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Apple (AAPL) Faces Trade War Impact on Two Fronts

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Apple (AAPL - Free Report) has been facing a vast amount of problems because of the ongoing trade war between the U.S and China. But the tech giant is not the only corporate giant directly affected by the trade dispute: Boeing (BA - Free Report) , Caterpillar (CAT - Free Report) , and Nvidia (NVDA - Free Report) have also been negatively impacted.

The lingering back and forth banter between the countries have caused turmoil in the broader stock market, especially this week after a warning was publicized in the Chinese newspaper People’s Daily targeting the U.S; this warning caused several stocks to fall. Stocks that depend on China for resources that they use to manufacture their products, as well as companies who rely on product sales from China, have felt the weight of the trade war the most.

How the Trade War is Affecting Apple

The impacts of the ongoing trade tensions on Apple are two-fold, making the outcome of the dispute crucial for the company’s valuation. 

China represents 18% of Apple’s sales, and the company also holds 12 percent unit share in the country. These numbers have plummeted as the rhetoric surrounding the trade war continues to heat up. If trade talks take a turn for the worse, China could switch their preferences to more China national brands. This would hurt the iPhone maker significantly, as China is its third largest market.

Additionally, Apple products have become less desirable in China as the trade war wears on. The slowdown in demand for Apple products have caused analysts to predict that the company’s sales could be cut in half in the country, a bearish sentiment that has led to a decline in its stock price—shares are down almost 12% just this past month—and a hit to its valuation.

Not only could Apple’s sales be hurt by further trade war escalation, but the company also faces manufacturing repercussions. China’s recent threat to the U.S to cut off the supply of rare earth minerals furthers the speculation surrounding the company. These rare earth minerals are made up of elements that are mined from the earth’s crust, and are commonly used in car motors, technology, and weapon systems that the U.S relies on for national security. Around 35% of the rare earth reserves are in China, making them a mining tycoon; China produced 70% of the total rare earth minerals in the world in 2018. Apple uses materials made from these rare earth minerals to manufacture their products, making this threat from China detrimental to the company.

Bottom Line

While many other companies will also likely be negatively impacted by the trade war, Apple mostly faces repercussions on the manufacturing and sales front. With no light being detected at the end of the tunnel, Apple’s stock value seems to remain shaky during these times. Apple will be holding its worldwide developer conference on June 3rd where it will reveal its future products and plans for further development. This conference will be something shareholders will be diligently paying attention to. Apple is currently a Zacks Rank #3 (Hold).

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