Stocks sold off yesterday after a hot ISM Services PMI showed continued strength in the US services sector. Rising yields in response to the ISM number sent growth shares tumbling, which dragged along the broader markets.
It’s a small, small world. You love apple… I mean you love Apple, that’s with a capital “A” as in AAPL. Come on, admit it. Either you own the stock, you have owned the stock, you own one of its products, or you own a smartphone from that other company and claim to have disdain for Apple, but you secretly wish you owned an iPhone. There is no use… admit it. Apple is an amazing company with unbelievably great products that work almost perfectly. It has created an ecosystem of products which include hardware, software, and services, defying most conventional, modern corporate strategy theory. I am not just a fanboy of Apple’s shiny tech-toys. The company’s financials are solid, growth is strong, and its earnings potential is great. Stop, before we go any further, I want to make it clear that I am not recommending the stock or the products, I am simply relaying the facts which you can find for yourself with a bit of digging on the internet, OR A QUICK FACETIME CALL from your iPad to your grandkids, who can school you on the company’s products and financials.
Ok, so we have established that. I am sure that you have heard the term “mom and apple pie” being closely associated with the good old USA. Before you go on and assume that the “apple” in apple pie can be associated with Apple, the company, we need to take a closer look. Ok, Apple is one of the original, iconic Silicon Valley companies founded in a garage by, now legendary, Steve Jobs and Steve Wozniak. That fabled garage has become synonymous with American entrepreneurship. But how American is Apple?
Taking a quick look at Apple’s supply chain, you will find that 19% of the company’s supplier facilities are in… China. That puts China second on the list behind the US which houses a slightly higher 20% of the company’s direct supplier facilities. Looking at Apple’s COGS, or Cost of Goods Sold, 13.21% of it comes from a Chinese manufacturer called Luxshare Precision Industry. It is second to a Taiwanese-domiciled Hon Hai Precision Industry, which makes up 52.42% of Apple’s COGS. QUALCOMM is Apple’s largest, by COGS, supplier in the US, contributing 5.18% to costs. QUALCOMM is 7th on the top supplier by COGS list, behind 4 Taiwanese companies, 1 Chinese company, and 1 Korean Company (Samsung Electronics). So, have we established that Apple, from a supply chain standpoint, is highly dependent on foreign suppliers? I would say, “yes” ✔ to that one. How about customers… you know, revenues?
For 2023, Apple is expected to collect $141.5 billion from US consumers, $83.2 billion from European consumers, and $55.1 billion from customers in Greater China, rounding the top three. More simply put (with aggressive rounding), Apple gets almost as much revenue from Europe and China together as it does from the US. Have you been following all of the bickering between the US and China regarding “security” issues related to technology? Unfortunately, those issues have turned into a row which has led governments on both sides to ban products from each other’s companies. In the past few days, the bickering has spilled over and led to China banning government employees from bringing Apple products into government facilities. That news was a lead contributor to Apple’s stocks losing -3.58% in yesterday's session, its biggest daily drop in over a month. What’s more, the stock is under additional pressure in the premarket after a report surfaced that China is planning to ban iPhones from state firms and agencies. To say Apple is as “American as Mom and Apple,” may not be completely accurate... you can tell your grandkids when you Facetime them later / .
WHAT’S HAPPENING AHEAD OF THE BELL
Apple Inc (AAPL) shares are lower by -2.8% in the premarket after news surfaced that China is planning to expand its ban on iPhones in government facilities. See above for details . Dividend yield: 0.52%. Potential average analyst target upside: +11.7%.
Skyworks Solutions Inc (SWKS) shares are lower by -2.99% in the premarket on the same news as Apple. Remember what I just wrote about? Skyworks is Apple’s 18th largest COGS contributor (1.42%), and it’s a US company. Dividend yield: 2.56%. Potential average analyst target upside: +16.4%.
YESTERDAY’S MARKETS
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