Apple is paying a heavy price for its big bet on China

In the fawning world of Silicon Valley, they are collectively known as the A-Team but on current form they would probably struggle to break out of a paper bag, never mind a maximum security stockade.

After a week in which a slowdown of the Federal Reserve’s inflation-busting campaign sparked a strong stock market rally, the titans of the tech world took turns to spoil the party once again, posting a succession of underwhelming financial results.

Apple CEO Tim Cook’s China moves have been costly.Credit: AP

Google parent Alphabet posted below-par figures with the slowdown at video sensation YouTube a notable black spot. Amazon spooked shareholders with bearish outlook for the coming months. Yet it is the reversal at Apple that is increasingly standing out in the post-COVID tech wreck that has overshadowed markets for the past year. Indeed, 2023 is likely to be remembered as the moment when one of the world’s most-admired companies finally paid a heavy price for tying its fortunes so closely to those of Beijing, and a remarkable run during which Apple became the world’s first $US1 trillion ($1.4 trillion), $US2 trillion and then $US3 trillion company came to a spectacular end.

It is rare that Apple disappoints Wall Street but on Thursday the iPhone maker shocked analysts after missing forecasts for the first time in seven years. Sales dropped 5 per cent to £96 billion ($168 billion) in the three months to the end of December. Profit, meanwhile, slid to just under £25 billion from £28 billion.

What is particularly striking is that nearly all its top gadgets are lagging. iPhone sales came in at $US65.8 billion, compared with forecasts of $US68.3 billion; Mac computers notched up revenue of $US7.7 billion, $US2 billion short of predictions; and so-called “wearables” also underwhelmed, despite the release of three new models of its watch and the new AirPods Pro headphones. Apple warned of a similar decline in the forthcoming financial quarter.

Boss Tim Cook blamed three factors. The first two: a strong dollar and the overall macroeconomic environment, are less of a concern. It is China where Apple suddenly looks exposed. For years, its deep ties with the mainland were seen as one of the company’s great strengths. The company’s big bet on China’s mighty manufacturing nous turbocharged its ascendancy to consumer technology supremacy.

How times change. Today, Apple’s extensive Chinese production capabilities are increasingly viewed as its most glaring weakness. Yet it is as if few analysts, or indeed the company itself, failed to understand just how dangerously reliant it was on China. Perhaps, like so many, they became intoxicated by the fairytale of China’s economic miracle lasting forever. Or maybe, as long as China’s cavernous factories and cheap labour continued to fuel Apple’s extraordinary growth, Wall Street and the company’s board of directors were prepared to overlook such an obvious Achilles’ heel.

But it is shocking to discover just how dependent one of the planet’s largest companies has allowed itself to become on a single country - never mind one that has grown increasingly authoritarian and hostile towards the West under President Xi Jinping.

What is particularly embarrassing for Apple is that this is a company that supposedly represented the gold standard when it came to supply chain sophistication. Yet there is surely nothing clever about putting all your eggs in one basket in the way that Apple has. More than 95 per cent of Apple’s hi-tech products come from China and it remains astonishingly reliant on a single supplier. Taiwan’s Foxconn, which is the world’s largest contract electronics maker, produces nearly three quarters of the world’s iPhones at its plant in Zhengzhou, central China, nicknamed “iPhone City”.

Indeed, few tie-ups have come to symbolise the age of globalisation, and China’s place as the sweatshop of the West, better than that which has existed between the pair for more than three decades. What is most dumbfounding is that even as the Chinese Communist Party’s repression has escalated and relations with the West have deteriorated, Cook has sought to foster greater ties with China, a decision that has come back to bite the company in a huge way as Beijing’s zero-COVID policy has spectacularly unravelled.

Apple shares tumbled after missing forecasts for the first time in seven years.Credit: AP

Then again, Apple’s prominence in China has long required that it turns a blind eye. Production endured even as evidence mounted that the regime was committing human rights abuses against Uyghur Muslims.

It is only now, and somewhat reluctantly, after lockdowns and a worker rebellion scuppered billions of sales of its iPhone 14 Pro and iPhone 14 Pro Max models, squeezing Apple’s bottom line, that it is searching for factories outside China. Cook’s hypocrisy and the folly of Apple’s Faustian pact with Beijing have been laid bare.

Telegraph, London

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