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Apple CEO Tim Cook has said that he doesn’t think it likely that the Chinese government will target the iPhone maker in retaliation for Trump administration policies.
The US has imposed 25% tariffs on many products imported from China, and Trump has threatened to extend this to all Chinese imports …
Some Apple accessories are already taxed at 25%, and Trump’s threat would see all Apple products made in China and sold in the US hit by the tariff – resulting in either steep price increases or reduced profitability for the company.
The White House also put Chinese giant Huawei on an export blacklist, which the company says is not justified. Huawei has close links to the Chinese government.Analyst concerns
Analysts have expressed concern about two risks to Apple if the trade war escalates. First, a growing consumer boycott of Apple products in China, with some iPhone owners saying they will switch to Huawei in protest at the US action. Citi recently suggested that this could see iPhone sales in China fall by as much as 50%.
The US trade war with China will provoke Chinese citizens to turn away from Apple and buy domestic mobile brands instead, according to an analyst note […]
The analysts predicted that Apple’s brand is already being damaged in China and that this is a recent deterioration. According to their calculations, China accounts for 18% of all Apple sales, but that figure could halve thanks to the trade war.
The second risk is the Chinese government targeting Apple as a proxy for the US. Goldman Sachs said that the worst-case scenario would be a ban on iPhone sales in China, which would reduce Apple’s global profits by 29%.
“Investors have been asking us about Apple’s financial exposure to China given the possibility of a ban on Apple’s products there in retaliation for the US license requirements for Huawei that were announced last Friday,” wrote Goldman Sachs analyst Rod Hall in the research note […]
Apple’s profits would plunge by almost 30% if China enacts a total ban on the company’s products, according to Goldman Sachs. The dollar amount would be a reduction in net income by over $15 billion annually.Tim Cook sanguine
Cook, however, doesn’t consider this likely, reports CNET.
“The Chinese have not targeted Apple at all, and I don’t anticipate that happening, to be honest,” Cook said in an interview with CBS News, conceding that a tariff on the iPhone would hurt sales of the smartphone.
“I’m hoping that doesn’t happen,” he said in the interview. “The truth is, the iPhone is made everywhere. It’s made everywhere. And so, a tariff on the iPhone would hurt all of those countries, but the one that would be hurt the most is this one” […]
Cook went on to say he’s “proud” to engage regularly with the White House, noting that keeping the lines of communications open helps solve problems.
“I don’t believe in the ‘I disagree with you, and so I don’t want to have anything to do with you,’” he said. “The way you stop the polarization is to talk. This is sort of like step one. And I don’t want to be part of the problem — I want to be part of the solution.”
Cook characterized his discussions with Trump as fairly straightforward, with a lot of back and forth.
Apple’s CEO may be taking an optimistic view, but he has a legal responsibility to disclose risks to the company’s financial prospects, so his statement can certainly be taken to mean that there has as yet been no direct indication from China that it is considering any action against the company.
Cook also discussed privacy during the interview.
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Apple is Safe with Tim Cook
Wednesday afternoon Apple’s long-time CEO and founder Steve Jobs sent a letter out to the company’s Board of Directors and the greater Apple Community announcing his resignation as CEO of Apple. His letter requests and the board has agreed that now former Chief Operating Officer Tim Cook would become the new Apple CEO while Jobs himself would become Chairman of the Board, director, and, as he put it, “Apple employee.” As we find confidence in the fact that Jobs will continue to be a large member of the Apple family, we of course look to Tim Cook to fill the role that Jobs has defined for several decades. Is Tim Cook up to the task?
Tim Cook is a name you really should recognize. He’s already served as interim CEO for Apple several times, each of them while Jobs took health-related leaves. These periods of Cook as Apple CEO took place in 2004, in the first half of 2009, and since Jobs took a leave of absence this past January, a period where Cook has handled day-to-day CEO duties daily. Jobs’ letter of resignation referred to a succession plan that included Cook already laid out well before today came around. As a former VP for Corporate Materials at Compaq, Chief Operating Officer of the computer reseller division of Intelligent Electronics, and having spent 12 years as director of North American Fulfillment at IBM, Cook would have been a qualified candidate for a high position in the business even before you consider his exemplary service with Apple since 1998.
During his years with Apple he rose from senior vice president of operations to his current position of COO starting in 2005. His several accolades include reinventing Apple’s approach to inventory supply chains, managing perfectly timed releases of new products, and keeping in-demand products in stock, each of these puzzle pieces essential to the current success of Apple. In fact, his contributions to the success of Apple can literally be counted in dollars and cents during his 2009 stint as acting CEO as Apple’s stock rose 67 percent according to CNN’s profile of Cook.
As a 2009 profile of Tim Cook with Wired notes, Michael Janes, the first general manager of Apple’s online store gives one look at Cook as the guy who turns all the fabulous designs Apple is set to release into “a big pile of cash for the company.” The profile goes on to note:
In some ways, Cook and Jobs are poles apart. Cook is the yin to Jobs’ yang. A quiet, soft-spoken, low-key executive, he couldn’t be more different from Jobs’ sarcastic, fearsome, larger-than-life personality. But that’s exactly what makes him perfect for the job, say people who have worked with Cook.
On the other hand, a profile of Cook from Fortune calls him a much less feeling sort of fellow – and that’s a good thing:
Tim cook arrived at Apple in 1998 from Compaq Computer. He was a 16-year computer-industry veteran – he’d worked for IBM (IBM, Fortune 500) for 12 of those years – with a mandate to clean up the atrocious state of Apple’s manufacturing, distribution, and supply apparatus. One day back then, he convened a meeting with his team, and the discussion turned to a particular problem in Asia.
“This is really bad,” Cook told the group. “Someone should be in China driving this.” Thirty minutes into that meeting Cook looked at Sabih Khan, a key operations executive, and abruptly asked, without a trace of emotion, “Why are you still here?”
Khan, who remains one of Cook’s top lieutenants to this day, immediately stood up, drove to San Francisco International Airport, and, without a change of clothes, booked a flight to China with no return date, according to people familiar with the episode. The story is vintage Cook: demanding and unemotional.
As Lex Friedman notes in the Macworld profile of Cook, the known Apple share holder puts down on paper the thoughts many people in such a position had in early 2011 when the article was written and what we’re sure many people are feeling now:
Should Steve Jobs by choice or necessity ever need a full-time replacement at Apple, it will of course be the board’s decision to decide who should fill his black turtleneck. But with Tim Cook taking over now for the third time in seven years—and his consistent track record when called upon thus far—one might expect that Apple’s future is already in safe hands.
As I noted back in February, Apple’s legacy and future is safe, doubly so now that Jobs is confirmed to still be a part of the company and Cook is at the helm.
Also note that you can read the official press release on this event in the post Steve Jobs Resigns as CEO of Apple from earlier today.
This morning, Apple broke ground on its new $1 billion campus in Austin, Texas. Coinciding with that, Apple CEO Tim Cook has sat down with ABC News’ Rebeca Jarvis to talk about Apple’s investment in the United States, his relationship with President Trump, and more.
As for the new Mac Pro, Cook reiterated much of what he said alongside President Trump this afternoon.
“We are really proud to make the Mac Pro here — this computer is our most powerful computer we’ve ever made, by far,” Cook said in an exclusive interview with ABC News’ Rebecca Jarvis on Wednesday. “It performs over 50 trillion tasks per second. I mean, this is just mind-blowing.”
When asked why Apple still builds the iPhone in China, Cook said that he actually thinks “the iPhone is made everywhere.”
“If you look at the glass of the iPhone, which everybody touches all day long, that glass is made in Kentucky. If you were to take apart the iPhone you would see many of the silicone components that are made in the United States as well,” he added. “The iPhone is the product of a global supply chain.”
With that having been said, however, Cook said that assembling the iPhone in the United States is something that is “not on the horizon.”
Cook also talked about Apple’s relationship with China, as well as the trade war between China and the United States. The Apple CEO said that he doesn’t want to “speculate” on whether the next round of tariffs could raise iPhone praises. Instead, he said that he’s hopeful the United States and China will come to an agreement:
The Apple chief said that he doesn’t want to “speculate” on how the next round of China tariffs could raise the price of iPhones.
“I’m hoping that the U.S. and China come to an agreement, and so I don’t even want to go down that road right now,” Cook said. “I’m so convinced that it’s in the best interest of the U.S. and best interest of China, and so if you have two parties where there’s a common best interest there has got to be some kind of path forward here. And I think that will happen.”
Meanwhile, Apple’s relationship with China has faced scrutiny from some US lawmakers, but Cook isn’t worried about it. “China really hasn’t pressured us, and so I don’t envision that,” Cook said when asked if there was a line Apple would not cross if China pressured the company.
Cook said they have never been asked in China by authorities to unlock an iPhone, but added, referring to the U.S., “I have here. And we stood up against that, and said we can’t do it,” he added. “Our privacy commitment is a worldwide one.”
Apple has also been embroiled in the protests in Hong Kong because of its decision to remove a protest app from the App Store:
“In the specific app in Hong Kong, we made the decision unilaterally,” he said. “We made it for safety, and I recognize that somebody can say that is the wrong decision and so forth. We obviously get second guessed a lot when you make tough decisions on apps to be on versus off, but we made it for safety.”
Cook added that “in terms of the Hong Kong situation, I hope and pray for everyone’s safety,” and “more broadly I pray for dialogue, because I think that good people coming together can decide ways forward.”
As for his relationship with Trump, Cook said that he is focused on “policies and not politics” and that he has “full faith” in the American system when it comes to things like impeachment. He also added that he is focused on the same things “no matter who is in the White House.”
Last but not least, Cook touched on Apple’s future plans in the area of mergers and acquisitions:
“I don’t have my eye on anything big. I have my eye on a lot of interesting small things. We acquire things when they make sense, but we never acquire for size and revenue – we acquire for talent and IP, and things that can improve people’s lives.”
You can read Cook’s full interview with ABC News here.
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iPhone SE 2 wireless charging unlikely says contrary analyst
Apple may not have the resources to add wireless charging to the iPhone SE 2, with analysts casting doubts on reports of the smallest iPhone getting a big upgrade in 2023. Released in early 2023, the iPhone SE was Apple’s compromise for critics of big-screen smartphones. It proved to be surprisingly successful.
Packaging what was at the time the latest chipset of the iPhone 6S with a new camera into the iPhone 5s’ body, the iPhone SE managed to keep up with its larger brethren despite sticking with a 4-inch screen. Apple gave it a mild polish in 2023, increasing the storage sizes, but otherwise it has languished without a significant upgrade since launch.
Rumors over the past few months had suggested that the iPhone SE’s time, however, had come. Speculation began for a second-edition of the smartphone, unofficially dubbed the iPhone SE 2, which would again follow the strategy of distilling key features from Apple’s larger phones into a more hand- and pocket-friendly form-factor. Indeed, the rumors were beginning to seem pretty gratifying for iPhone SE fans.
Along with a processor upgrade and a better camera, it was suggested, the iPhone SE 2 would drop the metal back plate of the current design, in favor of glass. That wouldn’t be simply an aesthetic decision, mind. In doing so, it would allow Apple to add wireless charging support to the smartphone, just as it did in 2023 with the iPhone X, iPhone 8, and iPhone 8 Plus.
Not everybody, however, is so upbeat. Oft-cited analyst Ming-Chi Kuo, of KGI Securities, has dashed cold water on the Qi chatter. He counters earlier reports with the suggestion that Apple lacks sufficient development resources at present to focus on an iPhone SE 2 with wireless charging, MacRumors reports.
Now, the idea of Apple – with its billions in the bank and tens of thousands of staff – being short on manpower might seem strange, but 2023 is shaping up to be a pretty pivotal year for iPhone. After the iPhone X in 2023 debuted features like Face ID, the TrueDepth camera that powers it, and a whole new internal design, Apple is believed to be expanding that to its 2023 iPhone range. The first iPhone X was so complex that its market release was later than Apple intended, Kuo argues: an even more ambitious plan this year is only going to test the Cupertino firm’s abilities more.
The analyst’s vision of an iPhone SE 2 is a little less striking, as a result. If Apple does update the phone, he suggests, it’ll skip wireless charging and instead focus on a faster processor. That would allow it to keep up with new releases of iOS, like iOS 12 expected to be launched toward the end of the year, but also allow Apple to further shave away the price tag. That was reduced to $349 last year.
Hong Kong-based labor watchdog Student & Scholars Against Corporate Misbehaviour released a report on Tuesday that criticizes Apple for failing to properly monitor the labor practices of its suppliers. Despite performing a 72-percent increase over the number of audits it performed in 2011 following FLA audits, SACOM’s report claimed interviews with 130 workers from three Apple suppliers showed the company is failing to meet basic humane labor practices.
…to make sure workers meet the daily production targets, Apple suppliers resort to inhumane labor practices, even to the extent of denying workers’ basic human needs, such as allowing bathroom breaks, sufficient rest, and access to proper nutrition; these conditions partly contribute to the high labor turnover rate. Increasingly, Apple suppliers use student workers from vocational schools from all over China, under the guise of “student internships”… There is a rise in using student interns. Apple suppliers collaborate with vocational training institutions which require students to join a supplementary workforce for the factories, depriving students’ right to a quality education.
“We insist that our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes wherever Apple products are made.”She also said that the suppliers must live up to these requirements if they want to keep doing business with Apple.
Apple released its annual Supplier Responsibility Report earlier this year to report 393 audits performed during 2012, and the company promised to sever ties with suppliers and hiring agencies that purposely hire underage workers. Apple also said its worker empowerment program providing education on local laws and supplier code of conduct was extended to 1.3 million employees during 2012. That’s double the amount of workers trained in the program since 2008.
A breakdown of the claims presented in SACOM’s report is below, and you can check out the full report for yourself here.
1. At all the factories investigated, the majority of workers- nearly 80% – are precariousworkers who are more vulnerable to labor rights violations.
2. There is a rise in using student interns. Apple suppliers collaborate with vocational training institutions which require students to join a supplementary workforce for the factories, depriving students’ right to a quality education.
3. Excessive long working hours are observed in the suppliers’ factories, especially during peak production seasons. Overtime work might take up to 4 hours a day, yielding work days as much as 14 hours and workers could only have 1-2 days off for the entire 3-month period. This means during this period work weeks of 70-100 were common, far in excess of that required by Chinese law (about 49 hours) or the standard set by Apple (typically 60 hours per week).
4. From our investigations, there are many instances of unpaid work, imposed through mechanisms such as cutting meal times, requiring workers to arrive to the factory before their official work hour for work meetings, making workers wait in long lines to swipe the time cards, and requiring workers to wear burdensome dust-free uniforms that are time consuming to put on and take off. The most severe complaint of the workers was in regard to unpaid overtime, as they are forced to stay in the factory’s unit until they have met the high production quotas assigned.
5. The long working hours, unachievable production quotas, and alleged unpaid overtime work has driven workers from Apple suppliers and accelerated the turnover rate, which in turn, has compelled Apple suppliers to depend heavily on labor agencies to recruit an increasing number of dispatch workers (in one case, a labor agency recruited up to 1000 workers a day). In addition, dispatch labor is deprived of the benefits that regular, full-time workers are entitled to. Overall, labor conditions are deteriorating, both for regular workers and dispatch workers.
6. Apple suppliers employ chemicals in the production process that are potentially harmful to workers. The research found that workers are not informed of the potential harms, and there is inadequate protective equipment. Excessive noise, dust, and potent chemicals put workers’ lives at risk. Our investigations show that the supplier Pegatron factory in Shanghai, one year after the explosion in December 2011, the case polishing unit has not improved the ventilation and the working environment remains very dusty.
7. There is an intensification of military- style management in Apple suppliers. They employ measures that deter workers from using toilets and cut meal times to coerce workers to meet high production quotas. Workers also suffer verbal abuse from frontline supervisors and are humiliated in front of other workers. Moreover, to discipline workers, there is a wide range of arbitrary punitive fines imposed on them. Workers are intimidated and told to keep silent, with threats that their wages will be cut. These various punitive measures have led to increasing antagonism toward shop floor supervisors. We found scarce evidence of management’s attempts to improve this situation; on the contrary, the influx of new workers and rapid turnover of the work force have exacerbated management-worker relations.
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There is a common saying among expats in China – particularly longtime “China Hands” – that goes like this: The more time you spend in China, the less you understand it. So it’s with this in mind that we try and break down exactly what’s going wrong for Apple in China these days, likely a confluence of factors from politics and economics to nationalism and a rapidly changing consumer market. There’s no easy answer.
People have begun wondering what’s wrong following a few worrying signs: Apple announced a severe slowdown in iPhone sales in China on its recent earnings call, a new report by IDC confirmed a concerning tumble in iPhone sales, and Apple’s uncharacteristic decision to cut prices on the latest model phones sold at some of China’s largest retailers. These don’t seem like moves that would be made by a strong, confident company.
So what’s wrong in China? Let’s dig in.Competition
Let’s face it, competition in the technology realm is fierce in China. If you haven’t been there, it’s hard to understand the dizzying speed at which innovation happens — and the willingness of even older people to become early adopters.
While the country claims to have a 5,000-year unbroken civilization, this current era of innovation and optimism has made people hungry for anything “new”. In the early days of smartphone sales, Apple had cachet, but with a perceived slow development cycle there’s a lot more interest in Huawei phones, in particular. Huawei is a national champion that manufactures high-quality phones at nearly half the cost (take a look at some of the photos taken with the P20).
Chinese manufacturers also create phones tailored for the Chinese market, with dual-SIM slots (now finally available on some iPhone models), local GPS providers, and popular selfie apps that are way over-modulated for western tastes. (If you want to see what I mean, download Tantan, China’s answer to Tinder).
Even foreigners I meet on this side of the world love their Huawei phones, concerns over spying excepted.
Of course, comparing specs is important in China, but isn’t enough to move the needle in Huawei’s favor on its own. That requires…Economics
China is a big country, with a lot of people — 1.4 billion of them, roughly. But while media attention showers the country in praise for its perceived riches, the truth is the vast majority of the people in China remain poor. The per-capita GDP of the USA is nearly $60,000, but only $8,800 in China, on par with places like Lebanon and Cuba and just slightly above Botswana. Sure, people in China aspire to own nice things, but without a social safety net, a savings account becomes a do-or-die necessity.
A massive wealth gap, though, still leaves millions of wealthy people in the eastern cities of Beijing, Shanghai, Guangzhou, Shenzhen, and others, who don’t hide their ability to pay whatever Apple asks. But even with them, doubt is setting in, partially driven by…Culture / Nationalism
This is a hard one to explain without ruffling a few feathers, but let’s just say that the cultural divide between the United States and China is probably so much more vast than most people realize. From top to bottom, inside and out, from belief systems to decision-making, everything about China is different.
Adding to that is an authoritarian government that has long stoked nationalist tendencies through propaganda delivered over the country’s television, radio and internet airwaves, which it directly controls. If China, or its people, feel attacked or treated unfairly, there is plenty of evidence showing that large-scale boycotts of foreign brands have worked.
Most recently, after a private conversation featuring Dolce & Gabbana founder Stefano Gabbana making disparaging remarks about China leaked, several flagship shops were forced to close and events canceled.
Then there was the boycott against South Korean companies after South Korea said it would work with the US on a missile defense system. From a Forbes article in 2023:
Much of the wrath has targeted Lotte, a Korean conglomerate that will swap land to allow installation of the anti-missile system. Supposed failure of regulatory inspections suddenly prompted the closure of 55 Lotte stores, about half the total in China. Chinese have also quit arriving South Korea on tours. About 3,300 tourists wouldn’t leave a cruise ship that arrived Saturday at the South Korean resort island of Jeju. Korean pop concerts once popular in China are off the marquees.
Lotte is, loosely speaking, similar to Walmart, and the closure of 55 stores dealt a blow to their revenue. There are many, many more examples of this, even against American companies. Some protests are genuinely spontaneous (like the Dolce & Gabbana one), but the government-led ones pack the most punch. China’s government has enormous power to influence buying decisions, particularly if it frames certain companies as anti-China.
Apple isn’t an official target yet, but it’s treading awfully close. I already have anecdotal reports that some Chinese companies are frowning upon staff still using iPhones, and people are ditching them for Chinese-branded smartphones. A combination of trade war rhetoric, cheaper/better models produced by Chinese companies, and general distaste for anything seen as “yesterday’s hit” is a real factor that will affect Apple’s future in the country.
If the trade war intensifies, Apple is a massive target for China — the country still contributed $13.17 billion to Apple’s coffers in the last quarter and is also where the majority of its products are manufactured — making the company particularly vulnerable compared to its peers. The precipitous drop of nearly $5 billion in China revenue last quarter was without any official call to boycott Apple products. This could get worse before it gets better.
With so few ways to really stand out, one key differentiator is the choice of mobile phone. But for years now, the iPhone hasn’t really undergone any large physical design changes that would be noticeable to others, aside from maybe the introduction of the notch with the iPhone X in 2023. I personally don’t think Apple should change the look and feel of the phone just for change’s sake, but it’s true that in China, people want the newest and most cutting-edge — so they can show it off. The go-it-slow approach to innovation and continual tweaks to improve the user experience just aren’t sexy enough for some of the country’s highest earners and biggest influencers.WeChat
A unique quirk in China’s mobile phone industry is the dominance of WeChat, which has become the de facto operating system for Chinese users. I wrote a piece looking at how WeChat works and why it’s so popular earlier, but the reliance on this single app, which works well on both Android and iOS, makes the choice of operating system much less important and removes Apple’s normal “stickiness”. It, alone, makes the Chinese smartphone market unique.So what’s next?
It’s very difficult to put one’s finger on a single statistic, or one element of the Chinese economy, to explain Apple’s decline. A concoction of all of the reasons above create a toxic brew that Apple is now confronting — and that’s without taking into consideration other macro-economic trends like China’s slowing economy and devaluation of its currency.
Make no mistake: Apple has been one of the most successful US companies operating in China to date, but its long-term success there is far from secure. There could be some even bumpier days ahead.
Photo: The Observer
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