Apple (NASDAQ: AAPL) has been one of the main engines of the U.S. stock market’s race to new heights. The tech giant has doubled its valuation since the middle of 2019.
Despite trading close to record levels, Tim Cook’s trillion-dollar juggernaut suddenly looks vulnerable to China’s coronavirus outbreak. One of the critical products driving its growth faces headwinds from the epidemic.
AAPL has been a world-beater over the last 12 months, deftly navigating the trade war despite its considerable exposure to China. Its $1.4 trillion market cap makes it almost as valuable as the entire Australian stock market.
But Apple’s China-related risks didn’t disappear when the world’s two largest economies signed a trade deal in January.
As the coronavirus epidemic ravages the Chinese economy, Apple’s fastest-growing product line – AirPods – faces severe supply chain struggles.
While iPhone sales have been slowing for some time, Apple stock has been buoyed by the company’s decision to aggressively ramp up production for its insanely-popular wireless headphones.
That’s getting harder as the coronavirus outbreak upends Chinese industry. According to the Nikkei Asian Review, AirPods production is getting hammered by the epidemic and the government’s containment measures.
The three major AirPods assemblers, like other Apple suppliers, are scheduled to resume work on Monday, but their production utilization rates may reach just 50% at best in the first week given the current conditions.
The biggest issue is that supply was already struggling. The implications could be sizeable for Apple stock.
One source told the publication:
We really have to wait and see how things play out next week. If the assemblers could not get enough supply of parts in two weeks, it will be a big problem.
The threat of the coronavirus outbreak to AirPods production hasn’t negatively impacted Apple stock – yet.
Investors are taking a glass-half-full approach to the crisis, despite strong evidence that economic activity is slowing.
Currently trading at $324 a share, Apple stock remains on top of the world, and bulls are in no hurry to cash out after enjoying the fruits of a colossal buyback scheme.
With a seemingly inevitable hit to its earnings coming, the question remains: How much worse does the coronavirus shutdown have to get for it to start walloping Apple’s supply chain?
It would appear that judgment day will come next week for its wobbling AirPods suppliers.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.
Last modified: June 24, 2020 1:04 AM UTC