An all-out ban on Apple Inc. (NASDAQ:AAPL) products in China could wipe out almost 30% of Apple’s profits
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 $US15 billion annually.
According to Goldman Sachs analyst Rod 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.
Wednesday’s report comes on the heels of increasing trade tension between the United States and China. Earlier this month, President Donald Trump raised tariffs on $US200 billion of Chinese imports after negotiations failed to secure a deal. Further, Trump noted there was potential to raise tariffs on an additional $US325 billion of goods should no deal be reached.
And this week, the president laid the foundation for a ban on the Chinese telecom company Huawei sourcing components from US firms such as Google and Qualcomm. These actions led to significant stock-market volatility, with tech stocks dropping on news of the ban and later stabilizing after it was announced the ban would be delayed.
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 licence requirements for Huawei that were announced last Friday,” wrote Hall in the research note.
Beyond the trade dispute, Apple is facing significant headwinds in China with demand for its phones falling alongside increased competition from cheaper smartphone makers such as Huawei and Xiaomi. In January, Apple issued its first sales warning in more than a decade, citing a sharp and unexpected drop in iPhone sales in China.
In the Goldman report, Hall also noted there were additional risks for Apple should the trade dispute escalate further. Most notable, is that most of the company’s iPhone production facilities are located in China.
“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.
Apple was down nearly 2% on Wednesday, but still up 16% this year.
Overall, the bias in prices is: Downwards.
Note: this chart shows extraordinary price action to the downside.
The projected upper bound is: 192.70.
The projected lower bound is: 172.93.
The projected closing price is: 182.82.
A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 31.7830. This is not an overbought or oversold reading. The last signal was a buy 8 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 34.98. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 12 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -85. This is not a topping or bottoming area. The last signal was a buy 1 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 18 period(s) ago.
Rex Takasugi – TD Profile
APPLE INC closed down -3.820 at 182.780. Volume was 100% below average (consolidating) and Bollinger Bands were 80% wider than normal.
Open High Low Close Volume___
184.660 185.710 182.550 182.780 35,220
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period 50-period 200-period
Close: 189.48 195.89 192.13
Volatility: 43 32 40
Volume: 32,954,514 29,895,244 34,340,188
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
APPLE INC is currently 4.9% below its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of AAPL.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on AAPL.O and have had this outlook for the last 8 periods. The security price has set a new 14-period low while our momentum oscillator has not. This is a bullish divergence.