How Much Would Apple Be Impacted If China Enforces iPhone Ban?
Earlier this month, Qualcomm won a preliminary injunction from a court in China, banning the sale and import of multiple older iPhone models including the 6S, 6S Plus, 7, 7 Plus, 8, 8 Plus, and X, after it was found that Apple (NASDAQ:AAPL) was violating some of its software patents. Although Apple says that it has issued a software update to address the situation, while noting that it continues to sell these devices in China, the company could see some impact on earnings if the government decides to enforce the ban. We have created an interactive dashboard analysis – What’s The Impact Of A Ban On Legacy iPhones In China? – which breaks down our calculation for the impact of a potential ban in China. Overall it is our view that a strictly enforced ban – which we view as unlikely at this point – would not have a major impact on Apple’s bottom line in the near term. Below we discuss why.
Estimating Potential Revenue Loss From A Ban
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As a first step, we estimate shipments of older iPhone models in China. We estimate that global iPhone shipments will come in at about 220 million in FY’19. Assuming that 20% of volumes come from Greater China (based on the company’s FY’18 geographic revenue mix), we estimate that 44 million iPhones will be sold in China in FY’19. If we assume that 40% of these phones are legacy devices, it would translate into 17.6 million units of older iPhones. Assuming an ASP of $650 per device, this would translate into a revenue loss of about $11.5 billion for Apple in FY’19.
Estimating EPS Impact
Considering Apple’s net margin of about 23%, the company could lose about $2.6 billion in terms of its bottom line. This would imply an EPS impact of about $0.60 per share, or roughly 4% of the company’s projected 2019 EPS. So even if China were to strictly enforce this ban – which we view as unlikely – the potential bottom line impact on Apple would not be severe.
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