Apple set for big sales decline as investors await AI in iPhone
As Apple prepares to release its quarterly sales results, analysts are predicting the tech giant’s biggest revenue decline in more than a year. The focus is likely to be on Apple’s plans to introduce generative AI capabilities into the Apple iPhone to boost sales and revive the slumping Chinese market.
Once considered a must-own company on Wall Street, Apple has underperformed in recent months. Its shares have fallen more than 10% over the past year, as concerns have mounted over the company’s AI rollout and the resurgence of Huawei, which is gaining market share in China.
According to analysts at LSEG, on average, they expect Apple iPhone sales to drop by 10.4% during the first quarter of 2024. This would be the largest decline in over three years. Analysts also believe Apple’s overall revenue declined by 5% during the second quarter, which includes the months of January to March. This would be the company’s largest revenue drop since December 2022, when revenues fell by 5.5%.
The pressure on Apple iPhone
The pressure is on Apple to upgrade its flagship iPhone product after several years of no major updates, due to weak revenue and declining share prices. Microsoft has now surpassed Apple as the world’s most valuable company, with a market value of $2.68 trillion, following the drop in Apple’s share prices in 2024.
To address these challenges, Apple is reportedly in discussions with OpenAI, Alphabet’s Google, and other companies to develop generative AI capabilities for the iPhone. These features could be unveiled at the company’s upcoming developer conference, which is expected to be the largest ever held.
Analysts are predicting a surge in demand for Apple’s next iPhone, expected to launch this autumn, due to the integration of advanced AI features. This could help Apple compete more effectively with rivals like Huawei and Samsung Electronics, the latter of which has reclaimed its position as the top smartphone manufacturer in the world this year, thanks in part to the demand for AI features on its Galaxy S24 phones.
Apple’s CEO, Tim Cook, has not talked as much about the company’s AI plans as executives from Microsoft, Alphabet, and Meta Platforms. However, the integration of AI into the iPhone could be a crucial move for Apple, as it seeks to regain its foothold in the market and appeal to consumers who are increasingly looking for advanced features and capabilities in their smartphones.
The Analyst’s Perspective
Toni Sacconaghi, a Bernstein analyst, has upgraded his rating on Apple to “outperform”, from “market perform”, citing “replacement cycle tailwinds” and “incremental generative AI features” that set the company up well for the iPhone 16 series.
Apple’s China business has historically been more volatile than its overall performance, due to the feature-sensitivity of its installed base in the country. The company’s recent release of the Apple Vision Pro, its largest new product in years, has also faced signs of a slowdown in demand after initial excitement, with an analyst reporting that Apple has lowered its production estimates for the mixed-reality headset.
The Broader Hardware Landscape
Apple’s hardware division beyond the iPhone is also struggling, with sales of iPads and Macs expected to drop by 11.4% and 4.3%, respectively, in the quarter ending March. The company has acknowledged the need to focus more on its devices, which have been hampered by a lack of significant upgrades.
To address these challenges, Apple plans to unveil a new iPad lineup at an event later this month. Additionally, media reports suggest the company plans to update every Mac model with faster M4 AI processors, as it seeks to stay competitive in the hardware market.
The Services Sector Offering Hope
While Apple’s hardware business faces headwinds, the company’s services sector, which includes subscriptions and App Store revenue, is expected to experience a growth of 7.7% in the upcoming quarter. This suggests that Apple is making progress in diversifying its revenue streams beyond its core iPhone business.
The Integration of Generative AI
The key focus for Apple moving forward will be the integration of generative AI capabilities into the iPhone. By partnering with companies like OpenAI and Alphabet’s Google, Apple is positioning itself to leverage the latest advancements in AI technology to enhance the user experience and functionality of its flagship product.
The integration of generative AI could take many forms, such as improved virtual assistants, more intelligent task-completion capabilities, and advanced text and image generation features. These enhancements could help differentiate the iPhone from its competitors and drive renewed consumer interest in the device.
Challenges Ahead
However, Apple’s efforts to integrate generative AI into the iPhone are not without their challenges. The company will need to navigate the complex technological, regulatory, and ethical considerations that come with the deployment of such powerful AI systems. Additionally, it will need to ensure that the integration of AI features does not come at the expense of the iPhone’s core user experience and reliability.
Moreover, Apple will need to contend with the resurgence of competitors like Huawei and Samsung, which are also investing heavily in AI-powered features for their smartphone offerings. The battle for market share in the smartphone industry is likely to intensify as companies vie to offer the most compelling and innovative AI-driven experiences.
Potential Implications for the Smartphone Market
The integration of generative AI into the Apple iPhone could have far-reaching implications for the broader smartphone market. If Apple’s efforts prove successful, it could set a new standard for what consumers expect from their mobile devices, potentially forcing other manufacturers to follow suit or risk falling behind.
Furthermore, the integration of AI could also open up new avenues for app development and ecosystem expansion, as developers leverage the enhanced capabilities of the iPhone to create innovative and engaging user experiences. This could, in turn, strengthen Apple’s position in the market and further solidify the iPhone’s status as a must-have device.
Conclusion
As Apple prepares to report its quarterly sales results, the focus is clearly on the company’s efforts to integrate generative AI into its flagship iPhone product. With analysts predicting the largest revenue decline in over a year, and the pressure mounting to revive the slumping Chinese market, Apple’s AI-powered strategy could be a crucial factor in determining the future trajectory of the iPhone and the broader smartphone industry.
The integration of advanced AI features into the iPhone could not only boost sales and revive consumer interest in the device but also set the stage for a new era of smartphone innovation and competition. Apple’s success in this endeavor will be closely watched by both industry analysts and consumers alike, as the tech giant seeks to reclaim its position as the must-own company on Wall Street.