Apple unveiled a $1 billion investment in China’s DiDi Chuxing ride-sharing service, a competitor to Uber, just before Apple CEO Tim Cook heads to China for talks with leaders there.
The Apple investment is the largest received so far by DiDi as the company continues to create a data-driven ride-sharing platform in China, DiDi said in a May 12 announcement. Other investors include Tencent, China’s largest Internet portal, and Chinese e-commerce company, Alibaba. DiDi is building a data-driven ridesharing platform that it hopes will be used by hundreds of millions of Chinese drivers and passengers.
Cook disclosed Apple’s participation in the funding of DiDi in the company’s announcement. “DiDi exemplifies the innovation taking place in the iOS developer community in China,” said Cook in his statement. “We are extremely impressed by the business they’ve built and their excellent leadership team, and we look forward to supporting them as they grow.”
Cheng Wei, founder and CEO of DiDi, said in a statement that Apple’s endorsement “is an enormous encouragement and inspiration for our four-year-old company. DiDi will work hard with our drivers, riders and global partners to make available to every citizen flexible and reliable mobility choices, and help cities solve transportation, environmental and employment challenges.”
Apple’s $1 billion investment in DiDi is also interesting due to its timing, just before Cook is set to travel later this month for talks with Chinese leaders and after Apple experienced some stumbles in recent months. 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 the company working with the Communist government to try to restart the services. The shuttering of the Apple services occurred despite permission that Apple previously received from the Chinese government when the services began there last year, according to an earlier eWEEK story. Apple is still working to return the services to users there.
Also in late April, Apple reported a quarterly decline in revenue for the first time since 2003. Apple’s second-quarter revenue of $50.6 billion fell 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 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.
For the company, China has long been seen as a place where it could increase revenue due to a large pool of customers and economic growth in recent years. 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 fiscal first-quarter revenue from China, which accounted for 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.
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.
DiDi today completes more than 11 million rides a day on its platform, serving close to 300 million users across more than 400 Chinese cities with a diverse range of mobile technology-based transportation options, according to the company.
Analysts Weigh In on Apple’s Investment in DiDi
Several IT analysts told eWEEK that Apple’s investment in DiDi is intriguing for several reasons, including Cook’s upcoming trip there.
“I’ve seen quite a few people draw a connection between the DiDi investment and the iBooks/iTunes issues, and it would probably be naive to think there wasn’t one,” Jan Dawson, chief analyst for Jackdaw Research, wrote in an email reply to eWEEK. The investment, however, isn’t being made to try to influence China on that issue, he added.
“I see this as—among other things—a demonstration by Apple that it’s really serious about the Chinese market and wants to continue to invest there,” said Dawson. “Ahead of meetings with Chinese officials about the content bans, that’s likely a useful message to be sending.”
At the same time, Apple has previously made plenty of investments in China, including in retail stores, while many of its devices are built in factories there, said Dawson. “So I don’t think this presages some new era of Apple making random investments in China to curry favor with the government.”
Apple Sinks $1B in China’s DiDi Chuxing, A Ride-Sharing Rival to Uber
Rob Enderle, principal analyst of Enderle Group, told eWEEK that he believes that the DiDi investment comes not as a way to appease Chinese leaders in the iBooks and iTunes Movies disagreements, but is more likely closely tied to Apple’s own automotive efforts.
“Generally, once we move to autonomous cars, a lot of us believe car ownership will evaporate in favor of Uber-like services,” said Enderle. “Now a company like Apple likely wouldn’t want to compete in a market like China where cabs are government subsidized, but if this gets them needed intimacy with DiDi Chuxing, they could use that to ride this company out of China with an Apple-branded service that would use Apple’s autonomous cars.”
Charles King, principal analyst of Pund-IT, said it is “fair to regard the sum as a symbolic gesture of Apple’s faith in the Chinese economy, and of support for the country’s ‘China for China’ strategy. Both of those points are likely to be welcomed by China’s government.”
Asked if Apple could be expected to make similar large investments in China in the future, King said Apple will “need to do the math and decide whether the value of the China markets are worth additional payments. Given the size/importance of Apple’s business there and the company’s remarkable profit margins, it could well decide that additional payments are worthwhile.”
Apple’s move to invest in DiDi in China rather than in Uber there is likely “a lesson that Uber and its investors are also likely pondering today,” said King. “The sheer size of consumer and business markets in China make it hugely tempting, but China follows rules and imperatives that are unfamiliar or even counterintuitive for many Western businesses.”
Dan Olds, an analyst at Gabriel Consulting Group, called Apple’s $1 billion DiDi investment a very large one of the type the company makes often, “particularly in something that’s not directly in their supply chain. There is something to say for Apple making this investment in order to bolster their lagging iPhone revenue—figuring that the Chinese version of Uber might give them a great return on investment based on how its valuation skyrocketed in the U.S.”
At the same time, the money could provide some leverage with China. It’s possible the “Chinese government wanted to get Apple to pony up some cash in exchange for opening up the Apple products and services spigot again,” said Olds. “Apple, realizing this, found the best investment they could with the Chinese Uber—which has the potential to be a fantastic investment.”
Overall, said Olds, the move is “a good diversification attempt, one of the best in China, I think, so why not go for it and potentially solve two problems with one transaction.”