Apple’s next big moneymaker is its biggest headache in China

Apple CEO Tim Cook attends the China Development Forum in Beijing, China, March 18, 2017.

For Apple, this summer is closing with good news and bad news.

On the one hand, its financials suggest that as iPhone sales plateau globally, it can count on software to spur growth. Revenue in Apple’s “Services” category—which includes sales in the App Store, as well as Apple Music subscriptions and other media—hit $7.27 billion for the three month-period ending July 1, making it the company’s second-largest business unit.

On the other hand, that growth is increasingly threatened in China, where Apple’s software ambitions face tough challenges as Beijing continues its efforts to wean the country off foreign technology.

The most recent incident came this week when Beijing-based law firm Dare & Sure announced it had filed a complaint (link in Chinese) to China’s National Development and Reform Commission (NDRC), which oversees antitrust issues, and the State Administration for Industry & Commerce (SAIC), alleging that Apple has been engaging in monopolistic behavior. Representing a group of 28 developers, the firm argues that Apple deletes apps without sufficient explanation, and that its standard 30% take on in-app purchases is unfair. In April, when the firm first announced it was looking for Chinese developers (link in Chinese) to potentially represent, it wrote:

“Some of Apple’s behavior when operating the App Store, when coupled with its absolute advantageous market position, will or already has produced a negative impact on market competition. If Apple cannot explain the reasoning behind this behavior, or cannot prove that this sort of behavior creates benefits in the market that make up for its negative impact, this sort of behavior ought to be subject to China’s anti-monopoly regulations.”

In response to the complaint, Apple said in a statement sent to Quartzthat the App Store “has published guidelines that apply equally to all developers in every country,” and added that it holds “workshops in China throughout the year” to help Chinese developers. It did not address the lawsuit directly.

The SAIC did not reply immediately to Quartz’s request for comment. The NDRC couldn’t be reached for comment.

It’s not clear if the complaint will turn into a case. It’s also not the first of its kind—in 2012, a group of iPhone owners filed a suit against Apple arguing that its 30% take from the App Store was anti-competitive, and the case has yet to close. But the suit marks one of several instances where Apple’s software business has come under pressure in China.

In late July, Apple removed dozens of VPN apps from China’s App Store due to government demands. While not a wholesale removal, the ban nevertheless follows the government’s wider crackdown on software that circumvents the so-called Great Firewall, which blocks access to websites like Google and Facebook.

In May, Chinese tech giant Tencent removed a button in its chat app WeChat that had allowed users to donate small sums of money to bloggers and media personalities. Apple argued that the button was in violation of its policy of taking 30% of from in-app purchases. It also came not long after WeChat launched an app store of its own, which, if it becomes successful, could compete against Apple’s.

Before those incidents, the government targeted other software offerings from Apple. In January it forced Apple to remove the New York Times app from the Chinese App Store. Last year, the government forced Apple to shut down its Chinese iBooks and iTunes movie stores.

Apple needs Service revenue from China just as much as from everywhere else, if not more. For its most recent earnings (and for the third quarter in a row), the Greater China region (which includes Taiwan and Hong Kong) remained the only part of the world where total revenues, which come overwhelmingly from iPhone sales, did not grow annually.

Apple has taken additional steps lately that might help smooth the course in China. Recently it announced it would open a data center in China, in swift compliance with the recently-implemented Cybersecurity Law. It also created a head of Greater China position, and appointed native Chinese-speaker and longtime Apple executive Isabel Ge Mahe to take on the role. As long as these incidents continue at the same pace, she’ll have her hands full.


Apple is at risk of falling out of the top 5 smartphone vendors in China

Apple CEO Tim Cook attends China Development Forum 2017 - Economic Summit at Diaoyutai State Guesthouse on March 18, 2017 in Beijing, China.

Apple CEO Tim Cook attends China Development Forum 2017 – Economic Summit at Diaoyutai State Guesthouse on March 18, 2017 in Beijing, China.

Apple’s share of the Chinese smartphone market fell last quarter, according to one analysis, representing the waning dominance of the iPhone ahead of a major milestone.

Local brand Xiaomi snagged the fourth-place spot that was held by Apple, leaving Apple at No. 5, according to Canalys, an independent analyst company. Samsung is also in the top 10 smartphone brands in China, although only the top four brands were ranked by Canalys’ statement.

  1. Huawei: 23 million
  2. Oppo: 21 million
  3. Vivo: 16 million
  4. Xiaomi: 15 million

Source: Canalys

Apple does not break out figures on sales of individual products in each region, and was not immediately available to comment. But earlier this year, a separate report from Counterpoint Research found that the iPhone was not the top selling smartphone in China in 2016, the first time Apple had been unseated since 2012.

Remaining in the top of the crop is key for Apple because the top five brands accounted for almost 75 percent of the 113 million shipments in China, Canalys estimates. It’s an area where Apple has struggled in recent years, with sales down 14 percent year over year last quarter.

Apple CEO Tim Cook has expressed long-term optimism on the Chinese market, despite strong competition provided by WeChat’s software ecosystem, which works on Android or iPhone devices. Apple recently created a new post, managing director of greater China, tapping an executive that has developed China-specific features for iPhone and iPad.

The iPhone 8, considered a marker of the device’s tenth anniversary, is expected by some analysts to revamp Apple’s influence in China. Sales in greater China are expected to hit $9.96 billion in the September quarter, according to FactSet, up from $8.79 billion in the year-ago quarter.


Apple’s Greater China business now has its own managing director for the first time

Apple has appointed Isabel Ge Mahe as its first vice president and managing director of its business in Greater China.

China-born Ge Mahe is tasked with managing Apple’s China business, and she will report into CEO Tim Cook and COO Jeff Williams when she takes up the role, which is based out of Shanghai, “later this summer.”

Ge Mahe is currently located in California, where she has spent the last nine years heading up Apple’s wireless technologies software engineering teams. That includes the development of cellular, Wi-Fi, Bluetooth, NFC, location and motion technologies in products, and Apple said she has also overseen its Apple Pay, HomeKit and CarPlay technologies.

“Everyone at Apple is proud of the contributions we make to the communities where we do business, and I am looking forward to deepening our team’s connections with customers, government and businesses in China to advance innovation and sustainability,” Ge Mahe said in a statement.

That mention of government in her statement is interesting since it hints that Ge Mahe may take a leading role in liaising with authorities in China. Apple this month announced plans to develop its first China-based data center, a move that is thought to be related to the country’s new cybersecurity laws which went into effect June 1, and this appointment may also be connected.

While there are many business reasons to have a Greater China MD — Apple’s revenue from the region can make or break its quarterly earnings report — having a lead may help with sticky issues in the country. Earlier this year, for example, Beijing authorities summoned Apple to explain its standards for live-streaming apps. The government has since shuttered a number of live-streaming services that it found were in breach of its media standards.


Apple creates a new head of China role and names exec to run it amid falling sales

Isabel Ge Mahe, Apple's new vice president and managing director of China.

Isabel Ge Mahe, Apple's new vice president and managing director of China.

Isabel Ge Mahe, Apple’s new vice president and managing director of China.

Apple has created a major new executive role in China and appointed the head of its wireless technologies unit to run it, reporting into CEO Tim Cook, as the technology giant struggles with falling sales in the world’s second-largest economy.

Isabel Ge Mahe will take up the new role of vice president and managing director of Greater China, Apple said in a statement late on Tuesday. Ge Mahe is moving from her role as vice president of Wireless Technologies to take up the new job which is based in Shanghai.

The executive will report into Cook and Chief Operating Officer Jeff Williams.

Apple’s move comes at a time when the world’s second-largest smartphone maker by market share grapples with stricter regulation in China and struggling iPhone sales. In the quarter ended April 1, Greater China revenues fell 14 percent year-on-year, though iPhone sales were up 1 percent, pointing towards a slight recovery.

Local Chinese brands like Oppo, Vivo, and Huawei, have posed a big challenge to Apple in China, taking away market share. But Apple is hoping its upcoming device releases, especially the souped up iPhone 8 anniversary edition phone, will win back Chinese consumers.

Cook still sees China as a crucial market.

“We continue to be very enthusiastic about our opportunity in China,” Cook said in Apple’s fiscal second quarter earnings call.

Technology firms in China also have to grapple with ever-changing regulation, something that Apple has felt the effect of. Last year, for example, Apple’s iBooks and iTunes Movies services were shut down.

But Apple has been making moves to appease regulators. Last week, Apple said it is setting up its first data center in China to comply with stricter cybersecurity laws that were introduced in June.

In Ge Mahe’s role heading up the wireless team, she focused on the development of cellular, Wi-Fi, Bluetooth, location, and other technologies for many of Apple’s products. She has also overseen the engineering teams developing Apple Pay, HomeKit and CarPlay.

In China, she worked with Apple’s research and development teams to develop features specifically made for that market.

In a statement released on Tuesday, Ge Mahe hinted that her role would include liaising with government, something that Apple increasingly needs to do.

“Everyone at Apple is proud of the contributions we make to the communities where we do business, and I am looking forward to deepening our team’s connections with customers, government and businesses in China to advance innovation and sustainability,” Ge Mahe said.

Apple’s new China MD is fluent in Mandarin as well. Ge Mahe will begin the role later this summer.

“Apple is strongly committed to invest and grow in China, and we are thrilled that Isabel will be bringing her experience and leadership to our China team,” Cook said in a statement on Tuesday.


Apple to set up its first data centre in China

Image result for Apple to set up its first data centre in China

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Personal online information belonging to Chinese owners of iPhones and iPads — including private messages, photos and device backups — is to be stored locally in China for the first time, as Apple opens its first iCloud data centre on the mainland. Apple’s move follows Beijing’s introduction last month of tighter cyber security rules and reflects the concessions foreign multinationals must make to tap the world’s largest mobile market, which is increasingly important for iPhone sales.  The US tech group’s new facility in Guizhou will be jointly operated with a Chinese internet company, as part of a $1bn investment in the southwestern province.  Announcing the relocation of mainland Chinese customers’ iCloud data from the US, Apple sought to head off potential security concerns from its tens of millions of users in the region.  “As our customers know, Apple has strong data privacy and security protections in place and no backdoors will be created into any of our systems,” it said in a statement.  Apple already complies with legally valid requests for data from law enforcement authorities around the world, including China. Nonetheless, moving customers’ iCloud data to a Chinese facility will make it easier for the authorities to go through the legal motions required to obtain that private information.  Under US law, foreign governments have to undertake a process, which can sometimes take years, to obtain data about their citizens that are stored on servers in the US. China’s new cyber security law requires all data collected on the country’s citizens or areas relating to broadly defined issues of national security to be held on servers in China. Transfers of data abroad must first be reviewed and approved by regulators. Until now, Apple has serviced its Chinese iCloud customers using data centres outside the country, primarily in the US. Some Apple media systems, including parts of its iTunes and iBooks digital content stores, were transferred to servers in China a few years ago, but those systems did not include any personal data.  Related article China’s cyber security law rattles multinationals Businesses warn rules will increase costs and leave them more vulnerable to spying Last year, Apple fought a request by the US government to break down the encryption protections built into its iOS operating system, as investigators sought to access a dead terrorist’s iPhone. Apple also said last year that it had rejected a Chinese demand that it hand over its iOS source code.  The Chinese law means Apple must store its iCloud encryption keys there securely. Apple will retain control of the keys but, in certain instances, such as credit card information, only the user holds the key to their data, meaning the iPhone maker would be unable to comply with any request from law enforcement.  Other US tech groups including Microsoft, IBM and Amazon already offer their cloud infrastructure services in China through local partners. Google has no data centres in China.  “It’s not a new direction. China has been increasingly requiring different types of data be stored within China,” said Mark Natkin, managing director at Marbridge Consulting. “It’s indicative of an effort China is making to ensure that user data from online and mobile services provided to Chinese users is stored in data centres in China.”


China sees industrial profits grow at start of 2016

China's Premier Li Keqiang

China’s industrial profits returned to growth in the first two months of 2016, partly due to a recovery in the property market despite an otherwise struggling economy.

Profits earned by Chinese industrial firms in January and February combined rose 4.8% from a year earlier, totalling 780.7bn yuan (£84bn) in the two-month period, according to the National Bureau of Statistics (NBS).

That compared with an annual fall of 4.7% in December 2015, which was the seventh straight month of decline.

“The recovery in property investment has helped industrial profits return to positive growth,” said Zhang Wenlang, an analyst at CITIC Securities. “Looking forward, industrial profits are likely to grow this year thanks to improved household consumption, a recovery in property investment and a halt in the slump in commodity prices.”

China’s real estate investment rose 3% in the first two months of 2016 in year-on-year terms, quickening from an increase of 1% in the full year of 2015.

The positive trend was also driven by quicker product sales of industrial firms and a slower decline in industrial producer prices, said NBS. The oil processing, electrical machinery and food sectors also contributed significantly to the growth in profits, it added, saying the sectors benefited from lower oil prices.

China’s premier Li Keqiang said last week that the country has enough policy tools to keep the economy stable despite “deep rooted” structural problems and downward pressure.

Chinese leaders have set an economic growth target of 6.5% to 7%for this year, introducing a range rather than a more precise target as it seeks greater flexibility in juggling growth, job creation and restructuring of a host of “zombie companies” in bloated industries.

[Source:- Gurdian]