China’s devaluation of its currency plus strong dollar could hit Apple’s Chinese earnings – WSJ

China

China’s decision to devalue its currency – leading to its biggest one-day loss in 20 years – could add to the effect of a strong dollar to hit Apple’s earnings from the country, warn analysts. The value of the yuan dropped 1.9% against the dollar, and a change in the way its value is determined by the Chinese central bank means that further decreases in value are more likely.

Analysts warn that Apple either needs to absorb the difference – reducing its margins on Chinese sales – or increase prices in the country, weakening demand, reports the WSJ … 

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“China’s sudden devaluation confirmed market concerns over China’s economic growth. We expect weaker consumer demand for iPhones in China and Apple may raise its product prices later if China continues to devalue its currency,” said Fubon analyst Arthur Liao.

Although you might expect Apple to benefit from reduced manufacturing costs in China, the majority of its contracts with Chinese suppliers are agreed in U.S. dollars rather than yuan.

Greater China (which includes Hong Kong and Taiwan) overtook Europe to become Apple’s second biggest market after the Americas, the company more than doubling its revenues there – and CEO Tim Cook has predicted that it will overtake the Americas before long.

The currency devaluation will add to pressure from cheaper local competitors Xiaomi and Huawei, which recently pushed Apple back into third place in smartphone shipments in the country.

Image: TNW

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Comments

  1. telecastle - 7 years ago

    This is totally bogus. Devaluation by 1.9% for a non-hard currency like Chinese Yuan is not even worth mentioning. iPhones are luxury items in China, and those who can afford them, can afford to pay a little extra for them. If they devalued the currency by 50%, this could have had some effect. Two percent will not make much difference.

    • yojimbo007 - 7 years ago

      Agree
      Example… As of yestedays 1.9% devaluation of yuan..A 1000$ iphone would cost 1019…
      Now do u believe the chinese customer who was prepared to dish out a 1000 for the phone wont dish out 1019 ..?
      All of this is assuming Apple gets zero benifit with his suppliers and manufactures in china with the stronger dollar.
      But they do ! Which improves their margins overall and everywhere else in the world by the way! !

      And apple also has the option to lower prices in china and transfer the benefits to the chinese consumers if they feel the 19 dollar increase is going to have a material effect on sales.
      Net effect.. Same margins in china….
      Better margins in the rest of the world.
      also
      Lowering yuan improves Chinese exports which helps Chinese economy which helps the consumers splurge.
      And yet look at the dismal picture wall street is painting for Apple !
      Apple is going to be fine.. And right know they are enjoying their buybacks at a nice discount !

  2. John Cooper (@JFC1138) - 7 years ago

    KUO is the WSJ source???? He was off by over five MILLION iPhone units in last quarters manufactured iPhone “miss” wasn’t he? A greater than ten percent whiff and no wonder he’s being paid attention to this quarter…

  3. yojimbo007 - 7 years ago

    How about the benifits apApple gains from a stronger dollar with their China suppliers and manufacturers … Same dollar buys Apple more now !
    This article seens to only look at the one side of the dollar yuan effect…..Stupid !

    • Ben Lovejoy - 7 years ago

      “Although you might expect Apple to benefit from reduced manufacturing costs in China, the majority of its contracts with Chinese suppliers are agreed in U.S. dollars rather than yuan.”

      • yojimbo007 - 7 years ago

        Do you have a source backing this information ?

      • Ben Lovejoy - 7 years ago

        The linked WSJ piece.

      • yojimbo007 - 7 years ago

        Here is an excerpt from another article ;
        One of the comments made on the WSJ report stated that “While the contracts with companies like Foxconn may be in $, they are based on an assumed exchange rate. The $ contract is then adjusted for changes in the exchange rate. Also, a very high portion of parts that Apple buys for their products are also manufactured in China, and will experience similar cost reductions. For Apple, on the whole they will likely benefit from the Yuan devaluation: virtually all of their manufacturing is in China, while a relatively small amount is sold in China.

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Avatar for Ben Lovejoy Ben Lovejoy

Ben Lovejoy is a British technology writer and EU Editor for 9to5Mac. He’s known for his op-eds and diary pieces, exploring his experience of Apple products over time, for a more rounded review. He also writes fiction, with two technothriller novels, a couple of SF shorts and a rom-com!


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