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How Important Is Russia To Apple’s Business?

Apple stock is down from its highs amid geopolitical tensions in Eastern Europe. But is Russia important enough for the Cupertino company to justify bearishness?

The unfortunate conflict in Eastern Europe rages on. In reaction to geopolitical tensions, the US stock market continues to be volatile. Apple stock  (AAPL) - Get Free Report, for example, remains in correction territory as of the writing of this paragraph — a 10%-plus decline from the peak.

The recent selloff in AAPL has been probably driven by macro-level forces and not at all by company-specific reasons. Still, it begs the question: how important is Russia to Apple’s business? Could the Cupertino company be impacted by economic distress in the country?

Figure 1: How Important Is Russia To Apple’s Business?

Figure 1: How Important Is Russia To Apple’s Business?

(Read more from Apple Maven: Apple Stock: EPS Growth Will Depend Mostly On This)

Economic troubles

Because of the conflict on Ukrainian soil, countries across the globe have recently announced a long list of sanctions against Russia. As a result, the country seems to be facing an economic and “financial meltdown”: ruble selloff, skyrocketing interest rates, even a run on banks.

This could spell trouble for companies that do business in Russia, including those that are headquartered in Western Europe and the US. As a major global consumer products and services vendor, Apple should be impacted.

The question, however, is by how much.

Russia: a small market for Apple

Russia is the 11th largest economy in the world. Its GDP of about $1.5 trillion amounts to roughly 2% of the global economy — while, as a fun fact, its territory represents 11% of all land on the planet.

When it comes to Apple, however, Russia is likely even less relevant. According to estimates, Apple’s Russia revenues in 2020 reached 266 billion rubles, or about $2.5 billion. While this could seem like a huge number to many companies, it represented less than 1% of Apple’s total sales that year. See pie chart below.

Figure 2: Apple's 2020 Russia revenues (estimates).

Figure 2: Apple's 2020 Russia revenues (estimates).

Here’s a quick back-of-the-envelope calculation: assume Apple’s 2020 blended op margin of 24% and tax rate of 14.4%. Russia’s $2.4 billion revenues, therefore, represent less than 3 cents in EPS, which is minimal compared to Apple’s $3.27 delivered in fiscal 2020.

How about the supply chain?

There is one other aspect to consider. As Russia becomes economically more isolated from the rest of the world, disruptions to the supply chain could become substantial.

However, while this might be concerning to some companies, Apple has much less to fear. Based on data that I collected in 2020, the Cupertino company does not have any supplier in Russia (or in Ukraine, for that matter). More than 80% of them are located in China, Japan and a few Asian countries including Taiwan, South Korea and Vietnam.

More headline than real risks

To be fair, Apple has not escaped the spotlight, as the Russia-Ukraine battle continues to unfold.

For instance, a ban on smartphone exports to Russia has been discussed by the US government since at least December. Also, Ukraine's Vice Prime Minister has urged CEO Tim Cook to “stop supplying Apple services and products to the Russian Federation”.

But in the end, Apple’s business should be only minimally impacted by the current crisis. Perhaps from this perspective, any further weakness to Apple stock caused by the conflict could be perceived as a buying opportunity.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)