Is now the time to resume the US-China trade war? Not according to Wedbush analyst Daniel Ives. The 5-star analyst argues a new US Commerce Department directive to halt the shipment of US semiconductors to Chinese tech giant Huawei, represents “a ‘doubling down’ on sanctions against this major Chinese smartphone artery.”
In retaliation, according to China’s Global Times, Chinese authorities are considering putting specific US companies, including Apple (AAPL), on an “unreliable entity list,” thereby positioning Apple and its peers in the middle of the renewed trade battle crossfire.
Taking a step back, Ives said, “The last thing any already white knuckle tech investor wanted to see in the middle of a once in a century global pandemic/lockdown is a ratcheting up of tensions between US and China aimed at semis and the overall tech sector that have been an instrumental part of the market rally over the past month despite dark storm clouds.”
Apple’s reliance on a functioning US-China relationship cannot be underestimated, and the renewed hostilities could affect the giant from Cupertino like possibly no other US company. Apart from its role as the manufacturing base for 95% of Apple products, China provided $9.5 billion of revenue for the iPhone maker in the company’s fiscal second quarter.
So, what next? Apart from getting caught in the crossfire, Apple is getting squeezed from both sides of the supply and demand equation.
From a demand perspective, China, a growing consumer base, is set to provide Apple with approximately 20% of iPhone upgrades over the next 12-18 months, amounting to an estimated 60 million to 70 million in iPhone sales.
Flip to the other side, and supply wise, should developments take a particularly nasty turn, Ives estimates Apple “would only be able to move 5%-7% of iPhone production to India/ Vietnam over the 18 to 24 months.”
However, Ives currently believes such a scenario is unlikely, and noted, “While uncertainty will add to an already worrisome near-term situation around the global demand picture for Apple, the fundamental impact on iPhone production and the potential backlash in the region thus far is more bark than bite at this point in our opinion.”
Ives has an Outperform rating on Apple, to go along with a $350 price target, which implies an 11% upside, should the target be met over the coming months. (To watch Ives’ track record, click here)
The rest of the Street is hardly less enthusiastic. 4 Holds and 1 Sell are countered by a resounding 28 Buys. The average price target is $317.92 and represents only modest upside of 1%. (See Apple stock analysis on TipRanks)