In its latest annual report, Apple issued an unprecedented warning to its investors: new products and services may never achieve the exceptional profitability of the iPhone. The statement comes as the company ventures into the promising but uncertain areas of artificial intelligence and mixed reality.
A delicate technological transition
Apple faces several major challenges. On the one hand, the company is investing heavily in AI to catch up with Google and Meta, with the recent launch of the first Apple Intelligence features and the upcoming integration of ChatGPT with Siri worldwide. On the other hand, the Vision Pro, marketed at $3,499 in the United States, is struggling to convince the general public despite its innovative positioning in “spatial computing”. Furthermore, Apple remains extremely dependent on the iPhone as evidenced by its latest financial results.
Apple’s current margins are impressive: 46.2% last quarter, with the services business posting more than 70% gross margin, compared to 36-37% for hardware. This performance is largely driven by the iPhone and the ecosystem that surrounds it, including revenues generated by the App Store and agreements with Google for the default search engine.
A changing economic model
This cautious communication reflects a major strategic evolution at Apple. According to Dan Newman, CEO of Futurum Group, the company which traditionally focused on hardware improvements to the iPhone must now reinvent itself. AI is becoming a central selling point for the new iPhones, but its monetization model remains to be defined, with Apple not currently charging for access to its AI features — although it is considering it.
Regulatory pressures on the App Store and the recent antitrust victory against Google in the United States also threaten to reduce revenue from services. In this context, Warren Buffett reduced Berkshire Hathaway’s stake in Apple by almost two-thirds in just over a year. Apple clearly needs to create a new model and think about what happens after iPhone.
