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An Apple Store in Shanghai; with its Didi Chuxing investment, Apple is hitting the streets of China. Photo: Reuters
Alex Frangos and
Dan Gallagher
May 13, 2016 3:06 a.m. ET

The amount might seem small in relation to Apple ’s AAPL -0.07% mountain of cash, but the back story is what should trouble investors.

Apple said late Thursday that it would inject $1 billion into Didi Chuxing Technology, China’s leading ride-hailing company and Uber arch rival. Considering that Apple held $233 billion in cash and marketable securities at the end of March—and roughly 90% of that outside the U.S. —$1 billion is basically spare change.


What it gets out of the deal is less tangible. Didi is in a cash-burning war with Uber to become the pre-eminent ride-sharing service​ in China. Other major ​Didi ​investors, including Chinese Internet giants Alibaba and Tencent, have backed Didi partly to ensure their affiliated ​electronic-payment services, Alipay and Tenpay are embedded on the Didi app. Apple conceivably could now get Apple Pay onto Didi’s app, but that would make it a third alternative.

Tim Cook met with Didi executives April 20. That the deal came together in less than a month, points to Apple feeling the urgent need to do something to restore its buzz there. The backdrop is Apple’s flailing sales. China, after all, was Carl Icahn’s excuse to exit his investment in the company, he said in April. ​ For Apple, the profile of the Didi stake is unusual, as it normally does small, tuck-in purchases to acquire talent or technology, and in the case of Beats, acquire a company outright. That Didi could be an outlet for Apple’s purported car venture seems either far-fetched​or far off.

​The bigger motivation may be that Apple thinks it gains credibility with Beijing after regulators recently blocked it from selling books and movies on its iTunes store. ​Apple will join state-owned or state-friendly entities who are Didi investors, such as China’s sovereign-wealth fund, China Investment Corp., and Ping An Insurance .

In light of Qualcomm ’s troubles in China that included a nearly $1 billion antitrust fine and pressure on its licensing fees, investing $1 billion of trapped cash in a fast-growing startup​may seem more palatable.

Apple is looking change its fortunes in China. Investors should now factor in that the cost of doing so has risen.

Write to Alex Frangos at email@example.com and Dan Gallagher at firstname.lastname@example.org





