Apple’s AI Ambitions in China: Challenges and Strategic Moves

Apple’s AI Ambitions: Navigating the Chinese Market

Apple’s recent AI presentation showcased exciting tools for American iPhone users, like a custom emoji generator. However, no mention was made of China, Apple’s second-largest market. The reason? Western AI models like OpenAI’s ChatGPT are not available in China. This has led the company to seek a Chinese partner for its AI services, though no deal has been finalized yet, with new iPhone models just around the corner.

Competition and Collaboration in China

In China, it lags behind local competitors who have already integrated AI into their devices. The iPhone fell to third place in market share in China’s smartphone market in Q1, trailing two local brands, according to Counterpoint Research. It has been in talks with Chinese AI firms like Baidu, Alibaba, and Baichuan AI, insiders reveal.

In the U.S., Apple is following a dual strategy: developing its own AI while collaborating with OpenAI. The anticipation of Apple’s AI advancements has driven its market capitalization back over $3 trillion. Meanwhile, in China, AI chatbots require Beijing’s approval. The Cyberspace Administration of China had approved 117 generative AI products by March, none of which are foreign.

Earlier this year, Apple sought approval for a foreign AI model in China but found the regulators unlikely to agree, pushing it to accelerate discussions with local partners. The Greater China region, including Taiwan, Hong Kong, and Macau, accounted for 18% of Apple’s global revenue last quarter, but local competition is intense. Huawei is projected to capture 17% of China’s smartphone market this year, up from 13%, while Apple’s share may drop to 16% from 18%.

Apple’s Optimism and Strategic Moves

Apple's AI

Apple remains optimistic. “China is the most competitive market in the world, and we feel confident about our position,” CFO Luca Maestri told The Wall Street Journal. Generative AI is becoming a key selling point for upgrades, as other tech features advance more slowly.

Samsung provides a notable precedent. In January, it launched the Galaxy S24 series with generative AI features like real-time translation and AI-powered photo editing. Globally, these services leverage Samsung’s AI and Google’s capabilities. In China, however, Samsung partnered with Baidu and Meitu due to Google’s AI restrictions. Baidu handles features like “circle to search” and text summation, while Meitu enables AI-based photo editing.

Chinese users have had mixed reactions to Baidu’s AI. Some noted Google’s AI identified objects in photos better, while others praised Baidu’s superior Chinese-language translation and relevant search results. Samsung, with only a 1% share of China’s smartphone market, chose Baidu for its leading AI model in China. Samsung declined to comment on AI comparisons, and Baidu didn’t respond.

Adapting to Chinese regulations is routine for tech companies. Apple’s iCloud in China is hosted on government servers, and its Vision Pro headset will launch without Apple TV+. It has a significant economic presence in China, with most iPhones assembled there and about five million jobs created through its supply chain and App Store ecosystem.

Despite this, rising Chinese patriotism poses a challenge. Tom Kang, research director at Counterpoint, warned, “China is increasingly targeting U.S. companies one by one. So, it’s whether it becomes a target or not—that will be the key issue.”

What are some other AI plans for Apple?

Apple has several AI plans beyond the custom emoji generator, aiming to integrate AI more deeply into its products and services:

  • Siri Enhancements: Improving Siri with advanced natural language processing and machine learning for better conversational abilities and handling complex tasks.
  • On-Device AI Processing: Enhancing AI processing on devices with the Neural Engine, improving performance, ensuring privacy, and reducing cloud reliance.
  • Health and Fitness Tracking: Using AI in the Watch and Health app for accurate activity tracking, health monitoring, and personalized insights.
  • Photography and Video: Leveraging AI for camera features like Smart HDR, Night Mode, Deep Fusion, and ProRAW to enhance image quality and performance.
  • Augmented Reality (AR): Integrating AI in ARKit for better environment understanding and accurate virtual object placement, with plans for AR glasses or a mixed-reality headset.
  • Personalized Recommendations: Using AI for personalized recommendations in Music, App Store, News, and Apple TV+ based on user preferences.
  • Privacy-Preserving Machine Learning: Investing in techniques like differential privacy to gather insights and improve services while protecting user data.
  • Autonomous Systems: Working on self-driving car technology with AI for advanced computer vision and decision-making algorithms.
  • Financial Services: Utilizing AI in Apple Card and Pay for fraud detection, spending insights, and enhanced financial management.

These initiatives show Apple’s commitment to advancing AI across its ecosystem, enhancing functionality and user experience while maintaining a competitive edge.