Does one bad apple spoil the whole bunch?

That’s the question market participants are asking themselves about the so-called “Magnificent 7” cohort with mega-cap “tech” earnings on deck in the US.

The bad apple’s Tesla which, as of last quarter, is a growth stock with no growth. I think Elon Musk will figure it out. (But what do I know, right?)

Tesla’s not the only problem for the Magnificent 7, though. It’s the figurative bad apple, but the group’s literal Apple (proper noun) appears to be spoiling too.

On Tuesday, reports suggested iPhone sales in China plunged 19% in the quarter to March which, if true, would be the worst decline since the original COVID lockdowns plunged the Chinese economy into its only negative-growth quarter on record.

The 19% figure comes from Counterpoint Research, whose data was documented by Bloomberg. The stumble looked especially troubling in the context of the Lunar New Year holiday — even seasonally robust spending couldn’t rescue iPhone sales in China, apparently.

A big part of the problem’s competition, particularly from Huawei, which Gina Raimondo was keen to insist remains “years behind” despite a recent chip breakthrough widely billed as a coup in defiance of US efforts to curtail the company’s access to cutting-edge technology.

It doesn’t help that Xi Jinping’s engaged in an effort to curtail the use of iPhones by SOEs and China’s bureaucrats. The polite media’s not allowed to say this — or at least not explicitly — but everything‘s an SOE in China. More accurately, everything could be. Or everything of any consequence.

No, Xi won’t bother to seize iPhones from employees at China’s smallest businesses. But if your company’s significant in any sense of the word, it’s not a stretch to suggest the safer approach vis-à-vis the Party is to preemptively ban employees from using foreign devices, including iPhones.

And then there’s China’s domestic demand problem. The consumption impulse is subdued across the world’s second-largest economy. Consumer price growth was back to flirting with deflation last month and retail sales growth was very (dangerously, even) tepid. Simply put: Chinese consumers are reluctant to spend. And iPhones aren’t famous for being cheap.

Add it all up and you get a recipe for lackluster sales of your best product in a key market if you’re Tim Cook. According to IDC, iPhone shipments dropped 9.6% in the March quarter, the worst slump since 2022. Slowing sales in China are a big part of the problem.

How material is this for Apple? Well, it’s not immaterial, that’s for sure. The figure below’s updated with 2023’s numbers.

As a share of total sales, Greater China was 19% last year for Apple, up slightly from the prior year.

On the production side, Apple’s in the process of de-risking. Cook made $14 billion of iPhones in India last year, to cite the most obvious example, doubling Indian output after tripling production in the country the year before. One out of every seven iPhones is made in India now.

I’d argue that de-risking process can’t happen quickly enough. Notwithstanding Xi’s cartoonish efforts to court US executives, there’s every indication that China will become less hospitable to foreign interests going forward, commensurate with Washington’s efforts to stymie Xi’s tech ambitions.

Ask yourself this: What kind of sense does it make for the world’s foremost American consumer technology company to rely, for production of its best-selling product, on America’s most formidable geopolitical rival during a tech war? No sense. It makes no sense.

And that’s to say nothing of the (very real) risk that Xi decides to commandeer Taiwan one day, even if it means going to war with the island’s benefactors in Washington. What happens to iPhone production in that scenario? And to Greater China sales? Is there a contingency plan at Apple for that? Because if not, Cook’s derelict.

Of course, Cook would also be derelict (in the extreme) to downplay Apple’s most important overseas consumer market. But then again, from an investor perspective, there’s something profoundly unnerving about the company’s reliance on consumers in a country run by an adversarial, communist (note the emphasis) dictatorship.

As a brief aside, it’s worth noting that, as India goes to the polls, Narendra Modi’s no peach either. He’s not the dictator Xi is, but he’s certainly an authoritarian. He’s also a table-pounding nationalist and a dangerous ethnocentrist. None of that’s a risk to Apple currently. The point is just to reiterate that we live in a world of ascendant autocrats keen to assert themselves. US multinationals need to recognize that and adapt accordingly. I’m not sure Apple’s adapting fast enough in that regard.

Forgetting geopolitics, it’s still hard to conceive of a scenario in which Apple loses its luster as the top consumer brand on Earth. The company’s products are objectively superior to the competition in a lot of ways, and that’s ultimately what counts.

And yet, even that assessment comes with caveats. The only two entirely new products the company’s launched since its messiah tragically passed are a watch and now a pair of goggles. In a parallel universe where Steve Jobs is still among the living, the range of new, post-iPad products on offer is surely more extensive than that.