I’ve written several times about Apple (NASDAQ:AAPL) in recent months. The combination of a stock pullback that knocked AAPL stock reeling combined with the company’s first big event of 2022 is a mix of events worth covering. Apple just hit the headlines again, but not for a reason the company would be happy with. Fresh off the news of a new 5G iPhone SE 3 launch, it was announced that Foxconn — the Taiwanese company that assembles most of Apple’s iPhones — is shutting its Shenzhen, China plant due to a Covid-19 outbreak.
The timing couldn’t be worse for Apple. The iPhone SE 3 is expected to be a big hit. Despite being the cheapest iPhone, it packs the same A15 Bionic processor as the company’s flagship iPhone 13 Pro. And it has 5G support.
As I wrote shortly after launch, this new iPhone has the potential to be a needle-mover for AAPL stock. Instead, Apple is now at its lowest point of 2022 and trading at November 2021 levels.
Here’s why Apple has taken another hit.
Does Reliance on China Impact AAPL Stock?
On Monday it was reported that Apple manufacturing partner Foxconn was temporarily shutting down operations at its assembly plant in Shenzhen, China due to a Covid-19 outbreak. That plant manufactures iPhones, iPads and Macs. Foxconn has other facilities in China where it can shift production and the company told CNBC: “Due to our diversified production sites in China, we have adjusted the production line to minimize the potential impact.”
However, the news spooked the market, sending AAPL stock down 2.66% to a $150.62 close.
This latest incident was an uncomfortable reminder of how much Apple relies on China as a supplier. The company has already felt the impact of supply chain disruption in a big way. Last year, Apple CEO Tim Cook said the combination of chip shortages and pandemic-related manufacturing disruptions in Southeast Asia cost the company $6 billion sales during the fourth quarter.
Despite all of the challenges Apple has faced in China over the past several years, and despite efforts by Foxconn to shift some iPhone production to India, Apple has become more reliant on China, not less. The Guardian reported that in 2021, Apple used more suppliers from China than from Taiwan, for the first time ever.
Risk In Apple Remains Despite Evading Trade War Woes
The trade war between China and the U.S. that intensified during the Trump presidency could have been disastrous for Apple. At one point, there was talk that Apple might be forced to raise the price of iPhones by 10% because of tariffs. The company managed to escape that fate, but it has had to lobby hard to keep tariffs from hitting margins and prices on other products. Last December, Apple was filing for exemptions that put tariffs on China-assembled Apple Watches and Mac Pro components.
Apple’s use of China helped it to explosive growth, but in recent years the reliance on China for cheap labor and components has become a liability. It got to the point where in 2016, Apple and Foxconn seriously considered the possibility of an American iPhone factory. The chilly political climate between the two countries is bad enough. Throw in ongoing Covid-19 shutdowns, and you can see why AAPL stock feels the impact of developments in China.
Bottom Line on Apple Stock
Apple is an incredibly successful company that has richly rewarded investors. Even with the beating AAPL stock has been taking in 2022, its five-year return has been 343%. It is a favorite of investment analysts and scores a solid “B” rating in Portfolio Grader.
With shares currently down nearly 15% this year, there is an opportunity to add Apple stock to your portfolio on the cheap. It will undoubtedly continue to deliver long-term growth.
However, there is risk of more rockiness in the short-term. One of Apple’s biggest vulnerabilities is its reliance on China. And we’ve been seeing proof in recent years that this relationship can burn the company. The closure of Foxconn’s Shenzhen plant just as Apple launches a slew of new products is the latest example. I’m not trying to scare anyone off, I’m just saying go in informed. Keep China in mind if you buy AAPL stock and be aware that the relationship has the potential to play spoiler at times.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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