Apple earnings warning a casualty of trade war

The Apple (APPL) share price dropped nearly 9% on the sharemarket after they issued earnings warning that they will earn much less than they have previously advised/expected. The drop in earnings is said to be primarily due to the US trade war with China. The share price has recovered a little on Friday US time, by midway through the day bouncing back 3.4%.

9to5mac: Apple’s shock earnings warning sees AAPL stock plunge 9% in pre-market trading

Apple’s shock earnings warning – the first time it has issued one since 2002 – has sent the stock price crashing in pre-market trading. At the time of writing, AAPL is almost 9% down on yesterday’s close.

It follows a letter from Tim Cook warning investors that Apple expects to miss the low end of its fiscal Q1 guidance by $5B, and the high end by $9B.

Cook said that almost all of the missing revenue was in China, thanks to a combination of low economic growth in the country and tensions created by the Trump administration’s trade war with China.

It wasn’t just AAPL stock hit by the news: Business Insider reports that shares in major Apple suppliers are also taking a hammering. AMS, which makes Face ID sensors for Apple, took the brunt of the impact, losing 17% of its market cap overnight – but it wasn’t the only casualty.

Apple’s last earnings warning was in 2002.

Like any wars there can be casualties on all sides in trade wars.


EU Commission rules against Apple tax

Missy reports:

How to win friends and influence people the EU way.

Today the EU commission have ruled on the investigation into tax paid by Apple in Ireland. The ruling has found against Apple and ordered Ireland to bill them 11bn pounds (13bn Euro). I will admit now that I was unaware of this case, and don’t really know the background to it, but my understanding it is part of the EU supposedly cracking down on tax evasion, however, this ruling could cause a number of political problems for the EU, problems that they won’t be wanting right now.

Ireland and Apple are going to appeal the decision, and Ireland have stated they will not be collecting the money – apparently the jobs and investment in Ireland by Apple is worth more to them over the long run, which is fair enough if they see it that way, it is their country after all. The EU commission have made the ruling on anti competition laws, rather than tax law.

  1. The first is that this is seen very much as the EU getting close to infringing on a member country’s sovereignty. From what I understand from some tax experts, the EU could be on shaky ground demanding Ireland collect the tax, as the law they are using to condemn Apple and make the ruling is to do with competition as opposed to actual tax – though I believe it is around the fact that a member state cannot offer favourable conditions (including tax breaks) to one company and not another.
  2. This could damage the relationship between the EU and the US, and with the trade agreement between the two in the midst of negotiations there could be some problems for the EU to get the agreement they want from the US.
  3. The EU could have some credibility issues here. The EU Commission President, Jean-Claude Juncker, is a former Finance Minister and PM of Luxembourg, which is widely considered a tax haven – despite coincidentally not being named on the EU’s list of tax haven countries last year. The tax laws, culture, and deals that have made it a very favourable place for large Multinationals to do business, and avoid paying too much tax, were largely developed – or exploited – during Juncker’s time in office. To be going after a Multinational, and another EU member state, for doing what their own President had actively encouraged, shows more than a little hypocrisy.
  4. Apple have threatened the EU that if they enforce this payment then their business in the EU could be downsized quite significantly – if not completely. Now, whilst this is an attempt at either blackmail or bullying (or both) on the part of Apple, it does show that Apple could be in the stronger position here. Apple employ 6000 in Ireland alone, and 10,000’s more throughout the EU, if they were to pull out – or significantly downsize – then this could have a serious impact on an already fragile economy. The UK have, quite rightly in my opinion, jumped on this and told Apple they would be more than welcome to set up shop here.
  5. Apple are not the first Multinational that the EU have gone after, appeals are waiting to be heard on rulings against Starbucks and Fiat for not paying enough tax. There is an opinion that with the latest ruling against Apple some Multinationals may think twice about investing in the EU, and with the UK looking to Brexit, it could make the UK a more attractive option for many. Google and Amazon are rumoured to also be in the firing line – leading the Americans to accuse the US of discriminating against US companies.

Only time will tell how this pans out, but it is looking to be a case of two of the playground bullies squaring up against each other, if it ends up a case of the smarter one winning then I will be putting my money on Apple, the EU Commission are too arrogant with an overinflated sense of the EU’s importance, and delusions of grandeur. But if it is a case of the most stubborn winning, or it being a game of chicken, I think that the EU may edge it.