China Stock Slump Hurting Apple and It Could Get Worse
Apple (AAPL) chief executive Tim Cook for the past two years repeatedly has pointed to China as the vendor’s geographic growth engine.
On a May visit to China, Cook said that at some point China’s sales volume of Apple products will exceed the U.S. “it’s just a matter of time, he said. “It’s very difficult to predict when exactly it will occur, but if we do our jobs right, it will occur.”
For the full year 2014, China contributed more than 17 percent to Apple’s revenue, up from 15.8 percent the prior year and 11.7 percent the year before that. In the first three months of this year, sales of larger-screen iPhones in China outpaced the U.S. for the first time. And, in Apple’s Q2, China iPhone sales jumped 40 percent over last year.
Of course, part of Apple’s hefty growth strategy in China, is its plan to double the number of stores it has there by the end of this year.
But some of Apple’s grand plans for China growth has been derailed in the past month with the slump in China’s stock market eroding trillions in value. The vendor’s stock has been hit hard by China’s month-long hammering that’s erased some $4 trillion in value. The impact has been less money in the hands of consumers and businesses to buy the company’s computers and mobile devices.
As Bloomberg reported, Apple’s stock fell for a fifth straight day, recording the first two percent declines in a row since 2013, only two week before the vendor is slated to report its quarterly results. In the past five days, Apple’s stock has dropped more than 5 percent, costing it some $38 billion in market value. Overall, the stock is down nearly 10 percent.
The reaction by China’s policymakers to the stock market deluge “could create a bigger problem for the economy, causing consumers to retrench, which would impact Apple’s sales,” Walter Todd, Greenwood Capital chief investment officer, told Bloomberg. “It’s a risk that’s certainly starting to be reflected in the company’s shares.”
One uncertainty for Apple watchers is how sales of its Watch have fared not only in China but throughout the world. The vendor hasn’t offered much hint on sales of the device, although word has surfaced in a few places that the results may prove disappointing.
Bloomberg said that analysts are forecasting Apple to post earnings of $1.79 a share in the three months ended June 30, compared with $1.28 a year ago.