Posts Tagged ‘iPhone’

Qualcomm’s $44 Billion Purchase of NXP Has ‘Hard to Resolve’ Issues: China

April 19, 2018

It marks Beijing’s first public comments about its review of the pending deal since U.S.-China trade tensions ramped up

Qualcomm Centriq branding on a motherboard on display.
Qualcomm Centriq branding on a motherboard on display. PHOTO: BLOOMBERG NEWS

BEIJING—China’s Commerce Ministry said a preliminary review of Qualcomm Inc.’sQCOM -0.22% $44 billion purchase of NXP Semiconductors NXPI -0.15% has found “issues that are hard to resolve.”

A spokesman for the ministry, which is China’s main antitrust regulator, said the review is still going on. Initially, the review has turned up “related issues that are hard to resolve, making it difficult eliminate a negative impact,” the spokesman, Gao Feng, said Thursday.

China is the last major government yet to approve the pending deal between the San Diego-based Qualcomm, a major supplier of smartphone chips, and NXP, a Dutch semiconductor maker.

The Tech Arms Race Driving the U.S.-China Trade Dispute

“Made in China 2025” is Beijing’s industrial plan to dominate high-tech industries including robotics, aerospace and computer chips. The Trump administration argues China is using the plan to give its tech companies unfair advantage over foreign rivals. But what is it exactly?

Mr. Gao’s comments are the Chinese government’s first public remarks about the review since Beijing and Washington began engaging in tit-for-tat threats of a trade war. In a sign of Beijing’s displeasure, the Commerce Ministry slowed its review of the deal in recent weeks, according to people familiar with the matter.

Qualcomm resubmitted its application to the Commerce Ministry earlier this week ahead of a Tuesday deadline, two people familiar with the matter said. The move effectively resets a timetable for a decision and gives Chinese regulators another 180 days to review the deal, people familiar with the procedure said.

Mr. Gao said the ministry has asked Qualcomm to refile its application.

Qualcomm has received approvals for the deal, widely seen as critical for its growth plans, from eight out of the nine antitrust regulators around the globe.



China has reservations about Qualcomm’s $44 billion deal for NXP — Qualcomm could get Hammered in Trump-China trade war

April 19, 2018

Apr 19, 2018 2:49 a.m. ET

Review finds ‘issues that are hard to resolve’

Bloomberg News
Qualcomm has been pursuing rival chipmaker NXP Semiconductors NV for months.


BEIJING — China’s Commerce Ministry said a preliminary review of Qualcomm Inc.’s $44 billion purchase of NXP Semiconductors has found “issues that are hard to resolve.”

A spokesman for the ministry, which is China’s main antitrust regulator, said the review is still going on. Initially, the review has turned up “related issues that are hard to resolve, making it difficult eliminate a negative impact,” the spokesman, Gao Feng, said Thursday.

China is the last major government yet to approve the pending deal between the San Diego-based Qualcomm QCOM, -0.22%  , a major supplier of smartphone chips, and NXP NXPI, -0.15%  , a Dutch semiconductor maker.

Gao’s comments are the Chinese government’s first public remarks about the review since Beijing and Washington began engaging in tit-for-tat threats of a trade war. In a sign of Beijing’s displeasure, the Commerce Ministry slowed its review of the deal in recent weeks, according to people familiar with the matter.

An expanded version of this report appears on


Qualcomm May Be Collateral Damage in a U.S.-China Trade War

Qualcomm offices in San Diego. An escalating trade battle over whether China or the United States will dominate the technologies of the future is threatening the company’s business and its growth.Credit Frank Duenzl/Deutsche Presse-Agentur, via Associated Press

WASHINGTON — A looming trade war between the United States and China has put Qualcomm, one of America’s largest technology companies, squarely in the middle of the battlefield.

A major supplier in both China and the United States, the San Diego-based chip maker has long managed to play the trading relationship between the world’s two largest economies to its advantage. But an escalating trade battle over which country will dominate the technologies of the future is now threatening Qualcomm’s business and its growth.

On Monday, Qualcomm lost the ability to export semiconductors to one of its biggest customers after the United States banned Chinese telecom equipment maker ZTE Corporation from purchasing American technology for seven years.

In China, Qualcomm’s plan to acquire NXP Semiconductors, a critical part of its growth strategy, has been stalled by a prolonged antitrust review, a move critics see as Chinese retaliation for President Trump’s aggressive trade moves.

The White House, which has already threatened tariffs on more than $150 billion in Chinese goods, is preparing new restrictions on Chinese investments in the United States and could limit American partnerships with Chinese firms abroad. Such a move could place further restraints on American companies with advanced technology, like Qualcomm, General Electric and Boeing, as they seek to form overseas partnerships. It would also likely incite more retaliation from the Chinese. On Tuesday, the administration advanced a new rule that would limit the ability of Chinese telecommunications companies, including Huawei, one of Qualcomm’s competitors and a customer, to sell their products in America.

Qualcomm’s situation illustrates the perils of trying to punish a major trading partner that has become a crucial link in supply chains stretching across the globe. By targeting foreign players with ties to their own markets, the United States and China are putting their own economic futures at risk. The question is whether the Trump administration will balk at paying that price — or see its goal of punishing China for unfair trade practices as more important than any collateral damage that could ensue.

“They’re obviously really caught in the middle,” Andrew Gilholm, the director of analysis for greater China at Control Risks, said of Qualcomm. “The demands the Chinese government has on them, and the demands coming from the U.S. side, at some point might become irreconcilable.”

An NXP Semiconductors chip, center, for an iPhone. In China, Qualcomm’s plan to acquire the company has been stalled by an antitrust review, a move critics see as retaliation for President Trump’s aggressive trade moves.CreditBrent Lewin/Bloomberg

The cold war that is emerging between the United States and China is increasingly centered on the kind of advanced computer chips that Qualcomm produces. The company’s chips are now common in smartphones, but they also serve as the basis of next-generation 5G systems, vast networks of sensors that may soon govern the function of everything from autonomous vehicles to smart power grids and manufacturing systems. Qualcomm is locked in competition with China’s Huawei for dominance of this new industry.

The emergence of this technology means that, for the Trump administration, national security is no longer confined to airplanes, tanks and weapons systems. Since these chips allow companies to collect vast amounts of information, control critical infrastructure and know the location of people and objects in real time, foreign ownership could pose an unprecedented security threat.

The administration’s focus on Qualcomm’s technology may be partially of the company’s own making. Earlier this year, the company asked the Committee on Foreign Investment in the United States, which evaluates foreign acquisitions for national security threats, to intervene as it faced a hostile takeover attempt by Singapore-based Broadcom.

The Trump administration, already interested in the security implications of 5G technology, embraced the idea and made clear that the United States’ success was tied to Qualcomm’s. “China would likely compete robustly to fill any void left by Qualcomm as a result of this hostile takeover,” a United States Treasury official wrote in a letter to the companies. In March, Mr. Trump scuttled Broadcom’s $117 billion bid for Qualcomm, citing security concerns.

The administration is now considering giving regulators even more power to block Chinese investments by issuing an executive order modeled on a congressional bill on reviewing mergers for national security threats, people briefed on the discussions said. Those reviews would most likely apply to certain “critical sectors” that China uses its industrial policy to support — including semiconductors, aerospace and artificial intelligence.

Daniel H. Rosen, a partner at the research firm Rhodium Group, said policymakers worldwide are just now discovering that using foreign technology creates vulnerabilities that have outpaced governments’ ability to manage them.

“This is not just a China-U.S. phenomenon, but a matter of things which just a few years ago we thought were relatively benign now being weaponized in ways that we haven’t anticipated,” he said.

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Apple Insists iPhone Users Enroll in Apple Pay With a Red Badge That Won’t Go Away

April 3, 2018

The tactic is one of the first times the tech giant has used notifications to push one of its own products

The iPhone Settings app now shows a red circle badge if the phone doesn’t have Apple Pay set up.
The iPhone Settings app now shows a red circle badge if the phone doesn’t have Apple Pay set up. PHOTO: STEPHANIE AARONSON/THE WALL STREET JOURNAL

Apple Inc. is nagging iPhone users to enroll in its mobile-payment service with a persistent red circle badge. The strategy has worked with some, but is irritating others who say it is heavy-handed and exploits the tech giant’s clout in ways that could disadvantage rivals.

The tactic, part of the iPhone’s latest operating software launched last fall, is subtle. Users who opt not to input credit-card information for Apple Pay when setting up their phones now constantly see the red circle over their settings icon, indicating their setup is incomplete. Some users also periodically get notification reminders that go away only once they start the enrollment process.

Apple Pay allows users to upload credit or debit cards to an iPhone and securely pay at stores by holding the device above a contactless terminal. Apple makes money by charging banks a slice of each transaction through the mobile-payment service, which it said in 2014 would make cash and physical credit cards obsolete.

Though payment analysts say the service speeds up checkout times and is more secure than traditional cards, Apple Pay has struggled to earn broad adoption in the U.S. Many remain skeptical that it is more secure, including Jack Frederick, a 29-year-old professional comedian from Queens, N.Y., who prefers using his credit card directly.

Share of mobile payment plans

“This is the most aggressive they’ve ever been,” said Mr. Frederick, who has had a red badge over his iPhone settings since updating his software in mid-January. He said the notification has made him consider trading his iPhone 6 for a Google Pixel. “All that from one dot,” he said.

The Apple Pay push reflects how tech titans increasingly are using their own devices, software or data to promote their businesses, sometimes at the cost of smaller Inc. sometimes steers Alexa shoppers to its own brands, and Alphabet Inc.’sGoogle has been accused of blocking rivals’ adson its Chrome browser. Amazon said customers can always ask for specific brands. Google denied having undue influence over ad-blocking rules.

“Everyone is doing essentially the same trick,” said Roger Kay, an analyst with Endpoint Technologies Associates. “It’s really antitrust behavior.”

Mr. Kay compared Apple Pay setup badges and notifications to Microsoft Corp. bundling its Internet Explorer browser with Windows in the 1990s—a strategy the Justice Department successfully sued to stop on antitrust grounds saying it hurt rivals. “They used to have actual behavioral remedies and say you can’t do this,” Mr. Kay said.

Apple declined to comment on potential antitrust concerns. The Justice Department didn’t immediately respond to a request for comment.

Apple Pay, which allows users to upload credit or debit cards to an iPhone and pay via a contactless terminal, appears to have gotten a boost after Apple’s software change.
Apple Pay, which allows users to upload credit or debit cards to an iPhone and pay via a contactless terminal, appears to have gotten a boost after Apple’s software change. PHOTO: MAXIM ZMEYEV/REUTERS

This marks one of the first times Apple has used a red-badge notification to push one of its services that generates revenue. The badges are effective at driving users to take action because people know the red circle means something needs attention, said Bruce Tognazzini, a principal with Nielsen Norman Group, a user-experience consulting firm.

“The real problem is there’s no differentiation between, ‘We want to bring your attention to it because it’s vital,’ and something like this that for some people it’s vital and others it’s not,” said Mr. Tognazzini.

Apple’s own guidelines, posted online for some devices, advise developers to minimize badges and only use it to “present brief, essential information and atypical content changes.”

The tech giant is trying to accelerate the growth of its services business, which includes Apple Pay, its music-streaming service and App Store sales. Its goal is for the $29 billion business to generate more than $40 billion in revenue by fiscal 2020. The company is leaning on that business to offset stagnating smartphone shipments, which account for two-thirds of revenue.

Early estimates indicate Apple’s software change has helped boost Apple Pay enrollment. After launching iOS 11 in September, Apple Pay was enrolling more than two million users weekly for a month—more than double the roughly 750,000 it previously added weekly, according to Loup Ventures, a venture-capital firm specializing in tech research. The pace has since slowed to 1.5 million new enrollments a week.

An estimated 34% of new iPhone owners link a card to Apple Pay during setup and 18% have used it in the past 90 days, according to 451 Research, a technology research firm. Alphabet Inc.’s Google Pay, formerly known as Android Pay, and Samsung Electronics Co.’s Samsung Pay don’t use the same tactics as Apple and about 8% of users have used those services in the past 90 days, said 451 Research.

PayPal Holdings Inc., Square Inc., SQ -3.09% and Zelle, a service created by U.S. banks, are among the companies and apps competing against Apple in mobile payments.

Brian Roemmele, founder of the Pay Finders app that maps Apple Pay retail acceptance, said those companies stand to lose as Apple becomes more aggressive. “They’re going to have to move someone else aside,” he said.

PayPal and Square, which have partnerships with Apple, said they support efforts to encourage people to adopt mobile payments. Zelle declined to comment.

At Apple’s annual shareholder meeting in February, Chief Executive Tim Cook said mobile payments have taken off slower than he expected. Some consumers remain wary of potential security risks and others are uncertain about where Apple Pay is accepted. However, Mr. Cook said he hopes he will “be alive to see the elimination of money.”

Apple’s Cook to Trump: Embrace Open Trade — “Countries that embrace openness, that embrace trade, that embrace diversity are the countries that do exceptionally.” — Tim Cook has a good social credit rating

March 24, 2018

Cook also calls for regulations to protect privacy during forum in Beijing

Apple CEO Tim Cook arrives at the China Development Forum in Beijing on Saturday.
Apple CEO Tim Cook arrives at the China Development Forum in Beijing on Saturday. PHOTO: GIULIA MARCHI/BLOOMBERG NEWS

BEIJING—Apple Inc. Chief Executive Tim Cook urged U.S. President Donald Trump to support free-trade policies as a series of tariffs and other actions raise tensions between the U.S. and China.

“Countries that embrace openness, that embrace trade, that embrace diversity are the countries that do exceptionally,” Mr. Cook said during a panel discussion at an economic forum here Saturday, when asked what message he would like to bring home to Mr. Trump. “And the countries that don’t, don’t,” he added, without mentioning the president by name.

Larry Fink, chief executive of investment firm BlackRock Inc., who also attended the China Development Forum, said the U.S. and China shouldn’t fight a trade war. “The world needs a strong China and a strong U.S. The world does not need a public fight in which we reduce mutual opportunities,” he said.

The comments from Messrs. Cook and Fink came after the U.S. this week proposed tariffs on as much as $60 billion of Chinese products and tighter restrictions on acquisitions and technology transfers.

A separate, previously announced round of U.S. tariffs on Chinese steel and aluminum products took effect Friday. The U.S. on Friday also lodged a dispute at the World Trade Organization against China’s technology licensing practices, which the Trump administration says favor Chinese companies.

China responded with plans to impose tariffs on $3 billion of U.S. goods. On Saturday, Chinese Vice Premier Liu He told U.S. Treasury Secretary Steven Mnuchin during a phone call that China is ready to defend its national interests, according to China’s state-run news agency Xinhua.

A Chinese Commerce Ministry spokesman also expressed regret at the U.S.’s case at the WTO and said China protects intellectual property rights.

Lou Jiwei, China’s former finance minister who is now the chairman of the National Council for Social Security Fund, said at the forum that he thought China’s response was too soft.

“It did not hit the spot where it hurts” the U.S., Mr. Lou said, adding that he believed a negotiated settlement was possible.

“The important thing is that he’s a businessman,” Mr. Lou said, referring to Mr. Trump. “We fight a bit, then we could talk it through.”

The three-day China Development Forum, held at Beijing’s Diaoyutai State Guesthouse, gives global business chiefs with big stakes in the Chinese market an opportunity to build relationships with China’s senior officials, and vice versa.

Top executives of other foreign companies including Alphabet Inc.’s Google, Qualcomm Inc.and Daimler AG are also attending the conference. Mr. Cook is this year’s co-chairman.

Like most companies at the conference, Apple depends on smooth bilateral relations between the U.S. and China. The iPhone is a product of U.S. engineering talent and Chinese manufacturing prowess, with each phone carrying the line “Designed by Apple in California Assembled in China.”

China, the world’s biggest smartphone market, is a crucial market for the iPhone.

Members of the U.S. business community are set to meet senior Chinese officials over the next few days to exchange views on trade and business environment.

That is expected to include a meeting next week with China’s new vice president, Wang Qishan, whose tasks includes managing the critical but increasingly fraught relationship with the U.S., people familiar with the matter said.

In a forum at the event, Mr. Cook also called for regulations to protect privacy. “I think this certain situation is so dire and has become so large that probably some well-crafted regulation is necessary,” he said.

How technology firms handle their users’ data has become a pressing issue since Facebook Inc. said a firm with ties to the 2016 Trump campaign improperly kept data for years even though it said it has destroyed those records.

Mr. Cook said that businesses or governments shouldn’t be able to know intimate details of individuals’ lives. “The ability for anyone to know what you’ve been browsing about for years, who your contacts are, who their contacts are, things you like and dislike and every intimate detail of life: from my point of view, it shouldn’t exist,” he said.

Recently, Apple has been criticized by privacy experts over its move to store encryption keys in China for local iCloud users. Some experts said such a move could risk access to user data by Chinese authorities. Apple has said it will store the keys in a secure locationand retain control over them. Mr. Cook didn’t touch on the issue during his speech at the forum.

Write to Yoko Kubota at

Big data meets Big Brother as China moves to rate its citizens

The Chinese government plans to launch its Social Credit System in 2020. The aim? To judge the trustworthiness – or otherwise – of its 1.3 billion residents

Kevin Hong

On June 14, 2014, the State Council of China published an ominous-sounding document called “Planning Outline for the Construction of a Social Credit System”. In the way of Chinese policy documents, it was a lengthy and rather dry affair, but it contained a radical idea. What if there was a national trust score that rated the kind of citizen you were?

Imagine a world where many of your daily activities were constantly monitored and evaluated: what you buy at the shops and online; where you are at any given time; who your friends are and how you interact with them; how many hours you spend watching content or playing video games; and what bills and taxes you pay (or not). It’s not hard to picture, because most of that already happens, thanks to all those data-collecting behemoths like Google, Facebook and Instagram or health-tracking apps such as Fitbit. But now imagine a system where all these behaviours are rated as either positive or negative and distilled into a single number, according to rules set by the government. That would create your Citizen Score and it would tell everyone whether or not you were trustworthy. Plus, your rating would be publicly ranked against that of the entire population and used to determine your eligibility for a mortgage or a job, where your children can go to school – or even just your chances of getting a date.

A futuristic vision of Big Brother out of control? No, it’s already getting underway in China, where the government is developing the Social Credit System (SCS) to rate the trustworthiness of its 1.3 billion citizens. The Chinese government is pitching the system as a desirable way to measure and enhance “trust” nationwide and to build a culture of “sincerity”. As the policy states, “It will forge a public opinion environment where keeping trust is glorious. It will strengthen sincerity in government affairs, commercial sincerity, social sincerity and the construction of judicial credibility.”

Others are less sanguine about its wider purpose. “It is very ambitious in both depth and scope, including scrutinising individual behaviour and what books people are reading. It’s Amazon’s consumer tracking with an Orwellian political twist,” is how Johan Lagerkvist, a Chinese internet specialist at the Swedish Institute of International Affairs, described the social credit system. Rogier Creemers, a post-doctoral scholar specialising in Chinese law and governance at the Van Vollenhoven Institute at Leiden University, who published a comprehensive translation of the plan, compared it to “Yelp reviews with the nanny state watching over your shoulder”.

For now, technically, participating in China’s Citizen Scores is voluntary. But by 2020 it will be mandatory. The behaviour of every single citizen and legal person (which includes every company or other entity)in China will be rated and ranked, whether they like it or not.

Kevin Hong

Prior to its national roll-out in 2020, the Chinesegovernment is taking a watch-and-learn approach. In this marriage between communist oversight and capitalist can-do, the government has given a licence to eight private companies to come up with systems and algorithms for social credit scores. Predictably, data giants currently run two of the best-known projects.

The first is with China Rapid Finance, a partner of the social-network behemoth Tencent and developer of the messaging app WeChat with more than 850 million active users. The other, Sesame Credit, is run by the Ant Financial Services Group (AFSG), an affiliate company of Alibaba. Ant Financial sells insurance products and provides loans to small- to medium-sized businesses. However, the real star of Ant is AliPay, its payments arm that people use not only to buy things online, but also for restaurants, taxis, school fees, cinema tickets and even to transfer money to each other.

Sesame Credit has also teamed up with other data-generating platforms, such as Didi Chuxing, the ride-hailing company that was Uber’s main competitor in China before it acquired the American company’s Chinese operations in 2016, and Baihe, the country’s largest online matchmaking service. It’s not hard to see how that all adds up to gargantuan amounts of big data that Sesame Credit can tap into to assess how people behave and rate them accordingly.

So just how are people rated? Individuals on Sesame Credit are measured by a score ranging between 350 and 950 points. Alibaba does not divulge the “complex algorithm” it uses to calculate the number but they do reveal the five factors taken into account. The first is credit history. For example, does the citizen pay their electricity or phone bill on time? Next is fulfilment capacity, which it defines in its guidelines as “a user’s ability to fulfil his/her contract obligations”. The third factor is personal characteristics, verifying personal information such as someone’s mobile phone number and address. But the fourth category, behaviour and preference, is where it gets interesting.

Under this system, something as innocuous as a person’s shopping habits become a measure of character. Alibaba admits it judges people by the types of products they buy. “Someone who plays video games for ten hours a day, for example, would be considered an idle person,” says Li Yingyun, Sesame’s Technology Director. “Someone who frequently buys diapers would be considered as probably a parent, who on balance is more likely to have a sense of responsibility.” So the system not only investigates behaviour – it shapes it. It “nudges” citizens away from purchases and behaviours the government does not like.

Friends matter, too. The fifth category is interpersonal relationships. What does their choice of online friends and their interactions say about the person being assessed? Sharing what Sesame Credit refers to as “positive energy” online, nice messages about the government or how well the country’s economy is doing, will make your score go up.

Alibaba is adamant that, currently, anything negative posted on social media does not affect scores (we don’t know if this is true or not because the algorithm is secret). But you can see how this might play out when the government’s own citizen score system officially launches in 2020. Even though there is no suggestion yet that any of the eight private companies involved in the ongoing pilot scheme will be ultimately responsible for running the government’s own system, it’s hard to believe that the government will not want to extract the maximum amount of data for its SCS, from the pilots. If that happens, and continues as the new normal under the government’s own SCS it will result in private platforms acting essentially as spy agencies for the government. They may have no choice.

Posting dissenting political opinions or links mentioning Tiananmen Square has never been wise in China, but now it could directly hurt a citizen’s rating. But here’s the real kicker: a person’s own score will also be affected by what their online friends say and do, beyond their own contact with them. If someone they are connected to online posts a negative comment, their own score will also be dragged down.

So why have millions of people already signed up to what amounts to a trial run for a publicly endorsed government surveillance system? There may be darker, unstated reasons – fear of reprisals, for instance, for those who don’t put their hand up – but there is also a lure, in the form of rewards and “special privileges” for those citizens who prove themselves to be “trustworthy” on Sesame Credit.

If their score reaches 600, they can take out a Just Spend loan of up to 5,000 yuan (around £565) to use to shop online, as long as it’s on an Alibaba site. Reach 650 points, they may rent a car without leaving a deposit. They are also entitled to faster check-in at hotels and use of the VIP check-in at Beijing Capital International Airport. Those with more than 666 points can get a cash loan of up to 50,000 yuan (£5,700), obviously from Ant Financial Services. Get above 700 and they can apply for Singapore travel without supporting documents such as an employee letter. And at 750, they get fast-tracked application to a coveted pan-European Schengen visa. “I think the best way to understand the system is as a sort of bastard love child of a loyalty scheme,” says Creemers.

Higher scores have already become a status symbol, with almost 100,000 people bragging about their scores on Weibo (the Chinese equivalent of Twitter) within months of launch. A citizen’s score can even affect their odds of getting a date, or a marriage partner, because the higher their Sesame rating, the more prominent their dating profile is on Baihe.

Sesame Credit already offers tips to help individuals improve their ranking, including warning about the downsides of friending someone who has a low score. This might lead to the rise of score advisers, who will share tips on how to gain points, or reputation consultants willing to offer expert advice on how to strategically improve a ranking or get off the trust-breaking blacklist.

Indeed, the government’s Social Credit System is basically a big data gamified version of the Communist Party’s surveillance methods; the disquieting dang’an. The regime kept a dossier on every individual that tracked political and personal transgressions. A citizen’s dang’an followed them for life, from schools to jobs. People started reporting on friends and even family members, raising suspicion and lowering social trust in China. The same thing will happen with digital dossiers. People will have an incentive to say to their friends and family, “Don’t post that. I don’t want you to hurt your score but I also don’t want you to hurt mine.”

We’re also bound to see the birth of reputation black markets selling under-the-counter ways to boost trustworthiness. In the same way that Facebook Likes and Twitter followers can be bought, individuals will pay to manipulate their score. What about keeping the system secure? Hackers (some even state-backed) could change or steal the digitally stored information.

The new system reflects a cunning paradigm shift.

As we’ve noted, instead of trying to enforce stability or conformity with a big stick and a good dose of top-down fear, the government is attempting to make obedience feel like gaming. It is a method of social control dressed up in some points-reward system. It’s gamified obedience.

In a trendy neighbourhood in downtown Beijing, the BBC news services hit the streets in October 2015 to ask people about their Sesame Credit ratings. Most spoke about the upsides. But then, who would publicly criticise the system? Ding, your score might go down. Alarmingly, few people understood that a bad score could hurt them in the future. Even more concerning was how many people had no idea that they were being rated.

Currently, Sesame Credit does not directly penalise people for being “untrustworthy” – it’s more effective to lock people in with treats for good behaviour. But Hu Tao, Sesame Credit’s chief manager, warns people that the system is designed so that “untrustworthy people can’t rent a car, can’t borrow money or even can’t find a job”. She has even disclosed that Sesame Credit has approached China’s Education Bureau about sharing a list of its students who cheated on national examinations, in order to make them pay into the future for their dishonesty.

Penalties are set to change dramatically when the government system becomes mandatory in 2020. Indeed, on September 25, 2016, the State Council General Office updated its policy entitled “Warning and Punishment Mechanisms for Persons Subject to Enforcement for Trust-Breaking”. The overriding principle is simple: “If trust is broken in one place, restrictions are imposed everywhere,” the policy document states.

For instance, people with low ratings will have slower internet speeds; restricted access to restaurants, nightclubs or golf courses; and the removal of the right to travel freely abroad with, I quote, “restrictive control on consumption within holiday areas or travel businesses”. Scores will influence a person’s rental applications, their ability to get insurance or a loan and even social-security benefits. Citizens with low scores will not be hired by certain employers and will be forbidden from obtaining some jobs, including in the civil service, journalism and legal fields, where of course you must be deemed trustworthy. Low-rating citizens will also be restricted when it comes to enrolling themselves or their children in high-paying private schools. I am not fabricating this list of punishments. It’s the reality Chinese citizens will face. As the government document states, the social credit system will “allow the trustworthy to roam everywhere under heaven while making it hard for the discredited to take a single step”.

According to Luciano Floridi, a professor of philosophy and ethics of information at the University of Oxford and the director of research at the Oxford Internet Institute, there have been three critical “de-centering shifts” that have altered our view in self-understanding: Copernicus’s model of the Earth orbiting the Sun; Darwin’s theory of natural selection; and Freud’s claim that our daily actions are controlled by the unconscious mind.

Floridi believes we are now entering the fourth shift, as what we do online and offline merge into an onlife. He asserts that, as our society increasingly becomes an infosphere, a mixture of physical and virtual experiences, we are acquiring an onlife personality – different from who we innately are in the “real world” alone. We see this writ large on Facebook, where people present an edited or idealised portrait of their lives. Think about your Uber experiences. Are you just a little bit nicer to the driver because you know you will be rated? But Uber ratings are nothing compared to Peeple, an app launched in March 2016, which is like a Yelp for humans. It allows you to assign ratings and reviews to everyone you know – your spouse, neighbour, boss and even your ex. A profile displays a “Peeple Number”, a score based on all the feedback and recommendations you receive. Worryingly, once your name is in the Peeple system, it’s there for good. You can’t opt out.

Peeple has forbidden certain bad behaviours including mentioning private health conditions, making profanities or being sexist (however you objectively assess that). But there are few rules on how people are graded or standards about transparency.

China’s trust system might be voluntary as yet, but it’s already having consequences. In February 2017, the country’s Supreme People’s Court announced that 6.15 million of its citizens had been banned from taking flights over the past four years for social misdeeds. The ban is being pointed to as a step toward blacklisting in the SCS. “We have signed a memorandum… [with over] 44 government departments in order to limit ‘discredited’ people on multiple levels,” says Meng Xiang, head of the executive department of the Supreme Court. Another 1.65 million blacklisted people cannot take trains.

Where these systems really descend into nightmarish territory is that the trust algorithms used are unfairly reductive. They don’t take into account context. For instance, one person might miss paying a bill or a fine because they were in hospital; another may simply be a freeloader. And therein lies the challenge facing all of us in the digital world, and not just the Chinese. If life-determining algorithms are here to stay, we need to figure out how they can embrace the nuances, inconsistencies and contradictions inherent in human beings and how they can reflect real life.

Kevin Hong

You could see China’s so-called trust plan as Orwell’s 1984 meets Pavlov’s dogs. Act like a good citizen, be rewarded and be made to think you’re having fun. It’s worth remembering, however, that personal scoring systems have been present in the west for decades.

More than 70 years ago, two men called Bill Fair and Earl Isaac invented credit scores. Today, companies use FICO scores to determine many financial decisions, including the interest rate on our mortgage or whether we should be given a loan.

For the majority of Chinese people, they have never had credit scores and so they can’t get credit. “Many people don’t own houses, cars or credit cards in China, so that kind of information isn’t available to measure,” explains Wen Quan, an influential blogger who writes about technology and finance. “The central bank has the financial data from 800 million people, but only 320 million have a traditional credit history.” According to the Chinese Ministry of Commerce, the annual economic loss caused by lack of credit information is more than 600 billion yuan (£68bn).

China’s lack of a national credit system is why the government is adamant that Citizen Scores are long overdue and badly needed to fix what they refer to as a “trust deficit”. In a poorly regulated market, the sale of counterfeit and substandard products is a massive problem. According to the Organization for Economic Co-operation and Development (OECD), 63 per cent of all fake goods, from watches to handbags to baby food, originate from China. “The level of micro corruption is enormous,” Creemers says. “So if this particular scheme results in more effective oversight and accountability, it will likely be warmly welcomed.”

The government also argues that the system is a way to bring in those people left out of traditional credit systems, such as students and low-income households. Professor Wang Shuqin from the Office of Philosophy and Social Science at Capital Normal University in China recently won the bid to help the government develop the system that she refers to as “China’s Social Faithful System”. Without such a mechanism, doing business in China is risky, she stresses, as about half of the signed contracts are not kept. “Given the speed of the digital economy it’s crucial that people can quickly verify each other’s credit worthiness,” she says. “The behaviour of the majority is determined by their world of thoughts. A person who believes in socialist core values is behaving more decently.” She regards the “moral standards” the system assesses, as well as financial data, as a bonus.

Indeed, the State Council’s aim is to raise the “honest mentality and credit levels of the entire society” in order to improve “the overall competitiveness of the country”. Is it possible that the SCS is in fact a more desirably transparent approach to surveillance in a country that has a long history of watching its citizens? “As a Chinese person, knowing that everything I do online is being tracked, would I rather be aware of the details of what is being monitored and use this information to teach myself how to abide by the rules?” says Rasul Majid, a Chinese blogger based in Shanghai who writes about behavioural design and gaming psychology. “Or would I rather live in ignorance and hope/wish/dream that personal privacy still exists and that our ruling bodies respect us enough not to take advantage?” Put simply, Majid thinks the system gives him a tiny bit more control over his data.

Kevin Hong

When I tell westerners about the Social CreditSystem in China, their responses are fervent and visceral. Yet we already rate restaurants, movies, books and even doctors. Facebook, meanwhile, is now capable of identifying you in pictures without seeing your face; it only needs your clothes, hair and body type to tag you in an image with 83 per cent accuracy.

In 2015, the OECD published a study revealing that in the US there are at least 24.9 connected devices per 100 inhabitants. All kinds of companies scrutinise the “big data” emitted from these devices to understand our lives and desires, and to predict our actions in ways that we couldn’t even predict ourselves.

Governments around the world are already in the business of monitoring and rating. In the US, the National Security Agency (NSA) is not the only official digital eye following the movements of its citizens. In 2015, the US Transportation Security Administration proposed the idea of expanding the PreCheck background checks to include social-media records, location data and purchase history. The idea was scrapped after heavy criticism, but that doesn’t mean it’s dead. We already live in a world of predictive algorithms that determine if we are a threat, a risk, a good citizen and even if we are trustworthy. We’re getting closer to the Chinese system – the expansion of credit scoring into life scoring – even if we don’t know we are.

So are we heading for a future where we will all be branded online and data-mined? It’s certainly trending that way. Barring some kind of mass citizen revolt to wrench back privacy, we are entering an age where an individual’s actions will be judged by standards they can’t control and where that judgement can’t be erased. The consequences are not only troubling; they’re permanent. Forget the right to delete or to be forgotten, to be young and foolish.

While it might be too late to stop this new era, we do have choices and rights we can exert now. For one thing, we need to be able rate the raters. In his book The Inevitable, Kevin Kelly describes a future where the watchers and the watched will transparently track each other. “Our central choice now is whether this surveillance is a secret, one-way panopticon – or a mutual, transparent kind of ‘coveillance’ that involves watching the watchers,” he writes.

Our trust should start with individuals within government (or whoever is controlling the system). We need trustworthy mechanisms to make sure ratings and data are used responsibly and with our permission. To trust the system, we need to reduce the unknowns. That means taking steps to reduce the opacity of the algorithms. The argument against mandatory disclosures is that if you know what happens under the hood, the system could become rigged or hacked. But if humans are being reduced to a rating that could significantly impact their lives, there must be transparency in how the scoring works.

In China, certain citizens, such as government officials, will likely be deemed above the system. What will be the public reaction when their unfavourable actions don’t affect their score? We could see a Panama Papers 3.0 for reputation fraud.

It is still too early to know how a culture of constant monitoring plus rating will turn out. What will happen when these systems, charting the social, moral and financial history of an entire population, come into full force? How much further will privacy and freedom of speech (long under siege in China) be eroded? Who will decide which way the system goes? These are questions we all need to consider, and soon. Today China, tomorrow a place near you. The real questions about the future of trust are not technological or economic; they are ethical.

If we are not vigilant, distributed trust could become networked shame. Life will become an endless popularity contest, with us all vying for the highest rating that only a few can attain.

This is an extract from Who Can You Trust? How Technology Brought Us Together and Why It Might Drive Us Apart (Penguin Portfolio) by Rachel Botsman, published on October 4. Since this piece was written, The People’s Bank of China delayed the licences to the eight companies conducting social credit pilots. The government’s plans to launch the Social Credit System in 2020 remain unchanged

Updated 28.11.17: An amendment has been made to clarify a comparison between the Chinese government’s Social Credit System and Communist Party surveillance methods.

For the U.S. and China, a Technology Cold War That’s Freezing Over

March 24, 2018
The Apple Store in Shanghai. A fight between the United States and China is cleaving the high-tech realm. Credit Imaginechina, via Associated Press

A cold war is being waged across the world’s most advanced industries. And it just got a lot chillier.

Recent tit-for-tat trade actions could deepen what has become a global contest for technological dominance between the United States and China, home to the planet’s largest population of internet users and a flourishing community of start-ups and innovative companies.

The Trump administration this week accused Beijing of stealing valuable technological know-how from American companies as it proposed tariffs on $60 billion in Chinese goods and curbs on Chinese investments. China responded with its own set of penalties aimed at American products.

The fight between the two countries is cleaving the high-tech realm. The world’s two biggest economies have each become increasingly protective of their own leading-edge industries, and mistrustful of the other’s. Reconciliation looks difficult. And the rising tensions could further undercut American influence in a huge and fast-changing market.

Both sides have been putting up defensive walls for years.

To stay in business in China, Apple has had to set up a data center there to store Chinese customers’ personal information. Amazon recently had to sell equipment to its Chinese cloud services partner to comply with new Chinese rules. Facebook and Twitter are blocked in the country; newer American players, such as Snap, are not even trying to enter anymore.

In the United States, regulators have repeatedly thwarted attempts by Chinese tech groups to acquire American firms. And espionage concerns have for years kept Huawei — one of the world’s biggest suppliers of telecom gear, and a powerhouse of China’s tech scene — largely out of the American market.

Huawei’s chief executive, Richard Yu, with the new Huawei MateBook X pro laptop. Espionage concerns have for years kept Huawei — a powerhouse of China’s tech scene — largely out of the American market. Credit Josep Lago/Agence France-Presse — Getty Images

The Trump administration says it wants to level the playing field, dishing out to Chinese companies the kind of treatment that American ones have been receiving in China for some time.

“China’s abilities and ambitions have shifted much further up the value-added chain, to tech that represents our crown jewels economically and that is relevant for national security,” said Scott Kennedy, a fellow at the Center for Strategic and International Studies in Washington. “So there’s no way to kick this can down the road anymore.”

Still, as much as American companies complain about how they are treated in China, it could get even worse if Beijing amplifies its retaliation beyond the tariffs, announced Friday, on $3 billion worth of goods.

China could require that foreign tech companies undergo costly additional tests for new products, or simply make it more difficult to operate in the country. Apple, whose iPhones remain coveted among well-off Chinese, made nearly $18 billion in the country in the last quarter of 2017. Qualcomm, the San Diego microchip maker, has earned half its revenue in China in recent years.

It could also devise new regulatory hoops for foreign companies to jump through. China’s Ministry of Commerce has not yet approved Qualcomm’s proposed, $44 billion purchase of NXP Semiconductors, a Dutch chip maker. The deal, more than a year in the making, needs a signoff from Chinese antitrust authorities because the two companies count a large number of electronics makers in China as customers.

Both countries’ efforts to kneecap each other’s tech champions are as much about national security as economic might. Likewise with the race to dominate frontier fields such as artificial intelligence, quantum computing and next-generation wireless internet. Mr. Trump recently blocked a hostile bid by Broadcom to buy Qualcomm. He did so not because the bidder was Chinese — Broadcom is headquartered in Singapore — but because the administration said the deal would weaken Qualcomm, leaving Huawei with a stronger hand to shape 5G, or fifth-generation mobile technology.

This is why the present tensions are so difficult to resolve. In a previous era, Japan was a technological rival but a military ally. The Soviet Union was a tech rival in defense, though a laggard in the commercial sphere.

The Electro Acoustic Center at Qualcomm’s headquarters in La Jolla, Calif. President Trump recently blocked a hostile takeover bid by Broadcom to buy Qualcomm. Credit Graham Walzer for The New York Times

“The U.S. and China have so intertwined their science and technology systems through trade and investment and cooperative research — but see each other, and continue to see each other, as strategic competitors and adversaries,” said Adam Segal, a tech and security expert at the Council on Foreign Relations. “That hasn’t happened before.”

China’s angst about foreign tech dominance runs deep.

For most of the past decade, Beijing has blocked many American internet services, including Facebook’s and Google’s, to control the flow of information and head off social media-fueled movements such as the Arab Spring.

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Designed in California and made in China: How the iPhone skews the U.S. trade deficit

March 22, 2018

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U.S. President Donald Trump often tweets from his iPhone about pressuring China to address its $375 billion trade surplus with the United States. But a closer look at the Apple smartphone reveals how the headline figure is distorted.

The big trade imbalance — at the heart of a potential trade war, with Trump expected to impose tariffs on Chinese imports this week — exists in large part because of electrical goods and tech, the biggest U.S. import item from China.

Apple Inc.’s iPhone, however, illustrates how a big portion of that imbalance is due to imports of American-branded products — many of which use global suppliers for parts but are put together in China and shipped around the world.

Take a look at the iPhone X. IHS Markit estimates its components cost a total of $370.25. Of that, $110 goes to Samsung Electronics in South Korea for supplying displays. Another $44.45 goes to Japan’s Toshiba and South Korea’s SK Hynix for memory chips.

Other suppliers from Taiwan, the United States and Europe also take their portion, while assembly, done by contract manufacturers in China like Foxconn, represents only an estimated 3 to 6 percent of the manufacturing cost.

Current trade statistics, however, count most of the manufacturing cost in China’s export numbers, which has prompted global bodies like the World Trade Organization to consider alternative calculations that include where value is added.

The impact on export data of just the iPhone could be major.

Apple shipped 61 million iPhones to the United States last year, data from researchers Counterpoint and IHS Markit show, spending $258 on average to make each iPhone 7 and 7 Plus.

Using a rough calculation, that implies the iPhone 7 series added $15.7 billion to the U.S. trade deficit with China last year, about 4.4 percent of the total. That is also about 22 percent of the $70 billion in cell phones and household goods the U.S. imported from China.

“With an iPhone, where China is just the final assembler, most of the value (contributed by China) is just the labor rather than the components themselves,” said John Wu, an economic analyst with a U.S.-based think tank, the Information & Innovation Foundation.

Louis Kuijs, head of Asia economics research at Oxford Economics, notes that U.S. companies’ using global supply chains to manufacture products in China means other economies would be caught in the crossfire of a trade war.

“That is an important reason why U.S.-China trade friction will cause collateral damage, especially in other Asian economies,” he said, adding that in value added terms, the U.S. trade deficit with China was only $239 billion last year, 36 percent lower than the headline number.

For its part, Apple has responded to Trump’s concerns with a pledge to bring some suppliers to the United States. It said in January it planned to pay $55 billion to U.S. suppliers this year.

Over the last decade, Apple shipped 373 million iPhones, worth $101 billion by manufacturing value, in the United States, according to researcher StrategyAnalytics.

The iPhone’s contribution to U.S. trade deficits is almost certain to have grown sharply alongside higher retail prices and shipments.

But the manufacturing value does not include the intellectual property value Apple adds through engineering and design work done in its headquarters in Cupertino, California, as well as margins taken by distributors.

The iPhone X has a manufacturing cost of about $400, an $800 wholesale cost, and a $1,200 retail unsubsidized cost, according to analysts.

Siri, Apple’s “digital assistant,” reflects the challenge of knowing exactly where the value of an iPhone comes from — even if it is put together in China. If users ask Siri where she is from, the response is: “Like it says on the box. … I was designed by Apple in California.”

The closely intertwined manufacturing ecosystem has led to warnings that a trade war would be painful for all sides.

Forty-five U.S. trade associations representing some of the largest U.S. companies urged the president on Sunday not to impose tariffs on China, warning it would be “particularly harmful” to the U.S. economy and consumers.

Retailers and shoemakers, including Wal-mart and Nike, also sounded the alarm on Monday over concerns the plans would result in higher consumer prices.

A 10 percent tariff levied on Chinese electronics imports would slow the growth of U.S. output by $163 billion over the next 10 years, and a 25 percent tariff would slow output by $332 billion, according to the Information Technology & Innovation Foundation.

Kuijs wrote that both sides would likely show restraint. All-out economic war, he added, “would cause major economic damage globally.”

China takes a bite out of Apple privacy claims — Privacy advocates and human rights activists are appalled

February 28, 2018

What happens when an unstoppable force meets an immovable object? We may be witnessing the answer with Apple, a long-time privacy advocate, acceding to Chinese demands on access to its iCloud services in the country.

Iphone X (Reuters/T. Peter)

China is not big on privacy. The Communist Party government in the People’s Republic is currently in the process of developing a so-called “social credit system” for its citizens, which will use various forms of data, much of it personal and obtained through mass surveillance, to establish a national “reputation” database.

That might sound like something from a dystopian TV drama, but bit by bit, Xi Jinping’s government has been legislating to bring about such a reality. One example is the new cybersecurity law introduced last summer, one of the provisions of which requires companies that hold the data of Chinese citizens to store that data on Chinese servers and effectively make it available to the Chinese government.

Apple, the world’s largest IT company by revenue, is big on privacy. The California-based tech superpower has doggedly refused various FBI and US government requests to extract data from locked iPhones, most notably in 2016 when the FBI wanted to extract data from the iPhone of one of the terrorists from the 2015 San Bernardino attack.

The pioneering company regularly promotes its own privacy and encryption standards — in 2016, CEO Tim Cook sent a public letter talking about the intrinsic importance of privacy to Apple.

“Here’s the situation,” said Cook, in an interview around the same time. “On your iPhone today, there is likely health information, financial information, there are intimate conversations with family and co-workers and there are probably business secrets and you should have the ability to protect it.”

Except, it seems, in China, where the company earns tens of billions of dollars a year. From today (February 28), Apple is transferring the operation of its iCloud service for Chinese users to a local, state-owned firm called Guizhou-Cloud Big Data (GCBD).

Read more: China’s Xi Jinping urges respect for ‘cyberspace sovereignty’ at internet summit

That means that the Chinese government will now have far easier access to whatever Chinese users store on Apple’s cloud services within the country. Privacy advocates and human rights activists are appalled but Apple claims that not agreeing to the move would have actually led to less privacy and security for its Chinese users.

The Apple of China’s omnipresent eye

The move has been in the offing since last year, when Apple and GCBD announced a partnership agreement. Apple wrote in an email to its users in mainland China that the move “enables us to continue improving the speed and reliability of iCloud and to comply with Chinese regulations.”

Chinese President Xi Jinping, Apple's Tim Cook (Getty Images/S. Ted S. Warren-Pool)Chinese President Xi Jinping meets with Apple CEO Tim Cook

Those Chinese regulations show scant regard for users’ rights to privacy, particularly if Chinese police or government officials argue that “national security” is at stake. For example, if Chinese authorities approach GCBD in the future about accessing the data of a Chinese-based iCloud user for a criminal investigation, the company has a legal obligation to provide access.

Access is provided to iCloud accounts via cryptographic keys and until now, all such keys have been based on US servers, meaning any attempts — by China or anyone else — to access them had to go through the US legal system.

However, Apple’s acquiescence to the Chinese means that for the first time, those keys will be stored on Chinese servers meaning access to them is subject to Chinese legal processes only.

“While we advocated against iCloud being subject to these laws, we were ultimately unsuccessful,” Apple said. It claims it will still maintain control over encryption keys for users, but it is hard to square that claim with the fact that access will now be a mere Chinese legal ruling away for whatever entity in China pursues it.

Likewise, Apple’s claim that there will be no “backdoors” — ways for hackers to access iCloud accounts by copying or learning from how others were accessed — is largely irrelevant, given that users’ accounts will be easily accessed through legal means.

Human rights groups such as Amnesty International and Human Rights Watch have heavily criticized the move by Apple, while Jeremy Daum, an attorney and research fellow at Yale Law School’s Paul Tsai China Center in Beijing, told Reuters that any attempts by Apple to block Chinese access will be easily overcome.

“Even very early in a criminal investigation, police have broad powers to collect evidence,” he said. “(They are) authorized by internal police procedures rather than independent court review, and the public has an obligation to cooperate.”

Profit before privacy?

To be fair to Apple, it has given its Chinese users plenty of notice of the change. It also says it will not switch customers’ accounts to the Chinese data center until they agree to new terms of service — something 99.9 percent of users have already done — and has reminded them that they can opt out of iCloud if not happy with the new arrangements.

As well as that, Apple has until now been seemingly resilient in resisting attempts from the Chinese government to access user data, saying it turned down all 176 requests from the Chinese government from mid-2013 to mid-2017, before the new Chinese cybersecurity laws came into place.

Iphone X (Reuters/T. Peter)Apple has returned to growth in China after a brief period of decline

The softening since towards Chinese surveillance must be seen in the context of Apple’s increasing business presence in the world’s second largest economy. Apple recently returned to growth in China after a period of stagnation, taking in $9.8 billion (€8.02 billion) in revenue in the third quarter of 2017.

China is a huge potential growth market for Apple and the latest bow to Chinese legislation follows last year’s move by the company to remove VPN apps from its app store in China, VPNs being devices used to hide an internet user’s information. Apple has also been criticized for blocking Chinese users’ access to the different news apps, a move reflective of China’s strict censorship culture.

Other large US tech companies, such as Amazon and Microsoft, have made similar concessions to China recently, in an attempt to further access the market there.

Apple often talks of its “values,” privacy high among them. Discarding some of those “values” appears to be the price that must be paid if a large international company wants to maximize its business in Xi Jinping’s China.

Why the iPhone Is Losing Out to Chinese Devices in Asia

February 19, 2018

Apple’s market share is stagnant or declining in Asia, paving the way for other smartphone makers

Image may contain: phone and screen

NEW DELHI—The iPhone X has set a new benchmark for smartphone prices and bolstered Apple Inc.’s bottom line, but its steep price may be hobbling its future in Asia’s biggest markets and allowing Chinese challengers to grab market share.

Buyers from India to Indonesia are opting for models from Chinese smartphone makers like Xiaomi Corp.—sometimes called “the Apple of China”—along with BBK Electronics Corp.’s Oppo and Vivo.

China’s manufacturers are increasingly churning out higher-priced devices that compete directly with Apple’s smartphones. They often have high-end features, but carry lower price tags than the iPhone X or even older iPhone models. They are targeting potential Apple customers by offering phones with robust hardware such as metal bodies, beefy batteries and unique features iPhones lack, including special cameras for taking better selfies.

“People don’t have to stretch their budget to buy a top-end” smartphone anymore, said Kiranjeet Kaur, an analyst with research firm IDC in Singapore. Chinese vendors “now boast features which compete with the top-end in the market.”

The iPhone X or Apple’s older, more affordable models aren’t aimed at the mass market in emerging Asia, where telecom companies don’t subsidize devices as in the U.S., meaning most people pay full price for their phones up front. The typical smartphone in India and Indonesia sells for under $200, which is less than even the least expensive iPhone model and much less than the iPhone X, which costs $1,000, according to IDC.

Apple’s high-price phones helped its revenues grow 11% last quarter in the Asia-Pacific region, even though its market share has been stagnant or declining in most Asian markets.

Abhay Shahi, a 28-year-old graphic designer in the Indian city of Ludhiana, has given up on Apple for good, recently ditching his iPhone 6 for a new Xiaomi Redmi Note 4. It has most of the bells and whistles for about a fifth the price of the iPhone X. It costs about $100 less than Apple’s most affordable model, the SE, which was released in 2016.

“It has a fingerprint sensor, the camera is pretty good, and there’s no lag” in Xiaomi’s software, which is more customizable than that of the “overpriced” iPhone’s, Mr. Shahi said. “The build quality feels like a premium phone.”

An Apple spokeswoman declined to comment on its strategy for emerging Asian markets or whether it sees Chinese smartphone makers as rivals to the iPhone.

Attendees at a Jan. 31 launch event for the Oppo R11s smartphone in Tokyo walked in front of an advertisement. Oppo, which passed Apple Inc. and Xiaomi Corp. in its home market, plans to introduce the R11s model next month in Japan.Photo: Tomohiro Ohsumi/Bloomberg News

In China, Apple’s market share is roughly 8% now from 13% in 2015, research firm Canalys says. In India—which last year overtook the U.S. to become the world’s second-biggest smartphone market—Apple has had just a 2% market share since 2013. Apple’s shipments to India fell last quarter compared with the year before, a rare contraction, Canalys says.

The iPhone maker’s market share in Indonesia, home to some 260 million people, has fallen to 1% from 3% in 2013. Apple’s market share has also dropped in the Philippines and Thailand, and has remained static in Malaysia and Vietnam.

Meanwhile, Apple’s Chinese rivals are gobbling up customers. Beijing-based Xiaomi has jumped to 19% of India’s market today from just 3% in 2015. While much of that rise has been on the back of inexpensive phones, increasingly it is putting more expensive devices on the market that offer the look, feel and functionality of iPhones and even a few extra features.

Chitra Patricia, a 27-year-old Jakartan, picked an Oppo over Apple for its selfie features.

Oppo’s “selfie expert” F3 offers options such as a front-facing camera for selfies with wide angle that lends itself to “wefies,” or group shots with several people crammed into the frame. The phone also has a “beautify” function that smooths out users’ selfies, making them appear younger and more glamorous.

Previous Coverage

  • China Challenge for the iPhone X: Ending Apple’s Long Sales Slide (Sept. 13, 2017)
  • Good News for Apple: China Still Wants Pricey Phones (Aug. 2, 2017)
  • How to Build Your Own Smartphone — for $70
  • Cheaper Rivals Eat Away at Apple Sales in China (Feb. 1, 2017)

“It can capture around a dozen people in one ‘wefie,’” making it great for gatherings, said Ms. Patricia.

Xiaomi has an edge in many markets because it can customize for each country while Apple creates the same products for everyone, said Jai Mani, Xiaomi’s product manager for India.

Apple has worked to foster the development of mobile apps and mapping services in the country, and iPhones support several local Indian languages.

Xiaomi created special chargers for its smartphones that can handle India’s fluctuations in power supply, for example. And in a country where consumers are flooded by promotional text messages, Xiaomi tweaked its software to weed out advertisements so users don’t miss personal texts from friends.

Many Xiaomi smartphones also come with two SIM-card slots, which allow consumers to use more than one mobile network to save money, a common practice in Asia. Customers can also plug SD memory cards into some models so they can add their own music or video files.

Among the newest India-specific creations, Xiaomi announced at a launch event earlier this week in New Delhi: tweaks to its own selfie-beautification software so it doesn’t erase bindi forehead decorations or nose rings, mistaking them for blemishes.

The Chinese brands also are bringing a lot of local flavor to their advertising. Oppo and its sister company, Vivo, have blanketed Indonesia and India with billboards touting features they offer that aren’t found in iPhones.

Wahyu Adi Setyanto, a 36-year-old IT engineer in Jakarta, traded in his iPhone for a Xiaomi recently. It has a touch screen as big and bright as that of any iPhone, he says, and cost only $210.

“The exterior, when you hold it in your hand, it’s luxurious,” he said. “It feels like holding an iPhone.”

—Anita Rachman in Jakarta contributed to this article.

Write to Newley Purnell at newley.purnell

Tech Giants Power to New Heights — Apple Inc., Alphabet Inc. and Inc.

February 2, 2018

Apple breaks record for biggest ever company profit despite iPhone sales fall 

Apple has posted the biggest quarterly profit of all time despite a fall in iPhone sales.

The world’s biggest company posted profits of $20.1bn (£14bn) in the crucial final three months of the year, breaking its own record set two years ago.

It came after the release of the £999 iPhone X in November, the biggest update of the handset to date, as well as the release of the iPhone 8 in September.

Although Apple sold 77m iPhones in the three month period, a 1pc fall from last year, the higher price of the new handsets meant revenues from selling iPhones increased.

iPhone X surpassed our expectations and has been our top selling iPhone every week since it shipped in November,” Cook said.

The company’s revenues grew 13pc to $88.3bn, also a record. The $20.1bn profits were up 12pc, from $17.9bn a year earlier.

Sales of the iPad increased marginally, while those of Apple’s Mac computers fell. Sales of “other products” – a group that includes the Apple Watch and Apple TV – were up 36pc.

Shares initially fell in after-hours trading as Apple disappointed investors with its guidance for the next quarter, but rebounded soon after. The company said it expected revenues of between $60bn and $62bn, below expectations.

“We’re thrilled to report the biggest quarter in Apple’s history, with broad-based growth that included the highest revenue ever from a new iPhone lineup,” Mr Cook said. He added that 1.3bn Apple devices are now in use, up from 1bn two years ago.

Cook said there had been a record year for the App Store, with augmented reality apps a particular area of growth. Sales of the new Apple Watch Series 3 were double those of the Series 2 last year.

Apple is the world’s biggest company and is often tipped to be the first to break the one-trillion-dollar value mark, but shares have wavered in recent weeks amid fears that it may be cutting back iPhone X production.

The new handset, which boasts a bigger screen, no home button, and facial recognition technology, was well received by reviewers but costs up to £1,249 for its most expensive version. Apple said the decline in iPhone sales was largely due to the quarter being a week shorter than last year.

Apple is tipped to be the world's first trillion dollar company

Apple is tipped to be the world’s first trillion dollar company CREDIT: GENE J. PUSKAR/AP

Three questions for Apple after results

By Margi Murphy

How much staying power does the iPhone X have?

The release of the £999 iPhone X in November saw Apple fans rush to buy the device, and Apple said it was the best-selling iPhone in every week it had gone on sale.

However, analysts have suggested demand for the flagship phone may have subsided, with some reports saying Apple has halved iPhone X production.

Thursday night’s results showed strong sales of the iPhone X, but once the hardcore fans have all bought one, how willing will average consumers be to shell out.

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Tech Giants Power to New Heights

Apple, Alphabet and report record results; Apple’s profits top $20 billion for first time

Three of the biggest tech companies reported record quarterly financial results on Thursday as they extended their dominance over swaths of the global economy.

Apple Inc., Alphabet Inc. and Inc.—with a combined market value of more than $2 trillion—all boosted growth by broadening their reach into new areas.

Apple’s revenue rose 13% to $88.29 billion, fueled by its move to increase smartphone prices behind its new flagship iPhone X, released in November at $1,000. The company, whose profits topped $20 billion for the first time, is also increasingly benefiting from its services business, including App Store sales and music and payments services.

Google parent Alphabet recorded its 32nd consecutive quarter of revenue growth of 20% or more, continuing a dominant run as it handles more than 90% of internet searches and owns the world’s most influential video site. Google is building in other areas, including cloud computing, a business that Google Chief Executive Sundar Pichai said brings in $1 billion a quarter.

Meanwhile, Amazon—long known for prioritizing growth over earnings—delivered a profit exceeding $1 billion for the first time as its revenue jumped 38% to $60.5 billion.

More than the other two companies, Amazon has spread beyond its core market. The online-retail giant has built the largest cloud-computing business, created a major Hollywood studio and, more recently, become a big bricks-and-mortar retailer with the acquisition of Whole Foods, which accounted for roughly 7% of its sales.

Two of the other largest tech companies by market value— Microsoft Corp. and Facebook Inc. —reported record sales a day earlier. Revenue at Microsoft rose 12% to $28.92 billion as its cloud-computing division continued to grow, while Facebook’s revenue jumped 47% to $12.97 billion.

Those companies are the five most valuable in the U.S. by market capitalization, the first time a single industry has occupied that position in several decades, according to S&P Capital Inc.

As the tech giants expand their clout across a widening band of commerce, they have increasingly drawn scrutiny from lawmakers and consumers over a range of issues, from their dominance of certain markets, to how they use their vast troves of consumer data, to the impact their products have on society.

The extraordinary runup in their share prices has helped fuel popular awareness of the companies’ power, says Youssef Squali, an analyst with SunTrust Robinson Humphrey.


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“It’s a combination of the fact that these have become such huge behemoths that they bear responsibility to society, and on the other hand you have all this lack of control of personal data,” Mr. Squali said.

Facebook is contending with claims that its massive social network has had harmful effects on mental health and is used to disseminate hate speech, violent live videos and fabricated news articles. Lawmakers have scrutinized Facebook and other social-media firms, saying they failed to take more steps to keep Russian-backed actors from sowing division during the U.S. presidential election.

Facebook says it is addressing the issues in a number of ways, including employing more people who handle safety and security issues and ranking publisher posts based on user evaluations of trustworthiness.

Apple is facing criticism from prominent investors over the way smartphones affect children, as well as federal probes over its disclosure that it issued software updates that slowed performance on iPhones with older batteries. Apple apologized and said it would never do anything to harm its customers.

Google drew a $2.71 billion fine from European regulators, who said the search giant favored its comparison-shopping service over rivals. Google’s YouTube, meanwhile, is grappling with a backlash from marketers over the placement of their ads in front of undesirable videos, including YouTube’s curated lineup of “preferred” content.

Google Chief Executive Sundar Pichai said on a call with analysts that new controls to review top videos on YouTube and set new limits on which content can run ads will make the site a safe place for advertisers. There have been concerns, he said, but “we’re working really hard to address them and respond strongly.”

A major shift for the tech industry came with the election of President Donald Trump, who had been critical of the industry in part due to what he said was a lack of U.S. job creation and investments overseas. Tech CEOs a little over a year ago met with the then-president elect. Shortly thereafter, plans for a tech council to advise the president dissolved.

Most recently, Mr. Trump called out Amazon, tweeting that the U.S. Postal Service should charge the online retail giant and other companies more to deliver packages.

The mood extends to Capitol Hill. Sen. Mark Warner (D., Va.) and Sen. Amy Klobuchar (D., Minn.) are working on legislation that would make political advertising with companies like Facebook, Twitter and Google more transparent. Meanwhile, U.S. Senators Jerry Moran (R., Kan.) and Richard Blumenthal (D., Conn.) this week wrote the Federal Trade Commission to ask it to investigate companies that sell fake social-media accounts, mentioning Twitter and YouTube specifically.

At the annual World Economic Forum last month, the world’s largest technology companies defended themselves against complaints about everything from perceived anticompetitive behavior to threats from artificial intelligence. Some critics questioned the companies’ potential elimination of jobs through advanced technology, while others pointed to their control of large amounts of personal data. Inc. CEO Marc Benioff, at the Davos, Switzerland, forum, called some tech companies’ behavior “nefarious,” comparing the companies to the cigarette industry and calling for more government regulation. Martin Sorrell, CEO of advertising giant WPP PLC, compared the firms to Standard Oil, a U.S. oil giant that was broken up after regulators determined it was a monopoly.

In response to a question about Amazon’s size, the company’s retail chief, Jeff Wilke, said in an interview late last year with The Wall Street Journal that its businesses are very diverse and horizontally large. “We have incredible competition,” he added.

Trip Miller, founder and managing partner at Gullane Capital LLC, which owns shares in Amazon, Apple and Alphabet, said management at the companies was strong, and they appear to have good opportunities for continued growth.

“While we do understand some of the concerns around data and them potentially having so much information on our lives, I think it’s just a byproduct of the world we live in,” he said.

Apple’s results offered hope that it can sustain its solid performance even amid stagnating global demand for smartphones. Analysts and investors have worried the company is too dependent on the iPhone, which accounts for about two-thirds of its revenue, as customers hold onto their phones longer and therefore buy fewer new ones.

Sales of the iPhone X in the quarter lifted the average selling price for iPhones by nearly 15%, Apple said. The 1.3 billion iPhones and other Apple devices now in active use helped its services business report an 18% jump in revenue. Results also were buoyed by strong growth in the division that includes its smartwatch and AirPods wireless earbuds.

Alphabet’s profit jumped 28% to $6.84 billion, excluding a giant $9.9 billion charge related to the new U.S. tax law which turned its bottom line into the red. While the ad business makes up nearly all of its profit, Alphabet is investing in a dozen businesses such as self-driving cars and cybersecurity in hopes they will drive future revenue.

Amazon’s core retail business was the main producer of its revenue growth in the quarter, as holiday shoppers went online. It also benefited from the company’s $13.5 billion acquisition of Whole Foods, which generated more than $4 billion in revenue.

Amazon is known for reinvesting heavily in its business, and has said in recent quarters it is in an investment phase focusing on international expansion and building out its video content, among other initiatives.

Contributing its profitability in the fourth quarter was a tax benefit of $789 million, part of the tax overhaul. Still, Amazon’s cloud-computing division put in a strong performance, as did its growing advertising business. And the company also worked on efficiency at its warehouses.

Write to Laura Stevens at, Tripp Mickle at and Jack Nicas at

Can Apple Find Enough Customers Willing to Pay Up? — The iPhone X starts at $1,000

January 29, 2018

IPhone ‘supercycle’ more likely to come from higher prices than strong unit sales

Apple’s iPhone X smartphones are displayed during the sales launch at a store in New York in November.
Apple’s iPhone X smartphones are displayed during the sales launch at a store in New York in November. PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS

Generally speaking, technology gets a lot cheaper as it ages. Apple Inc. AAPL 0.23% is counting on precisely the opposite.

The iPhone X, which made its debut in November, essentially ushers in the second decade of the touch-screen smartphone revolution that Apple kicked off with its original iPhone in 2007. Despite the fanfare christening the device as “the future of smartphones,” the iPhone X differs little in basic function from its recent predecessors. But an expanded display and other bells and whistles encouraged Apple to give the device a premium price tag. The iPhone X starts at $1,000—making it the most expensive base model smartphone ever in the U.S.

For Apple, that represents a gamble that customers won’t bolt for cheaper-but-still-premium Android options. In developed markets like the U.S., the company’s market share has stayed largely consistent. Switching is easier than ever in an age of cloud storage and streaming apps, but most smartphone customers by now have picked their platform and seem to stay on it.

That doesn’t mean the so-called supercycle many investors are expecting this year will be a sure thing. Several analysts have cited data from Apple’s supply chain pointing to a mixed picture for the new iPhones. Toni Sacconaghi of Bernstein said his analysis suggests total iPhone unit sales for the March quarter could come in at a range of 51 million to 57 million units—well below the 61 million units Wall Street is currently targeting.

Apple’s fiscal second quarter ending in March is particularly important this time around because the company needs iPhone sales to remain strong in order to hit Wall Street’s current prediction of overall revenue growing 19% this fiscal year compared with 6% last year.

That means Apple’s forecast for the March quarter will likely overshadow results for the December period that the company will report on Thursday. Analysts currently expect March-quarter revenue to surge 28% year over year to nearly $68 billion—a high mark to hit. And Apple’s stock price, which is up 40% over the last 12 months and near a record 15 times forward earnings, is likely to take a tumble if the company’s outlook disappoints.

Much depends on Apple finding enough customers willing to pay up. And higher prices can help the company meet revenue growth targets even if unit sales are weaker. Analysts currently expect the average selling price for the iPhone segment to hit $757 for both the December and March quarters—more than $100 above the average for the last four periods. A thousand bucks will seem ludicrous to many smartphone buyers, and Apple had better hope it has enough devoted fans to help the iPhone X make the connection.

Write to Dan Gallagher at