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Technology Stocks : Apple Tankwatch
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From: Jon Koplik12/16/2023 1:55:30 PM
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Bloomberg -- China’s iPhone Ban Accelerates Across Government and State Firms ..........................

Bloomberg

December 15, 2023

China’s iPhone Ban Accelerates Across Government and State Firms

Agencies from Beijing to Tianjin instruct staff to go local

The formal directives follow a general mandate from months ago

By Bloomberg News

More Chinese agencies and government-backed firms across the country have ordered staff to stop bringing iPhones and other foreign devices to work, setting in motion an unprecedented prohibition that’s likely to block Apple Inc. and Samsung Electronics Co. from parts of the world’s biggest mobile market.

Multiple state firms and government departments across at least eight provinces -- including the prosperous coast -- instructed employees in the past month or two to start carrying local brands, according to people familiar with the matter. That’s a major step-up from around September, when a small number of agencies in Beijing and Tianjin began telling staff to leave foreign devices at home, said the people, who asked not to be identified discussing confidential orders.

The much broader, coordinated effort marks a dramatic quickening of Beijing’s campaign to wean itself off American technology, coinciding with the resurgent popularity of homegrown brand Huawei Technologies Co. Xi Jinping’s administration this year decided to expand a ban on foreign devices beyond the most sensitive departments -- a directive that had been in place for years -- to encompass many more government agencies and even state firms, Bloomberg News reported in September.

Apple shares dipped to a session low after Bloomberg reported on the widening bans. The stock fell less than 1% to $197.57 at the close Friday in New York and then declined further in after-hours trading. Apple had reached a record high earlier in the week.

While Chinese software and hardware have gradually replaced American products over the years -- from Microsoft Corp. software to Dell computers and Intel Corp. chips -- the edict threatens to deal a swift and direct hit to Apple’s market share.

This month, smaller firms and agencies in lower-tier cities have issued their own verbal directives, suggesting a much broader movement is kicking in, the people said. The orders originated from cities across at least eight provinces from prosperous Zhejiang, Guangdong, Jiangsu and Anhui to northern Shanxi, Shandong, Liaoning and central Hebei -- home to the world’s largest iPhone factory.

An Apple spokesperson declined to comment. The State Council Information Office and the Cyberspace Administration of China, which oversees online security, didn’t respond to faxed requests for comment.

The Chinese government has previously pushed back on reports about iPhone restrictions, while also raising concerns about the security of the device. “China has not issued laws and regulations to ban the purchase of Apple or foreign brands’ phones,” Foreign Ministry spokeswoman Mao Ning said during a press briefing in September.

It’s unclear how many government agencies precisely have issued directives, nor how widespread they’ve been. Different organizations will likely vary in how zealously they enforce internal edicts, with some forbidding Apple devices from the workplace and others barring their use entirely.

Collectively however, they present a major challenge for Samsung and Apple, which are both struggling to sustain growth in a key market. For Apple, which also uses China to produce the majority of its devices, the country yields about a fifth of its revenue.

Apple gets the majority of the world’s iPhones from sprawling factories run by suppliers like Foxconn Technology Group that together employ millions of Chinese. Chief Executive Officer Tim Cook was the architect of the company’s strategy to outsource manufacturing to China two decades ago. He has worked hard since to maintain positive ties with Beijing, even as Apple has begun shifting more production capacity to other countries including India.

Independent data has indicated that the iPhone 15 is selling worse in the country than the previous model, prompting some analysts to scale back revenue projections.

Analysts believe that part of the slowdown stems from the August release of a Huawei smartphone that contained an advanced made-in-China processor. State media celebrated it as a triumph against US sanctions, while American lawmakers called for an investigation into possible violations of those curbs.

While Apple’s revenue from Greater China fell 2% in the fourth quarter, the company blamed the decline on the iPad and Mac. Cook said the iPhone 15 Pro did well in the region and that is is “very optimistic” about the company’s performance there. Apple still enjoys popularity in China and its devices remain common in both the government and private sector.

Chinese state firms like oil giant PetroChina Co. employ millions and still control vast swaths of a centrally planned economy. The state sector provides jobs for an estimated 80 million people and the figure could have grown by as much as 2 million on a net basis in 2022. Government agencies employ millions more.

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What Bloomberg Intelligence Says

The possibility of weak iPhone sales in China is a risk to Apple’s financial performance in 2024, but our analysis indicates that the $7.4 billion drop in consensus sales since fiscal 4Q23 results adequately accounts for that threat. We expect more press coverage of Huawei’s success in China versus Apple, which is supported by our own smartphone survey, but see little risk of more estimate cuts.

-- Anurag Rana and Andrew Girard, analysts

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Even with US-China ties fraying, the US company is highly dependent on the Asian country -- both as a manufacturing partner and a market for its products. Cook celebrated that relationship during a trip to China earlier this year, calling it “symbiotic.”

But the blockade on the devices is the culmination of a years-long effort to root out foreign technology in sensitive environments, and coincides with China’s push to become self-sufficient in critical areas.

In 2022, Beijing ordered central government agencies and state-backed corporations to replace foreign-branded personal computers with domestic alternatives within two years, marking one of the most aggressive efforts to eradicate key overseas technology from within its most sensitive organs.

-- with assistance from Steven Yang and Debby Wu

© 2023 Bloomberg L.P.

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