In a move to enhance its presence in the Chinese market, Apple has reportedly selected Chinese search engine giant Baidu to provide generative artificial intelligence (AI) technology for its upcoming iPhone 16 and other products in mainland China this year, according to a Chinese media report. The decision comes as Apple CEO Tim Cook visited China, where he inaugurated a new retail store in Shanghai, met with key Chinese suppliers, and expressed his commitment to the country as a market and manufacturing base.

According to the report by China Star Market, Baidu's Ernie Bot will be utilized by Apple for iPhone 16, Mac OS, and iOS 18 in China. Apple had also held discussions with other Chinese companies, including Alibaba Group Holding and an AI company affiliated with Tsinghua University, before finalizing its alliance with Baidu. The report further stated that Apple will implement its own AI model outside of China, but opt for locally-developed technology within the mainland market, taking compliance factors into consideration.

Baidu's share price witnessed a surge in Hong Kong, rising by as much as 6% on Monday morning and closing at HK$100.7, a 2.55% increase. Neither Baidu nor Apple has provided an official statement regarding this partnership.

Apple's decision to collaborate with Baidu follows a recent report by The Wall Street Journal that revealed the initial talks between the two companies regarding the use of Baidu's generative AI on Apple devices in China. This development comes at a crucial time for Apple, as it faces increased competition in the Chinese market, with iPhone sales declining by 24% in the first six weeks of 2024, as per Counterpoint Research. Overall smartphone sales in mainland China also experienced a 7% drop during the same period due to intensified competition and subdued consumer spending.

The potential alliance between Apple and Baidu occurs as Samsung Electronics incorporates Baidu's Ernie large language model into its latest flagship 5G device. Furthermore, Samsung has entered into a multi-year partnership with Google's Gemini AI technology to power its new AI-enabled 5G smartphones globally. Under a strategic collaboration between Samsung's China arm and Baidu AI Cloud, the recently unveiled Galaxy S24 series will feature the Ernie LLM to enable the handset's innovative "Circle to Search" feature, allowing mainland users to search for texts, images, or videos through hand gestures, with results provided by Baidu.

However, AI service providers are facing increased regulatory restrictions, as Chinese authorities implement new guidelines and regulations to ensure that AI-generated content aligns with permitted government standards. China has been at the forefront of implementing detailed regulations governing domestic generative AI services, becoming one of the first countries in the world to establish rules in this emerging technology sector.

As Apple forges this partnership with Baidu, it aims to leverage Baidu's AI capabilities to boost its presence in the Chinese market and regain its competitive edge amidst challenging market conditions.