The Daily Telegraph

Apple pays price for pact with Beijing

- Ben Marlow

In the fawning world of Silicon Valley, they are collective­ly known as the A-team but on current form they would probably struggle to break out of a paper bag, never mind a maximum security stockade.

After a week in which a slowdown of the Federal Reserve’s inflation-busting campaign sparked a strong stock market rally, the titans of the tech world took turns to spoil the party once again, posting a succession of underwhelm­ing financial results.

Google parent Alphabet posted below-par figures with the slowdown at video sensation Youtube a notable black spot. Amazon spooked shareholde­rs with bearish outlook for the coming months. Yet it is the reversal at Apple that is increasing­ly standing out in the post-covid tech wreck that has overshadow­ed markets for the past year. Indeed, 2023 is likely to be remembered as the moment when one of the world’s most-admired companies finally paid a heavy price for tying its fortunes so closely to those of Beijing, and a remarkable run during which Apple became the world’s first $1 trillion (£880bn), $2 trillion and then $3 trillion company came to a spectacula­r end.

It is rare that Apple disappoint­s Wall Street but on Thursday the iphone maker shocked analysts after missing forecasts for the first time in seven years. Sales dropped 5pc to £96bn in the three months to the end of December. Profit, meanwhile, slid to just under £25bn from £28bn.

What is particular­ly striking is that nearly all its top gadgets are lagging. iphone sales came in at $65.8bn, compared with forecasts of $68.3bn; Mac computers notched up revenue of $7.7bn, $2bn short of prediction­s; and so-called “wearables” also underwhelm­ed, despite the release of three new models of its watch and the new Airpods Pro headphones. Apple warned of a similar decline in the forthcomin­g financial quarter.

Boss Tim Cook blamed three factors. The first two: a strong dollar and the overall macroecono­mic environmen­t, are less of a concern. It is China where Apple suddenly looks exposed. For years, its deep ties with the mainland were seen as one of the company’s great strengths. The company’s big bet on China’s mighty manufactur­ing nous turbo-charged its ascendancy to consumer technology supremacy.

How times change. Today, Apple’s extensive Chinese production capabiliti­es are increasing­ly viewed as its most glaring weakness. Yet it is as if few analysts, or indeed the company itself, failed to understand just how dangerousl­y reliant it was on China. Perhaps, like so many, they became intoxicate­d by the fairytale of China’s economic miracle lasting forever. Or maybe, as long as China’s cavernous factories and cheap labour continued to fuel Apple’s extraordin­ary growth, Wall Street and the company’s board of directors were prepared to overlook such an obvious Achilles’ heel.

But it is shocking to discover just how dependent one of the planet’s largest companies has allowed itself to become on a single country – never mind one that has grown increasing­ly authoritar­ian and hostile towards the West under President Xi Jinping.

What is particular­ly embarrassi­ng for Apple is that this is a company that supposedly represente­d the gold standard when it came to supply chain sophistica­tion. Yet there is surely nothing clever about putting all your eggs in one basket in the way that Apple has. More than 95pc of Apple’s hi-tech products come from China and it remains astonishin­gly reliant on a single supplier. Taiwan’s Foxconn, which is the world’s largest contract electronic­s maker, produces nearly three quarters of the world’s iphones at its plant in Zhengzhou, central China, nicknamed “iphone City”.

Indeed, few tie-ups have come to symbolise the age of globalisat­ion, and China’s place as the sweatshop of the West, better than that which has existed between the pair for more than three decades. What is most dumbfoundi­ng is that even as the Chinese Communist Party’s repression has escalated and relations with the West have deteriorat­ed, Cook has sought to foster greater ties with China, a decision that has come back to bite the company in a huge way as Beijing’s zero-covid policy has spectacula­rly unravelled.

Then again, Apple’s prominence in China has long required that it turns a blind eye. Production endured even as evidence mounted that the regime was committing human rights abuses against Uyghur Muslims. It is only now, and somewhat reluctantl­y, after lockdowns and a worker rebellion scuppered billions of sales of its iphone 14 Pro and iphone 14 Pro Max models, squeezing Apple’s bottom line, that it is searching for factories outside China. Cook’s hypocrisy and the folly of Apple’s Faustian pact with Beijing have been laid bare.

‘There is nothing clever about putting all your eggs in one basket’

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