Apple’s stock dropped 12% over the past month.

Concerns over the trade war between the U.S. and China continue to plague many U.S. companies. At the beginning of May, it seemed like an agreement would be reached but now it’s unclear when that will happen.

And this has put a lot of pressure on companies like Apple that are clearly vulnerable to increased tariffs. Unlike other U.S. companies, Apple has much more exposure to China.

The company’s shares dropped 3% on Monday after HSBC cut its price target from $180 per share to $174. This has many investors wondering what’s next for the company and if its shares will continue to drop.

Apple’s dependence on China

Apple is reliant on China in a couple different ways. First, the company uses hundreds of Chinese suppliers to produce the iPhone, iPad, and other products. If higher tariffs are implemented, Apple may have to find a new production model which will come at a cost.

According to HSBC analyst Erwan Rambourg, this will likely cause Apple to either have to raise its prices or take a hit on margins. Sales of the iPhone have continued to drop even without a price increase.

Apple recently introduced a number of new products but the iPhone is its core product so lagging sales would hurt the company’s revenue. And as the trade war continues, Chinese consumers could begin boycotting the company’s products.

20% of Apple’s revenue comes from China so this would be another big blow to the company. China is Apple’s third largest region for sales, coming in behind the U.S. and Europe. In 2018, $51 billion dollars of the company’s sales came from China.

Final thoughts

It appears that this drop is already starting to happen. At the end of March, Apple’s sales in China dropped 25% to $23 billion. According to a Credit Suisse analyst, disappointing results in China were largely to blame for Apple’s lagging fourth-quarter results.  

Apple’s stock has fallen more than 12% over the past month. The company’s fundamentals remain strong but shares will likely be down for the rest of the month unless a positive trade deal is reached.