An Apple phone without WeChat is useless in China, analysts predicted a sharp drop in iPhone shipments

10 Aug, 2020 22:40
source: Singularity Financial

Singularity Financial Hong Kong August 10, 2020 – Apple suppliers in Hong Kong and China declined on Monday, after analysts predicted Donald Trump’s ban on WeChat could lead to a sharp drop in iPhone shipments, as the American technology giant may have to remove the popular app from its App Store.

On the mainland, Shenzhen-listed Luxshare Precision Industry, which derives 55 per cent of its income from Apple, plunged by as much as 7.7 per cent in early trading, before paring some of the losses, to close 2.3 per cent lower at 52.43 yuan. GoerTek, a producer of the AirPods wireless earbuds, fell 1.6 per cent to 38.01 yuan.

Hong Kong-listed AAC Technologies, which counts on Apple for 40 per cent of its revenue, dived 5.6 per cent to HK$57.8. AAC makes acoustic components for Apple’s iPhones, iPads and watches.

Handset assembler BYD Electronic International, which analysts expect to start supplying Apple as soon as this year, plummeted 7.5 per cent to HK$31. Sunny Optical Technology, a maker of camera modules also expected to become an Apple supplier, retreated 2.8 per cent to HK$140.7.

“The US government’s blacklisting of WeChat would have the greatest impact on iPhone among Apple’s products,” said TF Securities International analyst Kuo Ming-chi, who has become famous for his accurate predictions about Apple’s product development, in a report published on Sunday.

If Apple is required to remove WeChat from the App Store because of the executive order, iPhone shipments could decline by between 25% and 30% in a worst case scenario, Kuo writes in his report. Annual shipments of other Apple products like the Mac, Apple Watch, and AirPods could also take a 15% to 25% hit, according to Kuo.

As the order is written, it bans all transactions between US firms and WeChat. This would mean Apple would have to remove the app from the App Store in all territories in 45 days’ time, as Apple would no longer be allowed to have a contractual relationship with WeChat. However, many expect the administration to weaken the terms by that time.

“As WeChat has become a necessity for life in China that incorporates functions from messaging to payment, digital business, socialising and news, we believe Apple’s product shipment in China would decline significantly if this came true,” he said.

In the most optimistic case, however, Apple may only have to remove the app within the US, which would translate into a slight decrease of 3 to 6 per cent in iPhone deliveries globally, according to Kuo.

An Apple phone without WeChat is useless in China

Apple has a significant Chinese customer base, and nearly all of its critical manufacturing and assembly partners are based there. Trump’s ban might not only force Apple to remove WeChat from its App Store — which would destroy Apple’s Chinese smartphone business — it could existentially change how Apple is able to build and sell new products in the future.

It’s hard to emphasize the prominence of WeChat in China. An iPhone without WeChat is effectively not a phone at all for the hundreds of millions of Chinese users that rely on the service — customers on which Apple’s entire iPhone business model relies. If Apple can’t offer WeChat on the iPhone due to Trump’s ban, then much of its Chinese business will almost certainly evaporate overnight.

Apple has already started to feel the initial ramifications here: a 25 percent tariff on five parts for its Mac Pro desktops; 10 percent tariffs on its chargers, the HomePod, AirPods, and Apple Watch; a narrowly dodged 15 percent tariff on iPhones that could have raised the cost of Apple’s most crucial product by $150.

Apple physically can’t outsource its manufacturing anywhere else in the world (and certainly not in the US).  The result is that Apple today is almost exclusively reliant on Chinese manufacturers like Foxconn. It’s so important to Apple that when factories shut down from COVID-19, it caused hiccups down Apple’s entire supply chain — and may even have caused delays for the upcoming iPhone 12 lineup this fall.

While recent developments in India have attempted to lessen Apple’s need to exclusively build all of its hardware in China, it’s a drop in the bucket compared to what Apple builds in — and therefore, would have to export from — China.