Apple Investors Fear a Trade War With China

Apple Inc. stock is down nearly 4 percent in the past month as President Donald Trump has elevated his trade war with China, one of Apple’s largest customers.

About 20 percent of Apple’s revenue comes from China, but analysts say investors should maintain a long-term perspective when it comes to the trade war.

The U.S. and China exchanged new sets of tariffs on $34 billion worth of each other’s goods on Friday morning, and it seems as though there’s no end in sight to the escalating trade war.

China has been Apple’s largest revenue growth source in recent years, and Apple shipped more than 41 million iPhones to China and logged $44.7 billion in Greater China sales in 2017.

Some experts now believe that China’s next shot at the U.S. could be to encourage anti-American sentiment and order boycotts of American products, such as the iPhone.

Last year, China took a similar approach to the South Korean company Lotte Group, which ultimately closed dozens of stores in China.

However, analysts say long-term Apple investors should mostly ignore any near-term trade war volatility.
While Apple’s near-term growth prospects in China may be at risk, Loop Capital Markets analyst Ananda Baruah says Apple Services could pick up the slack.

Apple Services revenue has grown by greater than 30 percent in two of the past three quarters.

“We believe this momentum is structural as an important catalyst has been AAPL spending incremental time at the country level understanding and attending to what individual country regulatory dynamics to adoption are,” Baruah says.

He says Apple Services growth has been well-diversified geographically, suggesting China is a relatively small piece of the puzzle.

“Strength has been broad across the App Store, Apple Pay, Apple Music, iCloud, etc., as well as geographies, with no geography accounting for [more than] 25 percent of revenue,” Baruah says.

GBH Insights head of technology research Daniel Ives says Apple, China, and iPhone assembler Foxconn has a symbiotic relationship that China may be unwilling to disturb.