Apple CEO Tim Cook attends the annual session of China Development Forum (CDF) 2018 at the Diaoyutai State Guesthouse in Beijing, China March 26, 2018.
Jason Lee | Reuters
Apple shares fell over 3% on Thursday, following a 4% decline on Wednesday, after several reports suggesting that Chinese government workers could be banned from using Apple iPhones.
The reported restrictions, which have not been publicly announced by the Chinese government, raise concerns that Apple’s products could get caught up in international tensions between the U.S. and China.
Greater China, including Hong Kong and Taiwan, is Apple’s third-largest market, accounting for 18% of Apple’s 2022 revenue of $394 billion. It’s also where the vast majority of Apple products are assembled. Apple declined to comment.
China has ordered officials at central government agencies not to bring iPhones into the office or use them for work, The Wall Street Journal reported on Wednesday, although it was unclear how widely the bans were issued. The ban could spread to other state companies and government-backed agencies, Bloomberg News reported on Thursday.
While a ban on all government employees could reduce iPhone unit sales in China by as much as 5%, Bernstein analyst Toni Sacconaghi wrote in a Thursday note, it would be a larger threat to Apple if the bans sent a signal that everyday Chinese citizens should instead use electronics from Chinese companies.
“Perhaps more importantly, restricted use of iPhones among government employees could negatively impact sales among consumers (related family members; general populace) and could be part of a broader move by the Chinese government to promote usage of domestic technology,” Sacconaghi wrote.
Dan Niles, portfolio manager at Satori Fund, said on Thursday he sold his stake in Apple and is now shorting the company, citing the possibility of a government iPhone ban and increased competition from Huawei.
New competition
Last week, several Chinese retailers started taking orders for a new Huawei phone, the Mate 60 Pro, which quickly became a hot topic on social media in the country.
The phone starts at 6900 RMB, or about US$954, and uses a Chinese-manufactured chip from Huawei’s chip subsidiary, HiSilicon. Early tests suggest that the phone can access 5G speeds, although Huawei’s specification pages don’t mention it.
Huawei was placed on the U.S. entity list in 2019 over fears that its technology could give the Chinese government backdoor access to communications. The move requires U.S. companies like Google and Qualcomm to get permission from the U.S. government before supplying Huawei. The sanctions significantly hampered Huawei’s phone business, which was rising before the sanctions, forcing it in recent years to spin off some of its phone brands and contributing to a $12 billion shortfall back in 2020.
Huawei’s new phone has a chip, manufactured on China’s mainland, that uses the 7-nanometer production process. Smaller production processes tend to translate to faster and more efficient chips. This year’s upcoming iPhone is expected to use a 3nm process, manufactured by Taiwan Semiconductor, and Apple first went with a 7nm process to make its A12 chips, which were used in new iPhones in 2018.
But Huawei’s chip raises questions about how well separate restrictions on chip manufacturing technology, which aim to prevent Chinese companies from making cutting-edge processors, are working.
“From my perspective, what it tells us is that the United States should continue on its course of a ‘small yard, high fence’ set of technology restrictions focused narrowly on national security concerns, not on the broader question of commercial decoupling,” Jake Sullivan, U.S. national security advisor, said Tuesday in a briefing.
In Apple’s most recent quarter, ending in June, Greater China sales grew 8% on an annual basis to $15.76 billion. It was Apple’s fastest-growing region. On the company’s earnings call, Cook said Apple was seeing users switch from Android phones to iPhones, mentioning that was “at the heart” of Apple’s results.
“We continue to try to convince more and more people to switch because of the experience and the ecosystem that we can offer them,” Cook said.
Liz Reid, vice president, search, Google speaks during an event in New Delhi on December 19, 2022.
Sajjad Hussain | AFP | Getty Images
Testimony in Google‘s antitrust search remedies trial that wrapped hearings Friday shows how the company is calculating possible changes proposed by the Department of Justice.
Google head of search Liz Reid testified in court Tuesday that the company would need to divert between 1,000 and 2,000 employees, roughly 20% of Google’s search organization, to carry out some of the proposed remedies, a source with knowledge of the proceedings confirmed.
The testimony comes during the final days of the remedies trial, which will determine what penalties should be taken against Google after a judge last year ruled the company has held an illegal monopoly in its core market of internet search.
The DOJ, which filed the original antitrust suit and proposed remedies, asked the judge to force Google to share its data used for generating search results, such as click data. It also asked for the company to remove the use of “compelled syndication,” which refers to the practice of making certain deals with companies to ensure its search engine remains the default choice in browsers and smartphones.
Read more CNBC tech news
Google pays Apple billions of dollars per year to be the default search engine on iPhones. It’s lucrative for Apple and a valuable way for Google to get more search volume and users.
Apple’s SVP of Services Eddy Cue testified Wednesday that Apple chooses to feature Google because it’s “the best search engine.”
The DOJ also proposed the company divest its Chrome browser but that was not included in Reid’s initial calculation, the source confirmed.
Reid on Tuesday said Google’s proprietary “Knowledge Graph” database, which it uses to surface search results, contains more than 500 billion facts, according to the source, and that Google has invested more than $20 billion in engineering costs and content acquisition over more than a decade.
“People ask Google questions they wouldn’t ask anyone else,” she said, according to the source.
Reid echoed Google’s argument that sharing its data would create privacy risks, the source confirmed.
Closing arguments for the search remedies trial will take place May 29th and 30th, followed by the judge’s decision expected in August.
The company faces a separate remedies trial for its advertising tech business, which is scheduled to begin Sept. 22.
From left, Parker Conrad, co-founder and CEO of Rippling, and Kleiner Perkins investor Ilya Fushman speak at the venture firm’s Fellows Founders Summit in San Francisco in September 2022.
Rippling
Human resources software startup Rippling said Friday that its valuation has swelled to $16.8 billion in its latest fundraising round.
The company raised $450 million in the round, and has committed to buying an additional $200 million worth of shares from current and previous employees. The company’s valuation is up from $13.5 billion in a round a year ago.
Rippling said there was no lead investor. Baillie Gifford, Elad Gil, Goldman Sachs Growth and others participated in the round, according to a statement from the San Francisco-based company.
With the tech IPO market mostly dormant over the past three-plus years, and President Donald Trump’s new tariffs on imports leading several companies to delay planned offerings, the most high-profile late-stage tech startups continue to tap private markets for growth capital. Rippling co-founder and CEO Parker Conrad told CNBC in an interview the the company isn’t planning for an IPO in the near future.
Conrad also highlighted a change that’s taken place in public markets in recent years, since inflation began soaring in late 2021, followed by higher interest rates. With concerns about the economy swirling, many tech companies downsized and took other steps toward generating and preserving cash.
“It does look a lot like, in order to be successful in the public markets, your growth rates have to come down so that you can be profitable,” said Conrad, who avoided enacting layoffs. “And so for us, that sort of pushes things out until the company looks profitable and probably slower growing, right?”
At Rippling, annual revenue growth is well over 30%, Conrad said, though he didn’t provide an updated sales figure. The information reported last year that Rippling doubled annual recurring revenue to over $350 million by the end of 2023 from a year prior.
Given the pace of expansion, Conrad said he isn’t fixated on profits at the moment at Rippling, which ranked 14th on CNBC’s Disruptor 50 list.
Rippling offers payroll services, device management and corporate credit cards, among other products. Competitors include ADP, Paychex, Paycom Software and Paylocity.
There’s also privately held Deel, which Rippling sued in March for allegedly deploying a spy who collected confidential information. Conrad suggested that the publicity surrounding the case may be boosting business.
“I think it’s too early to say, looking at the data, how all of this is going to evolve from a market perspective, but certainly we see some companies that have said, ‘Hey, we’re talking to Rippling because of this,'” Conrad said.
Fortnite was booted from iPhones and Apple’s App Store in 2020, after Epic Games updated its software to link out to the company’s website and avoid Apple’s commissions. The move drew Apple’s anger, and kicked off a legal battle that has lasted for years.
Last month’s ruling, a victory for Epic Games, said that Apple was not allowed to charge a commission on link-outs or dictate if the links look like buttons, paving the way for Fortnite’s return.
Apple could still reject Fortnite’s submission. An Apple representative didn’t respond to a request for comment. Apple is appealing last month’s contempt ruling.
The announcement by Epic Games is the latest salvo in the battle between it and Apple, which has taken place in courts and with regulators around the world since 2020. Epic Games also sued Google, which operates the Play Store for Android phones.
Last month’s ruling has already shifted the economics of app development for iPhones.
Apple takes between 15% and 30% of purchases made using its in-app payment system. Linking to the web avoids those fees. Apple briefly allowed link-outs under its system but would charge a 27% commission, before last month’s ruling.
Developers including Amazon and Spotify have already updated their apps to avoid Apple’s commissions and direct customers to their own websites for payment.
Before last month, Amazon’s Kindle app told users they could not purchase a book in the iPhone app. After a recent update, the app now shows an orange “Get Book” button that links to Amazon’s website.
Fortnite has been available for iPhones in Europe since last year, through Epic Games’ store. Third-party app stores are allowed in Europe under the Digital Markets Act. Users have also been able to play Fortnite on iPhones and iPad through cloud gaming services.