Apple CEO Tim Cook attends the annual session of China Development Forum (CDF) 2018 at the Diaoyutai State Guesthouse in Beijing, China March 26, 2018.
Jason Lee | Reuters
Apple‘s China business has made a U-turn thanks to the stimulus programs the Chinese government injected into the economy, according to Tim Cook. Other U.S. companies with a big China presence could also follow with good news, if the Apple CEO is right.
Cook’s upbeat comment on China sent Apple shares surging despite slowing global iPhone sales. During the earnings call, the CEO pointed out that the value-added tax reduction in China as well as the “improved trade dialogue” between the U.S. and China helped uplift consumer confidence.
“The one that got the most visibility that happened in early April was the [value-added tax] reduction from 16% to 13%, so it was a very aggressive move. But there are other stimulus programs as well that likely have an effect at the consumer level,” Cook said.
Last year, China suffered the slowest economic growth since 1990, which forced the government to enforce a series of fiscal and monetary stimulus measures. One of them was a nearly $300 billion tax cut for companies in the manufacturing, transportation and construction sectors.
Apple said third-quarter revenue could rise to $54.5 billion partly because of improved performance in China, above a $51.94 billion consensus analyst estimate. That is a sharp reversal from January when the company slashed its revenue guidance, citing slowing iPhone sales in China.
The tech giant could just be one of the many companies getting a boost from the turnaround in Chinese economy.
Their stocks will likely see a pop if their performance in China also improves. Skyworks, an Apple supplier, lowered its 2019 guidance in January, citing weakness across largest smartphone customers. The company is set to release its first-quarter on Thursday.
Qualcomm recently made peace with Apple, settling all their patent disputes after two years of bitter legal battles. The company’s stock surged more than 20% following the announcement. Qualcomm is slated to report quarterly numbers after the bell on Wednesday after issuing a strong guidance in January.
Like Tim Cook, many policymakers and investors including BlackRock CEO Larry Fink and Goldman Sachs CEO David Solomon also believe the Chinese stimulus programs are paying off.