Apple's China problem isn't going away, HSBC says in its latest warning (AAPL)

Tim Cook

Apple shares fell to a two-month low Monday after HSBC issued its latest warning about China-related concerns.
"China, one of the reasons for our Dec 2018 downgrade, remains an issue and we don't see it going away anytime soon," they said.
The firm cut its price target for the fourth time since December.
Watch Apple trade live.

One of the world's largest companies is grappling with continuing headwinds in the world's second-largest economy, and that's caused HSBC analysts to issue a fresh warning to investors.

Apple's macroeconomic and competitive issues in China aren't going away anytime soon, particularly as trade tensions between the US and China hit a boiling point, analysts at the firm said in a report out Sunday. The report sent Apple shares tumbling 3%, to a two-month low. The stock saw its lowest close since mid-March.

The analysts, led by Erwan Rambourg, trimmed their price target to $174 from $180 — their fourth price cut since December, when they released an in-depth report downgrading their once-bullish rating.

"China, one of the reasons for our Dec 2018 downgrade, remains an issue and we don't see it going away anytime soon," the team wrote, pointing out that shares are down 10% since the company's second-quarter earnings report was released on April 30.

"We believe an escalation/elongation of the trade tension will likely have an impact on how Chinese consumers perceive US branded products, chiefly iPhone and given that China plays a big role in terms of products and services revenue for Apple, this remains a key risk," they added.

Trade tensions between the two countries have escalated in recent weeks, with China retaliating against the Trump administration's new round of tariffs.

Washington's subsequent ban on the Chinese telecommunications firm Huawei sparked concerns that US multinational technology companies like Apple could suffer in the event Beijing retaliates further. And Google's newly announced decision to sever ties with the company only exacerbates the tension between the two nations.

Still, China remains a critical market for the iPhone giant. The region accounts for between 17% and 18% of Apple's sales, according to HSBC.

Competition in China remains a concern as well, the analysts said. Apple's position in China's smartphone market has shrunk in recent years, amid increased competition from cheaper alternatives like Huawei and Xiaomi.

China's smartphone shipment market share, according to HSBC.

The many China-centric issues facing Apple, its share price's 22% decline from its peak, and analysts' subsequent notes of caution mark a stark departure from Wall Street's once overwhelmingly positive view of the stock.

In its report, HSBC applauded Apple's management for attempting to shift investors' attention away from waning iPhone sales to its growing services business.

Still, the analysts added that cheering "a quarter in which iPhone sales were down 17% at a time when the stock was trading at a 3-year high in terms of forward PE valuation we think is very counterintuitive."

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