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As Apple Reaches New Highs, The WeChat Ban Risk Looms

Aug. 17, 2020 5:41 AM ETApple Inc. (AAPL) StockTCEHY18 Comments


  • The WeChat ban could impact up to ~$28 billion in iPhone/iPad sales in China as well as related impacts to Service revenue.
  • The executive order only targets WeChat, although it does mention aggressive action against Tencent, potentially putting Weixin and QQ under fire.
  • Apple could face up to a 10% decline in revenue if 75% of iPhone and iPad sales disappear.

Trump's announcement of a potential ban on WeChat and TikTok by September 15 could have serious ramifications if that ban is enacted. Apple's (NASDAQ:AAPL) ecosystem is facing what could be an unprecedented shake-up, assuming the Trump administration enacts the ban and forces a removal of WeChat (and maybe sister app Weixin) from international App Stores in the worst-case scenario.

China is Apple's third largest market, amassing about $44 billion in net sales for 2019, down from $51 billion in 2018. The ban puts the Chinese market for Apple devices, primarily iPhones and iPads, at high risk if a full crackdown occurs.

President Trump is quite known for saying something outlandish, only to never act upon that statement and later act like it really never happened. There's potential that this 'ban' of WeChat and TikTok was simply a mirror threat, and that nothing will actually happen come mid-September; if that's the case, there's not much to worry about. But if he does act upon this statement, the risk to Apple grows.

Apple's FY19 revenues were down ~$5 billion YoY, due to lower net iPhone sales in Europe and Greater China (China, HK, Taiwan). For FY20, trailing nine months revenues show Europe up $6 billion YoY and Greater China flat YoY.

Apple attributed this "primarily to lower net sales of iPhone, partially offset by higher net sales of Services and Wearables, Home and Accessories." But much of the decline in sales came from the pandemic, and not from the fiscal Q3; sales in China for Q3 saw 32% YoY growth to 7.4 million iPhones, just a fraction of Huawei's 36.6 million phones (+14% YoY).

China is still a very important market for Apple products - as the third largest revenue driver and the second largest contributor to net income on an operating margin basis.

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Comments (18)

Nick Cox profile picture
I agree.

Trump is the single biggest threat to Apple's stock price right now.His blundering anti-Chinese policy is just aimed at shoring up his vote for November and so far the Chinese have been very restrained in their reactions to the aggressive talk.

Tim Cook is probably telling them right now to lie low and hopefully this nationalistic nonsense from Trump will be over come the election.Of course he might win then who knows.....
History shows that some people sell to these fears and the ones that buy in at that time get rewarded most.
Maybe I’m missing something here, why can’t these bans only affect phones used in the U.S. and leave China alone? Sure, it would block international applications between the U.S. and others countries, but the revenue loss would be greatly reduced. I don’t use any of these apps because I have never trusted them in the first place due to the constant scams and compromised accounts. The same reason I don’t use Facebook, I’m old school and value my privacy.
Yawn! The ban is for doing business in the US. Not China! More clickbait!
ChuckXX profile picture
Damien; Is there a way to find out what Apples gross revenues were in India last year??? Also what kind of real potential does India offer??
Mobility Matters Research profile picture
@ChuckXX Did not see any specifics about India in the 10-k/10-q, although it is reported under the Europe segment
dgee99x profile picture
Hope AAPL can be resilient to Trump's new anti China rules
@dgee99x : Apple only needs to hold out about another 5 months. By then I believe Trump's policies will be gone and we can get back to a normal life.
Larry, a Futurist profile picture
Trump can attempt to directly regulate Apple in the US, however, banning apps or software from iOS without banning them from Android is discriminatory and unconstitutional. (Not that Trump pays attention to the US Constitution.) Trump also doesn’t have the authority to ban Apple from allowing users outside of the US from installing software on their devices.
Agreed, this is much ado about nothing. Trump will try to make it a worldwide ban but can’t pull it off. What Trump can do as his plight gets more desperate is slap heavier tariffs on all imported phones, etc. from China. This will affect AAPL.
My understanding is that the WeChat ban is only affected in the US.

You as Chinese can buy iPhone and still download/use WeChat in China.
Mobility Matters Research profile picture
@MassiveAttack1987 Because ‘WeChat’ is unavailable in China, since it’s the international version. Weixin is the mainland China version and is unaffected as of now.
Some things just have to be done! Cheating to get product will offset half.
There is a powerful coalition of gaming companies eg Epic (Fortnite) and others who are getting quite tired of paying the 30% “commission” that Apple charges as “services” revenue. It may have the best handsets but platforms are only valuable as the content on them. If we see a sustained push by companies to use regulatory anti monopoly mechanisms, boycotts, consumer agitation in addition to the Us/China new tech Cold War related national security oriented bans, I’d say the ecosystem and thus services face much more risk than is being discounted in the market. Add to that all time highs in the stock, P/E in the 30s - the risk/reward seems either balanced (/if you take into account the upcoming 5G upgrade cycle), or poised more to the risk side with more downside potential than is being accounted for.
Raysab profile picture
@SMF_USR doubt Epic ban will make any difference, devs pay for hardware owners or digital stores 30% either on IPhone, Xbox or PlayStation add to that Epic partly owned by Chinese Tencent
@SMF_USR You should sell all of your Apple shares. Yes that’s a good idea.
ChuckXX profile picture
I think the attack on Apples 30% commission fee is a great example of socialism at work. These companies can just go elsewhere and take their apps with them. Whats Androids phone number??? Telling someone how much they can charge for a service or a product is nothing more than a form of socialism at work.
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