China Bans Government Workers from Using Apple Products

New York City, New York – (StockNewsDesk) – 08/10/2014 — Due to security concerns, the Chinese government has banned public officials from using certain Apple products, among them the iPad Mini, iPad, MacBook, MacBook Air, and MacBook Pro. This report is based on an approved vendors and products list distributed by China’s National Development and Reform Commission and Ministry of Finance.

These products can no longer be bought using public money with the ban extending to all local and central agencies. Notably, the iPhone was excluded from this list, a sign that it has already penetrated this market. Overall, the ban will have little material impact on Apple’s sales in the short term, although it would mean that one segment of the Chinese market will not be open to the California company.

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In a broader sense, this step by Chinese government officials is a continuation of a similar battle in the US as many legislators have raised an alarm that large swaths of network infrastructure are provided by Huawei, a Chinese company.

Apple-Products

This action by China seems to be a response in the same vein. These actions could be bad for Apple in the long term, if Chinese consumers have a poor perception of Apple products and think they are not secure. China represents the largest growth market for Apple by leaps and bounds, and the company’s products are seen as a good goal for the country’s growing middle class.

Overall, China represents about one sixth of Apple’s total revenues; however,  however, at current growth rates, in a couple of years, it will rival the US as Apple’s largest market. Therefore, the company is taking this matter seriously, carefully managing the public relations to prevent it from snowballing into a larger issue. Apple has already vigorously defended itself that its servers are immune to the leaking of sensitive data.

However, most experts dismiss the stated security concerns and say the government is flexing its muscles to prevent an American company from gaining too much influence. Others are questioning the credibility about this report, stating that this is less of a security concern than Apple not completing some paperwork or following proper procedures that would allow it to be an approved government vendor.

Regardless of the reasons for this specific incident, there has been increased scrutiny of American companies, following the revelations of NSA spying. American technology companies are ubiquitous and form the backbone of the internet at all levels. There has been vigorous backlash against  these companies and their cooperation with the US spy agency and its complete lack of oversight. Many foreign governments have passed legislation, punishing these companies for their complicity.

Apple’s stock has been on a tear in recent months, as the public appetite for the iPhone 6 looks strong. This has propelled Apple’s stock back to its all time highs. In recent weeks, as the market has been under distribution, a steady bid has remained under Apple’s stock price, indicating that institutions continue to support and accumulate the stock. If this general market weakness ends, it is fair to expect Apple’s stock to break these all time highs.

Here is a 10 year chart of Apple:

10-year-chart-of-Apple

Apple has been one of the leaders in this bull market as its stock is up almost 11 times from its bottom in March 2009. Notably, it weathered almost a 40% decline from 2012-2013 but the stock has seemingly moved past this and morphed into a value play from a momentum stock. Although the stock has seen its revenue and earnings growth slow, it remains reasonably priced with a P/S of 3 and forward P/E of 13, reasonable valuations for a company that can still grow in future years.

If Apple can decisively break these all time highs on increased volume, then the stock looks ready to move 20-30% higher in a very short time frame. Besides the long term chart, there is reason for optimism for shareholders in the short term, as well. Below is the six month chart:

Apple

On a relative strength basis, Apple has been clobbering the market since mid April, when it gapped up on earnings. It was one of the few stocks to make new 52 week highs in late July, a period when most stocks were under distribution. As noted above, in this past week of market turmoil amidst geopolitical tensions, the stock has remained quite strong. These are the ingredients for a stock to make a monster move higher if general market conditions can improve.

 

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