US tech giant Apple has raised its stakes in China by investing $1 billion in ride hailing app Didi Chuxin, the single largest investment received by the Chinese cab-service company.
The investment from Apple is the single largest investment Didi has ever received. The investment is considered significant as Didi rivals US taxi hailing app Uber.
The massive investment comes at a time when confidence in the Cupertino, California-based Apple was shaken after it posted its first-ever quarterly decline in iPhone sales and first revenue drop in 13 years in April. Wall Street is worried about demand for Apple’s next iPhone. China has till date been the biggest driver for iPhone sales. With China’s demand for iPhones slowing down, Appple CEO Tim Cook is expected to visit the country and meet top officials.
We take a look at five reasons why Apple invested in Didi Chuxin
LACKLUSTER SALES OF IPHONES
Faced with lackluster sales of smartphones in the United States, Apple has bet on China as a major new growth engine. But progress there has been disappointing.
Revenue from China slumped 26 percent during the March quarter. Apple faces increasing competition from Chinese manufacturers like Xiaomi and Huawei selling phones priced below $200, Rosenblatt’s Zhang said.
The tech giant’s rare investment gives it a stake in two burgeoning waves of technology – the sharing economy and car technology – as the iPhone business that propelled it to record profitability shows signs of maturing.
DEAL WILL HELP APPLE BETTER UNDERSTAND CHINA
Apple is trying to reinvigorate sales in China, where it has come under greater pressure from regulators, and Cook is traveling to the country this month. Cook said in an interview that he saw opportunities for Apple and Didi Chuxing to collaborate in the future.
“We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market,” he said. “Of course, we believe it will deliver a strong return for our invested capital over time as well.”
“Didi exemplifies the innovation taking place in the iOS developer community in China,” Tim Cook, Apple’s CEO said.
APPLE DIVERSIFYING BUSINESS
The move aligns Apple with Uber Technologies Inc’s chief rival in China, as automakers and technology companies forge new alliances and make cross investments. General Motors, for example, recently bought autonomous driving technology company Cruise Automation and has also taken a stake in U.S. ride-sharing company Lyft.
Analysts say the deal offers a glimpse of how Apple may diversify its business as sales of the iPhone level off. Apple has emphasized its burgeoning revenue from services such as Apple Music and mobile payment Apple Pay, a strategy that the ride-sharing investment appears to reinforce, said analyst Patrick Moorhead of Moor Insights & Strategy.
“After all the hints about the service business and what they would like to do in the future, it’s all starting to fit together,” he said.
BUSINESS MODELS AROUND TRANSPORTATION
Investors are eagerly watching to see whether Apple will enter the automotive business. Apple has hired a wide range of automotive experts, and the company is exploring building a self-driving car, sources have told Reuters.
Apple reaps much higher margins on the iPhone than most auto makers enjoy, but the investment suggests that the tech giant is contemplating transportation services that could prove more lucrative, said Bob O’Donnell, an analyst with TECHnalysis Research.
“This investment shows they are thinking not just about cars but business models around transportation, and that is a very encouraging and interesting sign,” he said.
Cook said Apple remained focused on the in-car experience with its CarPlay system, which links smartphones to vehicle infotainment systems. “That is what we do today in the car business, so we will have to see what the future holds,” he said.
SHORING UP RELATIONSHIP WITH CHINA
Apple has enjoyed warmer relations with the Chinese government than some American tech companies, but regulators recently shut down its online book and film services, triggering concerns among investors. The true value of Apple’s investment in Didi might be in shoring up that relationship, said analyst Ben Bajarin of Creative Strategies.
“This is as much about sending signals about their seriousness in that country as it is about helping Didi build a ride-sharing platform,” he said.