Apple Inc (NASDAQ: AAPL)’s Woes In China

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By mmejia on July 14, 2014 Technology & Software

It’s no question that China is one of the most important geographical areas for Apple Inc. (NASDAQ: AAPL). That’s why investors are worried about the news coming out of the Asia superpower.

China’s CCTV is calling the iPhone a concern for national security. This attack was due to the fact that the phone’s iOS 7 tracks and records the user’s location data, which is causing Chinese officials to be worried about compromising state secrets.

This is not the first time Chinese media outlets have attacked the American smartphone maker. Earlier in 2013, the Chinese attacked Apple’s warranty policies and customer service, claiming that Apple consumers in other countries received favorable treatment. Tim Cook apologized and promised to improve its policies in the country.

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Analysts are torn whether or not the smear campaign hurt Apple sales in the country. Initially, Apple’s sales seems unfazed by the negativity. Sales of the iPad and iPhone continued to grow and set new sales records. Last quarter Apple’s sales hit an all time record of just under $10 billion.

Now, analysts are worried if China’s latest attack on the iOS 7’s location tracking will hurt China’s sales. Evidence suggests otherwise – the previous campaign was focused on warranties and service policies, and thus involved the consumers. The latest reports focus on nation security concerns, and may not be particularly relevant to the typical average Chinese consumer interested in purchasing an iPhone.

Additionally, the discussion over the breach of privacy through location data has existed for years now. Location tracking isn’t even exclusive to Apple’s iOS – all modern smartphones utilize location data. If anything, China should be more concerned about Google Inc (GOOG) (GOOGL)’s Android platforms, which is much more popular in China.

In fact, last month an Android phone made by a Chinese OEM was discovered to have pre-installed malware and spyware. In another incident, the Data Center of China reported that about 35% of Android apps covertly steal private data.

The Chinese market is also very important to Apple’s iPhone 6. The new larger smartphone model is especially catered towards the Chinese consumer – who is a large portion of the market for phablets (a combination of a phone and a tablet). The average Chinese consumer will probably be more interested in getting their hands on a coveted iPhone 6 than with debate over national security concerns.

Apple Loses Siri Patent Case

Apple has lost a patent-infringement lawsuit over Siri in China. The patent was filed by Zizhen Internet Technology against Apple, claiming that the Siri technology infringes upon the speech recognition patent owned by the Shanghai based company.

Apple’s Siri technology is a virtual assistant by following user’s commands by processing their voice. The Chinese technology company sued Apple on the basis that the methodology that Apple’s Siri used to process the user’s speech infringed on a patent owned by the Chinese company.

This decision, made by the first court of Beijing, is a significant set back for the American tech giant, and is likely to seek an appeal through higher courts.

A spokesperson for Apple based in Beijing states that Apple was unaware of any patent and believes that it is not violating any law. Apple is open to discuss these issues with ZiZhen, but ZiZhen refused to comment on this ruling.

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