Ap­ple dou­bles down on China as ri­vals pull ahead

Kuwait Times - - BUSINESS -

Ap­ple Inc is bind­ing it­self more closely to China as its share of the world’s big­gest smart­phone mar­ket slips and it be­comes more re­liant on sell­ing ser­vices which re­quire gov­ern­ment ap­proval. A flurry of re­cent ac­tion by Cu­per­tino-based Ap­ple un­der­lines its push to get on the right side ofChina’s no­to­ri­ously tough tech reg­u­la­tors, as it looks to re­vive sales there.

This week­end it moved to block apps used to evade the coun­try’s in­ter­net cen­sors, a de­ci­sion that fits with Bei­jing’s re­cent crack­down on un­ap­proved online con­tent. And Ap­ple has an­nounced it will es­tab­lish its first China data cen­tre in the po­lit­i­cally im­por­tant prov­ince of Guizhou, and has cre­ated the new po­si­tion of a man­ag­ing di­rec­tor for Greater China, re­port­ing di­rectly to CEO Tim Cook.

Ap­ple’s China rev­enues have stalled, fall­ing for a fifth straight quar­ter in Jan­uary-March, when sales grew in ev­ery other re­gion. China re­cently slipped to Ap­ple’s third-largest mar­ket, as con­sumers have switched to newer do­mes­tic of­fer­ings. The buzz around new launches has also cooled since the iPhone 6 in 2014.

When it un­veils quar­terly earn­ings later on Tues­day, Ap­ple is likely to re­port an­other dip in Chi­nas­mart­phone sales. Its once cov­eted iPhone has slipped into fifth po­si­tion be­hind of­fer­ings from lo­cal ri­vals Huawei, Oppo, Vivo and Xiaomi, an­a­lysts said.

The iPhone’s share of China’s smart­phone ship­ments fell to 9 per­cent in Jan­uary-June, from a peak of 14 per­cent in 2015, ac­cord­ing to con­sul­tancy Coun­ter­point. Hav­ing China’s gov­ern­ment on-side will cer­tainly help. “Be­cause oth­ers have eaten away at Ap­ple’s mar­ket share in China, it now has to pay more at­ten­tion to reg­u­la­tion from gov­ern­ment,” said Bei­jing-based tech an­a­lyst Li Cheng­dong. “China is such a key mar­ket for Ap­ple that it has to lis­ten.” Ap­ple de­clined to com­ment for this ar­ti­cle.

Ap­ple, like other US tech brands in­clud­ing Face­book Inc and Al­pha­bet Inc’s Google, has looked to woo China’s lead­ers to give it greater ac­cess, es­pe­cially as it pushes ser­vices such as its App Store and Ap­ple Pay. Ser­vices were Ap­ple’s rare bright spot in its strug­gling China busi­ness and logged dou­ble-digit rev­enue growth in Greater China in Jan­uary-March. And maintaining mo­men­tum is cru­cial, as de­vice sales may come un­der pres­sure again un­til Ap­ple un­veils its new iPhone, widely ex­pected later this year in a mile­stone launch that will be key to win­ning back Chi­nese buy­ers.

The ser­vices push, how­ever, comes with risks. China is tight­en­ing reg­u­la­tion of what it sees as its cy­berspace, in­clud­ing online me­dia, live stream­ing and gam­ing, and brought in a new cy­ber se­cu­rity law on June 1, push­ing firms to store user data in­side China’s bor­ders. Ap­ple has made swift moves to com­ply, de­spite con­cerns by over­seas busi­ness groups who say the law’s strict data rules and stor­age re­quire­ments are overly vague. The new data cen­tre - part of a planned $1 bil­lion in­vest­ment in Guizhou prov­ince - has a po­ten­tial po­lit­i­cal upside too. Bei­jing wants to turn Guizhou into a tech hub, while Pres­i­dent Xi Jin­ping him­self has close ties to the re­gion as a del­e­gate for the prov­ince at the Com­mu­nist Party con­gress.

“By set­ting up a data cen­tre and pulling VPNs, (Ap­ple) is send­ing a friendly sig­nal to the Chi­nese gov­ern­ment,” said Liu Xingliang, head of the DCCI In­ter­net Research In­sti­tute. Ap­ple said at the week­end it would re­move vir­tual pri­vate net­work (VPN) ser­vices from its Chi­naApp Store - sys­tems that al­low users to by­pass China’s so-called “Great Fire­wall” aimed at re­strict­ing ac­cess to over­seas sites. Bei­jing has tar­geted VPNs as it bids to tighten con­trol over the do­mes­tic in­ter­net, a drive that is ramp­ing up ahead of the Com­mu­nist Party Con­gress later this year.

Some said the re­cent moves jarred with Ap­ple’s stance in the United States last year, when it op­posed an FBI court or­der to break into an iPhone of a gun­man who fa­tally shot 14 peo­ple in San Bernardino in December 2015, with Cook say­ing it would be “bad for America”.

The U.S. firm’s gam­ble here is clear: mak­ing moves to ap­pease Chi­nese cen­sors may prompt crit­i­cism out­side China, but the firm will hope that lo­cal con­sumers are rather less fazed. “It’s nor­mal that Ap­ple wants to get along well with the Chi­nese gov­ern­ment,” said Wang Siyue, 27, a mar­ket­ing pro­fes­sional in Shang­hai, who is a long-term iPhone user. “I will buy the next gen­er­a­tion (iPhone) when it comes out. I’m just used to it,” Wang said, adding she doesn’t use VPN much, and Ap­ple’s move to take down the app wouldn’t im­pact her de­ci­sion to buy a new iPhone.—Reuters

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