[Simone Del Rosario]

Apple’s expected to report its biggest revenue jump in two years when it releases its latest quarterly earnings after the bell Thursday.

Expect a lot of conversation about Apple Intelligence, the company’s AI offering.

But it’s the gangbuster iPhone 16 sales that are pushing revenue higher.

In the three weeks following the 16’s release, sales in China were 20% higher than sales for the iPhone 15 a year earlier. And customers are increasingly trading up to the more expensive models.

The iPhone is now in second place in the smartphone market share in China, after falling to third earlier this year, according to IDC.

Apple may be depending on China to juice sales, but it’s reportedly trying to reduce reliance on the nation when it comes to manufacturing.

Apple exported $6 billion worth of Indian-made iPhones from March to September, according to Bloomberg. That’s an increase of around 33% from the year earlier.

Joining me now to discuss is Doug Guthrie, a China scholar at Arizona State University who worked for Apple, advising executives on China from 2014 to 2019.

Simone Del Rosario | Business Correspondent 0:01
So Doug, it’s an area that Apple’s been struggling of late. So what’s behind the increased sales of iPhones in China?

DOUG GUTHRIE | ASU PROFESSOR OF GLOBAL LEADERSHIP 0:09
this is never just about what the consumer market wants, but it’s usually also about what is the government promoting, and whether that’s subtly or very explicitly. And you know, there are a lot of interesting things going on with us China relations right now, but also US China and technology relations. And so, you know, we’ve seen Intel get dinged by China and then invest 300 million in Chengdu. And we’ve seen number of other things happen that that really sort of signal those kinds of pressures. And my guess is that really what’s happening right now is that, you know, Apple is Apple’s in China for the long run, like Apple is married to China. And I’ve said this many times to you guys, and I’ve said this many times in Brent, but you know, Apple doesn’t just work with Foxconn, and can then exit to Foxconn and Chennai. Apple works with 1600 factories in China, and they’re very much deeply embedded, not just to get access to the excellent production that the Chinese factories do, but also in terms of really embedding what we call tacit knowledge into those Chinese factories. And you know, when I was at Apple, we did a deal many years ago that that really got the government to think that we’re not just spending labor, but we’re actually getting acknowledgement for all of the tacit knowledge that our operations managers are passing on to Chinese officials or to Chinese firms and and so you know that ended up being key to the deal that was done that that got us more access to Chinese firms than we ever thought we would, but my guess is that Apple is continuing to push that line. I’m not an insider there anymore, but it’s very clear that Tim Cook and the executive team really continue to be committed to the idea that Apple’s married to China, and they are continuing to push the idea that we’re here, and we’re continuing to train the operations managers and the task and so then when we get to the question of consumer behavior, we always think, well, people are just buying the best product for the cheapest value that they can get. It. That’s not how it works. In China, people buy what products are promoted by the government. And so my guess is that this is a signal that Apple’s doing things right and in good space with the government right

Simone Del Rosario 2:41
now. Yeah, we saw the government kind of thwart, I guess, that consumer behavior toward Apple, when it was saying, oh, people can’t bring these iPhones into work anymore. And we had, you know, kind of a wall, if you will, go up. And that really hurt apple. So is it your interpretation that that has kind of eased that tension? Yes.

Doug Guthrie 3:01
And you know, I remember that day very well. It was about a year ago. I think it was September 23 2023 and you know, the Chinese government suddenly said, you know, oh, you know, we’re not going to allow Chinese government officials or anybody who works for the government to use iPhones. And my sense during that time was not that they were calling apple out as much as they were sort of providing a test case for international markets. Because I don’t know if you remember Simone, but what happened on that day was Apple shares dropped 200 billion. Yeah, right. I mean, we saw a huge plunge. And so I think it was just like a little flexing of muscle for app for China to be saying like, you guys are married to us. And if we, you know, this is a small thing, because not that many Chinese officials actually use iPhones. So I was just, I was fascinated at that moment when that happened. But I think it was sort of a test case, just flexing muscles and the Chinese government saying, like, here’s what we can do, guys. What do you think of this? And my guess is that, you know, I remember a couple months later when, you know, Apple was called out by the Department of Justice in the United States. And, you know, there was, you know, some some issues going on there, where was Tim Cook. He was on a plane to Shanghai, and he was, you know, going to Shenzhen, to, you know, celebrate the opening up the R and D centers that you know. So I think it’s very clear, like, Okay, guys, we’re here. We’re here with you. We’re here. And so my guess is that I’m not an insider on this anymore, but my guess is that relationship is continuing to evolve and and I think right now the government is sort of rewarding Apple saying, like, okay, so you guys are partners with China. We’re here, and you’re developing tasks and delivering tacit knowledge for us and like, let’s just keep going.

Simone Del Rosario 4:44
Yeah, at the same time, we are seeing Apple move or pick up manufacturing outside of China. We’re seeing a lot of activity happening in India. I mentioned it before we brought you in. How is able? How is Apple able to do this? And how does it affect that relationship?

Doug Guthrie 4:59
Yeah, well, the India question is really interesting. So India is just the first and most important piece of this. You know, back when I was with apple from 2014 to 2019 there was a lot of effort to develop and just sort of show that we could develop relationships in places like Vietnam. Now, Vietnam is not really a competitor of [China], because Vietnam is a country of 95 million people, and probably in the sort of what we would view as the parallel to the floating population. That’s the migrant labor force, force in China, which is 350 million problem people. Probably in Vietnam, there’s maximum of 15 million. And so it’s just not a competitor. But India is right. India is a country that is equal in size in terms of its population, and has equal numbers of, you know, size of migrant labor population and poor people. And so India is a real interesting threat. And so when Foxconn built a plant in Chennai, and suddenly iPhones could be assembled in Chennai, you know, I think it was, again, a signal to the market, like, hey, you know, yes, we’re married to China, but we have other options now, just to be very clear, part of the reason that Apple is the most profitable company in the world is because it works with 1600 suppliers in China, not just Foxconn. And so, you know, it would take 30 years to build the manufacturing supply chain in India that exists in China, and the Chinese government knows this. But I think when we were viewing this, and when Foxconn was building a plant in Chennai, there was an argument to the Chinese government, like, okay, like, we want to be partners, let’s be partners. But if we’re not, let’s continue to, you know, we’ll continue to develop this, and maybe we will be out of here in a couple, in couple of decades. Now, the interesting thing that’s going on with China and India right now is the resolution of the border dispute. This is, to me, Simone a big deal because Xi Jinping really wants to position himself as the leader of the bricks nations, yeah. And so, you know the idea that, like, Okay, we have a border dispute with India, and we’re in competition with India over, you know, where Apple is producing its products and whether or not the manufacturers, but it may be the case that there is a big play here that is about collaboration and coordination. And it may be the case that the resolution of this boarding border dispute just within the last couple of days, I think, signals that maybe, you know, this is a moment where there’s a big pivot away from the west and Xi Jinping and Modi and others thinking like, okay, you know, you guys can do your g7 thing over there, and we can be at the kids table at the g20 but like, we’re bricks, is bigger than you thought. And so I think it’s a really interesting time to watch this, because my guess is what we’re going to see is more collaboration and coordination between China and India.

Simone Del Rosario 7:51
And with that in mind, does Apple, you know, more publicly moving into India and trying to diversify away from China? Does does that become less important in the eyes of the Chinese government if they’re going to cozy up closer to India? Do they see that as a win for the region?

Doug Guthrie 8:09
Yes, my guess is that the answer is that it becomes a win for the region. So rather, my, you know, again, you know, I’m not sitting next to Xi Jinping, so I don’t know exactly what he thinks, but I know some of the people who are advising him, and they’re thinking very strategically about the region. And so my guess is what they’re thinking is like, Okay, we could have this competitive thing in which we’re always threatened by the idea that, you know, Foxconn and Apple are going to go produce in in India, or we could be coordinating the region so that the BRICS nations are the most powerful group of nations in the world, and so therefore we need to collaborate and coordinate. And so my guess is what we’re going to see. So Foxconn, you know, Taiwanese company building plant in Chennai. We’re probably going to see a lot of Chinese companies. So Foxconn is here in their final assembly plant. Taiwanese Pegatron, a Chinese company final assembly. They do the same thing with Fox potcom. My guess is that Pegatron and a lot of the other components companies are going to start building factories in India. And so I think it’s going to be a really interesting thing to see how the coordination and collaboration goes on here.

Simone Del Rosario 9:15
It’s a whole new future. Doug Guthrie, thank you so much always for your comments. So

Doug Guthrie 9:19
amazing to be here with you guys. You guys do amazing work, and I’m so thankful. Thanks.