Apple (AAPL) shares are undergoing a selloff — shaving off $200 billion of market value in just two days — after the Chinese government restricted officials' use of iPhones for work and Huawei unveiled its new Mate 60 Pro smartphone.
Rhodium Group Director Reva Goujon explains the concerns Huawei's new advanced chips present to U.S. regulators and how Apple is getting caught in the middle of various export controls.
"China has intent to showcase when it has technological breakthroughs," Goujon says. "There's some question over to what degree does this actually represent a breakthrough and an ability for heavily-sanctioned Chinese firms like Huawei to circumvent U.S. export controls and sanctions."
Video Transcript
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AKIKO FUJITA: Well, Apple was getting hit by a reported crackdown on iPhone use in China. The "Wall Street Journal" reporting Beijing is implementing a ban for government employees. And now Bloomberg reporting the ban could expand beyond government workers. This all comes as Chinese smartphone maker Huawei unveils its newest smartphone. And a teardown reportedly shows that the phone's chip is more advanced than initially thought.
Let's bring in Reva Goujon, Rhodium Group Director. Reva, can we first talk about the timing of all of this in terms of these reported bans that could be coming? We had the Huawei release of the Mate 60 last week. We had the visit by the commerce secretary. Is all this connected? Are we reading too much into it?
REVA GOUJON: Well, I don't know how closely related the commerce secretary's visit would be to this. There was certainly an attempt by both China and the US to put a very positive spin around what legitimately transpired through those meetings during Secretary Raimondo's visit. But when we look at the timing of the Huawei announcements and what was revealed in the teardown, naturally, you know, China has intent to showcase when it has technological breakthroughs.
There's some question over to what degree does this actually represent a breakthrough and an ability for heavily sanctioned Chinese firms like Huawei to circumvent US export controls and sanctions. But at the same time, every time we see a revelation like this, it also very quickly leads to a tightened US policy response. And, honestly, it's deja vu.
If you remember last year in August, there was a tear down. And that showed that SMIC was producing a 7-nanometer chip that got a lot of attention in Washington. October 7 is when we had major export controls come down on semiconductors. And so it'll be very important now looking forward to see how that US policy response is shaped with existing controls and where those tighten up.
AKIKO FUJITA: So we can talk about the export controls in a bit. But how did Apple get caught up in this? What do you think has motivated this move? If we take the reports at face value, is it about a tit for tat given how the US has cracked down on Chinese smartphone makers like Huawei, but also chip makers? Or is there something more given Apple's massive presence?
REVA GOUJON: Well, we'll have to see what the formal Chinese directive ultimately says. Right now, there's just a lot of source reporting on this. But, you know, Apple has been in a pretty tenuous position in China so far. It's been a balancing act, you could say, where some 19% of their revenue comes from the China market. It's obviously very important.
Apple has also been at the forefront of diversification efforts, for example, in expanding into manufacturing in India. And it's been trying to balance that with what it's been doing in the China market. Remember, Apple at one point was considering incorporating Chinese-made YMTC chips into Apple smartphones for the China market until US regulators latched on to that. And then Apple backed away from that decision.
And so there's already competition in the smartphone space when you look at Huawei, Oppo, Vivo, other Chinese smartphone makers. And this is also a quick policy measure by China to expand the market for those local Chinese chip makers and handset makers. And so this is obviously something that's going to undermine Apple's market share potentially in China.
There is a question, though, of how far this spreads. There's a difference between a Chinese consumer and their personal preference for a smartphone, whether they'll continue to opt for the Apple iPhone or whether this more nationalist push, of course, to get state agencies, state-owned companies to not use iPhones will that bleed into more of the private consumer space or not.
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September 08, 2023 at 04:00AM
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