What Will Big Tech Earnings Tell Us About China?

While Alphabet Inc GOOGL GOOG — reporting after the closing bell Tuesday — Meta Platforms Inc META, and Netflix Inc NFLX do not generate significant amounts of revenue from China, Microsoft Corporation MSFT — also reporting after the closing bell — does.

Numerous American businesses depend on China as a significant market for their products, as source of production or both. That makes them susceptible to an economic downturn China, strict COVID-19 lockdowns and a larger evaluation of supply chains that are dependent on China.

International corporations have made investments in China for many years, creating manufacturing ecosystems and enterprises to serve the country's expanding middle class.

As an example, Apple Inc. AAPL, one of the businesses most exposed to China, sources 18% of its revenue and 85% of its manufacturing there.

While China contributes around 1% to Amazon.com, Inc.'s AMZN revenue, 37% of its sellers and 75% of its products come from China.

The strength of the dollar this year relative to other APAC (Asian-Pacific) regions has resulted in foreign exchange headwinds for U.S. tech companies.

Read also: Alibaba Plummets Following Xi Jinping Re-Election, Government Reshuffling: What's Happening?

What can we expect U.S. companies to say this quarter?

With regard to its most recent quarter, Microsoft blamed lower-than-anticipated earnings on events in China and Russia, including the former's prolonged COVID lockdowns and the latter's conflict against Ukraine.

“Extended production shutdowns in China” resulted in a $300-million hit, the company said in its last earnings release.

This time around, we may hear the same discussion around headwinds for big tech in China, with the added disadvantage of the strong dollar making foreign exchange more costly.

Stay up to date with all things China here. 

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