On February 11, Jack Ma made a radiant appearance at Alibaba's headquarters in HangzhouAs the figurehead of Alibaba, every public outing by him carries significant implicationsThis time, he was there to announce a collaboration with Apple, following reports that evening indicating that the tech giant was partnering with Alibaba to develop AI features specifically for Chinese iPhone users.

This collaboration is a godsend for Alibaba, as it connects to hundreds of millions of smart devices, resembling a windfallFor Apple, however, this switch in partnership comes amid the anxious fallout from the global rise of DeepSeek — an AI model that has set the tech world abuzz.

In 2024, Apple's revenues from Greater China stood at $18.5 billion, accounting for just 14.89% of its total, marking the lowest contribution in four years and the second-lowest in eleven yearsThe once-invincible Apple is facing a decline in one of its largest markets.

The competition in smartphones has essentially transformed into a battle of AI capabilitiesDuring the unveiling of the new iPhone 16 series, nearly half of the presentation was dedicated to showcasing the applications of AIHowever, delays in launching these functionalities domestically have rendered Apple's innovation stagnant in the mainland marketMeanwhile, local competitors rolled out their own AI features ahead of Apple, adding pressure and impacting sales significantly.

According to IDC, in Apple's traditionally strong sales season, its market share plummeted to 17.4%, reflecting a staggering year-on-year decline of 9.6%. By the end of 2024, Apple’s standings fell from first to third place in the smartphone marketIn the tablet arena, Apple experienced the sole downturn among the top five manufacturers, with a 7% decline, resulting in the loss of its number-one spot.

At this critical juncture, the emergence of DeepSeek has empowered domestic brandsJust within the past month, DeepSeek has become a dominant AI model in the market, matching the performance of OpenAI's models in several tasks — all achieved at a minimal training cost of $5.6 million, a stark contrast to the hundreds of millions, or even billions, invested by Western tech giants.

A key indicator of DeepSeek’s rapid ascension is its tremendous popularity on platforms like WeChat, where it surpasses the combined use of other domestic software by nearly two orders of magnitude

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As of this month, DeepSeek has advanced to its second phase — industry integrationMajor smartphone names including Huawei, Honor, OPPO, and Meizu have announced their incorporation of DeepSeek's R1 model, with Meizu even integrating AI ecosystem products such as AR glasses.

This means that while Apple has yet to deploy its large model applications in its phones, local manufactures are already ahead, having integrated AI functionalities comparable to ChatGPT's established models, thereby widening the experiential gap significantly.

Market analysts from IDC predict that the rise of AI smartphones could trigger a new wave of device upgrades, projecting that by 2027, these AI-enabled gadgets will dominate over half of the smartphone marketWith the competition heating up, Apple finds itself increasingly anxious.

In late 2022, multiple sources indicated that Baidu had been selected as Apple’s AI partner for China, intending to implement the Wenxin 4.0 model in iPhones; however, this partnership failed to materializeTime is not on Apple's side anymoreInsiders have revealed that Apple has recently started to explore alternative partnerships, evaluating Alibaba’s large model, as well as DeepSeek, but eventually opted for Alibaba's Qwen.

On January 29, Alibaba debuted the Qwen 2.5 Max model, which has shown commendable performance compared to DeepSeek's V3 model, although not as wildly popularIn Apple's comprehensive assessment, it emerged as the optimal choiceNevertheless, switching partners at this stage implies a lengthy process for both companies to bring their collaboration into fruition.

While Apple users may have grown accustomed to delays in functionality deployment, the stakes are higher now; such lag is becoming increasingly critical.

Tim Cook, often regarded as a master of the Apple supply chain, has presided over a period characterized by a 'late mover' strategy during his twelve years at the helm of the company

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This strategy emphasizes entering the market only once substantial validation has occurred, enabling Apple to leverage its system advantages and stringent quality control standards to reclaim market share.

The successful execution of this strategy requires maintaining leading market status and consistently high qualityApple's vast user base, its closed-source operating systems, and strong customer loyalty have provided it the confidence to pursue this approachHowever, as the narrative around AI evolves, Apple’s vulnerabilities have begun to surface.

Among the so-called 'Fang Stocks' in American markets, only Nvidia stands as an AI “peddler.” The other five have developed independent large models for their productsIn the smartphone sector, contenders like Huawei, vivo, OPPO, Honor, and Xiaomi have all introduced significant AI modelsAlthough these might not rival ChatGPT or DeepSeek, they assert a degree of agency over their technological pathways.

In stark contrast, Apple has remained largely passive regarding AI large models, relinquishing its stake in the ongoing tech evolutionApple's failure to develop its own large model reflects a striking vulnerability, as it loses its edge in an environment where AI could redefine the operational landscape of smartphones.

While Apple announced strides in multimodal model research in 2023, the achievements seem to pale against contemporary benchmarks; they amount to little more than relics when juxtaposed against the evolutionary pace of the iPhone itself.

The gap in AI large models marks a critical trajectory; Apple now finds itself at a point of no returnCurrently, AI and smartphone integration remains limited to peripheral experiences, still affording space for Apple to navigate its late-mover strategyHowever, as AI models advance, they could potentially redefine smartphones, where AI evolves from a functional tool to a fundamental operating system;

In the absence of proprietary large models, Apple risks a future where it can only forge partnerships with existing large model providers, without fallback alternatives.

Part of Apple’s triumphant narrative has always been its unique, closed-source operating system

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Without a robust AI strategy, it faces a tumultuous shift; the very rationale supporting its market leadership could be stripped away, leading to an existential crisis.

Even if these scenarios remain speculative, the downward trend for Apple in the Chinese market appears increasingly inevitable.

A ten-year trajectory of decline becomes evident when reflecting on Apple’s journey since 2015. Revenue from the Greater China region began to dwindle from $18.37 billion to $13.58 billion, alongside a continuous fall in its percentage of overall revenue.

2020 marked a pivotal juncture for Apple, primarily driven by Huawei’s market constraints, allowing Apple to snatch its available consumers while Cook’s adept supply chain management ensured quality control during global supply hiccupsHowever, this late-mover strategy, albeit effective for some time, has quietly placed additional burdens on the company's shoulders.

In 2024, Apple decided to cancel its long-anticipated automotive project, cited for its decade-long investmentThe barriers stemmed from inherent technological limitations and a weak position in automotive supply chains; producing a revolutionary vehicle akin to the iPhone was deemed improbable.

While competitors may operate with leniency in performance expectations, Apple’s standards demand perfection, compelling it to forgo potentially lucrative ventures.

Complications in fast charging have persisted, with “Five Blessings & One Safety” charging cables remaining in use from 2009 up through 2022. After five years into folding screen technology, Apple is yet to unveil its foldable phone, presently targeting 2027 for a potential launchNow considering AI functionalities, domestic competitors have surged ahead, unable to meet Apple's demands for feature deployment in China.

Meeting public expectations places immense pressure on Apple, compelling the company to reassess its standing among aggressively competing domestic smartphone manufacturers

The rhythm of Apple’s product development is evidently lacking, and this could be the crux of its decline since 2015.

By 2024, after a rollercoaster of increased market share, Apple is now facing yet another downward trendThe currents are not as benign as in 2020; though its market share remains substantial, the competitive landscape has transformed dramatically.

New entrants are not accommodating Apple as they once did; according to IDC projections, Huawei surged to second place with an impressive 50% growth, while Counterpoint's data confirmed that Huawei reclaimed the number one spot in both market share and year-on-year growth in the last quarter.

Apple is poised on the brink of a return to 2019, facing a barrage of competition from Chinese manufacturers.

Another adverse effect of this evolving scenario is the chilling relationship between Apple and the Chinese marketIn 2012, Tim Cook, taking the reins from Steve Jobs, undertook the unprecedented move of engaging with China directly.

In contrast to the arrogance for which Jobs was once criticized, Cook has exhibited pragmatic and balanced leadershipThroughout the past thirteen years, he has made annual trips to China, emphasizing its paramount importance to Apple’s fortunes.

However, by 2024, Cook made only three visits to ChinaHe once declared, “Without Chinese partners, Apple would not have achieved today’s success.”

Actions often speak louder than words; recently, Apple has been restructuring its supply chain to curtail the share of Chinese manufacturers, redirecting capacities to emerging markets like IndiaReports indicate that by now, only 2% of the main components in iPhones originate from China.

Whether intentional or not, this strategy signals an unintended distancing from the Chinese market, eroding prior supports such as favorable policies, public perception, and tight-knit supply chains.

A January report revealed that while Huawei led in activation numbers, Xiaomi showed the fastest growth, and Apple faced negative growth — an alarming trend indicating that Apple's resurgence has largely dissipated since 2020, returning it to a precarious state reminiscent of 2019. With the added pressure of AI advancements, Apple may find itself in an even more challenging predicament.

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