Apple suppliers slide due to worries in China, threat from Huawei

SHANGHAI/TAIPEI, Sept 8 (Reuters) – China’s extension of restrictions on iPhone use by government employees accelerated a global sell-off in tech stocks on Friday on concerns over Apple (AAPL.O) and its suppliers could suffer from rising Sino-US tensions and growing competition from Huawei.

Apple shares fell 6.4% in the previous two days, wiping out $190 billion in market capitalization, after news that Beijing ordered some central government employees in recent weeks to stop using iPhones. at work.

Some Wall Street analysts on Friday said the sell-off had been overdone, arguing that any revenue gain for Apple would likely be negligible given the phone’s popularity in China. . After two days of decline, Apple shares rebounded in Friday trading, rising 1.3%.

Apple is facing increasing competition from China’s Huawei, which has launched two new smartphones – the foldable Mate X5 and the Mate 60 Pro+ – that have attracted global attention as shows resilience in the face of US sanctions.

Some analysts believe that Huawei’s move could be the first step in the Chinese “national champion’s” attempt to comeback against rival Apple after it took some market share following US sanctions. US was applied 4 years ago. Apple is set to launch new iPhones on Tuesday after a weak quarter for sales of its flagship product.

“We believe that Huawei’s activity this time was well prepared and not sudden,” said Ivan Lam, an analyst at Counterpoint, whose outlook for new products exceeded previous estimates. “It can manage the psychological expectations of the target consumer group before Apple’s press conference.”

China has been a bright spot for Apple, its third-largest market after the Americas and Europe, during a difficult period for iPhone sales. Huawei’s smartphone business has suffered a decline after the United States restricted technology exports to the firm in 2019.

Apple’s sales in China this year have been supported by rare deals offered by third-party retailers in February, which offered up to 10% off the iPhone 14 Pro. However, analysts told Reuters that those price cuts could reduce sales of new Apple products due to launch in the coming days.

In Taipei, Apple supplier Largan Precision (3008.TW), which makes camera lenses, fell more than 4%, while contract chipmaker TSMC (2330.TW) fell 0.6%. on Friday. China’s Luxshare Precision Industry (002475.SZ), owner of factories capable of making iPhones, fell 2%.

Shares of U.S.-based Apple suppliers were little changed on Friday, with Qualcomm (QCOM.O) up 0.1% and Broadcom (AVGO.O) down 0.4%.

Huawei suppliers extend recent increases. Shares of Semiconductor Manufacturing International Corporation (SMIC), which is said to have produced the advanced chips in Huawei’s new smartphones, rose 0.7%.

THE SCOPE OF OPTIONS IS NOT CLEAR

It is unclear how broad China’s iPhone restrictions are, but an employee at an affected state-owned enterprise (SOE) in the capital said they had extended them to include tourists.

The source, one of two SOE employees, said they were informed of the ban in recent weeks: “Anyone, including business visitors, entering our work areas is not allowed to bring iPhones in. ”.

The unnamed source said the company is subsidizing employees 100-200 yuan ($13-26) to switch to local brands. However, some employees at other state-owned enterprises told Reuters they were not banned from using iPhones.

While the number of central government employees is not disclosed, Bank of America estimates that such a ban could reduce iPhone sales by 5 million to 10 million units per year compared to total annual sales of up to 5 million units per year. 50 million units from China.

Ming-Chi Kuo, analyst at TF International Securities, said Huawei’s smartphone sales driven by the new Mate 60 Pro could grow 65% this year to 38 million units without some “risks” non-commercial risk”.

However, Canalys analyst Nicole Peng said Huawei could pose a bigger threat to domestic peers, and Morgan Stanley’s Erik Woodring said on Friday: “Apple’s ecosystem in China” China is still very strong,” with the average iPhone owner in China owning 2.5 Apple devices.

Some Wall Street analysts say the restrictive measures show that even a company with a large presence in China and good relations with the government is not immune to rising tensions between the two countries. . Apple has moved some production lines out of China following the country’s strict Covid-19 restrictions.

“The only way Apple can anger Beijing is to move its supply chain out of China at a pace or to a degree that Beijing feels uncomfortable,” Evercore ISI strategist Neo Wang said in a statement. note.

“If that’s the case, it’s not surprising that Beijing punishes Apple by playing the ‘security’ card excessively,” said Wang. It’s unclear whether what we’re seeing now is part of this.”

Washington is trying to limit China’s access to key advances, including advanced chip technology, and Beijing wants to cut its reliance on American technology.

An analysis by research firm TechInsights shows more Chinese-made chip components in the Mate 60 Pro than in previous models, a sign of Beijing’s progress.

The US Commerce Department is seeking more information on the “characteristics and composition” of new Huawei chips that may violate trade restrictions, the department said on Thursday.

($1=7.3482 Chinese Yuan)

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