Apple Inc. shares sold off for the second session in a row Thursday amid swirling concerns about the company’s China business, but some analysts say those fears may be overblown.
The Wall Street Journal reported earlier this week that China was banning government officials from using iPhones for work purposes, while Bloomberg News reported that the ban could ultimately extend to government-backed agencies and state companies. The question for investors is whether the issue will be limited to state-affiliated employees in work settings or whether it’s indicative of broader challenges in China that might jeopardize revenue.
“The headline is a negative for Apple, but it is not clear how much of an impact this will have as party officials have likely avoided using American products in the workplace for long before the official ban was enacted (i.e. self-banning out of political awareness),” Evercore ISI analyst Amit Daryanani wrote.
While he could see why Wall Street would be sensitive to China omens, since Greater China accounts for about 19% of Apple’s revenue and “any more meaningful restrictions could hit the bottom line,” he also thinks that situation is “unlikely unless Apple begins moving supply chains out of China at a rate that makes China uncomfortable.”
Daryanani pointed to a 2019 Apple disclosure saying that the company supported more than 5 million jobs in China, “so it would be difficult for the [Chinese Communist Party] to take a more material action against Apple without impacting Chinese jobs.”
Wedbush analyst Dan Ives called the recent China concerns “way overdone,” estimating that the issue could impact perhaps 500,000 iPhones of the roughly 45 million that he expects will be sold in the country in the next year.
“We believe despite the loud noise Apple has seen massive share gains in [the] China smartphone market,” he wrote. By his math, Apple picked up about 300 basis points of market share in the region over the past 18 months and could see additional traction with the iPhone 15.
The company is expected to introduce that device at a Tuesday event.