00:00Alibaba is partnering with Apple to roll out artificial intelligence features for iPhone users in China.
00:07The AI integration comes at a critical time for the iPhone, which has faced declining smartphone sales in a key market.
00:14Shares in Alibaba surged more than 9% reaching their highest since January 2022.
00:20Mark Oswald is Chief Economist and Global Strategist at ADM Investor Services.
00:25Good to see you again, Mark. Welcome back to the program.
00:27So, Apple had a choice here, didn't they? But they've gone for Alibaba over other Chinese AI companies.
00:34Why did they choose them?
00:36I think it really boils down to retail footprint, where Apple needed a local partner for AI.
00:48And there are other partners. Indeed, we've had an announcement today that Baidu is also working with Apple on that front.
00:59But the most important thing is Apple's iPhone sales in China have been declining.
01:05The pace of growth has basically fallen quite dramatically in recent years.
01:12And with AI basically being at the center of the next stage of developments in terms of mobile telephony,
01:20it's key that they find a very strong local partner with a very large retail footprint.
01:26And I think that's the primary motivation.
01:29So, good news for Apple, then. Is it going to save their iPhone sales, though?
01:37I think it will to some extent. But one really has to then look at it in the broader context of what's happening with Chinese consumer spending.
01:47And it's clear that consumers don't feel that comfortable as yet.
01:54What would obviously help is if wages started to pick up again.
02:00And if the property crisis was resulted, we always end up in pretty much the same space with that.
02:07And Apple obviously being at the high end in price terms, in terms of its phones, faces a lot of stiff competition from locally produced phones.
02:17So, I think it will help, but probably more at the margin than in terms of giving a big boost, as big a boost as perhaps Apple are hoping.
02:30And what about for Alibaba? What does it mean for them and the broader AI market in China?
02:39Well, I think since we had the news broke about DeepSeek a couple of weeks ago, there is this realization,
02:48and it's probably the most important one in terms of all the AI development,
02:53that it can be basically done a lot cheaper, a lot less resource and energy intensively.
03:02And China being at the forefront of everything to do with renewable technology,
03:10it really has a strong chance here to break into the market.
03:16And what was thought to be some exceptionalism about the US AI market is probably now being undermined.
03:27And it's not before time, because at the end of the day, both in terms of the energy transition,
03:32and in terms of AI, broader AI implementation, particularly generative AI,
03:38the sort of cost base that's being implied at the moment is simply not sustainable.
03:43And it's not going to be the sort of mass market product that it will aim to be, and it will eventually become.
03:52But in the first instance, everything needs to work towards massively reducing the cost of it.
04:01And you mentioned Baidu just now. Let's talk about them.
04:04They've also announced that they're going to make their own AI chatbot free from April.
04:09Does that give them an edge? Does that change things in the AI space there?
04:16Certainly. Anyone who makes their AI bots basically effectively open source is stealing a march on their competitors.
04:30It's a question of what everybody else does then. Does that set the benchmark for everybody else?
04:37Does everyone else follow that route, or will others basically try and seek other enhancements?
04:45The biggest problem with AI is actually there's not really much of a consumer hook.
04:52If it's free, then people will just bounce around between whatever's there.
05:00And at the end of the day, if you're trying to enhance your company's offerings, be you a Baidu, a Tencent, an Alibaba, or elsewhere,
05:11you need some sort of hook, a subscription-type hook, to keep people in your space.
05:19And that's really where the big competition is going to be, not only in China but also globally.
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