Apple (NASDAQ: AAPL) stock is down 5% over the past two days. AAPL seems to have been hit by reports of a ban on Chinese government officials using an iPhone for work purposes. There are further reports that this could then be extended out to government agencies and supported institutions. Quite why such a ban is unknown. We can imagine that it’s to do with the US insistence that China not gain access to high end chips - so, a bit of tit for tat. We could also see it being tied in with Huawei’s recent announcement about being able to make 5G phones using domestic chip production (via SMIC) and so on. See, if we can make this domestically then why, as a true and good Chinese bureuacrat, use the foreign stuff? It might even be worried that the US uses them to spy - which is an interesting comment on what China thinks governments use phones for.
Now, whether this is actually important to Apple’s finances is another thing. The specific loss of that specific market - Chinese bureaucrats - would be little more than a rounding error. Even though China’s an important market: “China is the technology giant's third-largest market, accounting for 18% of its total revenue last year.” And, well, yes. But how much of that is iPhones, how much of that is Chinese bureaucrats and how much of it is iPhones to Chinese bureaucrats to use at the office?
Apple stock price from Google Finance
The actual importance is bout fashion. Everyone will shout - as Apple does - that it’s the technology, the ecosystem, that matters. And everyone also knows that really an iPhone is a Veblen Good. Yes, the tech is good. But a major reason they sell is because of the social status associated with using an iPhone.
And that’s what will matter about this ban: “China ordered officials at central government agencies not to use Apple’s iPhones and other foreign-branded devices for work or bring them into the office, people familiar with the matter said.”
Things that people buy because they show social status are called “Veblen Goods”. It’s possible to charge a premium price for them precisely because they show social status. Because everyone knowing they’re expensive is part of their showing social status, of course.
So, does bureaucrats not being allowed to us iPhones at work increase their status within China or not? That’s entirely arguable either way really. But that’s what they effect of this ban will depend upon. Not the direct issue of how many sales to bureaucrats are lost. But how much this boosts, or depresses, the social status of the iPhone.
The jury on that is, as the saying goes, still out.
