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Apple CEO Tim Cook will travel to China later this month for talks with government leaders as the company works to resolve ongoing crackdowns and sales disruptions in what is its second-largest market in the world.
Cook’s trip is one of many he has made to China since becoming Apple’s CEO five years ago, but this one is more significant because of actions taken against the company in recent months, according to a May 6 story by Reuters.
Cook’s upcoming visit was revealed in an interview with an unnamed source who is familiar with the matter, the article reported.
“During his China visit, Cook (pictured) plans to meet senior government and Communist Party leaders—including officials in charge of propaganda, said the source, who declined to be named as the plan is not public yet,” Reuters reported.
Several IT analysts, asked about the upcoming trip, told eWEEK that the CEO’s visit comes at a critical time for the company.
“China remains a huge problem for U.S. companies in general,” Rob Enderle, principal analyst of Enderle Group, wrote in an email reply to an inquiry. “Thanks to the Snowden disclosures, U.S. technology is broadly distrusted and the recent actions between the FBI and Apple have only fueled that fire, so [Communist] Party leaders [in China] have largely stopped using any U.S.-built technology and Apple products aren’t held in as high esteem as they once were.”
This kind of situation “showcases an increased need for a diplomatic function in U.S. firms below the CEO,” Enderle added. “Cook’s status and logistics experience will certainly come into play here, but this reflects poorly on the senior Apple staff in China who should have been able to handle things like this. Cook is taking the effort, but given the problems are largely outside of Apple’s control, it is doubtful he can do much to fix them. This is an area where even Jobs would have struggled.”
Jan Dawson, chief analyst of Jackdaw Research, said Cook’s visit “isn’t going to turn around iPhone sales, which is the single biggest issue for Apple at the moment in China and elsewhere, but it’s worth remembering that Greater China is one of Apple’s most important regions, and so visiting the business there and rallying the troops is something that Cook is going to want to do regularly regardless of whatever else might be going on.”
Charles King, principal analyst at Pund-IT, told eWEEK:”Apple’s size and influence, and the importance of China to its current and future success, makes Cook’s trip comparable to a visit from a head of state.”
Not only is China a huge market for Apple’s products, but the company is “also directly or indirectly responsible for tens of thousands of Chinese manufacturing jobs so it makes sense to reach some form of détente,” said King. “The challenge is that the pair are on opposite sides of several serious issues, including Apple’s focus on securing/encrypting customer data and China’s desire to promote homegrown technologies and vendors.”
Economic instability and embarrassing revelations about China’s ruling class in that country “have empowered various hardliners, making it uncertain to know just how much resistance Cook will experience during his visit,” wrote King. “He also needs to avoid cutting a deal that results in Apple providing to the Chinese government information it has refused to give to U.S. government security agencies.”
Thomas Husson, an analyst with Forrester, said the most significant issue for Cook’s visit is that Apple has “doubled down on privacy” and that move could be a topic of discussion with Chinese leaders, who are concerned about privacy issues. “There might be some regulations coming down in the Chinese market. That would make sense to me.”
Apple’s Tim Cook Heading to China to Improve Relations With Leaders
Tuong H. Nguyen, an analyst with Gartner, told eWEEK in an email reply that Cook’s visit “won’t impact the economic environment” between the two but that his “visit might open the way for appealing current decisions.”
Nguyen said he is “reluctant to say that Tim Cook’s visit will significantly help, but I certainly don’t think it could hurt.”
In late April, government regulators in China without warning shut down Apple’s online iBooks Store and iTunes Movies service, which had opened six months before, leaving Apple working with the communist government to try to restart the services. The shuttering of the Apple services occurred despite permission that Apple was previously granted by the government when the services began there last year, according to an earlier eWEEK story. Apple in a statement at that time said it hopes to “make books and movies available again to our customers in China as soon as possible.”
Apple has been garnering more and more of its revenue from China the last several years, according to the company’s revenue reports. In January, Apple reported $18.37 billion in revenue from China in its first quarter of 2016, which made up about 24.2 percent of the company’s $75.87 billion in revenue for the quarter. In the fourth quarter of 2015, Apple reported $12.52 billion in revenue from China, out of a total of $51.5 billion, according to earlier eWEEK reports.
China is Apple’s second-largest global market behind the United States. The company began selling iPhones in China in October 2014, after gaining government device security approvals.
As Cook heads off soon to China, Apple is also still dealing with disappointing recent quarterly financial news. On April 26, Apple reported a quarterly decline in revenue for the first time since 2003.
Apple reported second-quarter revenue of $50.6 billion, down 13 percent from $58 billion a year earlier. Net income in that interval fell to $10.5 billion from $13.6 billion as sales of the company’s flagship iPhone smartphones leveled off, ending Apple’s 13-year record of uninterrupted sales growth. Apple’s latest iPhone 6 models went on sale last September.
In its latest quarter, Apple reported sales of 51.2 million iPhones, down 18 percent from 61.2 million iPhones sold in the same quarter one year ago. The latest quarter’s iPhone sales were down sharply—by 32 percent—from the 74.78 million sold in the first quarter of 2016. Revenue from iPhone sales dropped to $32.9 billion in the second quarter, down 18 percent from $40.3 billion one year ago.