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Goldman Sachs: Apple Earnings To Be Hit If China Retaliates With Ban

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An analyst at Goldman Sachs Inc. (GS) has warned that Apple Inc.'s (AAPL) earnings could drop by 29 percent if China were to retaliate in the trade war against the U.S. with a ban on sales of Apple products in that country.

The iPhone maker's China business accounted for 17.6 percent of its total sales in the recent second quarter. Sales in Greater China in the quarter were $10.22 billion out of Apple's total net sales in the quarter of $58.02 billion.

Analyst Rod Hall noted that several of the iPhone's core parts come from outside mainland China. Intel's latest iPhone modems are believed to be made in the U.S., while Taiwan's TSMC manufactures A-series processors. However, the bulk of Apple's supply chain is based in mainland China.

Hall said that in the event China restricted iPhone production any way, Goldman Sachs does not believe Apple would be able to shift much iPhone volume outside of China on short notice.

"We believe that Apple is near its annual rapid ramp of new iPhone production to prepare for new device launches in the Fall so even a short term action affecting production could have longer term consequences for the company," Hall said in a note to clients.

Goldman has a neutral rating on Apple's stock. However, it has lowered the tech giant's price target to $178 from $184.

Earlier in May, the Trump administration hiked tariffs on about $200 billion worth of Chinese-made goods to 25 percent from 10 percent. Trump has also initiated a formal process to raise tariffs on essentially all the remaining imports from China, which are valued at about $325 billion.

China has retaliated by raising tariffs on $60 billion worth of U.S. goods.

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