SMARTPHONES: Worried Apple CEO on Damage Control Trip to China

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Bottom line: An upcoming China trip by Apple’s CEO looks hastily arranged and aimed at damage control after several recent setbacks, but won’t stem the company’s recent sales plunge due to intense competition from domestic brands like Huawei.

Apple CEO books hasty trip to China
Apple CEO books hasty trip to China

As the latest China setback for Apple (Nasdaq: AAPL) ripples through the headlines, the global tech giant’s CEO Tim Cook is booking a trip to Beijing to try and halt a growing tide of bad news that has already wiped billions of dollars from his company’s stock. The latest China setback for Apple looks relatively minor, and has local media reporting recent malfunctions and the disappearance of some apps from the company’s China app store.

Those quirks may be an extension of a growing clash between Apple and China’s censors, who a couple of weeks ago shut down the company’s online book and movie services for unspecified violations. (previous post) Since then, Apple has also suffered negative publicity in China after losing a trademark battle involving the iPhone name, and most importantly from a 26 percent plunge in China sales during its latest quarterly report. (previous post)

That string of bad news sparked a sell-off that has seen Apple shares plunge 17 percent since mid-April, wiping out more than $80 billion in market value. China seems to be at the epicenter of this looming crisis for Apple, since the 26 percent sales plunge in the company’s second largest market was far bigger than its global decline for its latest reporting quarter.

The sudden suspension of its book and movie services also looks ominous, since Apple is counting on such services to help fuel its future growth. It posted a major milestone for one such service in China earlier this year, when it became the first foreign company to offer electronic payment services in the country with the February launch of its Apple Pay.

Against that backdrop, the latest reports that Tim Cook is planning a trip to China look quite significant. Cook has actually become a regular traveler to China, coming here at least twice a year in high-profile visits designed to raise Apple’s image in the market and smooth the way for approval of new products and services.

But we seldom learn about Cook’s travel plans in advance, though that’s what’s happening now with a new Reuters report saying the CEO will come to China later this month. (English article; Chinese article) The report says mostly what one would expect, namely that Cook will meet with government officials, including at the Propaganda Ministry that oversees China’s strict censorship laws. The report also says Cook will meet with senior Communist Party leaders, though in China’s case there’s usually big overlap between such leaders and top government officials.

Strategic News Leak

What’s probably most significant about this report is that it’s almost certainly coming from people at Apple itself, even though the only sourcing given is someone “familiar with the matter”. It’s highly unlikely a government source would disclose such information, especially in China. Instead, in this case it looks like the usually tight-lipped Apple is leaking this information in an attempt to stabilize its skidding stock and also to stem the flow of negative reports coming from China.

The latest of those came out over the weekend from the well-respected Caixin, and noted a reporter’s recent attempts to access Apple’s China app store returned numerous malfunctions and failure to locate several popular apps over a 5 day period. (Chinese article) The report noted the app store had resumed normal functionality at the time of publication.

This kind of online meddling is quite common in China, and I personally noticed difficulty accessing a number of sites I can usually get to this past weekend. Of course Beijing never gives any explanation of these frequent disruptions, many of which are probably timed to coincide with sensitive events and also possibly testing of new filtering systems.

At the end of the day, the most significant thing with these latest headlines is that Apple has hit a sudden rough patch in China. It’s also quite significant that the company is taking the unusual step of leaking word that Tim Cook is making what looks like a hastily planned trip to Beijing to try and right the situation.

I do expect Cook may get some positive results in his meetings with propaganda officials, who love to receive such high-powered tech executives who show the proper respect. But Cook may face a longer battle in reversing his company’s suddenly stumbling China sales, which have little to do with Beijing and are the direct result of intensely overheated competition in China’s smartphone market.

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