Roger Fingas
Apple could face serious "collateral damage" from the Trump administration's bans against Huawei, even if iPhone shipments seem to be on the rebound in the short term, Cowen analysts said on Tuesday.
"We believe the international perception that Huawei is being targeted and unfairly punished as a parallel story in the U.S. and China trade spat could lead Chinese consumers to retaliate as patriotism leads them to support domestic brands while products and services from US companies fall out of favor," the firm wrote in an investor memo. "We believe Apple's iPhone, iPad, and Mac systems are at risk of experiencing demand destruction due to collateral damage from the sales ban to Huawei."
Indeed a "Boycott Apple" movement is already underway in China, where some companies are even threatening to fire people who hold onto iPhones, though simultaneously offering subsidies to switch to Huawei.
Apple's fiscal 2020 earnings per share (EPS) could drop 1% to 8% assuming 5% to 30% "demand destruction" for all the hardware it sells in China, Cowen indicated. Full destruction caused by a retaliatory ban would potentially rip 26% off EPS.
The memo reiterated the point that 25% U.S. tariffs on Chinese imports, which could take effect as soon as June, might knock 11% off EPS if Apple decides to absorb the impact without hiking prices, or between 1% and 4% if it passes along that cost, since it could slash demand anywhere between 10% and 40%.
Cowen's iPhone build forecasts have nevertheless grown from 37 million to 39 million for the June quarter, and are expected to hit 42 million in the September period. Though both figures would still represent year-over-year declines of 7% and 13%, Cowen's analysts suggested that Apple is still beating their conservative expectations.
It's forecast that in the June quarter, 29 million iPhones, or about 74%, will be iPhone X and iPhone XS-series models, the rest being from the iPhone 7 and iPhone 8 families.
Cowen is maintaining an "outperform" rating for Apple stock with a $245 price target.
Malcolm Owen
William Gallagher
Charles Martin
Christine McKee
Wesley Hilliard
Andrew Orr
51 Comments
Proudly doomed since 1976... 43 years later. Push it down, push it down.
I don't think China will ban Apple. The nationalistic pride will have much the same effect of depressing sales. In fact, a ban might stimulate sales somewhat, since nothing drives black and grey market sales in a communist country like a government ban.
Even at very worse case 26% drop in EPS, Apple is still undervalued. For Christ sakes, it’s trading 12x cash flow/EV
Chinese black market demand would soften an “all out ban” significantly
I think Apple created some level of demand destruction with the ever escalating price of the iPhone. They have had to give away financing to get people to swallow a thousand Dollar throwaway device to boost average selling price because raw numbers had plateaued.
As to Mr Trump’s trade wars, they are easier to start than they are to fix. There are reports that China is preparing to weaponize access to rare earth minerals that are critical to every device Apple sells. America does have some deposits of the rare earths, but they are inferior stock that is much more expensive and dirty to process as they are usually found along with radioactive materials- unlike China’s supply.
Trump is afraid that China will overtake the U.S. as the world's #1 economy and he can't stand to be #2 -- so he has declared war on them.
How do you think the Chinese people are going to react?
How would we react if somebody started a war against us?