Carl Icahn Isn't Wrong about Apple in China

Carl Icahn told CNBC Thursday that he sold his considerable stake in Apple Inc.—some 0.8 percent of shares at his height—on concerns about Apple's business in China, though it might be more accurate to characterize it as concerns that China's government could have a deleterious affect on Apple's business in that market. I'm not always a fan of Mr. Icahn's, but in this instance, he isn't wrong.

I chose that wording with care, because I'm not saying he's right, I'm saying he isn't wrong. There's a difference, and in that difference Mr. Icahn demonstrated how he has amassed a fortune worth billions.

To that end, look at how much money Carl Icahn made in his three year investment in $AAPL—more than US$2 billion. That's fairly good money for three years of letting someone else hold your money, and Carl Icahn's decision to sell was should be viewed in terms of locking in those profits at a time when the Chinese government is, indeed, something to be concerned about.

Here's the interview on CNBC (it may play in multiple sections):

"You worry a little bit — and maybe more than a little — about China's attitude," Mr. Icahn said during the interview. He noted that the Chinese government could, "come in and make it very difficult for Apple to sell there. [...] You can do pretty much what you want there."

These things are true, and we've been seeing them for years. Apple has been a political pawn of tensions between the U.S. and China, and the Chinese government has expressed concern about backdoors in its operating system (ironically the very thing the FBI is whining about not having).

China has also ordered hit jobs on Apple in state-owned media that appear designed to boost domestic companies. More recently, China ordered Apple to shut down the iTunes Movie Store and iBooks in the country—moves that were part protectionism and part concern over China's desire to control what media the population has access to.

That last action was done after Carl Icahn sold his $AAPL stake, but the point is that China can make life hard for Apple at its whim. Even efforts to merely slow Apple's expansion in the country could be a significant problem for the company. Apple CEO Tim Cook told analysts this week that he believes in Apple's future in China, and I take him at his word, but that's far from a guarantee.

That's where locking in profits comes into play. Mr. Icahn can reinvest in $AAPL any time he wants, and if Apple's Chinese business smooths out, I imagine he will. In addition to stressing that he sold his stake because of China, he also went to pains to calls Apple's stock "cheap" (meaning a good buy), and to praise Tim Cook's leadership.

More specifically he called Apple "a great company" and said that Mr. Cook was doing "a great job."

To that end, I've seen comments from Apple fans accusing Mr. Icahn of pumping and dumping. In that he pumped after he dumped, that's not a rational position. More importantly, he isn't wrong about China, and when you add in the reality that he locked in $2 billion in profits, his decision to sell his stake is just another solid business move.

For the record, it's not the decision I'm making on my tiny position in $AAPL, but then I haven't made $2 billion. I'm a long-term holder, so make of my analysis what you will.

Shares of $AAPL closed lower Thursday at $94.83, a loss of $2.99 (-3.06 percent), on very heavy volume of 82.2 million shares trading hands.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.