The Chinese stock market has hit a “Great Wall”, and given the fact that the country is U.S.’s second largest trading partner, the meltdown can adversely impact U.S. corporate profitability. More and more analysts are recommending clients to shy away from U.S. companies that depend heavily on China for their revenue.
Apple Inc. (NASDAQ:AAPL)
Apple is heavily reliant on Chinese iPhone sales for its growth. Last fiscal year, 17 percent of the company’s overall revenue came from China, with the most recent quarter witnessing higher iPhone sales in the country than in the United States for the first time ever. In the first quarter of the current year, Apple became the dominant smart phone seller in China, with a whopping 15 percent market share.
But given the current free-fall in China’s stock market, can Apple Inc. (NASDAQ:AAPL) expect that momentum to sustain? Or will it shrink with the shrinking economy? All that will depend on whether Apple is able to unveil new products that have the potential to more than offset the declining Chinese sales.
General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F)
Another glaring example is the U.S. auto sector with companies like General Motors selling more cars in China than they do back home. Ford sales in the country are approximately half of its North America total.
For the last 2 decades, China has been the fuel that has propelled the auto industry. With a massive population of 1.4 billion, and an ever increasing middle class that aspires for the ‘better life’, the growth bandwagon seemed hard to stop.
But if the stock market jitters translate into a full-blown economic turmoil, these automakers could be staring at some tough times ahead. General Motors Company (NYSE:GM) will come out with its second quarter results on July 23, which should provide some insight into the impact of slowing Chinese sales growth. Ford Motor Company (NYSE:F) will release second-quarter earnings on July 28.
QUALCOMM, Inc. (NASDAQ:QCOM), Broadcom Corporation (NASDAQ:BRCM)
The uncertainty in China also poses a risk to U.S. chipmakers like Qualcomm and Broadcom. Both these companies derive big chunks of their sales from the world’s second-biggest economy. Qualcomm depend on China for 50 percent of its overall revenue, while rival Broadcom Corp derives 24 percent of its total sales from the country.
And the tumbling Chinese markets come at a time when the chip makers are already facing a rough year. Gartner is all set to downgrade its projections for global semiconductor sales amid weakening demand for mobile phones. And as things stand, the slowing pace of China’s economic growth could deliver a particularly strong blow to QUALCOMM, Inc. (NASDAQ:QCOM) and Broadcom Corporation (NASDAQ:BRCM).