Apple’s AI strategy contrasts radically with that of its competitors. While Meta, Google or OpenAI can deploy their AI assistants to billions of users for free (Meta alone can reach 3.3 billion daily active users), Apple conditions access to its “Apple Intelligence” service on the acquisition of an iPhone 15 Pro or 16whose average price exceeds 1,000 euros.
If this approach aims to push users to renew their iPhone more quickly, it remains very risky. Above all, it reinforces Apple’s dependence on its iPhone which still represents 50% of its income.
This strategy is all the more risky as the deployment of Apple Intelligence is not the most transparent. We could even, without taking any risks, describe it as a damp squib. This is already being felt in iPhone 16 sales, if analyst estimates are to be believed.
Worrying iPhone 16 sales
The signals are far from green for the iPhone 16. Recent data reveals a certain tepidness in the market, with unusually short delivery times and a significant drop in renewal rates among American operators. AT&T, Verizon and T-Mobile report a 9% drop in renewals from the previous year, a figure that worries analysts.
Brandon Nispel, of KeyBanc Capital Markets, has also lowered his recommendation on the stock, reports the Wall Street Journal.
More generally, estimates call for modest 5% growth in iPhone revenue for the December quarter. A very average performance, not to say disappointing.
Apple not so Smart?
Beyond the figures, it is above all Apple’s ability to realize its vision of AI that will be scrutinized in the months to come.
Because the arrival of Apple Intelligence is currently only based on promises. The gradual deployment of AI features, which began this Monday in the United States, more than a month after the launch of the iPhone 16, raises many questions about the delay taken by Apple. But also on its strategy based on device sales.
This phased deployment, which will extend over 2024 and 2025, could paradoxically slow down the device renewal cyclewith consumers preferring to wait for the full availability of features before taking the plunge.
The case of the iPhone 16 is a perfect illustration of this delay. Apple’s latest model faces the challenges of a product that has reached maturity. The absence of major innovation is no longer in line with the ultra-premium positioning of the iPhone. When the hardware and software no longer change on a daily basis, renewal is no longer appropriate.
The worm in the Apple
Furthermore, certain experts, notably Edison Lee of the Jefferies firm, emphasize the technical limitations of current smartphones in terms of AI. Unlike cloud servers, phones lack high-speed memory and advanced packaging technologies, essential for optimal AI performance. It is also for technical reasons that only the latest generations of iPhone are capable of running Apple Intelligence.
The iPhone case is based on the glass half full or half empty principle. Apple tends to see it full: since its most recent iPhones are the only ones capable of running Apple Intelligence, consumers will renew their models more quickly. Problem: Apple Intelligence is not yet really available and its features have yet to convince.
For now, investors remain optimistic. Despite these headwinds, Apple shares have increased by 36% over the last twelve months, even surpassing Microsoft and Alphabet, although they are considered leaders in generative AI.
This generous valuation – 31 times forecast profits, a premium of 20% compared to its historical average – could however prove fragile if iPhone 16 sales are not there. The first sales results will therefore be decisive for the future of Apple, decidedly held hostage by its iPhone.
- Apple faces disappointing sales of the iPhone 16, although it is essential for its AI strategy
- Unlike its competitors, Apple in fact links access to its AI services to the purchase of premium devices
- The success of its AI strategy will depend on its ability to convince users to pay a high price for its innovations
