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Citi analysts lower Apple earnings expectations over continuing US-China trade war tensions

Shanghai, China

Last updated

The ongoing trade tensions between the United States and China has prompted analysts at Citi to cut their forecast for Apple's earnings in the second half of 2019, citing the belief unrest by Chinese consumers will result in lower iPhone demand in the country.

Analysts have reacted a few times over the trade war between the two countries, following events such as the various bans against the Chinese-supported Huawei by the US government's agencies. As the actions fuel more animosity towards the US from Chinese residents, Citi now believes the international squabble could seriously impact Apple's finances.

"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," Citi advised in a note to investors seen by CNBC. Research by the analysts also indicates the iPhone may become a less desirable brand, further affecting potential sales.

"China represents 18% of Apple sales which we believe could be cut in half," the analysts said.

Apple is already having to deal with renewed boycotts in the country following the Trump administration's raising of tariffs on goods from 10% to 25% on May 10, affecting some Apple accessories, as well as potential expansions in June affecting core products like the iPhone.

On top of that, the executive order on May 15 banning U.S. businesses from using telecommunications equipment from firms considered a national security risk along with another order effectively banning Huawei from buying U.S. technology without prior government approval, has considerably affected Huawei's ability to do business.

Internet users in China have called for a boycott, urging potential iPhone customers to buy Huawei devices instead. This is a continuation of an earlier attempted boycott following the arrest of Huawei CFO Meng Wanzhou in December, when Chinese companies encouraged the purchase of Huawei goods and threatening to punish those using Apple hardware, in an attempt to show solidarity with the firm.

It has been suggested that, if China retaliated with a ban on Apple's business, Apple would see a reduction of its earnings of around 29%. While most core components are produced outside of China, a Huawei-style ban would still be an issue if applied on Apple, as the vast majority of its assembly and supply chain is based in the country, meaning it would have to work fast to shift production to another territory.

Huawei founder and CEO Ren Zhengei has publicly opposed the prospect of a retaliatory ban on Apple.

Citi's price target for Apple has reduced down from $220 per share to $205 per share. At the time of publication, Apple is trading at $178.62, slightly down from its opening at $180.20.