Apple Inc. (AAPL): Why It Initially Rallied Despite a Goldman Cut

The Chinese government has launched smear campaigns in the past against foreign companies, and Citigroup Inc (NYSE:C) analyst Glen Yeung used HP as a proxy to estimate how much damage Apple could be facing. Back in 2010, China undermined HP in favor of local PC vendors, and HP ended up losing roughly half of their PC market share. By the same rationale, if Apple were to lose half of its China market, Yeung estimated that could amount to $13.1 billion in lost revenue.

That estimate made for some gloomy headlines yesterday that contributed to Apple’s 3% sell-off, but ultimately the figure is an incredibly broad overgeneralization. Apple’s trailing-12-month “Greater China” revenue (including retail) is currently $26.6 billion, so simply cutting that figure in half would be scary… except that Apple’s similarities to HP are only skin deep. HP is a commoditized PC vendor in a declining market, while Apple is a differentiated mobile device maker with a premium brand.

There are certainly risks related to China’s recent anti-Apple campaign, but it’s going to take a lot more than that to make $13 billion in sales disappear in an instant. That’s why it’s encouraging that the Chinese media is changing its tune following Cook’s apology. The Chinese press is now praising Apple for boosting transparency and easing the building tensions, with the Global Times calling Apple’s response “worth respect compared with other American companies.” The Foreign Ministry also nodded in approval.

The change of heart in China is one reason why investors are overlooking Goldman’s cut today.

The article Why Apple Initially Rallied Despite a Goldman Cut originally appeared on Fool.com.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Apple and Goldman Sachs. The Motley Fool owns shares of Apple and Citigroup Inc (NYSE:C).

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