Apple's China haircut: '$450 billon will not be the end of it'

Every 1% drop in China’s growth rate, according to this academic fund manager, takes another $5.30 off the top.

Posted on Seeking Alpha Thursday by Kwan-Chen Ma:

The real bad news is that, if China’ slowdown was to blame for Apple’s downside guidance, the damage to Apple’s shareholders, close to $450 billion in two months already, will not be the end of it. Considering that Apple’s China revenue growth has been increasingly correlated with Apple’s Americas and Europe revenue growths in recent years (Figure 3), China’s slowdown in iPhone demand may soon be transmitted to the U.S. and Europe. The negative impact on Apple’s total revenue will be further compounded considering over 65% of revenue share between Americas and Europe (Figure 1B).

To Apple shareholders, maybe the more important question is how the correlated revenue growths affect Apple stock prices. Using the above relationship, we were able to estimate the correlated impact on all five Apple segments in terms of their segment revenue growths and Apple share prices, assuming 1% drop in China revenue growth rate (Table 1).

The way to read Table 1 is like this: For every 1% decrease in China revenue growth rate, Americas and Europe segments will lose -0.21% and -0.18%, and Japan will gain 0.10% instead…

The bottom line is that the net impact on Apple’s share price considering the correlated revenue growth between five segments is a loss of $5.30 for every 1% drop in China growth rate.

My take: Seeking Alpha takes contributions from far and wide. From the author’s bio:

K C Ma, Ph.D, CFA, is the Director and Chair of Roland George Investments Program at Stetson University. I direct college students managing $3.5 million stock and bond funds which are ranked #1 in the world for the last 16 years. Guys, these “kids” are managing real money!! It is not just a school project. (If interested, click here.)