“Apple shares plunged more than 5% on Tuesday after China’s central bank moved to devalue its currency, the yuan,” Adam Levine-Weinberg writes for The Motley Fool. “The 2% devaluation represented the first time China had devalued its currency in more than two decades. The yuan fell about 1% further on Wednesday.”
“China is an important and rapidly growing market for Apple. Last quarter, Apple’s sales in the Greater China region — which includes Hong Kong and Taiwan as well as mainland China — more than doubled year over year. The region accounted for 26.7% of Apple’s quarterly revenue,” Levine-Weinberg writes. “The pessimists believe that this large and growing revenue exposure to China means that a weaker yuan could hurt Apple’s sales growth.”
“While a big devaluation in China could hurt Apple’s revenue, a 2%-3% currency swing would not normally be news. It has only attracted attention because China manages its currency so tightly and hasn’t devalued it in a long time,” Levine-Weinberg writes. “Last month, Apple CFO Luca Maestri noted that falling foreign currencies created an 800 basis point revenue headwind last quarter. Apple still reported strong results. By contrast, the recent yuan devaluation would impact Apple’s revenue by less than 100 basis points: not an especially significant amount.”
“Most of the market seems to be overlooking the cost benefits that Apple is likely to get from a cheaper yuan,” Levine-Weinberg writes. “Not only are most Apple products assembled in China, but the vast majority of the components are made there, too. This means that it’s cheaper to make iPhones and iPads now than it was at the beginning of the week.”
Read more in the full article here.
MacDailyNews Take: As we wrote yesterday:
Perhaps, especially with the strength of Apple’s brand in China, the gain on production costs will outweigh whatever pain Apple might feel in China sales? Apple in China, as in most places on the planet, is an aspirational brand. If you really want an iPhone and the status that comes with it, a fake iPhone from Xiaomi simply isn’t going to cut it.
Here’s what clobbered Apple Tuesday – August 12, 2015
Stock futures slump as China further devalues the yuan – August 12, 2015
Apple poised for pain – and gain – on China’s move to devalue the yuan – August 11, 2015
Morgan Stanley: This is your chance to buy shares of Apple at a discount – August 6, 2015