China’s widening curbs on iPhone use by government staff intensified a sell-off in global tech stocks on Friday on fears Apple and its suppliers could take a hit from rising Sino-U.S. tensions and growing competition from Huawei.
Apple shares (AAPL-Q) tumbled 6.4% in the previous two days, wiping $190 billion from its market capitalization, following news Beijing ordered some central government employees in recent weeks to stop using iPhones at work.
Several Wall Street analysts on Friday said the selloff was overdone, claiming that any revenue hit for Apple would likely be small due to the phone’s popularity in China. After two days of declines, Apple shares rebounded in Friday trading, up 1.3%.
Apple is facing stepped-up competition from China’s Huawei, which launched two new smartphones - the foldable Mate X5 and the Mate 60 Pro+ - that drew global attention for showcasing resilience to U.S. sanctions.
Some analysts believe Huawei’s moves could be a first step in comeback efforts by China’s “national champion” to rival Apple after it took some market share following U.S. sanctions rolled out four years ago. Apple is set to roll out a new iPhone on Tuesday following a weak quarter for sales of its flagship product.
“We believe Huawei’s activity this time was well prepared and not sudden,” said Ivan Lam, an analyst at Counterpoint, whose outlook for the new products exceeds previous estimation. “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 behind the Americas and Europe, in an otherwise tough period for iPhone sales. Huawei’s smartphone business was decimated after the United States curbed tech exports to it in 2019.
Apple’s sales in China this year have been helped by rare deals launched by its third-party retailers in February that offered discounts on its iPhone 14 Pro by as much as 10%. However, analysts told Reuters that those discounts could end up undermining sales of Apple’s new products set to launch in the coming days.
In Taipei, Apple supplier Largan Precision, which makes camera lenses, dropped more than 4%, while contract chipmaker TSMC fell 0.6% on Friday. China’s Luxshare Precision Industry, owner of factories capable of making iPhones, fell 2%.
Shares of U.S.-based Apple suppliers were little changed on Friday, with Qualcomm up 0.1% and Broadcom down 0.4%.
Huawei suppliers extended recent gains. Shares in Semiconductor Manufacturing International Corp (SMIC) , which is believed to have made the advanced chip in Huawei’s new smartphone, rose 0.7%.
It was not immediately clear how wide China’s iPhone curbs are, but one employee at an affected state-owned enterprise (SOE) in the capital said they extended to visitors.
“Anyone, including business visitors, who enters our work area cannot bring in their iPhones,” said the source, one of two SOE employees who said they were told of the ban in recent weeks.
The source, who spoke on condition of anonymity, said the company was giving employees a subsidy of 100-200 yuan ($13-$26) to switch to local brands. Some staff at other SOEs, however, told Reuters they had not been banned from using iPhones.
While the number of central government employees is not public, Bank of America estimated that such a ban could cut iPhone sales by 5 million-10 million units a year from China’s annual total of up to 50 million.
Huawei’s smartphone sales driven by the new Mate 60 Pro could jump 65% this year to 38 million in the absence of some “non-commercial risks,” said Ming-Chi Kuo, an analyst at TF International Securities.
However, Canalys analyst Nicole Peng said Huawei could present a greater threat to domestic peers, and Morgan Stanley’s Erik Woodring on Friday said, “Apple’s ecosystem in China remains very strong,” with the average iPhone owner in China owning 2.5 Apple devices.
Several Wall Street analysts said the curbs showed that even a company with a large presence in China and good ties to the government is not immune to rising tension between the two nations. Apple has shifted some production out of China in the aftermath of the country’s strict COVID-19 restrictions.
“The only way Apple could draw the ire of Beijing is moving supply chains out of China at a pace or to a degree Beijing feels uncomfortable with,” Evercore ISI strategist Neo Wang said in a note.
“If that is the case, it shouldn’t be a surprise for Beijing to punish Apple by playing the ‘security’ card excessively. It is unclear whether what we are seeing now is part of this,” Wang said.
Washington is trying to limit China’s access to key advances, including cutting-edge chip technology, and Beijing wants to cut reliance on American tech.
A teardown by research firm TechInsights showed more China-made chip components in the Mate 60 Pro than previous models, a sign of Beijing’s progress.
The U.S. Commerce Department is seeking more information on the “character and composition” of the new Huawei chip that may violate trade curbs, it said on Thursday.
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