OpenAI takes latest bite in deal with company’s ex-designer

(Originally published May 23 in “What in the World“) The apple, so the saying goes, doesn’t fall far from the tree.

So Apple, the company, has to be concerned that its celebrated former designer, British-American Sir Jonathan “Jony” Ive, has joined OpenAI to help it make AI-enabled hardware with the same simplicity, reliability, and sex appeal that have made Apple the industry standard for the laptops, tablets, and smartphones that never, ever leave our sides.

OpenAI, the San Francisco-based artificial intelligence research organization, said yesterday it would buy the startup Ive launched a year ago, io Products, in a $6.5 billion stock swap. As part of the deal, Ive will join OpenAI as its creative director. OpenAI’s CEO Sam Altman said it already had a prototype device that he called “the coolest piece of technology the world will have ever seen.”

Whether it is or not, it adds to the competition Apple already faces in the burgeoning new frontier that is AI, a field in which it has already been a laggard. While OpenAI’s ChatGPT has become a clear leader, both Google and OpenAI investor Microsoft have launched their own AI chatbots—Microsoft with CoPilot (launched in early-2023 as Bing Chat), and Google with Gemini (originally launched in early-2023 as Bard). Apple, meanwhile, has delayed the roll out of its Apple Intelligence into devices’ software, despite launching it last year.

Apple has also been caught up in Trump’s autarchist agenda. Apple still makes an estimated 90% of its iPhones, 80% of its iPads, and 55% of its Macs in China. So, Trump’s 145% tariffs on China imports would be no good for Apple: analysts estimated the price of an iPhone would jump to $1,600 from $1,000. After CEO and Trump donor Tim Cook lobbied him, Trump exempted smartphones and other electronics made in China from his “reciprocal” tariffs. But they were still subject to other tariffs on China-made goods, which Cook estimated during his latest quarterly earnings call would cost the company $900 million in the current quarter alone.

Apple’s solution: make more of its U.S.-bound iPhones in India. Cook said in the call that it would be able to ensure that more than half of iPhones sold in the U.S. this quarter came from India rather than China. That’s part of a longer-term plan to shift 25% of its global iPhone production to India, and lower its manufacturing risk in China, that Apple has been working on since before Covid. As part of that, Apple’s big Taiwan-headquartered supplier, Foxconn, is busily building a $1.5 billion components factory near Chennai and a display module plant in Tamil Nadu.

But Trump still isn’t happy. Last week, he said he didn’t want Apple to make its iPhones in India, either. He said he wants Apple to make the iPhone in the U.S.A., remarks that have clouded talks between India and the U.S. on lowering Trump’s 26% reciprocal tariff on imports from India.

Trump’s administration is also pushing back on Apple’s efforts to roll out AI on its devices in China, which accounts for a fifth of Apple’s global sales. Doing so requires making a deal with China’s Alibaba. But the White House fears doing so will help China hone its own AI capabilities, thus making it a more dangerous military adversary.

Apple’s services business (28% of global sales) is meanwhile being threatened by antitrust challenges. A federal judge in Washington is considering restricting Google’s ability to keep paying Apple $20 billion a year to be the default search engine on iPhones. And last month, a federal judge in California ruled that Apple could no longer bar apps from its App Store that provide customers external links to avoid its 30% commission on sales.

Then there’s the more basic problem of consumer demand. Sales rose 5% in the most recent quarter, helping Apple post a 4.8% increase in quarterly net profit—$24.78 billion. But the risk that Trump’s policies throw the U.S. and even the global economy into recession looms. Apple said it expects sales in the current quarter to grow by only “low- to mid-single digits,” i.e. 5% or less, so more slowly than in the most recent quarter, but still within the upward trend in sales over the past few years. But given that U.S. consumers splurged on imported products tin the first quarter to beat tariffs and that consumer finances are looking shakier by the day, that projection might prove optimistic.