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Trade war

One-third of Apple earnings at stake if China retaliates: Goldman

Wall Street outlines risks for US smartphone maker following Huawei ban

Goldman Sachs estimates that Apple could suffer a 29% drop in earnings if China retaliates against the U.S. ban on Huawei.   © Reuters

NEW YORK -- Apple faces a threat to nearly one-third of its earnings if the U.S. export restrictions against Chinese company Huawei Technologies prompt retaliation by Beijing, Goldman Sachs has warned.

The American tech giant's earnings per share could dip as much as 29%, or $3.35, if China restricts the sale of Apple products, Goldman estimated in a report Wednesday.

Greater China accounted for 17.6% of Apple's net sales in the first quarter of 2019. Goldman based its calculations on the premise that around 95% of these sales come from mainland China and Hong Kong, citing market research firm Gartner.

Goldman said it takes no view on the likelihood of such a ban or other restrictions on Apple's sales in China, but thinks that production activity in the country likely will not be affected. The investment bank lowered its price target for Apple to $178 from $184.

Washington unveiled dual actions last week targeting Huawei. The Department of Commerce added the Chinese tech company to its Entity List, essentially barring it from receiving American exports, while President Donald Trump signed an executive order clearing the way for a ban on Huawei's inbound business in the U.S.

Credit Suisse said Tuesday in an equity research report on Apple that it sees "increased risk of retaliation" from China after Huawei's inclusion on the Entity List. Every 5% decrease in Greater China sales for Apple equates to about a 15-cent drop in earnings per share, the report said.

The Trump administration this month also raised tariffs on $200 billion of Chinese goods to 25%. Though Apple's products largely fall outside the scope of these current tariffs, Credit Suisse said it is concerned with the U.S.-China trade war's rippling effects on local demand and implications of a further escalation.

Apple already is struggling in the Greater China market, with sales in the region declining 22% on the year during the first three months of 2019 -- a second consecutive quarterly slowdown.

"Deeper structural issues for Apple in China," including aggressive local competition and a narrower ecosystem advantage, "will likely take more than a trade war detente to solve," the Credit Suisse report said. "We don't expect a meaningful turnaround prior" to a 5G wireless rollout.

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