Apple Inc. (AAPL) Woos Hard-Nosed China With $45 Million Research Hub

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Apple Inc. is spending $45 million on a research and development center in China. The R&D center is located in Beijing’s version of Silicon Valley, the Zhongguancun Science Park, CNBC reported. China is important but difficult market for the iPhone maker. The company has been facing problems in China, where its sales plunged 26% in its fiscal second quarter.

Apple’s First R&D Center in China

The Beijing R&D center, the company’s first in China, will focus on researching and developing in the areas of computer hardware and software, telecommunications, video and audio equipment, consumer electronic products, information technology and other advanced technologies, according to Zhongguancun Science Park Administrative Committee, which owns the site where Apple is opening its facility.

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Apple is going to hire 500 staff for its new R&D center, according to the CNBC report.

Apple wanted India to replace China. But analysts at Mizuho Securities believed that India isn’t likely to compensate for the company’s slowing sales in China. According to the analysts, India cannot replace China in the company’s revenue stream “due to lower wages, strong incumbents at very attractive price points, lack of carrier support and the political environment.”

Apple Wants To Get Closer To Chinese Consumer

The majority of future growth for Apple’s depends on its strong foothold in China, the world’s second-largest economy.

Early this year, billionaire investor Carl Icahn sold his entire stake in Apple on concerns about the company’s growth in China. Talking to CNBC’s Squawk Box, the activist investor said that he unloaded the company’s shares because he was worried about the company’s growth in China.

The company’s revenues in Greater China fell 33% year-on-year in its fiscal third quarter.

The U.S. tech giant plans to boost its investments in China as it looks to reverse falling sales and regulatory hurdles in the country.  During his recent visit to China, Cook had spoken with senior government officials and pledged to expand the firm’s presence across the world’s second-largest economy.

Apple Inc. has already invested $1 billion in Chinese ride-hailing service Didi Chuxing. The investment is part of the company’s plans to better understand the Chinese market.

According to analysts, Apple’s new R&D center will help the company get closer to the Chinese consumer. The center also “could create synergies with Didi as it looks to new areas like cars,” CNBC reported.

Nicole Peng, analyst at Canalys, told CNBC that international companies including Apple need to better understand the Chinese market.

He said: “International firms must look at China differently. It is not just a market to sell products. They need to put in a lot of research on China consumer behavior because it’s going to set the trend for other developing markets. It will be great to get a lot of consumer data in China and put it in to global product planning.”

Talking about Apple’s investment, the analyst said that “it makes sense to have an R&D center that’s close to all these tech companies in China for closer collaboration.”

Shares of Apple Inc. are up 4.53% for the year. The stock has gained 4.18% during the last six month.

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