The headlines certainly sound daunting. The iPhone is Apple's ((AAPL 0.01%) single biggest source of revenue, and China is the company's single biggest market -- well, at least based on population. That's why The Wall Street Journal's recent report that Beijing is moving to bar China's government officials from using the iPhone for work purposes seems problematic. And that's why Apple shares are down to the tune of 8% from last week's high.
Don't be too quick to jump on the rhetoric's bandwagon, though. For now anyway, China's ban only applies to government employees' work phones. Chinese government employees don't account for a large percentage of the world's iPhone users.
Not enough to matter
How many of China's government workers currently use iPhones to help them do their jobs? Nobody knows the exact number. There are a couple of educated guesses, though. Wedbush analyst Dan Ives estimates the total is somewhere around 500,000, and while Bernstein analyst Toni Sacconaghi doesn't offer a specific number, he does say the governmental ban could reduce China's iPhone sales by as much as 5%. But that's just China.
No matter how you slice it, these just aren't meaningful numbers when compared to the rest of the world. Apple CEO Tim Cook's most recently disclosed figure was 1 billion actively used iPhones although that's a number from early 2021. More recent third-party estimates put the figure closer to 1.5 billion now. So this isn't devastating news.
NASDAQ: AAPL
Key Data Points
It could get worse. While Beijing's ban on the use of iPhones is currently limited to government employees' governmental work, the initiative could be broadened to encourage Chinese consumers to purchase phones made there.
That kind of thing has certainly happened before. Just ask Apple. Back in 2014, China's state-owned news media called Apple's iPhone a threat to national security, souring what had been fast-growing sales of the device in the nascent market. Athletic apparel giant Nike and coffeehouse chain Starbucks have also been on the receiving end of Beijing's ire. Both companies obviously survived in the important market, but both were also rattled by the seemingly targeted efforts to support home-grown rivals.
Even so, the long-term risk here is minimal.
Even an expanded ban wouldn't be catastrophic
The graphic below puts things in perspective, illustrating where in the world Apple's revenue comes from and how much each product accounts for in the total. Greater China accounts for only about 20% of Apple's top line, while the iPhone makes up a little more than half of Apple's business.
Data source: Apple. Chart by author. Data for the first three quarters of the fiscal year ending in September.
Taking all of China's iPhone sales out of the mix threatens only about 10% of Apple's top line. A loss of that size would certainly be felt, but it would be far from fatal. Indeed, losing all business in China would be tough, yet still not catastrophic.
Then there's the data the charts above don't show. That's the relatively small smartphone market share Apple currently enjoys in China. Counterpoint Research notes the iPhone has accounted for only about one-fifth of the country's recent smartphone shipments since early 2022, versus more than a 50% market share within the United States and 30% in Europe.
In other words, China's iPhone business isn't the same kind of profit center it is in most other parts of the world. And government officials make up only a fraction of this small share of China's smartphone market.
Or look at it from the other direction. While Apple's share of China's smartphone market isn't enormous, it's still the phone of choice for roughly one-fifth of the 1 billion people in China who presently own a smartphone, according to consumer research company Toluna. That would put China's consumer/citizen iPhone usage in the ballpark of 200 million. That's a far cry from Wedbush's estimate of half a million government officials currently using the Apple-made device.
And for the record, iPhone users are just as fanatic about their devices in China as in most other parts of the world. Taking them away altogether could prove to be very (and needlessly) politically unpopular.
Must have been a slow news day
The financial news media clearly took this ball and ran with it, with too few of them asking if there was a good reason to do so.
But there's far more bark than bite with China's ban on governmental use of the iPhone. Or, as Morgan Stanley analyst Erik Woodring put it, "We'd conclude Apple's recent stock move is indeed overdone as it implies Apple loses 70% of its iPhone shipments in China, a highly draconian and unlikely scenario."
If this is the only thing preventing you from stepping into a position -- or if it prompted you out of one -- don't be afraid to buy Apple or buy it back. This company is still the same juggernaut it was just a week ago.
