Apple's $1B bet in China is all about timing

SAN FRANCISCO — Apple's $1 billion investment in Didi, an Uber rival in China, is all about timing.

It not only firmly plants Apple (AAPL) in the lucrative ride-hailing market in the world's most-populous country, it underscores the company's commitment to China weeks ahead of CEO Tim Cook's trip there.

"We are making the investment for a number of strategic reasons, including a chance to learn more about certain segments of the China market," Cook told Reuters late Thursday, when Apple announced the deal.

"We admire them on many, many levels in terms of innovation, in terms of cutting edge technology," Didi President Jean Liu said in a news conference. "There are always a lot of things we can learn from Apple."

Reports: Apple investing $1B in Uber rival Didi Chuxing

China, Apple's second-largest market after the U.S., holds vast potential but comes with significant hurdles. It accounts for roughly $59 billion in annual sales for Apple. But the company's most recent quarterly sales there fell 11% from the year-ago period because of a more saturated smartphone market and a slowing economy.

Apple must also navigate a market ruled by a Communist government while assuring consumers there that its products are secure. Privacy especially resonates in China, where consumers are spooked by government surveillance, hacking and cybercrime.

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Activist investor Carl Icahn last month sold all of his 45.8 million shares of Apple stock out of concern over its business in China.

Yet Cook is making the trip halfway across the world to visit government officials because he envisions a sprawling middle-class eager to snap up Apple devices. He said as much in a recent appearance on CNBC's Mad Money program.

"The middle class (in China) is booming," Cook said. "I could not be more optimistic about its future."

Tim Cook on China: 'I could not be more optimistic'

Apple's billion-dollar bet on Didi is its biggest since it acquired Beats, a music service and headphone maker, for $3 billion in 2014, and probably its most important since then. Didi, whose investors include Alibaba and Tencent, is the largest service of its kind in China, with operations in 400 cities serving about 300 million people.

Its market leadership prompted Uber to raise $1.2 billion last year, specifically for Uber China, according to a note Friday from Piper Jaffray analyst Gene Munster.

Didi’s political standing might also benefit Apple.  China's sovereign wealth fund invested in Didi last year, according to a Bloomberg report. Apple’s investment confirms its faith in the region’s economic growth and “will give them a more positive view with the Chinese public,” Apple analyst Tim Bajarin says.

The investment marks a departure for Apple, which typically buys tiny start-ups every three to four weeks.

This one feels different for other reasons.

It shows Apple's continued commitment to China, and it implies the company may have plans to deploy self-driving cars in that country as taxis. So far, Apple has been mum about its mysterious electric car project.

This much is clear: Apple needed to do something bold to reverse a recent stock slide that enabled Alphabet to surpass it as the most-valuable company in the world. Apple's stumble, which included eight straight losing sessions, coincided with its first decline, year-over-year, in iPhone sales.

"We believe the investment could help Apple guide its car efforts," analyst Munster said in his note today.

For one day, at least, the strategy clicked with investors. As S&P Global Market Intelligence issued a statement maintaining a "strong buy" recommendation on Apple stock, the company shares rose more than 1% Friday. They settled with a 0.2% gain.

Contributing: Jessica Guynn  

Follow USA TODAY San Francisco Bureau Chief Jon Swartz @jswartz on Twitter.