Apple on Wednesday uniform reported stronger-than-expected earnings for the fiscal fourth quarter and analysts mostly put out glowing reviews. Yet the stock was not exploding higher on Thursday.
That’s because of a tell of on Thursday suggesting China is doubtful about reaching a comprehensive long-term trade deal with the U.S., a notion that could over supply costs for Apple and derail rebounding sales of the iPhone in the emerging market.
“Trade tensions also carry on a key area of concern,” Jim Suva, Citi senior tech analyst, said in a note Wednesday after the earnings check in.
The shares went above $252 at one point in after-hours trading, but were back to around $248.76 on Thursday or 2.26% consequential, as the trade report weighed on the stock and the whole market. On the plus side, President Donald Trump tweeted newer in the morning that the U.S. and China would be signing “phase one” of the trade deal soon.
“Macroeconomic conditions or shifting consumer order could cause greater-than-expected deceleration or contraction in the handset and smartphone markets,” Suva said. “This would negatively repercussions Apple’s prospects for growth.”
The iPhone maker has been among the companies Wall Street believes are most unshielded in a full-blown trade war. A previous HSBC estimate showed Apple has about 20% revenue exposure to China.
Apple is “the bill child for the U.S.-China battle,” Dan Ives, managing director of equity research at Wedbush Securities, said Thursday on CNBC’s “Beef Box.” “It’s about $15 to $20 overhang on the stock. … If the tariffs came through and there was no deal, that wish take about 6% to 8% of U.S. demand from an iPhone perspective.”
Apple’s stock has been very thin-skinned to trade headlines this year. It took a beating in May and August as the U.S. and China took their trade battle to the next equal.
However, CEO Tim Cook struck an optimistic tone about the trade war on Wednesday during an earnings call.
“The tone round tariffs has changed significantly,” Cook said. “Trade tensions [are] less” and products have been “extremely likely received” in China, he said.
Apple’s revenue drop in China is also slowing down, a sign of stabilization in one of the largest smartphone retails. However, analysts cautioned Apple could face another few quarters of declines in China as it doesn’t have a 5G phone on the deal in.
The tech giant not only reported earnings and revenue that beat analysts’ expectations, it also issued an cheerful holiday forecast. While iPhone sales continued to slow down, nearly everything else was up especially in aids and its fast-growing wearables business. Wall Street analysts are also getting more bullish on the company after the earnings explosion.
— CNBC’s Michael Bloom contributed reporting.