Cook’s 100-trillion-won tightrope walk

HAN WOO-DUK
The author is a senior reporter of the China Lab.

Apple CEO Tim Cook was in China last week, seven months after his last visit in March. This is understandable. The sales volume of the new iPhone 15 in China was slower than that of the iPhone 14 series, and Apple gave its largest market share to Huawei. Apple’s annual sales in China are about $74 billion (about 100 trillion won in the 2022 fiscal year). The sales account for about 20 percent of its total sales. If sales in China slow down, Apple could falter. That sense of crisis brought Cook back to China.

After the Chinese government ordered civil servants not to bring iPhones to work, Apple’s stock price fluctuated. It was perceived as China pushing Apple out. A jab to check Apple could trigger a big counter punch. Could Apple be alright staying in China under such circumstances?

Samsung suffered in the same way. Its Galaxy smartphones once took up more than 20 percent of the Chinese market, but now it has little presence. That started with the Note 7 fire incident in 2015. Samsung officials recall that Beijing used the incident as an excuse to persistently push out Galaxy.

The real causes can be found elsewhere. At that time, Samsung Galaxy was accelerating its efforts to break away from China. As the construction of the Vietnamese factory, which began in 2008, was completed, relocation work went underway one by one. Samsung closed its Tianjin plant in 2018 and its Huizhou plant in 2019. Currently, more than half of Samsung phones are produced in Vietnam. In other words, when Samsung relocated the factories, it had to give up its market share, too.

Technology is another cause. At that time, the technology level of Chinese smartphone makers such as Oppo, Vivo and Xiaomi was already advanced enough to surpass that of Samsung. China’s formula for attracting foreign capital — giving market share in return for technology transfer — didn’t work anymore. To make matters worse, the geopolitical risk from the U.S.-led Thaad anti-missile system deployment occurred in 2016, which forced Galaxy to exit China.

Apple’s current situation is the déjà vu of what Samsung had gone through. Apple is seeking to diversify its factories. As Samsung did, Apple is going to Vietnam and India. Its technology does not overwhelm Chinese companies, either. The recently announced Huawei 5G phone is known to have been 90 percent localized in production, including domestic procurement of 7-nanometer chips. Moreover, a geopolitical risk even greater than the Thaad weighs on Apple.

Depending on how the conflict between the U.S. and China develops, Beijing’s order to boycott Apple could spread out of the public sector. It is hard for Apple to find a solution as it has to be mindful of the Chinese government on top of its overreliance on China for its market and factories. Tim Cook’s risky “100-trillion-won tightrope walk” has begun.