Marketing Report
Michiel Frackers: Apple loses $200 billion in two days after Chinese intervention

Michiel Frackers: Apple loses $200 billion in two days after Chinese intervention

Not even Lionel Messi could help Apple this week. The week began happily when it was announced that the Argentine ball wizard's arrival in the MLS has resulted in one hundred and ten thousand new subscribers to Apple TV+, but that news was quickly forgotten when the Chinese government banned officials from using iPhones.

Apple promptly lost $200 billion in stock market value and although it is comparing American apples to Chinese pear tea; that number is comparable to the gross national product of a medium-sized country. What is going on?

Apple v. Huawei is FC USA v. China United

To better understand the Chinese intervention in officials' phone use, we need to look a little further than an iPhone is long. At the Asean summit this week, China warned of the emergence of a new cold war, which was received by the delegations in attendance from Japan, South Korea and the Philippines, among others, as if someone walked in on a birthday, turned the heater up to the highest setting and then sighed, "hot huh guys, why always us?".

The Chinese government has long been displeased with the measures taken mainly by the US but also the Netherlands to deny China access to the latest technology to make chips. It was recently announced that the Chinese market is now the largest market in the world for Apple; 24% of all iPhones, i.e. 1 in 4 iPhones, are sold in China.

This week, therefore, was the perfect time for the Chinese government to strike back: Huawei launched the new Mate 60 Pro, the intended Chinese-made iPhone killer, not entirely coincidentally just before Apple introduces the new iPhone 15 in a few days at its ostentatiously titled Wonderlust event. What could be more fun for the Chinese government than to disrupt that American party with a ban on iPhone use by Chinese officials?

Apple runs into the Great Wall of China. Image created with Midjourney.

Apple lost 6% of its stock market value, a whopping $200 billion. The message China is sending with this is clear; block our access to Western markets and we will block the Chinese market for your products. If China can so easily ban the most sought-after product in the world, from the largest company in the world, from the most powerful country in the world, then obviously the same applies to any product from any company from any country. That's why most tech stocks fell this week, but more on that later.

China shines in ... Bavaria?

Traditionally, southern Germany is the beating technological heart of the German automobile industry. Stuttgart has been crowned with the Mercedes star, and Audi and BMW are as Bavarian as mugs of beer and drunk guys at Oktoberfest. But September became the month of the Chinese car in German automotive land: as many as 50 Chinese car brands presented themselves at the leading IAA Mobility car show in Munich.

In August, as many as 37% of all cars sold in China were electric, and those huge volumes and low-cost production capacity give Chinese automakers an unbeatable competitive advantage. According to a UBS estimate, Chinese automakers will double their global market share from 17% to 33% by 2030, with European companies suffering the biggest loss of market share.

It is numbers like these that the Chinese government dreams of in other advanced markets, such as the market for smartphones.

Midjourney turns down investors, Imbue raises $200 million

In the great geopolitical battle, it is nice to come across a company in Midjourney that is trying to find its own way in a completely organic way. Wonderful examples of what experts can create with Midjourney's photo creation tool are the Instagram accounts of Chaos Dreamland and David Szauder.

Some critics think their work is not art, but it reminds me of the rise of hip hop, when samples were first used to create new work. Venture capitalist Ben Evans wrote an excellent analysis on intellectual property and AI.

Midjourney still refuses to take money from investors, although they are beating down the door. Imbue, formerly known as Generally Intelligent (but that name was apparently too generic and not clever enough), on the other hand, raised $200 million from Nvidia and the CEOs of Cruise and Notion, among others.

Like all AI companies, Imbue has a wonderful mission: 'At Imbue, we develop AI systems that can reason and code, giving computers intelligence and human values, so they can help us achieve greater goals in the world.' History teaches us that you have to critically follow people who clamor to achieve greater goals in the world.

Claude v. Chat

Meanwhile, the better-known AI companies OpenAI and Anthropic have found themselves in direct competition. OpenAI is making $80 million in revenue per month with ChatGPT Plus, though growth in reach has been faltering for several months. Anthropic can't be left behind and launched Claude Pro, for $20 a month. I haven't been able to test Claude yet because the service is only available to users from the U.S., UK, Gibraltar and, seriously, St. Helena and the Falkland Islands (also called the Malvinas by world champions). With this, Claude proves that being intelligent and being smart are two different things. Why not Guernsey? And what about Claude in the Lofoten Islands?

Last post this week on funding and AI companies: the world's best-known business incubator, Y Combinator, held its famed Demo Days last week (where Airbnb, Dropbox and Coinbase once debuted), and over 65% of the chosen startups engaged in AI. The majority of Y Combinator's summer cohort, a total of 134 startups, build tools around AI, enabling healthcare claims automation, customer service automation, sales operations, coding and game design.

With any other incubator, you might think it's blindly riding on the hype, but Y Combinator's track record is too impressive for that: nearly 5% of their companies achieve acclaimed unicorn status (company value of more than $1 billion) and the total revenue of Y Combinator companies in 2022 was over $50 billion.  

Spotlight 9: Apple's Chinese problem depresses tech sector

Apple took a hit, but Nvidia also lost after its extreme rise this year.

It was interesting to see how different Wall Street analysts assessed Apple's problems in China. The prevailing opinion was that the Chinese moves show that even a company with a good relationship with the Chinese government, such as Apple, and a large presence in the world's second-largest economy is not immune to rising tensions between the two countries. And that depressed the share prices of leading tech companies.

However, there is also a current that believes Apple's share price drop was an overreaction by the markets. "We believe Apple's two-day -6% share price indicates that the market thinks the recent Chinese headlines will evolve into something broader," wrote an analyst at Morgen Stanley on Friday. "We think this is unlikely ... The share movement has been exaggerated." The entire tech world is hoping he is right.

In conclusion

At the end, one link to a topic that has nothing to do with technology, yet is relevant to every reader: 'My 95-year-old Japanese grandfather is a former cardiologist - his 8 'non-negotiables' for a long, happy life.' He blogs, uses social media to keep in touch with his family and takes naps - what a role model!

Michiel Frackers is Chairman of Bluenote and Chairman of Blue City Solutions

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