Why Apple Stock Just Dropped 5%
What happened
Shares of tech giant and iEverything specialist Apple (NASDAQ: AAPL) tumbled 5.1% on Thursday morning at 9:30 a.m. ET, after multiple news outlets reported that the Chinese government is making moves to ban the iPhone from China.
So what
Specifically, Beijing has ordered officials working for central government agencies to not use iPhones (or other "foreign-branded devices") for work, or even to bring these devices into the office, says The Wall Street Journal. It's not clear precisely who is affected by the usage ban, or what its precise parameters are. What's more, neither China's State Council Information Office or its the National Civil Service Administration is responding to requests for clarification.
It's also not entirely clear what China's goal is with this ban. The WSJ posits that the government may be aiming to restrict the ability of foreign companies to extract "sensitive information" from China. But the aim may also be to promote usage of domestic manufacturers' devices, to eat away at Apple's domestic dominance of high-end cellphone sales in China, or even to impose tit-for-tat consequences on U.S. restrictions on usage of Chinese tech such as Huawei cellphones or TikTok's apps in government offices here.
Whatever the goal, the effect is clear: Investors are spooked, and they're selling off Apple stock.
Now what
Should they be spooked, though? On the one hand, reports indicate that China's restrictions apply to all "foreign-branded devices," and that makes it sound as if this is a ban that could affect not just Apple, but its archrival in cellphones globally -- Samsung. Therefore, this move won't hurt Apple's growth rate as much as would a rule that favors Samsung over Apple. Rather, it will just promote a host of smaller, less effective Chinese competitors at Apple's expense, and in just one country.
The bigger problem is that this is a pretty big country we're talking about. According to data from S&P Global Market Intelligence, last year, nearly $1 out of every $5 Apple took in in revenue came from China. And this proportion of China sales to overall sales has held roughly constant for at least the last five years.
Although the ban for now seems limited to high-ranking government officials, and to apply only in the workplace, we've all seen in recent years how Chinese regulations can turn on a dime and tighten without much warning. And that seems to be the direction China is heading in now.
In short, therefore, yes, I think Apple investors do have good reason to worry today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
