Of all the big tech firms in USA, Apple could be at risk, considering an increase in trade tensions between the U.S. and China.
Late Monday, President Donald Trump, threatened additional tariffs on $200 billion worth of Chinese goods. Apple’s chief executive, Timothy D. Cook, acted like the tech industry’s top diplomat by visiting the Oval Office to let President Trump know that being hard on China could threaten Apple’s position in the country.
The Trump administration has told Mr. Cook that it would not place tariffs on iPhones, which are assembled in China, but Apple is worried China can retaliate in ways that would hamper their business.
Apple ‘most exposed’
“Apple is most exposed,” Neil Campling, co-head of global thematic group at Mirabaud Securities, said on Tuesday.
In its last fiscal year, Apple generated nearly 20 percent of its revenues from Greater China, which equated to $44.7 billion. Over 41 million iPhones were shipped into China in 2017 alone and was the fifth-largest player in the market, according to data from IDC.
Apple has around 40 stores in China and services such as the App Store and Apple Music that accounted for an increase in two percent from eleven in 2016. However, Apple did not differentiate how much of this net sales are from China.
Mr. Cook defended Apple’s presence in China to change the country from the inside. “Each country in the world decides their laws and their regulations. And so your choice is: Do you participate, or do you stand on the sideline and yell at how things should be?” he said at a fortune event in China in December. “You get in the arena, because nothing ever changes from the sideline.”
Apple is one of the most successful U.S. tech companies in China which may also be a vulnerability. Authorities can take actions against Apple by banning services, which it has done before. In 2016, Apple’s iBooks Store and iTunes Movies were shut down in China.
During this fuss, Beijing could push its own smartphone tech companies, like Xiaomi and Huawei which latter faced scrutiny in the U.S. with intelligence officials warning users of being spied on by the Chinese. China could do the same by propagating Apple is a danger to your privacy.
Campling noted that Apple’s inventories, have increased from $4.4 billion to to $7.6 billion since last December. Inventories include completed products as well as components used in Apple devices. He said this was evidence that Apple was stockpiling components in case of any disruption and showed the company was concerned.
“It is a defensive/protective measure in case there are difficulties in future procurement or supply chain disruption as Apple is potentially in the crossfire of the U.S./Sino trade war,” Campling said in a note to clients on Tuesday.
Apple’s only leverage with the Chinese is that the consumers love Apple products, said Dean Garfield, head of the Information Technology Industry Council, a trade group that represents Apple and other tech companies.
However, Chinese consumers loved Facebook and Google, which are now banned in China. “There are limits,” he said. “Xi and the national party will do what’s in their interest.”