Apple faced a significant setback as reports emerged that China is extending its ban on the use of iPhones to encompass government-backed entities and corporations.
This development caused a 2.9% drop in Apple's shares on Thursday, leading to concerns about the tech giant's ability to conduct business in the world's second-largest economy.
On Wednesday, Apple (AAPL) witnessed its most substantial daily decline in over a month, resulting in a staggering loss of approximately $200 billion in just two days.
Currently, Apple's stock ranks as the poorest performer in the Dow Jones Industrial Average, adding to the apprehensions of investors.
China's government has reportedly broadened its prohibition of iPhones to include local government employees and state-owned enterprises.
This expansion occurred shortly after news broke that central government personnel were prohibited from bringing iPhones to their workplaces.
Reports indicated that several agencies had already started instructing their employees not to bring iPhones to work, and there were expectations of further extensions to this ban.
Nikkei reported that at least one state-owned company had informed its employees that individuals working with sensitive trade information would be barred from bringing their iPhones, Apple Watches, or AirPods to work starting the following month.
On Thursday, both the Wall Street Journal and Reuters disclosed that China had expanded its existing restrictions on the use of iPhones by state workers.
Staff members at certain central government agencies were directed by their superiors through workplace chat groups or meetings to cease using their Apple mobile devices during work hours.
Morgan Stanley analyst Erik Woodring expressed the view that the market's reaction to Apple's share losses might be excessive, as he did not believe the restrictions would lead to a more extensive impact. Woodring's worst-case scenario prediction suggested a 4% reduction in revenue for the company.
He emphasized the interdependence between Apple's success and the Chinese economy, stating, "China is critical to Apple's success, but Apple is also critical to the Chinese economy." He added, "While the potential for a broad decoupling between Apple and China in this multipolar world clearly exists, we don't believe recent headlines are necessarily foreshadowing this 'worst-case' scenario."
It's worth noting that a significant portion of Apple's production remains concentrated in China, with approximately 90% of its products manufactured in the country.
Notably, Apple supplier Foxconn, founded in Taiwan, operates massive factories in China, employing over 1.2 million people. However, in response to political instability and disruptions caused by the pandemic, Apple has expedited its plans to diversify production to other locations, including Vietnam and India. Production of the iPhone 14, for instance, was shifted to India.
This marked the first instance of Apple assembling an iPhone model outside of China in the same year of its release, signifying a substantial step in relocating manufacturing operations from China.
India, as the world's second-largest smartphone market, plays a pivotal role in this shift.
National Security Adviser Jake Sullivan has underscored the need for further information about the nature and composition of new semiconductor chips to ascertain whether the parties involved have bypassed export restrictions on semiconductors.
The timing of the ban has raised eyebrows among analysts, making it a subject of particular interest.