The escalating tension between the US and China could have adverse effects on Apple’s valuation. As much as that the world’s third most valued company could lose one-third of its valuation if the dust doesn’t settle soon.
Apple CEO Tim Cook, in a recent interview with CBS, seemed confident of Apple’s safety amidst the ongoing trade tensions between USA and China. When asked about its potential ramifications, he had this to say:-
“Currently the Chinese have not targeted Apple at all and I don’t anticipate that happening, to be honest”
However, the recent reports and the recent turbulence in Apple’s stock prices portrays a different picture altogether.
Apple’s Valuation: The Importance of China
China has always played an integral part in the success of Apple. Outside the US, it is the biggest market for the iPhone maker. The numbers prove this fact. In fiscal 2018, Apple was able to generate a revenue of $51.49 billion from Greater China alone. Out of the 900 million iPhone users worldwide, 243 million users are in China alone. Therefore, a huge chunk of Apple’s success is dependent on its sales in China. Should the Chinese government agree to even partially ban or limit the sale of iPhones in their country, it is going to affect the Cupertino giant very adversely.
This fact is very vividly depicted in the stock prices of this company. The month of May witnessed the banning of Android on Huawei devices, the most controversial move made in the US-China trade war yet. Following that, and Chinese threats to boycott American products, the Apple stock prices took a huge tumble. The prices went down by a massive 13% in that month alone. If iPhones and other American products are indeed banned by China, the stock prices are estimated to slump roughly about a third (29%) of their total value to $130! The decrease in stock prices led to a tremendous decrease in the market value of the company. In only a week, the iPhone maker lost about $75 billion in valuation!
Therefore, China is vitally important for Apple to be successful as a global giant. However, regardless of the trade-tensions, Tim Cook seemed incredibly confident about the stability of his company in China.
So, what are the factors that are giving confidence to Tim Cook about China?
Apple Not In That Weak a Position
Regardless of the importance of China to Apple’s plans, it cannot be denied that Apple does give a lot back to the Chinese people. The company has a direct influence on the jobs of about 5 million Chinese workers. On top of that, it regularly makes significant donations for children welfare and has also invested in a lot of Chinese companies like that of Didi Chuxing. Therefore, if the Chinese companies decide to ban Apple products, they won’t be coming out of the deal unhurt either.
Who would want to ban a company that provides jobs to so many of its people?
However, what China can and is planning to do is to increase the tariffs on incoming US goods. On Saturday, the government did so on US Goods worth about $60 billion! Some of the goods have had their tariffs increased by as much as 25%. Now, if the same happens to the iPhone, its price will be increased by over $100, making it a lot more expensive than it already is. This is going to adversely affect the sales of the Cupertino giant, which are dwindling as it is.