29th March, 2024 – As we announced recently in our article on the 26th of March, Apple (AAPL) (Purchased 0.6 units @ $183.96) is struggling to keep its position in the Chinese market because of changes in the national macro environment and strong competition from Huawei. The Chinese networking and electronics company reported stellar results for 2023, registering its fastest growth in the last four years. Huawei struggled in recent years because of the U.S. government banning their products in 2019 after accusing the company of being a security risk. The company also suffered China’s strict regulation during the pandemic and the chip reserves crisis in 2021. In 2023 though, revenue rose 9.63% from a year earlier to 704.2 billion yuan ($97.48 billion), mostly thanks to the consumer segment, growing 17.3% YoY because of a new smartphone, the Mate 60, which apparently is overcoming U.S. restrictions. Net profit saw an impressive growth of 144.5%, reaching 87 billion yuan ($12 billion), with net profit margin more than doubling in a year to 12.35%. After reaching their third consecutive year of growth, the management did not seem surprised about it, as the rotating chairman Ken Hu said in a press release that results were in line with forecasts.
Even though the company had stellar results in 2023, we recommend being cautious in investing in Huawei because the Chinese government has invested $57 billion in ETFs of the Chinese market (according to an estimate by UBS analysts). This action was taken by the government because the market was suffering capital outflows both from local and foreign investors, a trend that ended in February after 6 months. As a result of this action, the largest companies saw a boost to their prices, but it is not known for how long the government will keep their positions open. Another threat for Huawei is related to regulations in the U.S., a factor that could cause volatility in the case of tightening regulations, similar to what happened recently with Nvidia’s chip for the Chinese market.
Author: Filippo Ferrero