Apple’s AI Strategy And Revenue Decline.
Apple’s strategy to incorporate generative AI into its iPhones, aiming to reinvigorate its sales in China, takes center stage as the tech giant prepares to announce its quarterly earnings. The company is projected to report its largest revenue decline in over a year, reflecting challenges in the competitive smartphone market and concerns over its AI rollout.
Despite being a long-standing favorite on Wall Street, Apple’s stock has lagged behind other major tech companies, dropping more than 10% year-to-date. This decline is partly attributed to worries about its slow AI service deployment, coupled with Huawei’s resurgence in China.
Analysts anticipate a significant drop in iPhone sales, which constitute roughly half of Apple’s revenue, with a projected 10.4% decline in the first quarter of 2024. This would mark the steepest decline in over three years. Overall, Apple’s total revenue for the second quarter, covering January to March, is estimated to have fallen by 5%, the largest decrease since the last quarter of 2022.
Losing its status as the world’s most valuable company to Microsoft earlier this year, Apple’s market value has now settled at $2.68 trillion. The combination of weak revenue and falling shares has increased pressure on the company to revamp its flagship device, which has seen minimal upgrades in recent years.
Apple is reportedly in discussions with OpenAI and Google’s Alphabet to introduce genAI features to the iPhone, potentially unveiling them at its upcoming developer conference in June. Analysts believe such integration could boost demand for the next iPhone series, anticipated to be announced in the fall.
Unlike counterparts such as Microsoft and Alphabet, whose executives have extensively discussed their AI strategies, Apple CEO Tim Cook has been less vocal about the company’s plans for this technology. However, integrating AI into iPhones could enhance Apple’s competitiveness against Huawei and Samsung Electronics, the latter regaining its position as the world’s leading smartphone vendor, driven by the popularity of AI features in its Galaxy S24 smartphones.
Bernstein analyst Toni Sacconaghi has upgraded Apple’s stock rating, citing the potential for a strong iPhone 16 cycle fueled by replacement cycle tailwinds and new generative AI features. Sacconaghi believes that the current weakness in China is more cyclical than structural, noting the historically higher volatility of Apple’s China business due to its feature-sensitive user base.
In addition to the iPhone and AI plans, Apple’s earnings report will be closely watched for updates on its stock buyback program and the performance of the Vision Pro, its first major product in years, launched in February. Initial excitement around the $3,500 mixed-reality headset has tempered, with reports indicating that Apple has adjusted its production estimates in response to slowing demand.
The rest of Apple’s hardware business, including iPads and Macs, is also experiencing soft demand, with sales expected to decline in the March quarter. To address this, Apple is reportedly planning to unveil a revamped iPad lineup and update all Mac models with faster, AI-focused M4 processors.
Despite these challenges, Apple’s services business, which includes revenue from the App Store and subscription services like Apple TV, is expected to remain a bright spot, with a projected revenue growth of 7.7%.
