Apple earnings would plummet by 30% if China banned it: Goldman Sachs

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The CyberGuy Kurt Knutsson and LJH Investment Advisors Managing Director Larry Haverty debate the outlook for Apple.

If China banned Apple from operating within the country amid inflamed tensions with the U.S., the company’s bottom line could drop up to 29 percent, or $3.35 per share, according to a Goldman Sachs note to investors.

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Both Huawei and Apple have been caught in the crosshairs of the U.S.-China trade war, although It’s unclear whether Beijing would ban or restrict Apple products in retaliation for President Trump’s executive order last week which barred U.S. companies from supplying Huawei Technologies without first obtaining permission from the federal government.

China accounts for about 17 percent of Apple sales and profits, or about $10.22 billion. Although Apple stopped disclosing unit sales of iPhones, iPads and Macs in 2018, it sent about 39 million iPhone shipments to Greater China into 2018, with around 83 percent headed into mainland China.

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“We believe that Apple is near its annual rapid ramp of new iPhone production to prepare for new device launches in the fall, so even a short term action affecting production could have longer term consequences for the company,” Goldman Sachs analyst Rod Hall wrote in the note.

Because most of Apple's supply chain is based in China including final assembly at Foxconn), China too y could face some unintended side-effects.

“Should China restrict iPhone production in any way, we do not believe the company would be able to shift much iPhone volume outside of China on short notice, though actions that would push Apple production outside of China could have negative implications for the China tech ecosystem as well as for local employment,” Hall said in the note.

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Already, Apple’s stock has taken a hit this year. At Tuesday's close its shares were down close to 12 percent from this year’s high in May. U.S. stocks were also lower in morning trading on Wednesday.

Although a U.S.-China trade deal appeared imminent a few weeks ago, tensions erupted when Trump said at the beginning of May that the U.S. would raise tariffs on $200 billion of Chinese goods to 25 percent. China responded by imposing another round of tariffs on $60 billion worth of U.S. goods.

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