Fears that Apple (AAPL.O) and its suppliers might take a blow from escalating Sino-U.S. tensions and increased competition from Huawei exacerbated a selloff in global tech equities on Friday.
Following reports that Beijing had just forced certain central government officials to cease using iPhones at work, Apple stock dropped 6.4% in the preceding two days, knocking $190 billion off the company’s market capitalization.
On Friday, several Street experts suggested the selloff was excessive, saying that Apple would likely see just a little sales decline due to the iPhone’s popularity in China. Apple’s stock price rose 1.3% on Friday, reversing the previous two days’ losses.
China’s Huawei has introduced two new smartphones, the foldable Mate X5 and the Mate 60 Pro+, that have garnered international notice for their resistance to U.S. sanctions, increasing competition for Apple.
After gaining market dominance in the wake of U.S. sanctions imposed four years ago, some observers think Huawei’s actions might be the beginning of a comeback campaign by China’s “national champion” to challenge Apple. After a disappointing quarter for sales of its main product, Apple is releasing a new iPhone on Tuesday.
Ivan Lam, an analyst at Counterpoint, believes that the company’s recent action was well-planned and not spontaneous and that the new items would do better than expected. Before Apple’s press presentation, “it can manage the psychological expectations of the target consumer group.”
China is Apple’s third biggest market, and its performance there has been particularly strong during an otherwise challenging moment for iPhone sales. The United States’ decision to restrict technology exports to Huawei in 2019 devastated the company’s smartphone business.
In February, Apple’s third-party retailers in China began offering discounts of up to 10% on the iPhone 14 Pro, which helped boost the company’s sales in the region. Analysts warned Reuters that the price cuts might hurt sales of the new Apple items that are about to be released.
On Friday, contract chipmaker TSMC (2330. TW) lost 0.6%, while Apple supplier Largan Precision (3008. TW), which produces camera lenses, plunged more than 4% in Taipei. The value of Luxshare Precision Industry (002475. SZ), which is based in China and has facilities that can produce iPhones, dropped by 2%.
On Friday, Apple suppliers in the United States saw minimal movement in their stock price, with Qualcomm (QCOM.O) rising 0.1% and Broadcom (AVGO.O) falling 0.4%.
The suppliers of Huawei continued their recent increases. Semiconductor Manufacturing International Corp (SMIC) shares increased by 0.7% on speculation that the company produced the high-tech chip in Huawei’s latest smartphone.
The scope of China’s iPhone restrictions is unclear, but one worker at an impacted state-owned business (SOE) in the capital city reported that the ban included foreign tourists.
The source was one of two SOE workers who claimed they were informed of the prohibition recently. “Anyone, including business visitors, who enters our work area cannot bring in their iPhones,” the source said.
The source, who requested anonymity, stated that workers were being offered subsidies of between 100 and 200 yuan (between $13 and $26) to transition to domestic brands. However, Reuters reports that some SOE employees have said they can use iPhones.
Bank of America projected that a restriction on central government workers may reduce yearly iPhone sales in China from up to 50 million devices to 5-10 million units. The exact number of central government personnel is unknown.
Without some “non-commercial risks,” analyst Ming-Chi Kuo from TF International Securities predicts that Huawei’s smartphone sales, fueled by the new Mate 60 Pro, may increase by 65% this year to 38 million.
On Friday, Morgan Stanley’s Erik Woodring said, “Apple’s ecosystem in China remains very strong,” with the typical iPhone user in China owning 2.5 Apple devices. However, Canalys analyst Nicole Peng suggested Huawei might threaten local rivals more strongly.
Several experts on Wall Street have said that the restrictions prove that not even a Chinese corporation with deep governmental links can weather the storm of international tensions. As a result of China’s stringent COVID-19 regulations, Apple has moved some manufacturing elsewhere.
Neo Wang, an analyst at Evercore ISI, said in a note that the only way Apple might anger Beijing would be to rapidly or significantly relocate its supply chains outside China.
If that’s the case, it shouldn’t be a huge shock if Beijing continues penalizing Apple using the security card as an excuse. Wang said, “It’s hard to tell whether what we’re witnessing today relates to this.
Washington and Beijing want China to reduce its dependence on American technology, but Washington is seeking to restrict China’s access to vital developments like cutting-edge semiconductor technology.
More chip components in the Mate 60 Pro were built in China than in prior generations, according to a disassembly by research company TechInsights, demonstrating Beijing’s improvement.
As of Thursday, the U.S. Commerce Department has requested further details about the “character and composition” of the new Huawei chip that may infringe against trade restrictions.
