China Is Giving Apple A Hard Time

Apple in China

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What's going on?

News has emerged that Apple is losing a patent fight in China regarding its iPhone 6. Its not yet affecting sales (although it could), but its indicative of the challenges Apple faces in its second biggest market.

What does this mean?

There is a growing perception that China is becoming a tougher place for western companies to do business. Earlier this month, a report from the European Union Chamber of Commerce called the business environment for foreign firms in China increasingly hostile (this followed a US Chamber of Commerce in China report that came to a similar conclusion).

The Chinese government has been interfering with Apple on multiple occasions: for example, it recently was forced to shut down iTunes Movies and iBooks in China. The possible success of this patent challenge is another example of government resistance – a Beijing court has ruled in favor of a smaller company that claims it owns the rights to the iPhone 6 design.

Why should I care?

For the stock: Concerns about its business in China have weighed on Apples stock price. Carl Icahn, the billionaire investor, cited Chinese regulatory concerns as one reason why he sold the stock earlier this year. In all of its markets, Apple is trying to diversify its sources of revenue so that its not so reliant on iPhone sales. That will be more challenging if the Chinese government keeps getting in the way.

The bigger picture: Investors are becoming more wary of the risks of doing business in China. As the roadblocks increase, international companies will find it less attractive to do business in China. Whether or not Chinas economy is indeed recovering (and, importantly, whether the Chinese consumer is spending more) is going to be less relevant for international companies if they cant effectively access the Chinese market in the future.

Originally posted as part of the Finimize daily email.

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