Apple stock (NYSE: AAPL) fell to a 52-week low last week amid the tech sell-off. The soaring COVID-19 cases in China are not helping matters for the iPhone maker.
Despite the recent fall, Apple is still the best-performing FAANG stock of 2022. It has lost around a quarter of its value this year and the market cap is now at $2.1 trillion. Notably, Apple’s market cap hit the milestone of $3 trillion on the first trading day of 2022 only.
However, it turned out to be a tough year for the stock and it even briefly lost its status as the world’s largest company to Saudi Aramco. Meanwhile, it is not that only Apple is having a tough year. The performance of other FAANG stocks has been even more dismal.
Both Netflix and Meta Platforms have lost over half of their market cap this year and the latter is among the bottom 10 S&P 500 losers. Amazon has lost its status as a trillion-dollar company and earned the dubious distinction of losing $1 trillion in market cap.
Analysts saw Apple as safe haven in an otherwise gloomy tech sell-off. Even Warren Buffett, whose Berkshire Hathaway is the second-largest Apple stockholder, added more AAPL shares in the first half of 2022. There is a guide on how beginners can buy Apple stock.
China Woes Take a Take a Toll on Apple Stock
The COVID-19 cases in China have soared after the country relaxed its zero-COVID policy. There are fears that Apple’s production in China would be hit further amid the rapid spread of coronavirus.
Bindiya Vakil, CEO of Resilinc, California-based which provides supply chain mapping services said, “We should be seeing a lot of operations get impacted by absenteeism, not just at factories, but warehouse, distribution, logistic and transportation facilities as well.”
Notably, Apple iPhone production was hit after the COVID-19 outbreak at Foxconn’s factory in Zhengzhou. Reportedly, it was Foxconn that prevailed upon China to relax its zero-COVID policy.
iPhone 14 supply was hit during the Thanksgiving week and reports suggest that wait times for some iPhone 14 models is over three weeks. For the long term, Apple is planning to diversify its sourcing to countries like India and Vietnam.
Apple is Looking to Diversify Its Supply Chain
India is offering incentives to electronics manufacturers as the country seeks to capitalize on the “China plus one” sourcing strategy that many US companies are contemplating. Indian stocks are also outperforming global markets this year amid a strong domestic economy. We have a guide on how beginners can buy stocks in India with a regulated broker.
Meanwhile, Apple wouldn’t find it easy to diversify from China given the country’s impeccable manufacturing ecosystem, which is tough for other countries to emulate. Counterpoint Research believes that Apple would take years to diversify its production away from China.
During its most recent earnings call, AAPL said that its revenue growth in the current quarter would be below the 8.1% growth that it posted in the September quarter. Incidentally, during the earnings call, Apple said that its supply chain has improved. However, the rising COVID-19 cases in the country have changed the picture.
Analysts now expect Apple to post revenues of $123 billion in the December quarter, 0.7% lower than the corresponding quarter last year.
AAPL is Facing Pressure Over App Store Policies
Apple’s App Store policies have long been under a scanner over the alleged monopoly. The company would now allow alternate app stores on its iPhones in Europe under pressure from the regulators. Even Elon Musk faulted Apple’s App store policies for the massive fees that the company charges.
Twitter incidentally started charging a higher fee for subscriptions on Apple iPhone. Meanwhile, some analysts are not too perturbed with Apple allowing third-party app stores on its phones and believe that most users would stick to the official Apple App Store only.
The troubles in China are meanwhile a challenge for Apple as along with production snags it could also hamper demand for AAPL products in the country.
The growing tensions between the US and China is another challenge for Apple. In the past, the company has said that the impact of boycott calls has been minimal on its sales.
However, with the rivalry between the world’s two biggest economies showing no signs of abating, companies like Apple and Nike, which count Apple as a key market as well as a sourcing hub, could face the heat.
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