SHANGHAI: China’s move to ban central government employees from using iPhones caused Apple’s stocks to tumble on Friday.

On Wednesday, the Wall Street Journal reported that officials of the central government agencies have been ord­e­red to not use iPhones and other foreign-branded devices for work or bring them into the office.

Since then, several other Chinese agencies have issued similar instructions to the staff, according to Bloomberg.

Apple shares have fallen 6.4 per cent over the last two days, wiping $190 billion from its market capitalisation. Several Wall Street analysts on Friday said the selloff was overdone, saying any revenue hit for Apple would likely be small due to the phone’s popularity in China. After two days of declines, Apple shares stabilised in early Friday trading, up 0.9pc.

Beijing reportedly stops central govt employees from using the device

China’s curbs on the iPhone came amid simmering Sino-US tensions even though a vast majority of Apple products — including its flagship smartphone — are assembled in the country.

China has been a bright spot for Apple, its third-largest market behind the Americas and Europe, in an otherwise tough period for iPhone sales.

Apple’s sales in China this year have been helped by rare deals launched by its third-party retailers in February that offered discounts on its iPhone 14 Pro by as much as 10pc.

However, analysts told Reuters that those discounts could end up undermining sales of Apple’s new products set to launch in the coming days.

Apple is also facing stepped-up competition from China’s Huawei, which launched two new smartphones — the foldable Mate X5 and the Mate 60 Pro+ — that drew global attention for showcasing resilience to US sanctions.

Huawei’s smartphone business was decimated after the US curbed tech exports to it in 2019.

Scope of curbs unclear

It was not immediately clear how wide China’s iPhone curbs are, but one employee at an affected state-owned enterprise (SOE) in the capital said they extended to visitors.

“Anyone, including business visitors, who enters our work area cannot bring in their iPhones,” said the source, one of two SOE employees who said they were told of the ban in recent weeks.

The source, who spoke on condition of anonymity, said the company was giving employees a subsidy of 100 to 200 yuan ($13 to $26) to switch to local brands. Some staff at other SOEs, however, told Reuters they had not been banned from using iPhones.

While the number of central government employees is not public, Bank of America estimated that such a ban could cut iPhone sales by five million to 10 million units a year from China’s annual total of up to 50 million.

By contrast, Huawei’s smartphone sales, driven by the new Mate 60 Pro, could jump 65pc this year to 38m in the absence of some “non-commercial risks,” said Ming-Chi Kuo, an analyst at TF International Securities.

However, Canalys analyst Nicole Peng said Huawei could present a greater threat to domestic peers, such as Honor, that have benefited from Huawei’s woes.

Several Wall Street analysts said the curbs showed that even a company with a large presence in China and good ties to the government is not immune to rising tension between the two nations. Apple has shifted some production out of China in the aftermath of the country’s strict Covid-19 restrictions.

“The only way Apple could draw the ire of Beijing is moving supply chains out of China at a pace or to a degree Beijing feels uncomfortable with,” Evercore ISI strategist Neo Wang said in a note.

“If that is the case, it shou­l­dn’t be a surprise for Beijing to punish Apple by playing the security card excessively. It is unclear whether what we are seeing now is part of this,” Wang said.

Washington is trying to limit China’s access to key advances, including cutting-edge chip technology, and Beijing wants to cut reliance on American tech.

A teardown by research firm TechInsights showed more China-made chip components in the Mate 60 Pro than in previous models, a sign of Beijing’s progress.The US Commerce Department is seeking more information on the “character and composition” of the new Huawei chip that may violate trade curbs, it said on Thursday.

Published in Dawn, September 9th, 2023