At the worldwide developer conference (WWDC) held early this morning, the long-awaited global strategy for AI was finally announced.$Apple (AAPL.US)$The company's CEO, Tim Cook, stated at the press conference, 'This is a moment we have been fighting for. We are very excited about the power of generative AI models.'

Apple has a history of many successes, even though many of its products have lagged behind those of competitors in launching, it always manages to succeed, such as the iPhone, Apple Watch and AirPods. This time, it's the same in generative AI. Until today, Apple finally announced the "Apple Intelligence" strategy, which aims to integrate AI technology into almost all devices and applications provided by Apple.

Privacy is top priority.

Apple Intelligence will make applications and services smarter, but Apple's most notable innovation is focused on ensuring that this technology is not disappointing, irritating, or offensive. Apple is known for valuing privacy. The company is aware that generative AI must be handled with care due to the need for large amounts of data and the potential for errors.

At the conference, Apple showcased new features injected into its applications by Apple Intelligence, including a more powerful Siri voice assistant, a Mail application that can generate complex replies, and Safari, which summarizes network information. But Apple's trick is to minimize illusions, potential offensive content, and other errors made by generative AI while protecting user privacy.

For example, Apple Intelligence will still use personal user information to make its model more practical by better understanding a person's interests, habits and schedule. However, these insights often require compromise on privacy, which is what Apple is trying to avoid.

Craig Federighi, Senior Vice President of Software Engineering at Apple, said at a small meeting after the WWDC keynote speech, "We've discussed what meaningful intelligence really means. It must be user-centric, which requires deep thinking about privacy."

Although many generative AI programs, including ChatGPT, run in the cloud, Apple says that Apple Intelligence will primarily run AI models locally on devices. In addition, Apple has developed a way to determine whether user queries need to be submitted to more powerful AI models in the cloud. To do this, Apple has developed a technology called "private cloud computing," which will ensure the security of personal data if the data needs to be sent outside the device.

Apple also detailed this technology in a blog post, stating that the design of private cloud computing will prevent query information from being retained by AI models or local devices and will not allow developers or Apple to access sensitive information. The system will use new Apple chip-based server hardware to store data in a secure storage area and use end-to-end encryption to ensure the data is not monitored.

Federighi said, "In terms of privacy, cloud computing often involves some real compromises. Even if a company makes a commitment not to do anything with your data, you can't verify it. And we've really tackled such a necessary, profound challenge."

John Giannandrea, Senior Vice President of Machine Learning and AI Strategy at Apple, said that protecting data privacy would not affect Apple Intelligence's ability. Giannandrea said Apple has always focused on reducing illusions in its AI models, partly by using filtered data. "We put a lot of effort into training these models very carefully. We have great confidence in our responsible application of this technology."

Apple said in a blog post that its AI model (locally run) was found by testers to be more practical and less harmful than competing products from OpenAI, Microsoft, and Google. Federighi said, "We're not going to let a boy fresh out of school fly the plane."

AI entrepreneur Tom Gruber said, "They have finally delivered on their promise of personal, private, and context-aware AI. It's great to see these features being emphasized by Apple in its demonstration of AI." Gruber is the co-founder of the company that developed Siri, which was acquired by Apple in 2010.

Some observers say Apple's AI strategy is about competing with competitors while trying to avoid offending people. Harvard Business School Professor David Yoffie said, "Apple's greatest strength is providing powerful new functionality and showing us new ways of doing things. This time, none of the products announced seem to be that way. Actually, this is not surprising, because they are in a catch-up situation."

Yoffie said that given people's concerns about sharing data with programs like ChatGPT, it is not surprising that Apple is concerned about data privacy and security. He said: "Generative AI is just a supplement to the iPhone. I think it's important to note that Apple is not being left behind by Android, which is what they did today."

Is Apple Intelligence not groundbreaking?

Apple Intelligence may not be groundbreaking, but it's what people want.

People often see a joke online that a woman hopes technology companies will understand, she hopes AI can scan transactions from an online grocery store and her own empty food storage room, so as to create a shopping list of most cost-effective products for her, instead of generating her image as an astronaut.

Although those AI image generators are indeed useful, it is also not difficult to understand the woman's point of view: if AI cannot make our lives easier, why bother caring about it?

Obviously, Apple has heard this kind of complaint, which is why when it announced its new AI features at WWDC today, it seems that it did not make a big splash, but subtly and realistically improved the applications and services we use every day. This is reassuring.

After an hour-long keynote speech, Federighi began the official introduction of Apple Intelligence. He said: "It has gone beyond artificial intelligence (AI). It is personal intelligence (PI)."

This is suspicious because when technology companies try to make technology more perceptive or more human, it never goes smoothly.

And the personal intelligence that Apple is talking about refers to the AI-enhanced ability to understand and process information. It can understand context and determine priorities. For example, Apple demonstrated how its AI can read your calendar, check traffic on the road between two meetings, and draft a message to your contact to reschedule another time.

For many people, this is more useful than generating a cartoon picture of a big-mouthed bird.

Other AI-supported updates include a more useful Siri, which has chatbots and enhanced contextual understanding; message sorting, which prioritizes text; new Safari summaries; and a new rewrite tool to help write and edit emails.

All of these are not groundbreaking, and Apple's competitors have been doing similar things for some time. Or, frankly, we can edit emails and reschedule meetings ourselves, and so on. But if Apple wants to use its omnipotent AI to do all my routine tasks, we also prefer it to do so.

Dan Ives, Managing Director of Wedbush Securities Investment Banking & the analyst who has followed Apple for a long time, said Apple's performance at WWDC 'did not disappoint.'

After the conference, Ives wrote in a research report that Apple Intelligence changes the game for the company. He said: "We believe that Apple's AI strategy will leverage its gold customer base and drive the sales growth of iPhone 16."

Ives believes that these updates brought by WWDC "did not disappoint." He said that Apple's new personal intelligence system upgrades existing applications by injecting AI into software and using the power of generative AI models to create more intuitive experiences that make them more practical.

Ives also noted Apple's emphasis on privacy and its partnership with OpenAI, and reiterated his 'buy' rating on Apple's stock. Nevertheless, WWDC failed to boost Apple's stock price as expected, falling by about 2% at the close.

Renowned Apple analyst Guo Mingchi praised Apple's progress in AI and ecosystem integration, but also said that investors are looking for more substantial developments.

Guo Mingchi praised Apple's focus on ecosystem integration and interface design on social platform X, and said that these improvements are mainly aimed at enhancing convenience and existing applications, which is beneficial to users.

However, he also pointed out that from an investor's point of view, these features are only "optional", and investors want to see some original and necessary functions.

A bait for iPhone 16?

Apple Intelligence faces a problem: it cannot run on your old iPhone.

Apple restricts these new AI features to the iPhone 15 Pro and Pro Max based on the A17 Pro chip, the iPad Pro and Air based on the M1 chip or later, and the Mac computer running on the M1 chip or later.

Apple has not specifically explained why it limits Apple Intelligence features to the latest and most expensive hardware. But industry experts speculate that weaker chips may affect Apple AI's performance, and Apple wants to draw a line with this mediocrity.

But whether this restriction is a technical requirement or a product differentiation strategy, it may become Apple's best opportunity to persuade users to upgrade to the latest version of the iPhone this fall.

Dan Ives, Managing Director of Wedbush Securities, a long-term analyst for Apple, said: "An iPhone that uses large language models and focuses on new AI personalization features should change Apple's growth trajectory and stimulate an AI-driven iPhone upgrade cycle starting with the iPhone 16."

Michael Gartenberg, a consumer technology analyst at Flash Consulting & Research who has worked at Apple, said that technically speaking, it cannot be said that Apple's statement that "old iPhones cannot run Apple Intelligence" is dishonest. "But I know that the iPhone can already run many AI features from ChatGPT and Google. So I suspect that this is an opportunity that Apple has been waiting for to tell you that the iPhone 13 really can't do it."

In addition, Carolina Milanesi, founder of research firm Heart of Tech, said that since Apple Intelligence was initially only available in American English version, Apple is unlikely to immediately boost iPhone sales in other markets unless it has made some key "future-oriented preparations".

But in any case, Apple now has a new way to force iPhone buyers to upgrade in September. This time, it's no longer a simple camera upgrade. Apple will undoubtedly do its utmost to convince users that it will make a smarter smartphone that supports generative AI.

While AI is hot, Apple's iPhone is struggling. In the quarter ending in March, iPhone sales fell 10% year-on-year, the biggest drop since the summer of 2020. As a result, Apple's revenue fell 4% year-on-year. The reason why Apple's gross margin remains healthy is largely due to its growing services business.

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