Apple stock (AAPL) tumbled nearly 6% Monday after two separate actions from the U.S. Supreme Court and Chinese trade authorities posed growth challenges to both its hardware sales and its growing services revenue.
US-China Trades War
China would retaliate against Trump after the move to raise import tariffs on $200 billion worth of Chinese goods from 10% to 25% last Friday.
Apple has one of the most significant exposures to Chinese exports to the U.S., given that final assembly for many of its consumer devices is located in China.”
US Supreme Court Ruling
A 5-4 vote in the U.S. Supreme Court ruled that an antitrust case brought by iPhone consumers against Apple could move forward. The case centres on a 30% commission that Apple takes on sales of iPhone apps in its App Store, which plaintiffs are arguing pass on to consumers in an unfair use of monopoly power. Apple has argued that only developers can raise such a case, but the ruling, written by Brett Kavanaugh, decided otherwise.
Monday’s one-two punch is especially tough on Apple because the Silicon Valley giant is in the midst of a slow, difficult transition from being a hardware-based business to a service-oriented organization. After a dozen years of torrid growth, iPhone sales have begun to slow, with consumers hold on to their smartphones for a longer period of time. To adjust to the slowdown, Apple has raised prices on its newer iPhones, while pushing for more service revenue through subscriptions and its App Store.
The Dow Jones Industrial Average and the S&P 500 Index to each fall 2.4% on Monday. Apple’s stock, meanwhile, fell more than twice as much, stripping about $50 billion out of its market cap. As of the close of the market Monday, Apple’s stock had fallen 13.7% since the beginning of May.
Despite the selloff, Apple’s bad day could have a limited impact, should a court rule in Apple’s favour and if the U.S. and China avert a full-blown trade war. On the other hand, it could be months before these two issues are resolved.
Just two weeks ago, when Apple reported earnings on April 30, Cook said, “There is an improved trade dialogue between the U.S. and China… We certainly feel a lot better than we did 90 days ago.” But today’s events make one thing clear: A lot can change in 90 days or even in one.