A Goldman Sachs analyst has issued a note to clients suggesting that Apple’s earnings could take a huge tumble if China were to take a hard stance as part of the growing U.S.-China trade war.
Analyst, Rod Hall, predicts that the fruit company’s earnings could fall by as much as 29-percent.
Apple is keen to do a lot more business in China and take advantage of the huge opportunity that exists in one of the world’s large economies but the company already does substantial business in that region.
Apple’s China arm of the business accounted for over 17-percent of sales in the most recent quarter, which equates to approximately $10 billion of revenue. Goldman Sachs is suggesting that those revenues could tumble significantly if China were to retaliate in the growing saga by banning Apple’s products in the region.
Should China restrict iPhone production in any way we do not believe the company would be able to shift much iPhone volume outside of China on short notice. We believe that Apple is near its annual rapid ramp of new iPhone production to prepare for new device launches in the Fall so even a short term action affecting production could have longer term consequences for the company.
As part of the note, Hall did also concede that it wouldn’t purely be Apple affected if such a drastic decision was taken. The analyst suggested that China’s internal ecosystem from a technology perspective would also be affected by a decision of that magnitude and that any such decision could also affect localized employment rates.
Apple may be an American business but most of the company’s supply chain exists within China, with all iPhone hardware actually being assembled at Foxconn’s facilities in the country. HSBC analyst Erwan Rambourg has also shared concerns raised by Goldman Sachs, resulting in price targets on Apple cut down to $174.00 per share.
The reality is that we are only really in the infancy of the growing U.S-China trade war, meaning that the playing field is largely unknown at this time. Both countries have imposed huge tariffs on imports in recent weeks which suggests that there is plenty more to come from this global saga.
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