If you’ve been interested/enthusiastic about China’s DeepSeek AI, you’re not alone – Apple CEO Tim Cook also seems impressed with the tech, which he calls “excellent” – though he fell short of sharing any plans to integrate these models within his company’s own AI efforts.
Cook was in China to woo government and suppliers as the company remains anxious to maintain its second largest business geography even in the face of growing politically-driven tensions with the US. Apple shareholders would expect nothing less from company leadership than to work to preserve company revenue. Apple’s long-standing manufacturing alliance with China also counts for something, even as iPhone sales have declined 25% in the region.
Deep local partnerships
Apple Intelligence, the company’s so-far disappointing take on generative AI (genAI), is not yet available in China, but it’s thought the company has been speaking with local partners and officials to find some way to make it available. Apple is required to work with a Chinese provider of AI services in the market. To that end, it is expected to introduce support for AI models from Baidu and/or the Alibaba Group to replace ChatGPT in Apple’s implementation. (The assumption about why DeepSeek was not selected is that it is not yet ready to scale to meet the needs of Apple’s huge customer base.)
Apple is holding a developer conference in China this week, where it is expected to announce additional plans for Apple Intelligence there.
Cost and scale
But the capacity to scale, or lack of it, doesn’t mean DeepSeek isn’t impressive. It is, particularly as its powerful R1 model with its estimated development price of just $5.6 million compares really well to more costly models from US-based genAI firms. During the last financial call, Cook discussed DeepSeek’s low cost and high performance, characterizing the achievement as proof that “innovation that drives efficiency is a good thing.”
It certainly contrasts with the hundreds of millions of dollars Apple presumably spent on developing Apple Intelligence features it still can’t bring to market. Given the chaos that has hit the Siri team since he made those statements, I’m in little doubt he’d quite like to have seen the Apple Intelligence team forge a similar path to success. But perhaps the challenges of linking legacy Siri technologies with advanced AI remain too great for this to happen. Perhaps there’s a solution available?
Tariff troubles
The other challenge in China is the scale to which the current US administration will apply tariffs against Apple products imported from China. With new tariffs as high as 20% being discussed, Apple will want to find some way to navigate the two nations to maintain business in both regions while minimizing the impact of tariffs on product prices. It will, after all, be Apple’s US customers who end up paying more for the products taxed in this way and the company will want to manage the impact on them.
Fundamentally, there is one very big reason Apple makes so many of its products in China — the distribution of skills. Apple continues to invest in efforts to educate tomorrow’s generations of developers, but China can already field them by the thousands.
It’s not just cost
Cook explained this a few years back: “In the US, you could have a meeting of tooling engineers, and I’m not sure we could fill the room,” Cook said. “In China, you could fill multiple football fields.” He also explained that labor costs are only part of the equation, the “quantity of skill” is also important. The upshot is that until the US solves the fundamental challenge of building workforces fully skilled up for advanced technology manufacturing, no number of tariffs will force jobs to move there. It needs to invest before US leaders can expect that to happen.
Apple has made big attempts to build business outside China since 2018. Today, just over 15% of its iPhones are made in India, and it has factories in locations across the world. It is also investing heavily in US manufacturing, including its $10 billion Advanced Manufacturing Fund, an academy in Detroit, and its new server factory in Houston.
But one thing it hasn’t got — at least, not yet — is its own slick, small and economical answer to DeepSeek. Not for lack of trying.
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