One week after Groundhog Day, Apple (AAPL) investors likely feel like Bill Murray as another story about China hits the presses.
The U.S. tech giant has apparently become the proxy for the Sino-American trade war, as its losses in the Chinese market far outpaced the rate of the overall Chinese slowdown in smartphone purchases.
Market research firm IDC said Apple's iPhone sales fell 19.9%, cutting its market share to 11.5% and pushing it into fourth place in the world's most populous market. Huawei, the apparent adversarial proxy, remains at number one as shipments of its phones rocketed upward 23.3% in the December quarter.
IDC: Apple's shipments in China fell by 20% in the fourth quarter due to market shrinkage pic.twitter.com/Nl31m9iLSn— China Tech News (@ChinaTechMoney) February 11, 2019
Apple's revenue from China dropped from around 18% of total revenues to around 11.4% over the course of 2018 as the trade war intensified, according to Statista. That is a far cry from the first quarter of 2015, when the market surpassed Europe as a revenue driver for the company and was latched onto as a thesis for long term growth.
"Apple is increasingly participating in international markets, such as China and India, where local players, which are better situated, could leverage their position and pull on levers such as pricing to make the market more competitive," JP Morgan analyst Samik Chatterjee said in a note last week. "In addition, tariffs enacted by local governments may further hurt Apple's ability to effectively compete in international markets."
Those risks appear to be coming to the fore as the battle for China between Apple and Huawei appears to be a zero-sum game.Not So Quiet on the Western Front
The battle has broadened as well, as the Far Eastern bloc of Chinese influence has drawn criticism from more Western nations than just the U.S. For example, Canada is currently considering a full ban on Huawei's proposed provision of 5G network rollouts.
Australia and New Zealand have also taken action to ban Huawei from similar 5G efforts amid reports from The Australian accusing Huawei of participating in state-sponsored spying in Oceania.
In Europe, Germany, France, the Czech Republic, Poland, Denmark, and the UK have already taken bans under consideration while the EU governing body considers a de facto ban.
U.S. Secretary of State Mike Pompeo is expected to further lobby for bans in a state visit to EU member state Slovakia.
The visit is significant as Huawei Technologies has plans to open a logistics center in Slovakia's Visegrad ally Hungary in order to more firmly establish itself in the EU. Adding to its Visegrad fortress, the company has offered to build a cyber security center in Poland, despite the recent arrest of a Huawei employee for suspected spying activity.
The Czech Republic, the fourth member of the Visgegrad alliance, alongside Poland, Hungary, and Slovakia, has already fielded major warnings from its security services, despite the protestations of President Miloš Zeman.
"We gathered a whole file of information, and when we looked at it, we found out there was nothing else to do but give a warning," Cybernetics and Information Security (NÚKIB) chief Dušan Navrátil said in an interview with Czech news outlet Pravo. "Who controls the 5G network will have a fundamental influence on the working of the state. If it is a foreign actor, which would act in the interests of its own state and not ours, it will be a major problem."
Navrátil's office has not responded to TheStreet's requests for comment.
The expectedly pointed criticism of China's largest company in an already wary Eastern Europe should not do much to alleviate tensions as U.S. officials prepare for meetings later this week.Apple Implications
Those meetings will indeed be pivotal for those looking for trade compromises as a key catalyst for Apple.
U.S. Trade Representative Robert Lighthizer and Secretary of the Treasury Steven Mnuchin will travel to Beijing to kick off meetings on February 14, according to a White House statement.
As Huawei is further pressured by Western nations, it would stand to reason that China will pull all of its available levers to curb Apple's ability to capitalize on its domestic market.
To be sure, shares of Apple did not react to the news in morning hours, suggesting that Tim Cook's letter blaming China helped brace the market for another spate of bad news.
"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China," Cook warned investors in early January. "In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad."
Cook highlighted the services revenue segment, which is soaring to record profits, as a mitigating factor to these macro headwinds. At the least, it tempered market expectations for progress in the nation.
Still, as the majority of the company's profits are derived from smartphone sales and China remains the largest market in the world for these products, the story line for the tit-for-tat between the world's largest smartphone manufacturers at the center of a spat between the world's two largest economies is a monumental one to keep an eye on.