Apple's AI partnership undergoes changes: Apple needs to speed up finalizing the partnership, and Baidu may need to reexamine its strategy.

Apple’s AI partners in China may change. It was recently reported that Apple is in talks with Tencent and ByteDance to integrate the AI models of both companies into iPhones sold in China, but the negotiations are still in the early stages. Tencent declined to comment on the authenticity of the news when asked by reporters. ByteDance has not yet responded.

It is worth noting that there have been rumors earlier that Baidu became a partner of Apple, but shortly afterwards, it was reported that there were differences between the two sides on technology and privacy issues. Affected by the news, on December 20th, Baidu Group’s stock price fell by 2.56% in Hong Kong stocks, while Tencent Holdings’ stock price rose by 2.7%. Baidu Group’s stock price in the US fell by 0.63% at the opening on Friday.

However, in order to quickly boost the sales of iPhone in China and explore the business model of Apple Intelligence, Apple needs to quickly finalize its AI partners in China. As for Baidu, which has been ‘early bird’ in the large-scale model field, if it loses its partner Apple and is squeezed into its own AI market share, it may need to re-examine its strategy.

Apple may need to accelerate the finalization of AI partnership

Apple attaches great importance to the landing of AI functionality in terminal products. At the November Apple performance exchange meeting, Apple CEO Tim Cook mentioned that Apple Intelligence marks the beginning of a new chapter for Apple products. From the current situation, considering that Baidu is considered one of the most likely AI partners for Apple in China, if there are differences between the two companies, Apple may accelerate the search for new partners in order to expedite the landing of AI functionality.

From a timeline perspective, Apple launched the Apple Intelligence feature based on large models in June this year. In November, Apple Intelligence was launched starting from American English, followed by a version localized for the UK, Australia, Canada, Ireland, and New Zealand. Additionally, Apple plans to add more languages in April next year. Overseas, Apple is also collaborating with OpenAI, and ChatGPT has been fully integrated into Apple’s iPhone, iPad, and Mac this month.

In China, there is no specific timetable for the implementation of Apple’s AI function. Tim Cook previously stated during his visit to China that Apple is working hard to complete the regulatory process for launching Apple Intelligence in the Chinese market.

For Apple, it is quite important to quickly reach cooperation with domestic AI companies and accelerate the implementation of AI functions. Apple’s revenue in the latest quarter in Greater China has declined, and AI implementation may be needed to boost iPhone sales. In the fourth quarter of the fiscal year 2024 ending on September 28, Apple’s revenue from Greater China was $15.033 billion, compared to $15.064 billion in the same period last year. This quarter, Greater China is the only region where Apple’s revenue has declined, and the revenue from Greater China is also lower than analysts’ expectations of $15.8 billion.

After the launch of Apple’s new iPhone 16 this year, it seems that the decline in iPhone sales in China has not been significantly reversed in a short period of time. Data from market research firm Counterpoint Research shows that compared to the iPhone 15 in 2023, the iPhone 16’s sales in the Chinese market increased by 20% in the first three weeks after its launch, but at the same time, the total sales of iPhones in China decreased by 2% year-on-year. During this year’s Double 11, the iPhone 16 Pro and iPhone 16 Pro Max were the best-selling models, but due to a large number of competitors releasing flagship products before and during the festival, Apple’s sales decreased by double digits compared to the same period last year.

Some market analysis agencies believe that the growth in iPhone sales brought by Apple Intelligence will not be immediately reflected, and will gradually be reflected as AI functions are rolled out in different regions in stages. In addition to potentially driving hardware sales such as the iPhone, Neil Shah, partner and research vice president of Counterpoint Research, told reporters that Apple may also make users pay for advanced AI functions in the Apple One subscription or for standalone AI functions in the future to maintain Apple’s high gross margin and operating profit.

What if Baidu loses Apple?

In addition to Tencent and ByteDance, there have also been reports recently that Apple is negotiating with the AI startup Zhilu AI to use its large models in the domestic version of the iPhone. Zhilu AI has not yet responded to this. It seems that Apple still has many partners to choose from in China. What impact will Baidu’s AI layout have if it loses Apple as a partner?

Currently, multiple mobile phone manufacturers are making layouts in AI or large models, and the industry has already anticipated deeper applications of AI in mobile and other terminal devices in the coming years. Tan Dai, President of the Volcano Engine under ByteDance, recently revealed that most domestic Android phones are now working with Douyin. In October this year, Zhongpu AI launched the autonomous intelligent agent AutoGLM, which can replace humans to control electronic devices and complete tasks such as ordering takeout and buying high-speed rail tickets. Some hardware manufacturers also told reporters that large models will move from data centers to the edge, entering more edge devices.

From the perspective of the domestic mobile phone market pattern, Apple’s market share in the Chinese smartphone market in the third quarter of this year was 13.5%, ranking sixth, behind vivo, Huawei, Xiaomi, Honor, and OPPO. However, considering that Apple’s mobile phone sales price is relatively high, users may have a strong willingness to consume, and it is not ruled out that Apple phone users may be more willing to pay for AI functions in the future, which may be attractive to large model cooperation partners.

Baidu executives have previously stated on multiple occasions that smart assistants are the best form of AI application, and the industry also expects smart assistants to land on mobile devices next year. If Baidu loses its cooperation partners in the mobile phone field, it will lose a major scenario for the landing of edge-side AI, and the landing scenarios for smart assistants may be limited as a result. Subsequently, Baidu’s AI landing scenarios may rely more on existing business layouts such as search and autonomous driving, and continue to provide intelligent cloud services.

According to Baidu’s performance in the third quarter announced by Baidu in November, over 20% of the search results pages on Baidu search in this quarter cover AI-generated content, and the proportion of intelligent cloud AI-related revenue exceeds 11%.

According to IDC data, in 2023, Baidu Intelligent Cloud accounted for 19.9% of the market share in the large-scale model platform and application market in China, ranking first in market share, surpassing vendors such as SenseTime, Intellifusion AI, and Baicells Intelligence. Looking ahead, with more vendors deploying applications on the mobile side, the market structure may change, and Baidu may also face more intense competition.

(Source: First Financial Daily)

Source: Eastmoney.com

Author: First Financial