With Russia’s attacks on Ukraine intensifying, I expect Apple will join the list of companies exiting the Russian Federation. Doing so reflects the company’s commitment to environmental, social and corporate responsibility.
Will Apple leave Russia?
I’ve been thinking about the implications of Apple making such a move since Ukraine Vice Prime Minister Mykhailo Fedorov urged it to stop offering products and services in Russia. At first, I felt that doing so might deprive Russians of essential tools they could use to oppose their government. My thinking has moved on, though Apple will also have a duty of care to its Russian employees, who may find themselves exposed to reprisal if the company exits the market. I’m not going to dig too deeply into the politics of current events. Newsweek, Slate and others do a far better job of that, but I will try to explore what the significance might be.
First, what is Russia to Apple?
Russia is (or was) the world’s 11th-largest economy. As we know, Apple continues to seek out markets for future growth, and while the Russian market was small, it was generating business and Apple has very loyal customers there.
Apple’s Russia business has grown significantly in the last few years. Apple CFO Luca Maestri told us the company was “very pleased” with results there in Q3 21. The most recent data I’ve seen suggests Apple’s business in Russia generated around $2.5 billion in 2020, which is under 1% of Apple’s sales.
Apple probably makes more revenue selling Apple One subscriptions internationally. Given the cost of those sales, it’s unlikely they contribute a huge amount to company profit.
What is the business environment?
Apple only recently complied with a government mandate to open offices in Russia. One of the reasons it was required to do so was so it could continue to offer online services there.The company also keeps some user data on servers situated in Russia. This likely includes iCloud user data.
Apple isn’t the top smartphone brand in Russia; that’s Samsung, according to Burga, with Xiaomi a close second. In third place, iPhones account for about 15% of smartphones sold in Russia in Q3 21 but also take roughly 45% of smartphone sales revenue. The revenue may matter less, given the plunging value of the ruble.
When a Russian consumer purchases an iPhone they will see a prompt during setup which encourages them to install Russian-developed software. This was required by Russian regulators and was a step Apple originally opposed, but eventually agreed to take.
When it did, the company successfully reached a compromise that means customers can choose or reject which Russian apps they should install, rather than having these apps forcibly pre-installed.
Notably, other smartphone manufacturers (including Samsung) did not reach the same compromise, which means most non-Apple devices sold in Russia ship with state-sanctioned software pre-installed. That’s the environment in which Apple’s business takes place.
What happens when you leave?
But what happens if Apple does exit the market? One recent illustration of what happens when you apply financial sanctions: Russian commuters hoping to catch the subway who find they can no longer use Apple Pay, Samsung Pay, or Google Pay to pay for the metro. This likely affects the 20% of Russians who use Apple Pay.
When it comes to the supply chain, it seems unlikely that Apple relies on Russian component suppliers. Most of its manufacturing partners are in the APAC/US regions. The conflict is likely to generate interruption in raw materials supplies with or without sanctions, but perhaps those challenges can be resolved.
There is also the significance of exiting the market on Apple’s customers there.
Protecting Apple customers
When it comes to using big-name services such as Apple and iCloud, it’s arguable that Russia’s brave peace protesters should (and probably already have) adopt more highly secure, cross-platform communication tools, such as Signal or Briar. They should also disable server-based services such as iCloud to protect their privacy and dig deep to secure every available privacy feature on their device.
Of course, fully securing your iPhone degrades the functions and services it provides. At its most secure, an iPhone will not use Apple’s services and most certainly will not store data in iCloud.
iCloud is not encrypted, and Apple will share details of data held in the service with law enforcement in any nation in which it does business. Given that most dissidents will understand this, Apple’s services cannot logically be seen as essential to the effort of protesting Putin’s war.
It seems relevant to note that Russia government device requests for customer data grew from under 200 in 2013 to more than 2,000 in July-December 2020, according to Apple’s own transparency report. Apple does not comply with all these requests and Russia does not make anything near as many such requests as the US.
What happens next?
I do not think Apple’s business will be deeply impacted if it chooses to withdraw from Russia. On a global basis, I imagine Apple and others are already feeling the decline in consumer confidence, in comparison to which the Russian business may seem small-time.
It’s a tragedy that we’ve reached a point where there are no good answers — and even the least worst answers seem terrible.
When the invasion began, Apple CEO Tim Cook tweeted:
“I am deeply concerned with the situation in Ukraine. We’re doing all we can for our teams there and will be supporting local humanitarian efforts. I am thinking of the people who are right now in harm’s way and joining all those calling for peace.”
Meanwhile, in the Ukraine, developers — including those from Reddit, MacPaw, Setapp, Readdle and others — continue to strive to protect their own people.
While working to support people in Ukraine, I imagine Apple will now also be considering what it can do to protect its Russian teams from reprisal as the situation continues to unravel.
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