Apple is trying to explain away their falling sales on the trade war with China, implicitly blaming Trump:
Apple stock was down more than 9 percent overnight and continued the downward trend in trading this morning. In fact, the company’s stock price is down a total of 38 percent since October. This, after the company halted trading yesterday afternoon to provide lower guidance for upcoming earnings. As the iPhone upgrade market softened, it was having a big impact on revenue, at least in the short term, and Apple stock took a big hit as a result.
D.A. Davidson senior analyst Tom Forte says yesterday’s announcement, while not completely unexpected, was surprising, given Apple’s traditionally strong position. “We knew that iPhone unit sales were weak, but just not how weak,” he said.
The biggest factor in yesterday’s announcement, in Forte’s view, was China, where he says the company generates 20 percent of its sales. As the U.S.-China trade war drags on, it’s having an impact on these sales. This could be because of a combination of factors, including a weakening Chinese economy as a result of the trade war, or patriotism on the part of Chinese consumers, who are choosing to buy Chinese brands over of the iPhone.
The media is mostly reporting this as being the fault of the trade war. But I think they are missing (probably deliberately, given the media’s obsession with Trump bashing) the real reasons why Apple’s stock is imploding.
Put simply, we have reached “peak smartphone.” The smartphone market in the US and other countries has become mature, and most people who want one now own one. Furthermore, development of new features that attract upgrades has slowed considerably. Most people want smartphones for internet, email, Facebook, camera, text messaging, and sometimes music.
Those services have gotten about as good as they’re going to get on mobile devices. What’s left to attract new buyers? Essentially, there is nothing, which is why Apple has been raising prices to squeeze more cash out of consumers. The smartphone market is starting to fall into the same doldrums that the PC market fell into.
Apple attempted to develop smartwatches and other “smart” devices as a way to get ahead of this trend. However, those devices failed to take off in the way the iPhone did, which has left them at the mercy of the smartphone market.
Furthermore, Apple does have a China problem, but the main culprit is a slowdown in China’s economy, which is being caused by a lot more than the trade war:
“China’s economy is losing steam,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. “While it’s easy to blame the trade tussle with the U.S. for this, the deceleration so far is mostly domestic driven, with infrastructure spending contracting and car sales coming off the boil.”
That doesn’t mean the trade war with China isn’t having an impact. It surely is having some impact, but the bottom line for Apple is the fundamentals of the market are bad and China would be experiencing a slowdown whether Trump had gone after them or not.
So why is Apple claiming the trade war is the main problem? First, investors are likely to swallow it, since it’s constantly been in the news; not to mention liberals will not look too closely if Apple’s claims confirm their political biases. Second, by blaming Trump, Apple can suggest that their outlook will improve when the trade dispute with China ends, which might help prevent further stock selloffs.
Finally, the management team wants to keep their jobs, and they definitely don’t want investors asking “How did you miss this, and what are you going to do now that the market fundamentals have changed?” Blaming Trump is the easy way out from dealing with these tough questions.