Core Insights - Apple's CEO Tim Cook has been visiting Chinese gaming companies, including Lilith Games, Mihayou, and Paper Games, which are collectively referred to as the "Four Little Dragons" of Shanghai gaming [1][4] - The importance of service revenue, including gaming, is increasing for Apple, with service revenue reaching a new high of $27.4 billion, accounting for nearly 30% of total revenue in the latest quarterly report [1][4] Group 1: Tim Cook's Visits - Tim Cook's recent visit to Lilith Games included a mention of their product "Sword and Expedition: Journey," which is set to release in 2024 and has been recognized as the iPhone game of the year by App Store Awards 2024 [2] - Cook's visits to Chinese gaming companies have become a routine, with previous visits to Kuro Game, Paper Games, NetEase, and Mihayou, highlighting Apple's focus on the gaming sector [4] Group 2: Lilith Games Overview - Lilith Games, established in 2013, is known for its mobile games such as "Tiny Legends," "Sword and Home," "Awakening of Nations," and "Sword and Expedition," focusing on SLG and idle RPG genres [3] - The game "Awakening of Nations" set a record for monthly revenue for Chinese strategy mobile games when it was released in 2018, and as of September this year, it ranks 18th in the revenue chart for Chinese mobile games abroad [3] Group 3: Service Revenue Growth - Apple's financial performance for Q3 FY2025 showed total revenue of $94 billion, a 10% year-over-year increase, with service revenue growing by 13% [4] - The growing significance of service revenue, particularly from gaming, reflects a strategic shift for Apple as it diversifies its income sources beyond hardware [1][4]

Core Insights - Apple's service business has significantly contributed to its stock price increase, with a fourfold growth in service revenue since 2015, while iPhone sales remained flat [1] - The gross margin for Apple's service business exceeds 70%, compared to 30-40% for hardware, indicating a greater impact on profits than on revenue [1] - The decision to separately report the rapidly growing and profitable service segment has led to higher price-to-earnings ratios for Apple stock [1] Group 1: Service Business Growth - Apple's service revenue has grown four times since 2015, while device revenue has increased by less than 40% [1] - The services include iCloud storage, subscription services, paid apps, in-app advertising, and web search-related income [1] - Analysts believe that the strong performance of the service business is a key reason for the stock's high valuation [1] Group 2: Risks to Service Business - The growth rate of Apple's service business has begun to slow down, with two major risks emerging that could undermine its key components [2] - The App Store's commission revenue is a core part of the service business, contributing nearly one-third of total service revenue [3] - Legal challenges from developers regarding high commission fees could potentially lead to a loss of up to 10% of net profit if all major developers move purchases outside the App Store [3] Group 3: Google Search Revenue - Revenue from Google for being the default search engine on Safari is another significant and profitable component of Apple's service business, accounting for about 6% of total revenue [4] - This revenue has minimal associated costs, translating almost entirely into profit, representing 19% of Apple's total operating profit [4] - The U.S. Department of Justice's actions against Google could jeopardize this revenue stream, as they seek to cancel the search engine contract [4][5]