Apple (AAPL) now has a million risks in the China region, and they aren't all related.
Let's take a step back and untangle some of them.
President Trump has enacted tariffs of hundreds of billions of goods imported to the U.S. from China. But he could up those tariffs, and if he does, analysts say that's when Apple would start to feel the pain. In that scenario, Apple's cost to import its hardware products to the U.S. from China would increase. Apple could then increase prices to protect its gross margin, but that would come at the expense of hardware demand. Likely, Apple would absorb the cost, taking a direct hit to its gross margin. The flow through to the bottom line would see earnings per share for 2019 fall by roughly 25%, from above $12 to just above $9, most analysts say.
Trump's ban on Huawei's ability to do business with U.S. companies, directly hurting Qualcomm (QCOM) and some of its peers, could ultimately burn Apple. Several analysts have said Chinese consumers could boycott the iPhone as punishment for the Huawei ban, and in a worst case scenario, the Chinese government could ban iPhone sales in the region. The former would cause demand to fall, while the latter would completely decimate Apple's hardware business in China. A Cowen analyst said the hit to EPS from such retaliation could be to the tune of 8%, as sales would suffer greatly.
Unrelated to policy issues, lower-priced competition from smartphone makers Huawei and Xaomi in China have been hurting Apple's iPhone market share there, which hasn't exactly seen a robustly growing smartphone market in the first place.
Fedex (FDX) may have to confront boycott risk in a similar way to Apple. FedEx, Real Money's stock of the day, is also hoping not to receive similar retaliation from the Chinese government and/or consumers, after the company had to apologize for mishandling Huawei's packages Tuesday. FedEx was accused of diverting these packages deliberately.
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