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Apple Sets 1st China Data Center to Meet Cybersecurity Rules


Per Reuters, Apple Inc. AAPL is seeking collaboration with local internet services companies to establish its first data center in China, to ensure compliance with the country's newly implemented cyber-security regulations.

The planned facility will be located in Guizhou province of Southwest China, and will be operated in cooperation with Guizhou-Cloud Big Data Industry Co., Ltd. (GCBD), a data management enterprise co-founded by the Guizhou provincial government.

Reportedly, the company anticipates the center to boost its online data storage services such as iCloud to better meet local consumers' growing demand. Further, it aims to shift Chinese users’ information to the new facility in coming months.

The new datacenter represents a portion of Apple's planned $1 billion investment into the Guizhou province, according to a company statement.

In recent years, the Chinese central government has been promoting the mountainous central province as their “Guizhou National Big Data Comprehensive Pilot Zone,” per media reports. Reportedly, Guizhou pitched cloud computing and big data to the high-tech industries in Silicon Valley, and offered them a range of preferential policies.

However, China’s new Cyber Security Law (CSL), adopted since last month, is speculated to have jeopardized international business in the world’s second-largest economy, especially for foreign tech firms. Multinational companies, reportedly, claim that the law has granted Beijing greater access to foreign companies’ technology, along with rise in operating costs, which essentially renders domestic companies an unfair edge.

As far as Apple is concerned, China remains its second biggest market. However, the company is losing ground on account of sluggish demand in the region for its flagship product, iPhone, over the past few quarters. Additionally, mounting competition from local players such as Huawei and Oppo is also hindering growth prospects.

In a bid to protect its business interests, Apple has stepped up investment in the country to woo the government. Earlier last year, the company had invested $1 billion in the ride-hailing company Didi Chuxing (DIDI). Moreover in March, it announced plans to build two research and development (R&D) centers in Shanghai and Suzhou, Jiangsu province. Furthermore, the company established two R&D centers in Beijing and Shenzhen last year.

Regarding the set up of the new data center, Apple spokesperson was quoted saying “The addition of this data center will allow us to improve the speed and reliability of our products and services while also complying with newly passed regulations. Apple has strong data privacy and security protections in place and no backdoors will be created into any of our systems.”

Apple’s Data Center Expansion Efforts

Apple is rapidly expanding data center infrastructure to support current and future Internet services, including iCloud. Earlier this week, it unveiled plans to setup a $921 million data center in Denmark.

Notably, this new datacenter will be entirely driven by renewable forms of energy. It is worth mentioning that Apple has publicly committed to powering its data centers with 100% renewable energy.

We believe that Apple’s China data center is also part of its continued effort toward attaining 100% renewable energy efficiency. Notably, it is one of the many big companies that took up climate change issues head on.

Zacks Rank and Share Price Movement

At present, Apple carries a Zacks Rank #3 (Hold).

We note that the company has outperformed the Zacks categorized Computer Mini industry in the last one year. Its shares have gained 49.8% compared with the industry’s advancement of 48.9%.

Stocks to Consider

Better-ranked stocks in the broader computer sector include Applied Optoelectronics, Inc. AAOI, Autohome Inc. ATHM and MAM Software Group, Inc. MAMS, all three sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank Stocks here.

Applied Optoelectronics, Autohome and MAM Software have delivered average positive earnings surprises of 118.33%, 41.38%, and 92.86%, in the trailing four quarters respectively.

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