Apple's Stock May Plunge

Apple is among the world’s largest tech companies. It is the most profitable. It also has the highest market cap among all US-based public corporations at $2.1 trillion. While its stock has fallen with the market, the sell-off is not nearly as bad as other mega-cap tech companies. Apple faces a drop in the number of products it sells in China due to a raging spread of COVID-19, affecting millions daily. And the same pandemic could shutter factories that assemble its products. This will cause customers worldwide to wait long periods when they want to buy an Apple product. Apple faces a perfect storm unlike anything in the recent past. This could trigger a sharp drop in its share price.

The revenue stakes for Apple are very high in China. Smartphone sales in the country are about 70 million a quarter. Apple’s share of those reached 36% in the third quarter of this year, according to “9 to 5 Mac.” This is a record. The launch of the iPhone 14 is given credit. The Chinese smartphone market is crowded with Samsung and several local manufacturers. For the sake of comparison, Apple sells about 250 iPhones a year. The math shows how critical the problem is.

China’s retailers have faced shutdowns as the virus spreads at an unprecedented pace. People who buy online have to face delivery problems.

Apple also assembles most of its iPhones and iPads in China. Foxconn runs most of these factories. One estimate shows that Apple was short of holiday iPhone supplies by over 10 million units. China’s COVID-19 outbreak will challenge the operations of these facilities again.

What is at stake for investors? Apple’s share price has dropped 25% this year, compared to a 19% drop in the S&P 500. Amazon’s shares are down 49%, and Alphabet’s are off 38%. So far, Apple has dodged the worst of the tech stock market implosion.

The primary reason Apple’s shares have held up so well is that Apple’s quarterly income statements and forecasts for future quarters have been healthy. That will almost certainly change. If so, Apple’s shares may start to fall free.

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