Apple could pay heavy price as US-China trade war escalates: Citi

Many Chinese buyers will ditch the iPhone amid a spike in Sino-US tensions, warns Citi.

An Apple store in Shanghai. Picture: AFP

Apple could pay a heavy price as the US-China trade war escalates, with Citi warning that the iPhone maker is going to struggle to sell its wares in China.

“We are proactively slashing our iPhone unit sales as we believe the US/China trade situation will result in a slowdown of Apple iPhone demand in China,” Citi analyst Jim Suva told clients in a note.

“Our independent due diligence now shows a less favourable brand image desire for iPhone and this has very recently deteriorated.”

With Chinese consumers expected to ditch the iPhone and favour local brands, like Huawei and Oppo, Citi expects Apple’s iPhone sales and its market share in China to halve.

China represents 18 per cent of Apple total sales and the US tech giant has a 12 per cent unit share in the country. It also derives almost 30 per cent of its profits from the Chinese market.

“Our independent due diligence now shows a less favourable brand image desire for iPhone and this has very recently deteriorated.”

Citi is forecasting a reduction of 7 to 8 million units in the June and Sept quarters and 16 to 17 million units in FY2020. China represents 18 per cent of Apple total sales and the US tech giant has a 12 per cent unit share in the country.

The latest assessment builds on growing concerns that the US-China tensions will take a chunk out of Apple’s business.

Goldman Sachs last week warned that a potential ban on the sale of Apple’s products in China could burn a $US15 billion ($21.6bn) hole in the tech giant’s pockets, with its profits falling by up to 30 per cent.

The Goldman report also pointed to the risk posed to Apple’s production facilities in China, if the Chinese government decides to retaliate against the pressure its home-grown technology success story, Huawei, is coming under.

According to the report, the Chinese government could potentially shutter the facilities, forcing Apple to find alternative production capability in a hurry or risk late delivery of iPhones globally.

Citi, which has kept its Buy rating on Apple, said that Huawei’s troubles in the western market are unlikely to offset the China headwinds for the iPhone maker.

Huawei ships almost 50 per cent of their phones outside of China and has a strong presence in Europe and in the Asia Pacific region. However, with the US government barring it from using technology and services provided by US companies, like Google and Qualcomm, Huawei’s phone business could disappear outside of China.

“Some may feel Apple could offset some of this negative impact with some share grab back outside of China to divert dollar spend away towards other brands given Android operating system suspension worries,” Mr Suva said.

“We would conservatively assume Apple could be a beneficiary and grab 5 per cent of the potential unit sale, however, we believe other Android smartphone makers would take this share rather than Apple.”