The steep economic slowdown in China has become cause for major concern among stock investors who own U.S. companies that derive significant revenue from that market. As the corporate earnings reporting season gets underway, this may weigh heavily on many companies' financial results -- just as it did on Apple Inc. (AAPL), when it issued gloomy forecasts based on lowered expectations in China. “My guess is, what Apple did will be the blueprint for many other companies,” says Joe LaVorgna, chief economist for the Americas at Paris-based investment banking and asset management firm Natixis, per a story in The Wall Street Journal. “Caution is going to pervade the landscape,” he added.
Among the companies in the S&P 500 Index (SPX), these eight are among those that derive the highest percentages of their total revenues from sales in China: Qualcomm Inc. (QCOM), Qorvo Inc. (QRVO), Broadcom Inc. (AVGO), Micron Technology Inc. (MU), Texas Instruments Inc. (TXN), Intel Corp. (INTC), Starbucks Corp. (SBUX), and Apple, per FactSet Research Systems as reported in MarketWatch. The table below lists both the total sales in China that these companies recorded in their most recent fiscal years as of early 2018, and the percentage of their total sales that this represented. Full-year 2018 numbers are not yet available.
Big Impacts From China
- Qualcomm: $14.6 billion sales in China, 65.4% of total revenues
- Qorvo: $1.9 billion, 62.0%
- Broadcom: $9.5 billion, 53.7%
- Micron: $10.4 billion, 51.1%
- Texas Instruments: $6.6 billion, 44.1%
- Intel: $14.8 billion, 23.6%
- Starbucks: $4.5 billion, 20.2%
- Apple: $44.7 billion, 19.6%
Source: Fact Set, per MarketWatch
Significance For Investors
Corporations have a great deal of leeway in reporting results by region, and FactSet found only 62 members of the S&P 500 that, in their estimation, have regional breakouts that offer reasonable approximations of the Chinese market. In some of these cases, however, China may be combined with Taiwan, Hong Kong, Japan, or the entire Asia-Pacific region.
Of these 62 companies, 20 derived at least 18.9% of total sales in their most recent fiscal years from the Chinese market, given the analytical imperfections described above. Apple, Intel, Qualcomm, Micron, and Broadcom also are five of the six S&P 500 companies with the biggest total sales in China. The other is aircraft manufacturer Boeing Co. (BA), with $11.9 billion. However, China represents 12.8% of Boeing's total sales, so this company did not make the list above.
As a group, the top 20 S&P 500 companies in terms of the value of their sales to China produced $158 billion in revenue from that market during their most recent fiscal years, per MarketWatch. This, of course, is just the tip of the iceberg in terms of the impact of China on U.S. companies, given that this list excludes big names such as Amazon.com Inc. (AMZN) that lump all non-U.S. sales together in their reports.
To be sure, some companies may continue to do well amid China's slowdown. Nike Inc.'s (NKE) sales, for example, exploded in China last year, and Texas Instruments may be less affected because it sells mainly to manufacturers, not consumers, according to the Journal.
Still, the progress of trade talks between the U.S. and China is a related source of concern, since tariffs imposed by the U.S. on imports from China are prompting retaliatory measures by China that are dimming the prospects for sales by U.S. companies in China. Meanwhile, investors who hold shares of broad-based mutual funds, index funds, and ETFs may have unexpectedly high exposure to the economic slowdown in China and the trade conflict with the U.S.