Apple stock falls on reports Chinese govt. banning iPhone use for officials
Apple (AAPL) shares are falling for a second day following a Bloomberg report that China could ban some state firms from using iPhones. It follows a similar report from the Wall Street Journal that the country is banning government officials from using iPhones at work. Yahoo Finance Senior Tech Editor Dan Howley explains that, given how Apple has worked with the Chinese government to satiate some of their security concerns, this seems to almost be more of "a delayed tit for tat for what the U.S. has done to the likes of Huawei and is doing to TikTok." Howley also explains how Apple is putting more emphasis on India in terms of both manufacturing and an opportunity for growth.
Howley also highlights the impending impact of the European Union's Digital Markets Act, which will disrupt Apple's App Store model, and affect other tech giants like Meta (META) and Amazon (AMZN).
Video Transcript
- Shares of Apple are lower this morning on reports that China's iPhone ban is broadening across government firms. Staff at several Chinese agencies say that they were given instructions not to use Apple's iPhones or other foreign devices in the office, first reported by the Wall Street Journal. China is one of the tech giant's biggest markets, accounting for just under 19% of its overall revenue.
Beijing has already limited government officials from using iPhones. But this new report would significantly broaden that ban and signal perhaps a sharper crackdown on existing rules. Apple suppliers, like Qualcomm and Skyworks, are also taking a hit on news. Joining us now with more, we've got Yahoo Finance's own Dan Howley, our tech DH. So Dan, what do we know about this so far?
DAN HOWLEY: Yeah, this is something that we've kind of seen expand quickly over the past few days about Chinese officials banning or potentially banning. We don't know anything concrete quite yet, how far this goes, what this exactly means for Apple. It does seem as though it's kind of not necessarily a tit for tat because the ban on Huawei, the ban on TikTok with regards to official uses in the US government, I mean, across state governments. Some universities have banned the use of TikTok on their networks.
So it seems as though it's almost a response to that. But also, perhaps, for the Chinese government side, a way of keeping themselves insulated from any potential hacking. Now, the thing to remember about Apple is their whole MO outside of selling the iPhone is, and has been for a while now, privacy.
And so they've worked with the Chinese government to their detriment in some instances, where they've limited the window that airdrop is available, something that they don't do in other areas. They've taken down apps at the request of the Chinese government. Data that's stored-- or Chinese user data is stored in China. So it's not something where there's a general distrust seemingly for Apple.
Tim Cook has gone there several times to basically chat with officials. So it doesn't seem as though Apple has necessarily done anything. This seems to be more of, as I said, almost a delayed tit for tat for what the US has done to the likes of Huawei and is doing to TikTok.
So I think the important thing to point out is this is only officials. It's not the general public, although obviously, this can rile up some nationalist fervor. People might go out and decide that they need to buy China-made devices rather than Apple devices, and that occurs every once in a while.
But I just want to point out the amount of spending from Chinese consumers relative to Apple's overall revenue. So in 2022, Apple had 900-- sorry $394 billion in revenue. Of that, $74.2 billion for the iPhone side came from greater China. And that's just a number that's been increasing over the years.
And so you can see how much of an impact this would have. It's one of their biggest markets, one of their most important markets. And they frequently reference it as an area where they're getting switchers from Android to iOS and the fact that they're able to get folks onto the App Store. So getting them into the ecosystem is all part of the broader plan. So it's not a message that consumers will be impacted, but there's a good number of government officials.
- Well, and now, according to this latest report, it's perhaps expanded to state-owned enterprises. So if you're talking about a PetroChina, which is a huge company, and the other Chinese state-owned enterprises that have a lot of employees, if they're not allowed to have an iPhone-- and it doesn't seem like there's anything in writing. This is not an official position.
Reportedly, it's sort of a soft position. But what's really remarkable about this that you alluded to is that Apple has had quite a close relationship with the Chinese government, whereas a lot of the anti-China policy coming from the US. Like Huawei is not sitting down with the Biden administration, for example. So that-- it feels different than some of the moves that we have seen in the past.
DAN HOWLEY: It seems almost strange for it to also come out at this point.
- Right ahead of the product announcement from Apple.
DAN HOWLEY: Yeah. That seems kind of timed purposefully, considering that next week, we're expected to get the new iPhone, the new Apple Watch, and so forth. I think that's something that was purposeful. But yeah, I mean, it just seems to be an odd move for them to target Apple. Maybe it's a message to the US that seems is to be part of it saying, look, we'll go after your biggest companies, and it won't be a problem for us. So that could be it.
I also do want to point out, though, as important as China is to Apple's overall revenue, they are increasingly putting more emphasis on India as their next--
- In terms of manufacturing or also in terms of an end market?
DAN HOWLEY: Both.
- Both.
DAN HOWLEY: So they're moving there as far as manufacturing. They have for a while, but now, as an end market, they repeatedly referenced that. I think in the last earnings call, they specifically pointed to India as a place where they're getting more switchers. So it's an opportunity for them to grow.
This is the kind of conversation they were having about China years and years ago. So it's basically, OK, part two of their expansion outside of the US and Europe, going, OK, we exploded in China. We're doing well there. They clearly hope that continues barring any of this.
But India is now kind of their big opportunity to grow. And so it's still dangerous for them to lose, obviously, anything in China, but it's also-- they're moving on to India, as well.
- Well, Apple also facing some hurdles elsewhere in Europe, as well. Tell us about the Digital Markets Act, a little bit about this came out yesterday early in the morning, and what that means for big tech and the future of big tech in the EU, particularly.
DAN HOWLEY: Yeah, so the Digital Markets Act is basically going to append Apple's App store, as well as Google's Play Store. It's basically a means to ensure-- at least for those two companies, and obviously, we have the other companies here that are going to be listed. They're basically going to be kind of gatekeepers to different parts of businesses. So to-- according to the EU, to ensure the ability for smaller companies to compete.
What they're going to be doing is opening up or force them to open up their app stores, meaning you're not just going to have the standard App Store on your iPhone, on your iPad. You're going to have to allow a third party App Store to get in there and ensure that other companies can provide their apps. And so Google does this in a roundabout way with Android.
They allow you to sideload, although they put all these scary warnings in the way. And to a degree, it is also dangerous because it's not-- they're generally not as well vetted as you might see apps on the App Store or in the Google Play store. But for Apple, it's a bigger deal because more people purchase apps on the App Store.
Generally, iPhone owners are more affluent, so they're going to be spending more on whatever, Fortnite Bucks or whatever they're buying in there. And so the idea that they're going to have to open this up means they may end up losing revenue. The biggest share of revenue that they get from the App Store, by the way, is from games.
And if they're opening up to other game developers, app stores, those people can then sell Fortnite Bucks for less, V-Bucks, whatever they're called. Then that's going to eat into Apple's margins for their services division. So it's going to be a big deal.
How they go about zhuzhing this remains to be seen. But if they do it in the EU, it doesn't necessarily mean they'll do it globally, especially if it means taking a big chunk out of their overall revenue.
- We'll see. And there's, of course, been some legal wrangling over that here in the US. So we'll talk more about that next time we talk about this. Thanks so much, Dan Howley. Good to see you.
