The latest version of the Apple Watch has been crippled in China due to government concerns that it could be used to circumvent state surveillance, the Wall Street Journal reported Thursday. The report apparently spooked investors who have long been wary of Apple’s performance in the country, sending the company’s stock down 2.9%.
The Apple Watch Series 3, which was introduced in September, comes with cellular connectivity, allowing users to make calls and access apps and online services without having to rely on an iPhone for internet access. Owners of the new Apple Watch could briefly sign up for wireless connectivity through one Chinese carrier, according to the Journal — only to find the service cut off without notice soon after.
Apple didn’t immediately respond to a request for comment.
At the center of the controversy is apparently Apple’s decision to use a so-called eSIM card for accessing wireless networks. eSIMs allow users of mobile devices to sign up with a carrier, and even switch carriers, via software, without the need to ever swap out physical SIM cards. However, the technology is reportedly also harder to track by China’s surveillance apparatus, which has long used phones to keep tabs on citizens.
The eSIM trouble is just the latest wrinkle in Apple’s complicated relationship with China. Strong growth in China has helped Apple to achieve record quarters in the past. However, demand in the region cratered last year, with revenue declining as much as 33 percent year-over-year on a quarterly basis.
The pace of declines has slowed since, but revenue in the greater China region was still down 10% last quarter, while it was up 7% worldwide.