The Trump administration’s Huawei trade ban could hurt Google as well as Apple, according to a tech consultant with extensive experience in China. To date, much of the attention to date has been on the risk to Apple’s business. Yesterday, according to the warning of Goldman Sachs, that the worst-case scenario is that iPhone maker could be a 29% fall in the company’s global profits. China could completely ban the sale of Apple products in the country in response to trade ban, AAPL investors consider there is a real possibility of this , says Businessinsider.
A response is expected from the Chinese government, potentially further rattling markets.“Investors have been asking us about Apple’s financial exposure to China given the possibility of a ban on Apple’s products there in retaliation for the US license requirements for Huawei that were announced last Friday,” wrote Goldman Sachs analyst Rod Hall in the research note. Apple’s profits would plunge by almost 30% if China enacts a total ban on the company’s products, according to Goldman Sachs. The dollar amount would be a reduction in net income by over $15 billion annually.
According to Hall, China represents 17% of Apple’s revenues, but 29% of the company’s profits due to the high-margin products sold there. Given the product mix, Goldman assumes Apple has a 45% gross margin.
China restricting the company’s ability to manufacture there, will be the absolute worst-case scenario for AAPL. But we know that this harm is less than considering the harm it would do to the Chinese economy.
Should China restrict iPhone production in any way we do not believe the company would be able to shift much iPhone volume outside of China on short notice, though actions that would push Apple production outside of China could have negative implications for the China tech ecosystem as well as for local employment,” the report said.
Gregor Berkowitz, GBA managing partner, also outlining the potential risk to Google. Reports from businessinsider:
The US government’s move to bar the Chinese device maker from using US tech products and services could encourage it to promote Chinese apps and services outside of China, Berkowitz said.
That could give companies such as Baidu a leg up over Google and Didi one over Uber in areas of the world where Huawei is strong, he said.
The problem is also in other countries where Huawei smartphones sell well, not in China only.
“People like Google begin to lose out, because Huawei will point its search [box] at Baidu, not at Google,” Berkowitz said. He continued: “As the conflict or trade war between the US and China [heats up] … we’re going see that set of Chinese suppliers begin to spread throughout the world [with Baidu becoming] the default search engine for India and for consumers in Africa and the email provider and online transaction provider.”
In the US and other developed markets, the loss of access to future versions of Android would effectively kill the company’s business. But that’s not necessarily the case, in emerging markets. It is more important there to buy high-end hardware with the latest tech at an affordable price than the the operating system.
There are many secondary effects” of the attack on Huawei “that are maybe more significant than the primary effect,” Berkowitz said.
As a high-profile company selling expensive hardware in China, Apple is widely believed to be at most immediate risk. China can hit back this trade ban at the US by easily banning iPhone sales within the country, something that would hit Apple extremely hard.