Billionaire activist investor Carl Icahn told the world on Thursday (April 28) he has dumped all of his shares in Apple, just days after it posted its first quarterly revenue drop since 2003. His reason? China’s ruling Communist Party can do whatever it wants, including potentially shut Apple out of the market.
In an interview with CNBC (paywall), Icahn said he believed Apple CEO Tim Cook did a “great job” and that the company sells a product that’s difficult for competitors to beat. But he says he no longer has a position in Apple, because he worries “maybe more than a little bit, about China’s attitude.” As of the last public filing in February, Icahn had 45.8 million Apple shares worth $4.8 billion, Bloomberg reported. Icahn said his fund’s next 13F would reveal “we are out of the stock.”
Icahn told interviewer Scott Wapner very specifically that his concerns weren’t about China’s slowing economy. Instead, he explained, he pulled out of the stock in fear that the Chinese government will place restrictions Apple’s business:
I think Apple has, which we said all along, which is great, great barriers to entrance. You can’t go into that business unless you’re like Samsung which is really like a country backing it. A lot of people tried, a lot of people failed…In China, for instance, they will come in and make it very difficult for Apple to sell there. They could theoretically, you know… They’re basically in some senses I would say, perhaps benevolent but a benevolent dictatorship. I don’t know if benevolent is the right word.
When anchor Tyler Mathesin chimed in to ask whether “government interference” was the main reason he sold, Icahn said the real thing he worried about was the “relationship.” And he further clarified that there wasn’t a price point at which he would get back in, his “opinion” about what is “happening with China” was why he was selling.
The thing that I’m worried about here in China doesn’t affect the whole market. I’m not talking about China’s economic status right now. I’m talking about, could the thing with Apple escalate a little bit? And if that does, what does that mean to Apple’s profits during the interim? What we could talk about is another question and it seems to be taken care of somewhat, China’s economy itself. I’m no expert on it but that’s not what I’m talking about it. I‘m talking about the facts that you see. That China is sort of looking at Apple and saying “Well can you do this? Should we let you do that? Should we we let you do this?”
Icahn added that if such tensions were to “blow over” he might consider getting back into the stock.
China has long penalized large foreign technology firms with seemingly arbitrary lawsuits and restrictions. Compared to companies like Microsoft and Qualcomm, Apple has suffered few bruises in China. But that may be changing.
Last week Apple closed its iBooks and iTunes movie stores in China, reportedly due to pressures from the government. The shutdown came despite Apple’s track record of following the rules there—maintaining a proper license to distribute streaming media, self-censoring its news app, and agreeing to store Chinese user data locally. It came as Apple said publicly the Chinese government had asked it for its “source code,” and it had refused.
Restricting Apple’s media ambitions will unlikely affect the company’s bottom line. It derived just 11% of its total revenues from “services” (app store payments, Apple Music subscriptions, etc.) last quarter, while the majority came from iPhone sales. But Apple will grow increasingly dependent on services revenues in the future, especially as China’s smartphone market slows.
Ichan’s stock sale, though, had a big impact. Apple’s shares fell 2.2% from the interview’s start until markets closed on Thursday.