As China Takes Aim, Silicon Valley Braces for Pain

Apple’s exposure to China is broad. The company assembles most of its products there, and the region is its No. 3 market, after the United States and Europe. In its latest quarter, Apple earned $10.2 billion in China, Taiwan and Hong Kong, or about 18 percent of its total revenue. Apple did not respond to requests for comment on Friday.

The iPhone maker’s dependence on China was vividly demonstrated late last year when Chinese consumers began balking at buying the latest model of the smartphone. Total revenue for the region that includes China dropped 25 percent in the fourth quarter to $13.17 billion. One of Apple’s responses was to cut Chinese prices of its cheapest phone. The situation seems to have stabilized recently.

Other tech behemoths have found little traction in China. Microsoft has generally tried to play along in China, censoring sensitive topics the government bans on its Bing search engine and teaming up with a state-run firm to produce a government-approved version of its Windows 10 software.

Yet in January, government censors appeared to briefly block Bing, which, though little used, provides a rare portal in China to the global internet. And widespread problems with bootleg copies of Microsoft’s software have prevented China from becoming a major market for the company. Microsoft declined to comment.

“Piracy has been an epidemic for Microsoft in China,” said Dan Ives, a managing director at Wedbush Securities. Investors had hoped that trade negotiations with China could resolve these longstanding intellectual property issues.

“You are talking about a company that tried to penetrate China from every angle, both from a demand and R & D perspective,” Mr. Ives said. “Now, with all the trouble they have had there, it actually becomes a benefit to Microsoft versus other tech players.”

Facebook, which needs all the friends and arguments it can get as it battles widespread calls for its breakup, has already seized on the China threat. It maintains it needs to be big to compete with the big Chinese companies.

“People are concerned with the size and power of tech companies,” Sheryl Sandberg, Facebook’s chief operating officer, recently said in a CNBC interview. “There’s also a concern in the United States about the size and power of Chinese tech companies and the realization that those companies are not going to be broken up.”