Apple feels the pain of China’s yuan move

August 12 07:14 2015

U.S. companies that rely heavily on sales to China, including Apple and fast-food chain Yum Brands, are feeling the pain of China’s move to weaken its currency. Apple shares cratered 5.2%, while Yum, which owns KFC, slid 4.9%. China’s central bank Tuesday devalued the nation’s tightly controlled currency, known as the Renminbi (RMB) or the Yuan, in response to the country’s economic slowdown.Employees walk up a flight of stairs pri

The People’s Bank of China called the 1.9% cut a one-time adjustment. But the surprise move has pushed stocks down amid concerns that it will hurt U.S. companies, like Apple, that have been increasingly peddling their products to the world’s most populous nation. Under CEO Tim Cook, China has become Apple’s biggest revenue source after its Americas region, which includes the U.S. In the latest financial quarter ended in June, the iPhone maker said China made up $13.2 billion of its overall $49.6 billion in revenues. That was up 112% from the same quarter in 2014, when China made up just $6.2 billion of Apple’s overall revenue.

Yum Brands also has broad exposure to China due to the popularity there of its KFC fast-food chain. About 52% of Yum Brands’ revenue comes from China, according to Goldman Sachs. Baby formula maker Mead Johnson Nutrition, meanwhile, derives 31% of its revenue from China, while electric car maker Tesla has been making moves to sell in China after the nation broke a record for car sales in 2013. Wynn Resorts, which runs casinos and hotels, has a massive 83% of its sales exposed to China, Goldman said.

For some companies, the negative impact on sales may be offset by lower production costs, said Adolfo Laurenti, chief international economist for Mesirow Financial in Chicago. Apple, for example, assembles many of its products in China and therefore could benefit that way from the cheaper yuan. Laurenti also says he thinks companies with strong enough brands — like Apple — may not be dinged as badly as less popular products because wealthy Chinese consumers may be willing to shell out more to have those name brands. The bigger concern is what the devaluation move suggests about China’s larger economy, said Francisco Torralba, senior economist with Morningstar Investment Management. “My main concern is the depreciation of the RMB is interpreted by markets as a signal that Chinese economy is weakening more than we think,” Torralba said.

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