Apple (AAPL) Slammed on China Move to Devalue Yuan

Apple (NASDAQ: AAPL) is under heavy pressure Tuesday, dropping 4.8% mid-day to $113.90. In addition to Apple Watch all but being called a "flop," China's move to devalue the yuan is seen impacting results for the iPhone maker. In its latest quarter, China sales accounted for nearly 27% of Apple's total and were up 112% year-over-year.

Today, the central bank in China set its official guidance rate down nearly 2 percent prior to market open to 6.2298 yuan per dollar, sending the currency lower versus the dollar.

While Apple uses derivatives to hedge certain exposures to fluctuations in foreign currency exchange rates, it may not be enough to offset the impact from the stronger dollar.

Here is how Apple describes its currency risk in its 10-K:

Foreign Currency Risk

In general, the Company is a net receiver of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, will negatively affect the Company’s net sales and gross margins as expressed in U.S. dollars. There is a risk that the Company will have to adjust local currency product pricing due to competitive pressures when there have been significant volatility in foreign currency exchange rates.

The Company may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. The Company’s practice is to hedge a portion of its material foreign exchange exposures, typically for up to 12 months. However, the Company may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to accounting considerations and the prohibitive economic cost of hedging particular exposures.

In addition to the FX impact, devaluing the yuan is also seen helping Apple rivals in China, like Huawei and Xiaomi.

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