Shares of Apple AAPL sunk 1.3% Wednesday on the back of the continued trade war dispute between the U.S. and China. But just how important is China to the iPhone giant and how worried should investors be about the back and forth between the world’s two largest economies?
The White House announced Tuesday that it will assess 10% tariffs on another $200 billion of Chinese goods. The new set of tariffs won’t go into effect for at least two months according to the Trump administration, in order to provide U.S. industry time to comment on the products selected for levies, with hearings on the products scheduled for August 20-23.
Maybe more importantly, the delay is expected to allow for the two sides to begin new rounds of discussions about their ongoing trade battle.
Apple stock has certainly taken a hit during the nearly constant back and forth between Beijing and Washington. Yet, shares of Apple are still up roughly 30% over the last year and 8% during the last three months, despite some turbulent periods. The reason here is somewhat simple: some investors react to short-term fears based on news updates, while Apple’s long-term outlook remains rather impressive—especially since Apple and China are currently in a mutually beneficial relationship.
Head of technology research at GBH Insights, Daniel Ives, recently pointed out that China might not want to disturb its relationship with one of the world’s largest companies. “Given the tightly woven integration between Apple and Foxconn [iPhone assembler] in China, we believe there is minimal risk to this relationship, cost increases, and backlash to Apple selling its iPhone devices within China,” Ives said recently.
Apple has also enjoyed stellar growth in Greater China over the last few years and grabbed $44.7 billion in sales in 2017. This trend continued in Apple’s fiscal second quarter when it saw its revenues in Greater China reach $13.02 billion, up 21% from the year-ago period. This marked Apple’s second-largest growth region, just behind Japan’s 22% expansion.
Chinese revenues also accounted for roughly 21% of Apple’s total quarterly revenues of $61.1 billion, which jumped 16% from the year-ago quarter.
But even if Apple experiences a more substantial impact due to tariffs than is currently anticipated, Apple still makes 63% of its revenues in the Americas and Europe alone. The company has also expanded its Services business into its second biggest sales driver, with the unit up 31% to $9.19 billion last quarter—nearly outpacing iPad and Mac’s growth combined. Services is also highly diversified across regions.
Apple’s Services unit includes iTunes, AppleCare, Apple Pay, and Apple Music, which is currently nipping at the heels of Spotify SPOT. Not to mention the company is preparing to launch a streaming TV service in order to take on Amazon AMZN and Netflix NFLX.
Apple is also currently a Zacks Rank #2 (Buy) that is expected to see its top line surge by 15.3% to hit $52.37 billion this quarter, based on our current Zacks Consensus Estimates. The company’s bottom line is also projected to pop by over 31% to touch $2.19 per share.
Come back to Zacks for more Apple updates and analysis before the company reports its Q3 financial results on Tuesday, July 31.
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