It cost Apple $414 million to shut up Chinese state-run media last quarter

“After Apple’s quarterly report last week nearly every analyst we heard from pointed out that the company’s 37.5% gross margin — the measure of how efficiently a company turns sales into profits — was at very bottom of its 37.5%-to-38.5% forecast range,” Philip Elmer-DeWitt reports for Fortune.

The theory is this: On the last day of the quarter Tim Cook, to appease government-owned media outlets that for two weeks had been attacking Apple on a daily basis, issued an apology to his Chinese customers and changed Apple’s warranty and return policies — among other things, extending the warranties on any iPhone brought in for repair in China for a full year,” P.E.D. reports. “According to the company’s SEC Form 10-Q, Apple booked $414 million in so-called warranty accruals to account for the impact of changes to certain unnamed ‘service policies and other estimated warranty costs.'”

P.E.D. reports, “Morgan Stanley’s Huberty estimates that if it weren’t for China’s media campaign and Cook’s response, Apple would have reported a gross margin of approximately 38.4% — just shy of the top of its guidance range.”

Read more in the full article here.

MacDailyNews Take: The whole thing is unsavory. Extortion. Blackmail payoff.

When in Rome Beijing, we guess, but, yuck. It begs the question: Now that China’s been successful, what will they try next?

Related articles:
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Following Tim Cook’s apology, Apple goes from pariah to praiseworthy in China’s state-controlled media – April 2, 2013
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Citigroup analyst ‘concerned’ about China’s state-run media’s anti-Apple propaganda campaign – April 1, 2013
China’s state-run media’s persecution of Apple likely to end with China Mobile iPhone deal – April 1, 2013
China state-owned film studio sues Apple for ‘selling unauthorized movies’ – March 29, 2013
Chinese regulator calls for tighter supervision of Apple – March 28, 2013
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Apple and China seem made for each other, so why is China attacking Apple? – March 28, 2013
Manufactured Apple ire shows up for real against China’s state-owned monopolies – March 27, 2013
China slams Apple’s ‘empty and self-praising’ response to warranty complaints – March 26, 2013
What’s really behind China’s attacks on Apple and Android? – March 20, 2013
Chinese media attack on Apple exposed; backfires badly – March 19, 2013
Prominent Weibo users, Samsung spokesman paid to bash Apple – March 17, 2013
China’s Ministry of Industry and Information Technology: Google controls too much of Chinese smartphone sector – March 5, 2013

23 Comments

  1. The Chinese state-run media’s often hilariously botched attempts to “attack” Apple only served to make Apple products MORE popular with the populace. In the long run, any extra expense incurred by Apple today will be made negligible by future sales.

    1. hmmm! the similarity between China’s state-run media attack on Apple is eerily similar to the American state-run media attack on Apple….

    1. Basically, Communist China’s action is extortion.

      What the Communist China did here is to educate Apple about who the real boss is in China. Since China is becoming Apple’s largest market, Apple has no choice but find a way to cool off Communist China’s attack and extend the warranty. Is it fair? Absolutely not. Communist China’s action also served as a warning shot to ALL foreign companies who wish to do business in China.

      my 2 cents…

    1. It’s quite clear, iMaki, that you know nothing at all about Asian psychology, and how important ‘saving face’ is?
      A certain Microsoft founder ignored that, and really offended his hosts recently by shaking hands with his other hand shoved in his pocket.
      These things are important, not that you seem to care.

      1. Screw ‘saving face’ and all the other BS that we seem to have to ‘like’ these days. China is a nasty totalitarian state built on slavery, a non-existent legal system, and the rule of a few old men. We shouldnt even be talking to them.
        UK, USA, Canada and a few other European countries made the world what it is based on decent legal systems and a morality centred around Christianity (no, I am not a christian, but I know whats right) – China did nothing but takes advantage.
        When are we in the West going to WAKE UP?

        1. Saving face is done for the people, not the government. To be successful in another culture, pay close attention to its customs and etiquette. This is just as true in a western culture, but it’s not so obvious because you’re already fully aware of it. you even give it away by saying you “know what’s right.” Well other cultures also “know what’s right.” The only problem is that “what’s right” is not always the same thing.

          If you approach it with the assumption of “superior enlightenment” you are doomed to fail.

    2. Actually, Steve Jobs was well-known for turning “apology” into profits. For example, the “apology” to early adopters of the first iPhone, for setting the initial price too high. He said “sorry” and gave them Apple Store credit for the difference in price, increasing store sales beyond the credit amount, while making the “not-so-early” adopters really excited (and smug) about the new “bargain” price and increasing future iPhone sales. He was so brilliant at this type of subtle manipulation.

  2. The sooner Apple signs the deal with China Mobile the better. Apple would be able to get China Mobile with it’s advertising dollars to pressure the media to back off in China.

    1. Indeed, begging the question ain’t something you do, it’s a description of the way you failed to make a logical point. It raises the question, it prompts the question, it poses the question, but begging the question that sentence don’t do.

  3. That’s the cost of doing business…until you gain enough strength to turn the tables. At some point Apple may hold enough power in China to impose there will rather than bend to others.

  4. Some “genius” Cook is turning out to be.

    Of course, the costs of doing business in China are seldom if ever accounted honestly by any corporation, so this and the IP theft will be swept under the rug. Western companies are so eager to get product distribution in China, they just keep bending over and getting reamed by the communist party puppets. Apple would have been wise to use its mountain o’ cash to diversify its manufacturing and accelerate its product development instead of paying corrupt Chinese officials and Wall Street speculators.

      1. Thanks Derek.

        If i had more time, I would offer more facts & references to underscore the basic points I make. I know many Mac evangelists here don’t see the value in my constructive criticism of what they consider a godly corporation, but my constructive criticism really is data-driven and long-term perspective intended to improve Apple for the benefit of everyone, not just Wall Street.

        If you don’t see the sense in what I am saying, all you have to do is civilly ask me for data to support my conclusion.

        Usually my conclusions boil down to this universal truth: proactive decisiveness today is necessary to achieve sustainable, long-term, prosperous outcome for all stakeholders. Sadly, the world is overpopulated with people who are obsessed with self-enrichment with no regard whatsoever for the future or anyone outside their own little bubbles.

        It disgusts me that MDN defends Apple’s newfound corporate greed-motivated manoeuvres while giving current Apple leadership a free pass on its dramatic slowdown of product development, or its dealings with the most corrupt nation on the face of the earth.

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