Xinhua/AP

THE BIG STORY

RIVALS
IN NEED
Most American tech giants
remain deeply reliant on the
Chinese market despite US
attempts at decoupling
AKITO TANAKA and GRACE LI Nikkei staff writers

Microsoft co-founder Bill Gates

meets with Chinese President
Xi Jinping in Beijing on June 16.

Nikkei Asia - Special excerpt from July 17-23, 2023 Print edition. Nikkei Inc. No reproduction without permission.
 THE BIG STORY
SINGAPORE/HONG KONG The leaders of America’s most
powerful tech companies have been parading through Beijing
since early spring, following the end of COVID-19 controls and
the gradual reopening of China. Even chilly U.S.-China tensions
have not stood in the way of a resumption of pre-pandemic busi-
ness dialogue.
In June, Bill Gates, the co-founder of U.S. tech giant Microsoft,
was received in Beijing by Chinese President Xi Jinping -- an al-
most unheard-of protocol exception for a business leader. “You
are the first American friend I’ve met with so far this year,” Xi told
the American billionaire, flashing a rare smile.
At the end of May, Elon Musk, co-founder of electric vehicle
front-runner Tesla, also visited China. The celebrity entrepreneur
met with Chinese government officials in Beijing and then toured
Tesla’s Shanghai factory. In April, Intel CEO Pat Gelsinger also
visited Beijing and met Chinese officials.
And in March, Tim Cook, CEO of Apple, and Cristiano Amon,
CEO of Qualcomm, attended the China Development Forum held
in Beijing, sponsored by the Chinese government, along with ex-
ecutives from other global companies. “Apple and China ... grew
together and so this has been a symbiotic kind of relationship,”
Cook said on his first trip to China since the pandemic began.
U.S.-China relations were briefly plunged into crisis by the
shooting down of a Chinese spy balloon in February, but even
this could not cool the good vibes of the U.S. tech sector. In June,
following Gates’ visit, U.S. Secretary of State Antony Blinken ar-
rived in Beijing for talks aimed at thawing relations, followed by
U.S. Treasury Secretary Janet Yellen in July.
The U.S. tech leaders’ attention to China demonstrates the
country’s critical importance to some of America’s -- indeed the
world’s -- biggest companies. “The big question facing the C-suite
is how do they fit into the new Chinese economy, where geo-
politics is front and center,” said Abishur Prakash, CEO of The
Geowpolitical Business, a Toronto-based advisory company.
Reuters
Apple and China . . .
grew together and
Illustrations by Shiho Takiguchi
so this has been a
symbiotic kind
of relationship
Tim Cook, CEO of Apple
“They know the direction things are moving in: The Chinese
market is increasingly becoming less and less accessible,” and
“this is why executives are going to China to meet with govern-
ment officials -- to gauge how the operating environment will
change,” he said.
While the U.S. tightens sanctions aimed at blocking China from
accessing U.S. technology, the biggest American tech companies
still heavily rely on China’s tech imports and the Chinese market.
In fact, despite five years of “decoupling,” this reliance has barely
changed, and in some cases grown, making the companies vul-
nerable to politics.
CHINA ENTANGLEMENT In 2018, Washington began the move
to decouple from China under then-U.S. President Donald Trump,
imposing restrictions on exports and investments aimed at limit-
ing China’s access to advanced U.S. technology.
Washington particularly wanted to prevent the outflow of tech-
nologies that can be diverted to military use and to reduce the
excessive dependence on supply chains located in China.
But five years on, an analysis of financial data by Nikkei Asia
shows U.S. technology companies still depend crucially on China
for a large portion of their sales: The analysis, using data from
the QUICK-FactSet database, found that 17 of the top 100 global
companies in sales in China in the most recent fiscal year were
U.S. tech-related companies.
Meanwhile, dependence on China, as measured by the portion
of yearly sales, increased or remained almost unchanged since 2018
for many top tech brands, such as Apple and Tesla. Even companies
in the semiconductor sector, which has been specifically targeted
by the U.S. government and recently by China as well, have seen
little change in the portion of their revenue generated in China.
Many international companies do not disclose their China
Tesla CEO Elon Musk visited Beijing in late May,
where he met with Chinese government officials.
revenue. QUICK-FactSet estimates it from annual reports and
other filings and then uses an “estimation algorithm based on
gross domestic product weighting and accounting logic.” The
Nikkei analysis used company filings where possible.
It is difficult to say whether China depends on U.S. technology
more than U.S. technology companies rely on the Chinese market
and supply chain. But whatever the case, the dependency of each
side on the other has not shrunk except in a few cases. In some,
dependency has increased since 2018.
AN ‘INDISPENSABLE’ MARKET Apple, the world’s most valu-
able company by market capitalization at $3 trillion, was the
global company earning the most sales in China in 2022, over
$70 billion, according to QUICK-FactSet. Qualcomm, a major U.S.
chip company, depends on China for more than 60% of its sales.
Tesla relies on China for over 20% of its sales.
Eight of the companies most dependent on China for sales were
in the semiconductor sector -- the area where the conflict between
the U.S. and China has been most severe. In October, for example,
Washington banned U.S. companies from supplying some catego-
ries of semiconductors, chipmaking equipment and updates for
past sales to Chinese chip companies. It also prohibited American
citizens from working with Chinese semiconductor companies.
Notwithstanding the ramp-up in political pressure, for
Qualcomm, Lam Research and four other U.S. companies in the
semiconductor industry, China was the largest source of revenue
last year, surpassing the major markets of Europe, the U.S. and
Japan, according to QUICK-FactSet data. One reason is that China
is a hub for electronics manufacturing, and much technology
exported to China is ultimately reexported as finished goods.
U.S. tech leaders rely on China for big chunks
of revenue (Revenue made in China)
In FY2022*
Company (In billions of dollars) Percentage of total revenue
Qualcomm 27.56
Texas Instruments 9.65
Broadcom 11.41 34.3
Applied Materials 7.08 27.6
Intel 16.78 26.6
Tesla 17.78 21.8
Apple 69.95 17.7
Microsoft 24.65 12.4
*Start and end dates of financial year vary by company
Source: QUICK-FactSet
Nikkei Asia - Special excerpt from July 17-23, 2023 Print edition. Nikkei Inc. No reproduction without permission.
Apple stores in China
China has the second-biggest number of
Apple stores after the U.S.
(Total 53 stores, as of July 2023)
Beijing
Shanghai
Number of stores
7 Hong Kong
3
1
Source: Apple website
The high numbers thus do not reflect China’s domestic demand.
Many companies stressed in their annual reports that revenues by
geographic location, such as China, were based on shipment and
billing information rather than end-user customers.
“U.S. tech companies’ high exposure to China is just a state-
ment of China’s share of global GDP and China’s share of the
global population,” said David Wong, head of APAC Technology
Research at Japanese investment bank Nomura. “And until fairly
recently, there was no particular reason to think that there was
particularly high risk in developing the Chinese market.”
Overall bilateral trade between the U.S. and China -- the world’s
two largest economies -- reached a record $690 billion last year,
with U.S. exports to China increasing by 28% between 2018 and
2022. U.S. imports from China in 2022 totaled $536.3 billion.
“China has grown to be an indispensable part of the global
economy,” said Fu Fangjian, an associate professor of finance at
the Lee Kong Chian School of Business at Singapore Management
University. He added that China is now also “a single market
not much less than the domestic U.S. market for these high-tech
62.4
companies. While the U.S. government tried to block Chinese ac-
cess to high technology, the high-tech firms [in the U.S.] can’t live
48.2 without the Chinese market.”
Some experts warn that high dependency on China for revenue
could prove to be a source of vulnerability for U.S. tech companies.
“The biggest risk” for these U.S. tech companies “is outright
bans and losing the ability to sell or manufacture in China,”
Prakash of The Geopolitical Business advisory said.
HARD TO QUIT This dependence on China has changed little de-
spite the decoupling. According to a company filing, the amount
of its total sales that Apple generated in greater China, which in-
cludes mainland China, Hong Kong and Taiwan, decreased only
0.74 of a percentage point, to 18.8% in the most recent fiscal year,
 THE BIG STORY

compared to the fiscal year ended September 2018. From China’s perspective, U.S. tech companies’ “risk
Greater China remains Apple’s second-largest source of rev- is higher at the smartphone level or EV level,” where
enue, following the company’s home market. Apple’s greater they compete with Chinese companies, while “Chinese The biggest risk . . . is
China revenue jumped 43% to $74.2 billion in fiscal 2022 from companies would actually want the components” from the
$51.9 billion in fiscal 2018, after revenue decreased in fiscal 2019 U.S., Wong said. outright bans and losing
and fiscal 2020 due to China’s economic slowdown. “But the risk of the U.S. expanding export restrictions the ability to sell or
Apple has been focusing on developing the Chinese market is probably higher than China imposing import
since around 2014. At the company’s earnings call in October restrictions,” he added.
manufacture in China
2015, the year when net sales from greater China surpassed those China has followed U.S. restrictions with

Getty Images
from Europe, Cook said he was “very bullish” on the Chinese apparent tit-for-tat escalations of its own. In May,
market and the company would be investing in the country “for Chinese authorities announced that U.S. chipmaker Abishur Prakash
the decades ahead,” sharing his view “that Micron Technology had failed a security review, CEO of The Geopolitical Business, an advisory company
China will be Apple’s top market in the world.” with operators of key infrastructure barred from
As for Tesla, its sales in China have leaped
in large part due to China’s rapid adoption of
EV technology. In 2022 it earned 22% of its total
22% buying from the company.
“The impact” of the decision by the Chinese
authorities “remains uncertain and fluid,” said with China’s Unisplendour, for $3.5 billion.
of Tesla’s sales Hewlett Packard Enterprise’s pavilion at the Mobile
sales in China, up from 8% in 2018. Sanjay Mehrotra, the CEO of the U.S. memory H3C sells HPE hardware in China. HPE has been gradually re- World Congress in Barcelona, Spain, on March 1: In May,
Qualcomm, which is highly dependent on
were in China in chip giant, during the quarterly earnings confer- ducing its stake in H3C but plans to sell its remaining 49% stake HPE said it plans to sell its remaining shares in Chinese
China, in the year through last September made 2022. In 2018, this ence call in late June. in the next transaction.
tech company H3C to China’s Unisplendour.

63.6% of its sales in mainland China and Hong ratio was 8% Several Micron customers “have been con- “This is the best outcome for customers, employees, and
Kong. The ratio was 67% in fiscal 2018, accord- Source: Company
tacted by certain critical information infrastruc- shareholders because, obviously, doing business in China is be- Known as an early investor in companies that went on to be
ing to company filings. ture operators or representatives of the gov- coming more and more complicated these days,” HPE President tech giants -- Apple, Cisco, Oracle, Nvidia and Google -- Sequoia
The technology industry today is fighting ernment in China concerning the future use of and CEO Antonio Neri said in an interview with Nikkei. was also successful in its early entry into the Chinese market in
through weakening economic conditions and Micron products,” he said. HPE “will basically only have in China a very small direct 2005. Portfolio companies have included Alibaba Group Holding,
softening market demand. Under these circumstances, the U.S. “We currently estimate that approximately half of that China- presence that will support our multinational customers in China” TikTok parent ByteDance and e-commerce giant JD.com.
tech sector could be vulnerable to further U.S. restrictions. headquartered customer revenue, which equates to a low dou- and “will continue to resell our HPE offerings “It has become increasingly complex to run a
For Apple, which sells smartphones and personal computers; ble-digit percentage of Micron’s worldwide revenue, is at risk of through the H3C entity, but we will not own decentralized global investment business,” the
Tesla, which sells EVs; and chipmakers that supply semiconduc- being impacted,” the chief executive said. “This significant head- any of the stakes” after the transaction, which is Greater China VC company said.
tors to electronic equipment factories in China, the outcome of the wind is impacting our outlook and slowing our recovery.” awaiting regulatory approval, Neri said. is Apple’s In May, LinkedIn, a social media platform

2nd-
U.S.-China confrontation and the risk of further escalation hold Regarding the spinoff decision, the chief ex- owned by Microsoft focusing on business net-
enormous implications. DE-RISKING ATTEMPTS To mitigate geopolitical risks, some ecutive said, “Geopolitical [situations] played a working, announced it would shut down its jobs

largest
“When we think of the risk of escalation, we have to ask from companies in the U.S. tech industry have begun to reorganize role because it’s unknown what is going to hap- apps in China and cut more than 700 positions.
who,” Wong said. “There is a higher chance of the U.S. govern- their operations in China in an effort to contain any potential pen in three to five years, and what the value of LinkedIn cited “shifts in customer behavior
ment saying Qualcomm chips can’t go into China smartphones, damage from sanctions. those stakes may be.” and slower revenue growth” as reasons behind
as opposed to saying iPhones can’t go in, so Apple can’t make In late May, Hewlett Packard Enterprise announced a plan to “It’s clear that the trend of de-globalization
revenue source the decision.
money in China.” sell shares in Chinese tech company H3C, which it jointly holds and decoupling is here to stay unless some- Source: QUICK-FactSet Amazon.com in July will close its official app
thing dramatic happens from a geopolitical per- store in China, the company said, while Airbnb
spective. At least in the short term, I don’t see shut down its China operation last year.
that changing.” It is, however, difficult for other tech compa-
U.S. tech giants’ 80
In early June, leading U.S. venture capital firm Sequoia Capital nies, especially those that rely heavily on China for sales, to fol-
reliance on China announced it had decided to separate its China division.
Qualcomm* low HPE and other corporations down a path of drastic structural
over past five years
(Percentage of total revenue 60 “To deliver on our mission, we have decided to fully em- changes in China. Meanwhile, the environment surrounding
generated in China) brace our local-first approach,” Sequoia said in a joint statement these companies is becoming increasingly severe.
Texas Instruments from the three heads of its U.S. and Europe, China, India and After the U.S. last October announced it would be tighten-
40 Southeast Asia businesses. The three funds will be split up and ing regulations on the export of cutting-edge semiconductor
Apple figure refers to net sales;
independently operated by March 2024. technology, Applied Materials, a major semiconductor manu-
Nvidia* Tesla
Qualcomm and Texas Instruments facturing equipment company, predicted the move could cut its
figures refer to revenue based 20
on product shipment destination; Apple** sales by up to $2.5 billion for the fiscal year through this coming
Nvidia figure refers to revenue
based on billing locations A Micron Technology employee stands
October. The amount is equal to 10% of the company’s sales for
*Includes Hong Kong
0 in a clean room at a fab facility in Boise, the fiscal year through last October.
**Includes Hong Kong and Taiwan
2018 ’19 ’20 ’21 ’22 Idaho, in 2022. According to Applied Materials’ results for the quarter that
AP

Source: Company filings

Nikkei Asia - Special excerpt from July 17-23, 2023 Print edition. Nikkei Inc. No reproduction without permission.
 THE BIG STORY
AP
ended April 30, sales to China plummeted to $1.4 billion, down
34% from a year earlier. China’s share of the company’s total
sales, meanwhile, decreased significantly, to 21% from 34% for
the year-before quarter.
Another U.S.-based chip equipment company, Lam Research,
expects annual sales in 2023 to fall by $2 billion–$2.5 billion due
to U.S. restrictions.
Lam Research’s China revenue was down 34% to $839 million
year on year for the quarter that ended March 26. The sharp
decline in China business “was largely attributed to the U.S.
government sales restrictions for certain Chinese domestic
customers,” said Douglas Bettinger, the company’s chief finan-
cial officer.
Until recently, the direct victims of the U.S.-China tech ri-
valry have been mostly on the Chinese side, such as Huawei
Technologies and ZTE, two telecom equipment makers. The U.S.
sanctions struck the Chinese tech giants, restricting them from
accessing critical American technologies, significantly impacting
their smartphone businesses. The U.S. and some other Western
nations have also moved to ban the use of Huawei and ZTE 5G
equipment in their communications infrastructure.
NO END IN SIGHT However, as the China-U.S. confrontation
prolongs itself and worsens, restrictions from both Beijing and
Washington are beginning to harm a key American industry.
American management teams rarely comment on the risks of
their dependence on China except for companies such as Micron
and Lam Research, where such risks directly impact earnings.
U.S. President Joe Biden
speaks about the CHIPS
and Science Act, a measure
intended to boost the
semiconductor industry,
in Carlsbad, California,
on Nov. 4, 2022.
As a business, we just want
some certainty about policies
Satya Nadella, CEO of Microsoft
But the fine print in companies’ annual reports sets out risks
many tech executives rarely touch upon publicly.
Qualcomm said in its annual report that “a significant portion
of our business is concentrated in China, and the risks of such
concentration are exacerbated by U.S./China trade and national
security tensions.”
Apple noted that “tensions between the U.S. and China have
led to a series of tariffs being imposed by the U.S. on imports from
China’s mainland, as well as other business restrictions. Tariffs
increase the cost of the company’s products and the components
and raw materials that go into making them. These increased
costs can adversely impact the gross margin that the company
earns on its products.”
Akira Minamikawa, senior consulting director at U.K.-based
research company Omdia, says that “manufacturing bases for
electronic devices such as smartphones and personal computers
AP
are highly concentrated in China, and therefore, the dependence
of the U.S. semiconductor industry on China remains high.” But, IBM CEO Arvind Krishna told Nikkei at the World Economic
he added, “the U.S. tech industry’s dependence on China will Forum in Davos earlier this year that he is a “firm believer” that
decline gradually.” the “world is better served by nations having lots of trade, and by
“One of the reasons is the geopolitical risk of producing in China, building to participate in a much larger global economy than by
but another reason is that the cost competitiveness of China itself is any kind of falling prey to geopolitics.”
waning,” Minamikawa said, estimating that “about one-third” of “IBM has been invested in China for almost 30 years. And our
the electronics manufacturing in China will go abroad. hope is that we will remain invested for the next 30 years,” the
Apple and other tech giants like Google are looking to move executive said.
parts of their supply chains away from China and into other Similarly, Satya Nadella, CEO of Microsoft, told Nikkei last
Asian countries. Apple has said India will year that he hopes “the largest powers in the
be a “major focus” for the company, which is world will always find some common ground
hoping to tap the country both as an alternative
production base to China and a source of growth.
These refocusing efforts will mean “U.S. tech
17 to work together on issues that the world needs
us to work [on] together, while not sacrificing
what’s in their national interest.”
of the top 100
companies should become less dependent on “As a business, we just want some certainty
China,” Minamikawa said, but “this will take
global companies about policies,” Nadella said.
about four to five years.” by sales in China However, analysts do not see the U.S.-China
Tangled in the tension between the U.S. and in the most recent technology confrontation ending anytime soon.
China, Cook has carefully avoided direct com- fiscal year were Minamikawa predicts that the U.S. will only
ment on geopolitical issues. U.S. tech-related quit once China’s technological competitive-
Meanwhile, Charlie Munger, vice chairman ness decreases. “Just like the trade war with
Source: QUICK-FactSet
of Berkshire Hathaway, a major Apple share- Japan, it won’t stop unless the U.S. sees a clear
holder, spoke candidly at his company’s share- victory,” he said.
holders meeting. “There’s no easy answer for companies deal-
The investor blamed both the U.S. and China, saying economic ing with the U.S.-China rivalry,” Prakash of The Geopolitical
tensions have been “wrongly created on both sides. I think we are Business advisory said. “These firms are used to accessing the
equally guilty of being stupid.” whole world with no limits. The C-suite has to accept that a new
Using Apple as an example, he stressed that U.S. engagement status quo is forming.”
with China has produced results that have been “good for Apple
and good for China.” He added, “Anything that increases tension
is stupid, stupid, stupid.” Additional reporting by Yifan Yu.
“IBM has been invested in China
for almost 30 years. And our hope
is that we will remain invested
for the next 30 years,” says
CEO Arvind Krishna.
Akito Tanaka
An Apple store in Hong Kong: The U.S.
company logged roughly $74 billion
in revenue in greater China in 2022.
Nikkei Asia - Special excerpt from July 17-23, 2023 Print edition. Nikkei Inc. No reproduction without permission.