Apple and fast-food chain Yum! are likely to hit a major hit from the decision of the Chinese government to weaken the yuan. These companies and several others depend heavily on China for revenue, and all of them are expected to bear the brunt of the weaker Chinese currency. Shares of Apple and Yum! Brands declined yesterday with Apple falling 5.2% and Yum (owner of KFC) declining 4.9%.
Apple depends heavily on China
The Chinese economy is facing a slow-down, and therefore, on Tuesday, the nation’s central bank decided to devalue the yuan. The 1.9% cut was called a one-time adjustment by the People’s Bank of China. This surprise move pushed the stock of many major U.S.-based companies down as investors are now concerned that the move will lower the revenues of firms that rely heavily on China.
Apple derives a major portion of its revenue from China, which is now its second-biggest market after the U.S. Of Apple’s total revenue of $49.6 billion in the second quarter, China contributed $13.2 billion. In the same quarter last year, revenue from China was just $6.2 billion. Apple is looking to China to drive its next phase of growth.
Other firms hit by yuan devaluation
Apart from Apple, Yum! Brands also has big exposure in the region as its fast food chain KFC is popular there.. Goldman Sachs reports that Yum! Brands derives 52% of its revenue from China alone. Another firm that will be impacted is Mead Johnson Nutrition, a baby formula maker which gets about 31% of its revenue from China. Around 83% of Wynn Resorts’ sales come from China as well, Goldman Sachs informed investors.
Several chip-making and tech companies also rely heavily on China for their revenues, says Goldman Sachs. These include Qualcomm, Nvidia and Intel, which derive 61%, 54% and 35% of their revenues from China, respectively.
Another popular U.S. firm, Tesla, is also trying to expand its sales in China but has not been successful so far, and the latest move from the Chinese bank will be a further let down on its efforts. Experts believe companies can offset the negative impact on sales by lowering their cost of production.