Apple and Alibaba Partner to Develop AI Features for Chinese iPhone Users

This strategic partnership is seen as a crucial step for Apple to regain its footing in the Chinese market, where it faces increasing competition from domestic brands. With China being Apple's second-largest market outside the United States, accounting for 15% of its sales in the quarter ending December last year, the company is under pressure to halt the decline in sales. Apple's revenue in China has slipped for two consecutive years, with an 11% drop in the December quarter, a 7.7% decline in the 2024 fiscal year, and a 2.2% decrease in the 2023 fiscal year.

The collaboration between Apple and Alibaba comes after a series of attempts by the tech giant to integrate AI capabilities into its iPhones for the Chinese market. Apple had chosen Baidu as its primary partner last year, with the goal of developing models for "Apple Intelligence." However, the partnership hit a roadblock due to Baidu's failure to meet Apple's standards in developing models that satisfied the company's stringent requirements. This setback led Apple to explore alternative partnerships, ultimately paving the way for the current collaboration with Alibaba.

Apple and Alibaba are set to jointly develop artificial intelligence features tailored for the Chinese market, with the proposal already submitted to China's internet regulatory bodies for approval, indicating significant progress in the partnership. As part of this collaboration, Apple intends to leverage Alibaba's Tianyi Qianwen large language model to deliver AI capabilities to iPhone users in China. This integration aims to enhance user experience by providing more personalized and intelligent services, aligning with the tech giants' strategies to deepen their footprint in the Chinese market.

By joining forces with Alibaba, Apple seeks to leverage the e-commerce giant's extensive consumer data, including shopping and payment habits, to better understand Chinese users' requests. This development is part of Apple's broader strategy to introduce more compelling software features, addressing the sales slump in China. While Apple's "Apple Intelligence" feature, which combines the company's AI model with OpenAI's ChatGPT, has been rolled out in the United States and other countries, its introduction in China has been delayed. The feature is expected to improve iPhone photo search, notifications, and text rewriting capabilities.

The partnership between Apple and Alibaba is expected to drive up demand for Alibaba's data centers, as well as boost the demand for Alibaba Cloud's computing power and IDC services. This collaboration will also have a positive impact on China's data center industry chain, leading to a revaluation of the domestic AIDC sector. As the demand for data centers continues to rise, the industry is expected to experience a significant upturn, driven by the increasing need for artificial intelligence computing power.

The partnership is likely to bring about a surge in demand for data centers, particularly those with strong core assets and expansion capabilities. Companies with core customer resources and strategic locations, such as those near major factory bases, will be well-positioned to benefit from this trend. The growth of the AI industry is expected to drive the development of data center infrastructure, with companies like Alibaba, Tencent, and ByteDance investing heavily in data center construction and expansion. The increasing demand for AI computing power will also lead to a rise in the demand for GPUs and other related hardware.

As the data center industry continues to evolve, companies with strong capabilities in AI, cloud computing, and data center operations are expected to be major beneficiaries. The partnership between Apple and Alibaba is likely to be a significant catalyst for the growth of the data center industry, driving innovation and investment in the sector. With the increasing demand for AI and data center services, the industry is poised for rapid expansion, and companies that are well-positioned to capitalize on this trend are expected to experience significant growth and success.