Beijing’s increasing restrictions on iPhone use by government employees rattled Apple and other U.S. technology stocks on Thursday, as investors worried about the financial impact of rising Sino-American tensions on companies with large exposure to China.
According to media reports, Apple fell 2.9%, posting its worst two-day decline since November Beijing has disclosed this to employees of some central government agencies have decided in recent weeks to stop using their Apple phones at work.
Several Wall Street analysts said the restrictions showed that even a company with good ties to the Chinese government and a large presence in the world’s second-largest economy was not immune to rising tensions between the two nations.
Apple supplier Qualcomm, one of the U.S. companies with the largest presence in China, slumped 7.2%, leading losses among major technology companies.
The broader ban is not surprising and underscores efforts to limit Western companies’ market access in China, said U.S. Rep. Mike Gallagher, chairman of the House China panel.
“This is textbook behavior from the Chinese Communist Party: promote the People’s Republic of China’s national leadership in telecommunications and slowly restrict Western companies’ market access,” Gallagher, a Republican, told Reuters.
Tensions between China and the United States have increased in recent months as Washington seeks to restrict China’s access to key technologies, including cutting-edge chips, and Beijing seeks to reduce its dependence on American technology.
China has restricted deliveries from well-known US companies such as aircraft manufacturer Boeing and memory chip manufacturer Micron.
“This announcement appears to have alerted investors that the U.S.-China relationship poses a major risk to current stock prices, particularly in the technology space,” said Rick Meckler, partner at Cherry Lane Investments.
Other suppliers to the iPhone maker, including Broadcom, Skyworks Solutions and Texas Instruments, also declined, falling between 2% and 7.3%.
The decline in the technology sector weighed on the three major stock indexes, particularly the tech-heavy Nasdaq Composite, which lost 0.9%.
China has been a bright spot for Apple in an otherwise difficult time for iPhone sales.
“China is a crucial market for Apple, not just because it is a hugely important manufacturing base, but because the country is an increasingly important source of revenue,” said Susannah Streeter, head of finance and markets at Hargreaves Lansdown.
Apple derives almost a fifth of its revenue from the country.
“Competitors are already closing the gap in high-end smartphone sales, and if the situation escalates, this could potentially give competitors greater chances to steal Apple’s crown,” Streeter said.
Chinese company Huawei last week launched its new smartphone Mate 60 Pro, equipped with an advanced chip from Chinese contract chipmaker SMIC, marking a breakthrough for the duo hit by US sanctions.
Those sanctions limit Huawei’s access to chip-making tools essential to producing the most advanced cellphone models, hurting the company’s business and allowing Apple to take some market share from the national favorite in China.
“If Huawei is able to ship and scale its homegrown Kirin 9000S (chips), we see the Mate series phones as an opportunity for Huawei to increase its shipments and regain its market share,” analysts at BofA Global said Research.
However, Apple could see a surge in demand after an event next week where the company is expected to unveil its iPhone 15 range as well as new smartwatches.