Apple's AI Strategy Faces Hurdles In China, Talks With Local Firms Are Ongoing

Apple Inc (NASDAQ:AAPL) is seeking a local partner in China.

What Happened: The Cupertino, California-based company is in talks with several Chinese companies, including Baidu Inc (NASDAQ:BIDU) and Alibaba Group Holding Limited (NYSE:BABA), to integrate artificial intelligence (AI) functions into its devices that are sold in China.

Western AI models like OpenAI's ChatGPT remain unavailable in the region.

Also Read: Apple Strengthens Supply Chain in China While Growing Presence in Southeast Asia and India

Earlier this year, Apple explored the possibility of obtaining approval for a foreign large language model to be used in its devices in China but found the chances to be slim. This led Apple to intensify talks with potential local partners. The region, including mainland China, Taiwan, Hong Kong, and Macau, accounted for 18% of Apple's global revenue in the quarter ended March 30.

Why It Matters: Local companies pose a growing threat to Apple's market position in China. In the first quarter of this year, the iPhone dropped to third place by handset market share among smartphone brands in China, falling behind two local brands, the Wall Street Journal reports.

Huawei will likely increase its market share to 17% this year, while Apple's share will drop to 16%.

In 2023, Apple increased the number of its China-based suppliers and manufacturing sites. The company opened a new Apple store in Shanghai, and CEO Tim Cook attended the China Development Forum in Beijing, highlighting the market's significance.

Apple stock gained 14% in the last 12 months. Investors can gain exposure to the stock via Vanguard Growth ETF (NYSE:VUG) and Vanguard Information Tech ETF (NYSE:VGT).

Price Action: AAPL shares are trading higher by 0.49% at $210.70 premarket at the last check Friday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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