Apple Throws China Under The Bus, And Opens A Pandora’s Box

The cult of Apple finally takes a hit. Tim Cook, the company’s CEO, blamed China for its weaker guidance heading into the first quarter. His comments shed a spotlight on a deteriorating economic outlook for the world’s No. 2 economy. (AP Photo/Bebeto Matthews) photo credit: ASSOCIATED PRESS

Apple is selling fewer iPhones and making less money. Blame China.

“Apple CEO Tim Cook threw China under the proverbial bus,” says Brendan Ahern, CIO of KraneShares in New York. “There is little evidence that China’s economic slowdown is the primary cause of Apple’s woes,” he says, adding that Cook listed other factors for weaker sales, including a strong dollar and lackluster iWatch sales. “The reality is Apple’s phones are expensive relative to local brands, and when combined with a lack of significant upgrades, iPhones are simply not resonating with Chinese consumers,” he says.

Newcomers Huawei and Xiaomi are gaining market share. Third-quarter and year-to-date smartphone sales data from IDC show Apple has been in decline for years, losing to Samsung and local competitors. Here in the U.S., the only real competitor is Samsung. Plus phone carriers like Verizon have protected Apple by offering sweet deals to lure in customers. Apple’s problems are not just because of China. Apple’s fourth quarter will show declines in the U.S. as well, likely leading to a ramp-up of their share-buyback program.

But Tim Cook’s China comments opened a Pandora’s box for China investors and has put the trade war back in focus. Many analysts believe that the tariffs imposed on over $250 billion worth of Chinese imports will start cutting into corporate profit margins in the first quarter. Some companies have already talked about this in third-quarter earnings calls.

With tax cut stimulus wearing thin, capital costs rising and import costs going up, China is one of the biggest headwinds to the U.S. stock market.

China is also slowing on account of economic reforms and the trade dispute with Washington. A weaker China is no longer a theory concocted by the China haters.