Apple pins hopes on AI to boost flagging iPhone sales
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Apple has pinned its hopes on new artificial intelligence-powered software to boost flagging iPhone sales, with Wall Street betting that generative AI features will convince millions of consumers to buy the latest version of the best-selling device.
The tech giant unveils the iPhone 16 at its headquarters in Cupertino, California, on Monday. Consensus market expectations for new iPhone sales predict about 5 per cent revenue growth in 2025, thanks to an expected upgrade cycle driven by consumers lured in by new AI features.
The device will be the latest vehicle for the “Apple Intelligence” system showcased by chief executive Tim Cook in June. This includes a revamped Siri voice assistant, photo editing features powered by its own AI models, as well as a partnership with OpenAI that will give users free access to ChatGPT.
The Financial Times reported on Saturday the device includes a new “A18” chip designed using Arm’s latest technology to better handle the demanding computer workloads of AI models.
Analysts said, however, that they wanted more clarity over how quickly the company can roll out and improve Apple Intelligence, creating an unpredictable new factor in the company’s business.
For the first time since the first iPhone was launched more than 17 years ago, Apple is reliant on AI-powered software upgrades rather than hardware changes to convince users to acquire a new device on a yearly basis — a habit that has powered its growth into a $3.3tn company.
“This is a cycle where things are going to get phased in, as opposed to a typical launch, where you get improvements on hardware,” said Wamsi Mohan, analyst at Bank of America. “What is not fully understood yet is when Apple Intelligence is going to roll out, with what features. That does change the way that people view the dynamics of the cycle.”
Any growth in iPhone sales would be a marked improvement on this year, where competitive pressures in China have proved a drag on the tech group’s flagship product. Revenues for the iPhone fell 10 per cent year on year in the first three months of 2024, hitting $46bn.
For the April- to-June quarter, iPhone revenue was still slightly down on the same period for the year before at $39.3bn. The iPhone made up about 46 per cent of Apple’s total revenues in the same quarter.
Apple shares are up about 19 per cent since the start of the year, receiving a boost in the weeks after Apple Intelligence was announced and allowing it to defend its position as the most valuable US-listed company from Microsoft and Nvidia.
But one unknown issue is the speed at which Apple Intelligence will be introduced worldwide. Apple has said the new OpenAI features will arrive by the end of the year. The initial features will first be available only in US English, while some features have been temporarily delayed in Europe with Apple blaming new EU tech regulations.
Analysts at Piper Sandler and Morgan Stanley said their main focus on Monday would be what the company reveals about its AI timeline. Dan Ives, analyst at Wedbush, was bullish, saying in a note on Friday that Apple was about to kick off “the biggest upgrade cycle in its history”.
“It’s different from the usual cycle [of an iPhone launch], where there’s this box office mentality, where you can gauge how good it’s going to be based on data points over the first month or two,” said Gene Munster at Deepwater Asset Management. “Basically it’s going to take time for momentum to build.”
Munster also warned that the success of iPhone launches tends to vary. For the 2019 fiscal year before the coronavirus pandemic, iPhone revenues were down about 13.6 per cent. A Covid-era boom then delivered 39.3 per cent growth for the 2021 fiscal year, only to plateau into 2022 and 2023.
“It’s really the furthest thing from a ‘steady Eddie’ business, no matter how much some investors might like to think so,” Munster said.