Apple's stock experienced a drop of more than 3% on Thursday, following a 4% drop the day before, due to reports indicating that Chinese government officials are potentially disallowed from utilizing iPhones.According to The Wall Street Journal, there is an order for employees at central government offices to keep iPhones out of the office and to not use them for work. The breadth of the restriction is unclear.China is the third most prosperous market for Apple, representing 18% of their total revenue in 2020.
Apple's stock decreased by 3% Thursday and 4% on Wednesday after numerous reports that Chinese state workers could be forbidden from owning iPhones. This wouldn't be made official by the Chinese government which is a worry as it may escalate to international conflicts between the U.S. and China. A majority of Apple's revenue (18%) is acquired from the Greater China market including Hong Kong and Taiwan where the goods are built. Apple refused to comment.
The Wall Street Journal reported on Wednesday that leaders of China's central government departments were prohibited from taking iPhones to the office or using them for business. There is no knowledge of how widespread this ban is, but it is expected to be imposed on other state companies and agencies, as Bloomberg News reported on Thursday.
Toni Sacconaghi from Bernstein analysts stated in his Thursday note that it is possible that a restriction would reduce iPhone sales in China up to 5%, but if it sends a signal to avert everyday users from acquiring Apple's products and instead use electronics created by Chinese companies, then it would be more of a threat. Dan Niles, portfolio manager at Satori Fund stated on Thursday that he sold his stake in Apple and is now shorting the company, due to the potential of a government iPhone ban and competition from Huawei.
Last week, Chinese retailers began taking orders for the hotly discussed Huawei Mate 60 Pro which starts at 6,900 RMB (~$954). The phone uses a HiSilicon chip manufactured in China that is said to be capable of 5G speeds, although Huawei's spec sheets remain silent on the matter. The US government's designation of Huawei as an entity on the US Entity List in 2019 has substantially hindered the company's procedures in the phone business, contributing to a $12 billion deficit in 2020. In addition, the phone also uses a 7-nanometer production process for its chip, though this is still a larger process compared to the 3-nm process on the upcoming iPhone and the 7-nm process on the 2018 iPhone's A12 chip. This suggests that current restrictions on chip-manufacturing technology are not fully successful. US National Security Advisor Jake Sullivan, in a briefing earlier this week, maintained the United States should focus on specific security concerns instead of pursuing broader policies of commercial decoupling. In Apple's most recent quarter ended in June, Greater China sales grew 8% to $15.76 billion. CEO Tim Cook noted that the growth was due to people switching from Android devices to iPhones, and expressed hopes of convincing even more people to switch by offering them an attractive experience and ecosystem.
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