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Shrinking Chinese Smartphone Shipments Signal Caution for Apple

InvestorPlace logo InvestorPlace 11/18/2020 David Moadel
a close up of a laptop computer sitting on top of a keyboard: An Apple (AAPL) MacBook Air laptop sitting under bright purple lights. © Source: WeDesing / Shutterstock.com An Apple (AAPL) MacBook Air laptop sitting under bright purple lights.

In a year when the novel coronavirus battered demand for many products and services, Apple (NASDAQ:AAPL) has remained resilient and AAPL stock holders have enjoyed solid gains. Amazingly, the share price is still fairly close to its all-time high.

a screen shot of an open laptop computer sitting on top of a keyboard: An Apple (AAPL) MacBook Air laptop sitting under bright purple lights. © Provided by InvestorPlace An Apple (AAPL) MacBook Air laptop sitting under bright purple lights.

Momentum-focused traders might view this scenario as extremely bullish for AAPL stock. After all, the trend is your friend, right? Besides, with the holiday season coming up soon, it seems quite sensible to load up on AAPL shares today.

Yet, I always say that the most obvious trade is typically the wrong one. I’m not trying to suggest that anyone should short-sell AAPL stock or buy put options. That would be self-destructive.

Rather, I’m trying to emphasize the importance of timing one’s entry point properly. In this case, nimble timing could mean waiting for a pullback. For AAPL stock in particular, there’s cause for concern stemming from flagging smartphone shipments abroad.

A Closer Look at AAPL Stock

As you might recall, it was a major news event when Apple announced a four-for-one share split in late July. By the time the lower-priced shares started trading in late August, the AAPL stock price had already reached an astounding $500.

Having a lower post-split price doesn’t really mean that AAPL stock is cheap now. On Sept. 1, AAPL hit its all-time high price (adjusted for the split) of $137.98. The share price has retraced slightly since that time, closing at $119 and change on Nov. 13.

Admittedly, AAPL stock isn’t exactly trading at its all-time high price. Nonetheless, it’s still fairly expensive in a time when the pandemic caused high unemployment and reduced the demand for numerous products.

I’m not trying to imply that AAPL stock is in a bubble. Its trailing 12-month price-to-earnings ratio of 36.36 isn’t too extreme, but it’s not super-low, either. Value seekers might consider waiting for both the P/E ratio and the share price to dip before taking a long position.


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A Problem in China

It’s generally a good idea for tech-sector investors to monitor not only what’s happening in the United States, but also what’s going on in other nations around the world.

China is one of the most influential countries, and if the smartphone market isn’t robust there, this could create problems for AAPL stock holders in the long run.

Unfortunately, official data indicate that Apple will have to compete in a shrinking Chinese smartphone market. According to the China Academy of Information and Communications Technology, a think tank backed by the Chinese government, phone makers only shipped 25 million handsets during the month of October.

Compared to the 34.6 million handsets shipped a year earlier, this represents a discouraging 27% decline in smartphone shipments in China.

A Troubling Trend

And don’t think that this is a fluke, as there was a 36% year-over-year decline in Chinese handset shipments in September of 2020. More specifically, the number of shipments totaled 22 million for the month, compared to 34.7 million in September 2019.

Moreover, data derives from third-party research firms show that Apple experienced a year-on-year decline in smartphone shipments decline during 2020’s third quarter.

It’s also known that Apple’s smartphone revenue for the September quarter retreated by 20.7% on a year-over-year basis. Furthermore, Apple’s China revenue fell 28.6% compared to the September quarter of the prior year.

I would strongly encourage overenthusiastic Apple bulls to consider the foregoing statistics before taking a large position in AAPL stock. The upcoming holiday season might or might not provide a massive boost in smartphone sales. Yet, the recent data shows a troubling trend as handset shipments disappoint in a very important nation.

The Bottom Line

It’s essential for tech-market traders to consider a global view. China’s smartphone sales have been disappointing lately. This factor could cause issues for AAPL stock holders.

You don’t have to dump all of your AAPL stock shares because of this. Instead, it’s possible to take a cautious stance if you were thinking about buying more shares now.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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