% higher, with sales at $15.758 billion compared to $14.604 billion a year ago. During the August 3, 2023 earnings call, Apple CFO Luca Maestri expected the Sept. 2023 quarter’s revenue “to be similar to the June quarter.” However, that would be a -9.3% drop from the prior year, and that is before any impact on the new ban of iPhone in Chinese government agencies. Holiday Sales Analysts are concerned that the Chinese government ban, combined with the release of Huawei’s new Mate smart phone with 5G speeds, will slice deeply into Apple’s holiday sales. While it may take time for Huawei to build their European market share back up, the biggest roadblock to Huawei sales in China could be the speed at which the company is able to fulfill their orders. The iPhone accounts for about half of Apple’s sales. Expensive Stock The trouble with lower revenue forecasts is that Apple’s stock currently has a price-earnings ratio of 30. (Average P/E is 17.) Should a company with a net profit of under $100 billion be worth $2.8 trillion? Email [email protected] with Apple Stock Report Card in the subject line, if you’d like an updated Magnificent 7 Stock Report Card. Bottom Line Apple has $166 billion in cash and marketable securities and is pre-authorized to repurchase $94.6 billion in shares. (Total debt is $109 billion.) The company can repurchase its own stock and keep it buoyant, even if investors get spooked that the U.S./China tensions and the new ban on the iPhone in government offices are going to have a hefty impact on earnings. Apple let its stock drop 30% in the pandemic, between Feb. 19 and March 23, 2020. The share price then rallied, after the Federal Reserve and Treasury promised their bailout packages. There are too many moving parts in the macro economy to predict with any certainty which way the stock will go. However, what we do know is that:
It’s tempting to want to just Buy & Hold, particularly when you see how high Apple has soared since the bottom of The Great Recession. However the 30% nosedive in 2020 and the escalating trade war with China argues for a more prudent plan. If you are an Apple investor who has never considered capturing gains, it’s a good idea to learn what a diversified plan with regular rebalancing can offer. Having the right amount invested, with a capture gains strategy, keeps you in the game with a time-proven strategy, while protecting your wealth, so that you can sleep easy at night no matter what happens with the U.S./China chip war or trade tensions, or the smart phone battle between Apple and Huawei. You can read about it in The ABCs of Money, 5th edition. You can learn and implement it at our Oct. 7-9, 2023 Investor Empowerment Retreat. Or, you can reach out to our office at [email protected] for an unbiased 2nd opinion through my private coaching. If you want to dive right in, to start earning money while you sleep, while protecting the wealth you already have, join us at our Oct. 7-9, 2023 Financial Freedom Retreat. Email [email protected] to register. Learn more in the flyer (link below) and on the home page at NataliePace.com. ![]() Join us for our Online Financial Freedom Retreat. Oct. 7-9, 2023. Email [email protected] or call 310-430-2397 to learn more. Register with friends and family to receive the best price. Click for testimonials, pricing, hours & details. ![]() Join us for our Restormel Royal Immersive Adventure Retreat. March 8-15, 2024. Email [email protected] to learn more. Register with friends and family to receive the best price. Click for testimonials, pricing, hours & details. There is very limited availability, and you must register early to ensure that you get the exact room you want. This retreat includes an all-access pass to all of our online training for a full year for two! ![]() Natalie Wynne Pace is an Advocate for Sustainability Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is were released in 2021. Follow her on Instagram. Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden. Check out Natalie Pace's Apple Podcast. Watch videoconferences and webinars on Youtube. Other Blogs of Interest 11-Point Green Checklist for Schools. Artificial Intelligence and Nvidia's Blockbuster Earnings Report Biotech in a Post-Pandemic World Summer Sweepstakes 10 Wealth Secrets of Billionaires and Royals. What Happened to Cannabis? Bank of America has $100 Billion in Bond Losses (on Paper) The USA AAA Credit Rating is on a Negative Watch. Lithium. Essential to EV Life. I'm Just Not Good at Investing. Investors Ask Natalie. Should I Buy an S&P500 Index Fund? Investors Ask Natalie. Bonds Lost More than Stocks in 2022. Tesla's Model Y is the Bestselling Car in the World. 2023 Company of the Year Sell in May and Go Away? Do Cybersecurity Risks Create Investor Opportunities? Writers Strike, While Streaming CEOs Rake In Hundreds of Millions Annually. I Lost $100,000. Investors Ask Natalie. Artificial Intelligence Report. Micron Banned in China. Intel Slashes Dividend. Buffett Loses $23 Billion. Branson's Virgin Orbit Declares Bankruptcy. Insurance Company Risks. Schwab Loses $41 Billion in Cash Deposits. The Debt Ceiling Crisis. What's at Stake? Fiat. Crypto. Gold. BRICS. Real Estate. Alternative Investments. BRICS Currency. Will the Dollar Become Extinct? Empty Office Buildings & Malls. Frozen Housing Market. The Online Global Earth Gratitude Celebration 7 Green Life Hacks The Debt Ceiling. Will the U.S. Stop Paying Bills in June? Fossil Fuels Touch Every Part of Our Lives Are There Any Safe, Green Banks? 8 Fires the Federal Reserve Board Needs to Put Out. 7 Ways to Stash Your Cash Now. Lessons from the Silicon Valley Bank Failure. The 2 Best Solar Stocks Which Countries Offer the Highest Yield for the Lowest Risk? Rebalance By the End of March Solar, EVs, Housing, HSAs -- the Highest-Yield in 2023? Are You Anxious or Depressed over Money? Why We Are Underweighting Banks and the Financial Industry. You Stream all the Channels. Should You Invest, Too? NASDAQ is Still Down -26%. Are Meta & Snap a Buy? 2023 Bond Strategy Emotions are Not Your Friend in Investing Investor IQ Test Investor IQ Test Answers Bonds Lost -26%, Silver Held Strong. 2023 Crystal Ball for Stocks, Bonds, Real Estate, Cannabis, Gold, Silver. Tilray: The Constellation Brands of Cannabis New Year, New Healthier You Tesla's $644 Billion Fall From Mars Silver's Quiet Rally. Save Thousands Annually With Smarter Energy Choices Is Your FDIC-Insured Cash Really Safe? Money Market Funds, FDIC, SIPC: Are Any of Them Safe? My 24-Year-Old is Itching to Buy a Condo. Should I Help Him? The 12-Step Guide to Successful Investing. Gardeners Creating Sanctuary & Solutions in Food Deserts. The Bank Bail-in Plan on Your Dime. Rebalancing Your Nest Egg IQ Test. Answers to the Rebalancing Your Nest Egg IQ Test. Important Disclaimers Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations. ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience. Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors. Comments are closed.
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AuthorNatalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999. Archives
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