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: It wasn’t hard for Apple to cut off Russia, but the precedent could be troublesome — ‘China is the real test’

When Apple Inc. paused sales in Russia last week, it made a powerful political statement, but it also may have set a dangerous precedent.

Big Tech has become as powerful and responsible as the top nation-states in the world. So when Russia invaded Ukraine, Apple
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and many of the world’s largest tech companies were immediately asked to step in and act as a country would, with sanctions. Last week, the floodgates opened after the iPhone maker cut off sales in Russia and stopped allowing certain Russian news apps from spreading outside the country.

An armada of large tech companies have made similar moves, including Microsoft Corp.
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Walt Disney Co.
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Netflix Inc.
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Boeing Co.
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Nike Inc.
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Exxon Mobile Corp.
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PayPal Holdings Inc.
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and Cisco Systems Inc.
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But experts told MarketWatch the moves were easy this time because Russia is a relatively small source of revenue as well as an international pariah. For example, Russia generated about $5 billion in revenue for Apple in 2021, or 1.4% of Apple’s total sales, according to Counterpoint Research, while Greater China accounted for $68.4 billion of Apple’s sales in 2021, or 19% of total revenue.

The resulting parlor game in Silicon Valley is simple yet vexing: Where do Big Tech companies hold the line, and set unyielding examples, on choking off business in countries that misbehave like Russia?In setting a precedent in an isolated country like Russia, will Apple and other tech companies remain consistent when more revenue-rich countries like China or India misbehave?

Apple’s move is “a precedent-setting moment in how the global supply chain reacts to an international crisis,” Box Inc.
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CEO Aaron Levie told MarketWatch. “This is the meta-picture: The U.S. government and many other governments have clearly decided sanctions will cause Russia to back off. This effort requires the collaboration of banks and manufacturers to push back harder.”

Don’t miss: Tech firms with employees in Ukraine spring emergency plans into place

Such are the pitfalls for the tech industry’s biggest players, who have spent billions of dollars for more than two decades expanding internationally to create complex, interconnected global operations. When the tentacles extend into countries with histories of geopolitical aggressions and human-rights violations, the calculus makes their decisions as political as economic, Bhaskar Chakravorti, dean of global business at The Fletcher School, Tufts University, told MarketWatch.

“Apple is making the bet that whatever China’s future transgressions are, it will not go this far beyond international norms. That faith may be misplaced, but it is a reasonable one to make. China’s leadership is more shrewd than [Russia President Vladimir] Putin appears to be in keeping its focus on the long game,” Chakravorti told MarketWatch.

“U.S. government sanctions also give top cover to Apple,” Chakravorti said. “The U.S. will never be able to apply sanctions such as these or export restrictions on China if a similar conflict were to arise. Our economy is too intertwined with China’s.”

“It’s a step in the right direction,” Mike Loukas, CEO of TrueMark Investments, an ETF company. “But what happens when it’s a partner that represents a significant amount of sales and is a significant component of their supply chain? What if it is China or India? Is that decision as easy? No.”

Economists point to Apple’s cash cow, the iPhone. While Greater China gobbled up 26% of iPhone sales in Apple’s recently completed first quarter, Russia represented about 2% in sales annually, according to Counterpoint Research. The truth is that Big Tech and the software/chip ecosystem’s exposure to pulling the plug on Russia would “have a 1% to 2% revenue impact in a worst-case scenario,” Wedbush Securities analyst Daniel Ives said in a note Thursday.

Read more: Apple pauses sales in Russia, adding to Big Tech moves to support Ukraine

Companies like Oracle Corp.
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suspended operations in Russia after hearing that Mykhailo Fedorov, Ukraine’s minister of digital transformation, had implored such actions. Google parent Alphabet Inc.
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Snap Inc.
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and Meta Platforms Inc.
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were also among those to drastically scale back operations in Russia.

Big Tech executives like Meta CEO Mark Zuckerberg have warned Congress that placing guardrails on Big Tech — through antitrust regulation or otherwise — might provide an opening for Chinese tech giants to dominate markets.

The antitrust push: Bills targeting Big Tech face their biggest test yet

Russia’s gross domestic product of $1.48 trillion this year is roughly equivalent to that of Texas (about $1.8 trillion) and significantly below the U.S. ($20.9 trillion), according to the World Bank.

“Our exposure in Russia is small,” Hewlett Packard Enterprise Co. Chief Financial Officer Tarek Robbiati told MarketWatch, noting the company has only 200 employees in the country. “We have some business in Russia, but it is done through agents and self contained.”

The geopolitical calculus would be significantly more fraught if the invading country was China, however, say industry experts,pointing to Apple’s complicated relationship with a country second only to the U.S. in annual GDP ($14.7 trillion this year, according to World Bank).

Apple did not respond to an email seeking comment. But in an email to Apple employees last week, CEO Tim Cook said: “We have paused all product sales in Russia. Last week, we stopped all exports into our sales channel in the country. Apple Pay and other services have been limited. RT News and Sputnik News are no longer available for download from the App Store outside Russia. And we have disabled both traffic and live incidents in Apple Maps in Ukraine as a safety and precautionary measure for Ukrainian citizens.”

Apple has put the data of its Chinese customers at risk and has aided government censorship in the Chinese version of its App Store despite data and human rights abuses, according to a New York Times investigation on how Apple has given in to escalating demands from the Chinese authorities. Apple strongly denied the findings of the report.

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Examples extend to this year and Nvidia Corp.’s
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abortive $66 billion bid to buy Arm Holdings Ltd. That deal, in great part, was knee-capped when the Chinese did not approve, says Ed Mills, Washington policy analyst at Raymond James. Qualcomm Inc.
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ended its $44 billion acquisition for NXP Semiconductors
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under similar circumstances in 2018.

Now, Apple has taken on Russia, leading to the inevitable question: What happens next?

“This is a crystallized moment for Big Tech and the government because of Apple,” Loukas said. “I applaud Apple for that. They are not scuttling their business in any way with Russia. China is the real test.”

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