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As Apple pushes into the Chinese market, one of their biggest risks is the overbearing hand of regulation and homegrown Chinese companies. This is what has previously driven out other U.S. technology firms such as Uber and Facebook. Out of national security and economic reasons, China favors technology companies that are run by citizens.
If Apple were to meet the fate of their fellow American companies, it would be a severe blow. The Chinese market was responsible for a little more than 20% of Apple’s revenues last year. China was also responsible for 25% of the operating profits that Apple generated last year. Other American technology firms such as EMC, IBM and Oracle are not as exposed however, as their total revenues that come from China are just a fraction.
To Apple’s credit, the Cupertino California-based tech giant has managed so far to stay on the good side of the Chinese authorities unlike other technology firms like Qualcomm. Two years ago the chipmaker was fined $975 million over antitrust violations.
Another threat that Apple is facing in China is the local mobile device manufacturing sector. In this year’s first quarter, iPhone shipments fell by 27% as local Chinese smartphone manufacturers such as Oppo and Huawei gained market share. One of the reasons for this is that they are relatively more affordable for the ordinary Chinese than the iPhone.
Consequently, Apple is now banking on growing its services business — such as music streaming and app sales — to reinvigorate its Chinese revenues. To that end, Apple revealed that it was putting up the first data center in China which will be responsible for powering iCloud Services.
App sales in China already have been on an upward trend with revenues rising by 90% year-over-year last year. This made China the highest-paying and the fastest-growing app market for Apple. However, Apple’s service business is also in danger from the regulators. Apple’s online film and book store was shut down just half a year after being launched allegedly for flouting the country’s tough cyber regulations.
On Friday shares of Apple Inc rose by 0.53% to close the day at $156.39.