A widely-followed Taiwanese stock analyst warns that Apple’s smartphone sales will fall by almost a third if the American giant removes WeChat from its app store under a US government directive.
Ming-Chi Kuo, an analyst with TFI Securities, wrote in an August 10 letter to clients that Chinese customers would shun the iPhone if the WeChat app were not available. China accounts for 30% of iPhone sales and 15% of Apple’s total revenue as of the second quarter of 2020. Kuo’s remarks were first reported by MacRumors, 9to5Mac and AppleInsider.
Kuo follows Apple for TFI Securities, a division of the Taiwanese firm China Development Financial, a banking and brokerage firm with annual revenues of almost US$7 billion. He warned clients in his Monday newsletter: “Because WeChat has become a daily necessity in China, integrating functions such as messaging, payment, e-commerce, social networking, news reading, and productivity, if this is the case, we believe that Apple’s hardware product shipments in the Chinese market will decline significantly. We estimate that the annual iPhone shipments will be revised down by 25-30%, and the annual shipments of other Apple hardware devices, including AirPods, iPad, Apple Watch and Mac, will be revised down by 15–25%.”
Kuo advised TFI’s customers to sell Apple stock along with companies in Apple’s supply chain, including LG Innotek and Genius Electronic Optical.
Apple stock was trading at US$455 at the New York opening before wire services reported Kuo’s recommendation. The stock fell to $442 as of 11 am, a decline of 2.6%.
WeChat’s parent company Tencent (HK 700) lost nearly 10% of its market capitalization on Friday and Monday in Hong Kong trading after President Donald Trump issued an executive order Thursday prohibiting all US transactions via WeChat. It isn’t yet clear whether the order will require Apple to remove the popular application from its platform in China, and Ming-Chi Kuo explained that his projection of a 30% sales drop was a worst-case scenario.
Apple depends heavily on foreign sales, while Tencent makes 96% of its revenues in Mainland China. WeChat has a relatively small following in the United States, mainly among Americans who communicate regularly with China. The steep fall in the company’s stock doesn’t appear justified by fundamentals. Under a worst-case scenario, the impact of the US ban on Tencent’s revenues would be negligible.
Uwe Parpart and I recommended buying Tencent on the dip in our August 8 Global Value Strategist.
In other news, Tencent this week proposed to merge two Chinese game streaming companies, DouYu International Holdings and Huya, Inc, to create a giant firm with a market value in excess of $10 billion. Tencent presently owns 37% of Huya and 38% of DouYu. China’s game streaming market has $3.4 billion a year in annual revenues.