Chinese consumers may flip Apple stores the bird and head off to a Huawei location in a show of nationalistic pride during the tense U.S.-China trade war.
And that could have severe profit ramifications for Silicon Valley-based Apple (AAPL), says one Wall Street analyst. Citi analyst Jim Suva slashed his unit shipment estimate for iPhones in China on Tuesday (enough to gain the attention of this writer). For Apple’s fiscal year 2020, Suva now sees 16.8 million unit shipments of iPhones to China versus more than 33 million previously.
Subsequently, Suva “materially” lowered his sales and earnings estimates below consensus forecasts. The analyst expects fiscal year 2020 earnings of $11.49 a share, down sharply from $12.91 a share previously. Wall Street expects Apple to post earnings of $12.77 a share in fiscal year 2020.
“We are proactively slashing our iPhone unit sales as we believe the US/China trade situation will result in a slowdown of Apple iPhone demand in China as China residents shift their purchasing preference to China national brands. Our independent due diligence shows a less favorable brand image desire for iPhone which has very recently deteriorated,” Suva wrote in a new note to clients.
Clearly, Apple’s standing in China amidst the trade war is weighing on the minds of investors... and the stock price. Apple’s stock is down 14% in the past month alone, by far the worst-performance among the FAANG cohort. The Dow Jones Industrial Average and S&P 500 are only down about 4% each over the same timespan.
Investors are right to be concerned about the outlook for Apple in China.
Apple derived $51 billion in sales from its “Greater China” segment in the fiscal year ended September 29, 2018. The segment represents Apple’s third-biggest region, behind the Americas and Europe. Apple has hundreds of suppliers in the country churning out the latest tech gadgets from the company.
The million dollar question Apple investors need to be asking off a note like this: When do others on Wall Street wake up and follow Suva’s lead? Because by the time that happens — and it looks inevitable that it will given the lingering trade war —Apple’s stock could be down another 15% amid a full-fledged valuation reset.
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