President Trump’s executive order banning WeChat could have far-reaching consequences for almost the entire technology industry, as Tencent, the app’s parent company, invests in Riot Games and other U.S. brands,media reported. But the ban could also have a big impact on Apple, a brand that has taken root in China.
Not only does Apple have an important customer base in China, but almost all of its key manufacturing and assembly partners are in China. Mr. Trump’s ban could not only force Apple to remove WeChat from the App Store — and it would destroy Apple’s smartphone business in China — but could essentially change the way Apple develops and sells new products in the future.
WeChat’s prominence in China is hard to say. As analyst Ben Thompson put it in 2017, “No other country can compare it to WeChat, especially Facebook assets (Facebook, Messenger and WhatsApp). “It’s all about communication or waste of time: weChat is like that, but it’s also about reading the news, calling a taxi, paying for lunch, getting government resources, doing business, and so on.” In every sense, WeChat is your phone, and in China, it’s more important than anywhere else. “
For the hundreds of millions of Chinese users who rely on WeChat services, the iPhone without WeChat is not really a single phone at all — and Apple’s entire iPhone business model relies on those users. If Apple can’t offer WeChat on the iPhone because of Trump’s ban, Apple’s business in China will almost certainly disappear overnight.
Thanks to its closed platform, Apple will fall into a trap of making itself. A more open system — similar to Google’s Android allows users to install WeChat without Apple’s explicit approval. While that’s not ideal for Apple, at least millions of Chinese users still have access to the iPhone.
But the WeChat/Tencent ban could have a bigger impact on Apple because it could exacerbate years of trade disputes between the United States and China. Apple is already feeling the initial consequences; a 25 per cent tariff on five parts of the Mac Pro desktop; a 10 per cent tariff on its chargers, HomePods, AirPods and Apple Watch; and Apple has avoided a 15 per cent tariff on the iPhone, which could add $150 to the cost of Apple’s most critical products.
Apple can’t outsource its manufacturing operations to the rest of the world. In 2005, Tim Cook, then chief operating officer, led the shift to a “on-time” production model, reducing excess inventory and introducing new products. As a result, Today’s Apple relies almost entirely on Chinese manufacturers such as Foxconn. This is important for Apple, which has problems throughout its supply chain when the plant closes because of a new crown outbreak, and could even delay the launch of the iPhone 12, which will go on sale this fall.
Despite recent developments in India that have sought to reduce Apple’s need to produce all of its hardware exclusively in China, it is still a fraction of the hardware Apple makes in China, so Apple must export from China.
Yet the trade deal is not yet complete, and the u.S.-China trade war is escalating, for which Apple may be forced to bear the cost of all these tariffs or face higher import taxes rather than a moratorium on the upcoming tariffs.
That doesn’t include the importance of the Chinese business itself to Apple. As The Economist noted earlier this year, Apple’s total sales in China last year were $44 billion, more than any other U.S. company. China is already Apple’s third-largest contributor to profits , accounting for about 15 percent of the company’s most recent third-quarter 2020 earnings. In Europe and the United States, Apple’s market share has stagnated with the adoption of iPhones and Macs, while China still has huge growth potential for Apple, which accounts for only about 9% of the Chinese smartphone market.
It’s not just iPhone sales: Chinese consumers spent $1.53 billion on purchases on the App Store alone in April, a figure that doesn’t even include Apple’s other service revenues, such as iCloud or Apple Music subscriptions, which are a key part of The company’s ongoing business strategy.
Apple has struggled to maintain its momentum in the Chinese market in recent years as mobile phone sales have slowed. Apple’s stores in China have closed because of the new crown, which is not good for the company’s continued growth in the Chinese market.
In addition, most of Apple’s paid services such as iTunes Store Apple Books, Apple TV Plus, Apple Arcade, Apple News Plus and Apple Card are not available in China. That’s a big problem for Apple, which has begun to look for regular subscriptions to compensate for the steady saturation of the iPhone market.
Apple’s success under Tim Cook is largely based on its expansion in China, which is both a manufacturing hub and an important customer base. Mr. Trump’s WeChat ban could hit a once-solid foundation that threatens to destroy one of Apple’s biggest customer bastions and its ability to make almost any product.