China’s surprise devaluation of the yuan is likely to have a massive impact on Apple and its suppliers.
China devalued its currency in an attempt to boost a flagging economy — resulting in the country’s biggest one-day loss in 20 years.
And while some will be celebrating, others (likely including Tim Cook) can’t be too happy about it!
The move positively impacts major Apple suppliers, such as Foxconn and Pegatron, who will see boosted margins as a result. This is because sales to Apple take place in dollars, while the companies’ Chinese workforces are paid in yuan. The devaluation is likely to have less of an impact on local suppliers, since they are often paid in yuan.
At the same time, the devaluation is bad news for Apple — which has already seen a slowdown in business as the result of China’s slowing smartphone market.
“China’s sudden devaluation confirmed market concerns over China’s economic growth. We expect weaker consumer demand for iPhones in China and Apple may raise its product prices later if China continues to devalue its currency,” Fubon analyst Arthur Liao told the Wall Street Journal.
In that case it is likely that Apple would have to choose between either cutting its margins to remain affordable to customers, or keeping them high and decreasing demand. Neither of those options are good.
With Apple in the middle of a massive push to open new Apple Stores in China, and with Tim Cook openly claiming that Apple designs products with the Chinese market in mind, today’s announcement could have major repercussions.