China iPhone Ban: Impact on Apple’s Market Dominance

Despite being a key player in the tech industry, Apple is increasingly entangled in the escalating economic conflict between the world’s leading economies. Among global public companies, Apple maintains its reputation as the largest in terms of market capitalization, but recent events, such as the ‘China iPhone Ban,’ suggest that its substantial presence in China could be at risk.

The Wall Street Journal and Bloomberg recently declared that Apple and other foreign origin devices have been prohibited for use by employees at Chinese government agencies, state-owned enterprises, and other affiliated groups. This decision could severely impact consumer purchase behavior in a country with a populace exceeding 1.4 billion.

According to 2021 figures from the China’s National Bureau of Statistics, about 56.3 million urban employees work for state-owned entities. Considering these roles offer a wage premium of 8% above the national urban average, this demographic makes for a meaningful target market for Apple, which is known for its premium offerings. Moreover, with Apple shipping approximately 230 million iPhones worldwide every year, the prospect of losing this substantial customer base is concerning, particularly in the context of the every slowing global smartphone market.

Further pressure was added when Huawei Technologies, a Chinese multinational, introduced its new smartphone, Mate 60 Pro. Despite US embargos on the advanced chips required for such devices, Huawei claimed to have achieved 5G-compatible speeds and reported that stocks of the new phone sold out within hours. The Mate 60 Pro unveiling occurred just prior to Apple’s announcement of its yearly iPhone lineup, possibly reflecting competitive strategic signalling.

Owing to these shifts, Apple’s share price plummeted nearly 7% over two days, corresponding to a loss of almost $194 billion in company market capitalization. Although it is early to gauge the effects of the purported iPhone prohibition and its effects, there could be some relief given China’s potential reluctance to adversely affect a significant local employer amid resurging unemployment rates.

Apple’s growth trajectory had remained steadfast as the stock price increased by 46% in the leadup to the unsettling news. Notations from FactSet also revealed that for the first time in 18 months, Apple’s shares had surpassed Wall Street’s median price targets just ahead of the release of its quarterly results in August.

This setback occurs in the context of an ongoing struggle that Apple has been confronting in its third largest market, accounting for 19% of total company revenue (as of the year ended June). Despite numerous challenges, China still hosts the bulk of the company’s manufacturing operations, and more than half of Apple’s revenue emanates from iPhone sales. This dependency ironically exposes Apple to the increasing hostility between the U.S. and China. The latter has retaliated against the U.S.’s severe constraints on exporting advanced tech components by restricting operations of American firms like Micron.

Additional retaliatory tactics by China include delaying approval for significant mergers and acquisitions, thereby curbing growth strategies for major U.S. semiconductor companies such as Qualcomm, Intel, and Applied Materials.