The year 2022 began on a triumphant note for Apple when it became the first company in history to reach $3 trillion in market capitalisation, although its stock has since receded slightly from its highwater mark.
The pandemic has powered much of the recent climb in its share price, following massive sales of Apple’s devices to people looking for different ways of working and socialising in the unprecedented conditions of the last 18 months. Some of the investor excitement about Apple stems from its stellar performance in China too, where it grabbed top spot in smartphone sales for the first time in six years in October, taking over from local challenger Vivo.
The iPhone held onto its lead in November with nearly 24% of sales, according to Counterpoint Research. Indeed, business for Tim Cook’s firm has been growing at a much faster pace in China than the wider market.
Counterpoint says that much of the surge has been fuelled by a frenetic response to the iPhone 13, a newer model with a better camera that was priced at a lower level than its predecessor, the iPhone 12.
There are other trends working in Apple’s favour as well, with the suggestion that more of China’s smartphone users are now willing to buy higher-end devices, which puts brands like Apple in a stronger position.
Disruption in the supply chain is another factor in driving sales of higher-priced phones as brands prioritise orders of higher-margin devices and the global chip shortage has also made life more difficult for Android manufacturers like Vivo, OPPO and Xiaomi, which have struggled to meet demand in more expensive phones.
Apple’s sales are likely to lose some of their steam as millions of customers finish their upgrade from older iPhone models. And its Chinese rivals are preparing for another new round of flagship phones in a bid to challenge the iPhone’s ascendancy as well. Yet Apple’s return to the top spot could hardly have been predicted two and half years ago, when WiC wondered whether the company was one of the most dangerously exposed to worsening political tensions between Washington and Beijing (see WiC420). Well, we got that wrong…
Instead Apple has bucked the talk about a decoupling of the markets (and supply chains) of the world’s two largest economies that was supposed to be triggered by tensions between the superpowers (in fact, as top China economist Jonathan Anderson pointed out in his exclusive Q&A with us in November, the conventional wisdom of Sino-US decoupling has proven a bit of a mirage; see WiC563 for his trade data and analysis on this key topic).
The fact that one of the biggest American brands can profit from pole position in the Chinese market seems to paint a picture in which business goes on regardless, despite the darker Sino-US political mood.
Then again, does it also speak too to the skills of arguably the most successful global company in navigating treacherous waters? That was one of the conclusions in the aftermath of a story from The Information that was picked up in the wider media in December.
Central to the report were claims that Tim Cook struck a crucial deal with senior officials in Beijing in 2016 after complaints from the Chinese that Apple wasn’t contributing enough to the local economy. Cook’s wider objective in the reported negotiations was to weather a rising storm of regulatory risks to Apple’s business, with a response that included commitments to shift more of its manufacturing and supply contracts to Chinese companies.
He was also said to have agreed to sign deals with local software firms, cooperate on technology with Chinese universities and invest in Chinese tech companies.
Last June we highlighted news that at least 12 new mainland entities had joined Apple’s supplier list, taking the total count beyond Taiwanese companies for the first time (see WiC544). Although Taiwanese contract manufacturers such as Foxconn and Pegatron are still the assemblers of the large majority of iPhones, newer rivals like Luxshare (see WiC506) have been winning deals to put together more of Apple’s consumer devices. Luxshare announced a contract recently for about 3% of iPhone 13 shipments, for instance, and news emerged in mid-December of its breaking ground on a huge new plant to produce Apple gear in eastern China (according to Nikkei Asia it is the size of 40 football fields and could begin delivering iPhones this year).
In another strand to the pact, Apple was said to have responded to requests to magnify the size of the Diaoyu Islands (a maritime outcrop whose ownership is disputed with the Japanese, who term them the Senkaku Islands) in the map displays of gadgets like the Apple Watch. Customers in China are shown the islands at a larger scale today, the report claimed.
Beijing’s responsibilities in the deal were less discussed beyond an agreement to offer assistance to Apple’s commercial efforts. Yet that was still enough for some commentators to draw a direct link between its successes of recent months and the terms agreed five years earlier.
A view like that discounts Apple’s commercial skills too quickly, including Cook’s abilities in managing its supply chain more effectively than most of its competitors. But in another sign that geopolitical currents still run deep, it’s worth saying that Apple has also been a huge beneficiary of the dramatic decline of Huawei’s smartphone business. From being a clear leader in China sales not much more than a year ago, Huawei is now reporting about a third of Apple’s new smartphone sales in the same market, where it continues to be hurt by Washington’s ban on shipments of key components from US suppliers such as Micron and Qualcomm. And although it still ranks first in the number of 5G phones in usage in the Chinese market (at about 30% of the total) Huawei’s grip is going to loosen further, because the US trade ban has hamstrung its chances of accessing the latest technology.
Apple may have even been a template for Tesla, another company that has entwined its current and future prospects with Chinese consumers and local manufacturing partners. In a headline that neatly sums this up, the Wall Street Journal pointed out last month: “Elon Musk needs China. China needs him. The relationship is complicated.”
To wit, Musk recently had to navigate a course between two PR events of a diametrically opposed nature in China. In the same week that his SpaceX satellites were accused of colliding with China’s still incomplete space station (poor local PR that inflamed patriotic netizens), his other firm Tesla announced on Chinese social media that it was opening a sales office for its electric cars in Xinjiang (news that was welcomed locally, but viewed less positively in the US where doing business in that region is considered controversial).
If Musk did learn from Cook how a foreign CEO can succeed in China – even in stiff political headwinds – he evidently learnt from the best.
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