According to foreign media reports,$Apple (AAPL.US)$Apple has raised its shipments expectations for the iPhone 16 series to 90 million units in 2024, a 10% increase compared to the iPhone 15 series. One of the essential factors that make Apple confident about the iPhone 16 series is the introduction of Apple Intelligence, an AI feature to boost sales. As of writing, Apple's pre-market trading rose by 0.42% to $228.52.

Currently, domestic smartphone manufacturers such as Xiaomi, Huawei, OPPO, and Vivo are all investing in AI technology and ahead of Apple in AI functionality. According to authoritative market research data, Vivo and Xiaomi market share has surpassed Apple in the second quarter of the year. Can Apple successfully enter the AI phone market with Apple Intelligence?

Apple is betting on its AI phones to boost sales growth.

On July 11th, Bloomberg reported that Apple has notified its suppliers and partners to increase its shipment target for the iPhone 16 series by 10% compared to the iPhone 15 series (81 million units). The target is to ship at least 90 million units in 2024.

It is known that one of the important factors that drive Apple's confidence in the iPhone 16 series is the introduction of Apple Intelligence in the iOS 18 system. This will greatly enhance product competitiveness, stimulate user upgrade demand, and attract them to purchase.

Apple Intelligence is Apple's latest personal intelligence system. In order to establish a foothold in the AI phone market, Apple cooperates with OpenAI and integrates ChatGPT into Apple products, forming an 'AI toolkit,' including smart assistants, email summaries, image editing, auto-translation, and other AI features. In Apple's eyes, the introduction of AI phones will drive Apple users to upgrade, effectively boosting phone sales.

However, in the Chinese market, Apple has not yet found an artificial intelligence service partner, and there is no indication that Apple has reached an agreement. According to the 'Provisional Measures for the Administration of Generated Artificial Intelligence Services,' which officially took effect on August 15, 2023, every large-scale enterprise that launches generated AI products must first file for record, and data also faces strict security and compliance requirements.

Thanks to the expectation of increased sales and the boost in the US tech stock market, Apple's stock price has become the number one tech stock in the US market. As of the closing on July 10th EST, Apple's stock price has risen by 1.88% to $232.98 per share, and its total market value has reached $3.57 trillion. Apple's stock price has reached a new historic high for seven consecutive days, making Apple the number one tech company on the US stock market.

However, in the Chinese market, Apple faces significant sales pressure, and its market share has been surpassed by Xiaomi. According to the phone activation data provided by authoritative market research agency during W14-W26 (April 1 to June 30), Vivo ranked first with 11.9506 million activations, a year-on-year increase of 7.17%, and a market share of 17.93%. Xiaomi ranked second with 10.6316 million activations, a year-on-year increase of 19.65%, and a market share of 15.95%. Apple's activation volume was 10.1773 million units, a year-on-year decrease of 1.88%, and its market share dropped to 15.27%.

Overall, domestic smartphone brands such as Vivo, Xiaomi, Huawei, and Honor have all seen a year-on-year increase in phone activation volumes in the second quarter of the year, and Apple has become a rare declining brand.

AI phones have become a "decisive battle stage" and are driving the recovery of the smartphone market's consumption.

In fact, Apple has been criticized in recent years as being "not innovative enough." Zhao Ming, CEO of Honor, said in a recent interview with the media: "The industry's leading point should be ahead of us and make judgments, leading the industry. It was done by Jobs in the past. However, in recent years, I have not seen great innovation from Apple in this regard."

After Apple Intelligence was launched, its cooperation model with OpenAI was also questioned by Tesla CEO Musk. Musk said on social media: "Apple is not smart enough to develop its artificial intelligence, but it says it can ensure OpenAI protects your safety and privacy. This is obviously ridiculous! Apple doesn't know what will happen once it hands over data to OpenAI. It betrayed its users."

Globally, smartphone manufacturers such as Google, Samsung, Huawei, Xiaomi, OPPO, Vivo, and Honor have installed self-developed large models with different parameters on the next generation of flagship models, driving the AI phone layout continuously. However, Apple's entry into AI has been relatively slow, relying on the help of external forces such as OpenAI to enhance its competitiveness.

However, smartphone manufacturers' efforts in the AI field have become a trend. Hua Jin Securities believes that compared to other end devices, smartphones have four significant advantages of high popularity, strong computing power, rich interactive and application scenarios, and high viscosity. They are more suitable as a carrier for AI technology. Generated AI is fully empowering intelligent smartphones, making them an all-weather personal assistant and mobile productivity tool.

According to Counterpoint data, the global shipment of smart phones with generative AI technology accounted for less than 1% of total shipments in 2023. However, as major phone manufacturers shift their focus on integrating generative AI technology into mid to high-end products and the smart phone industry chain actively embraces change and provides support from various aspects such as software and hardware, generative AI phones are rapidly penetrating the market.

2024 is set to be the year of AI phones. With the layout of major manufacturers, AI phones are expected to enter a track of rapid growth from 2024, and trigger a new wave of upgrades. According to IDC, the penetration rate of AI phones in the Chinese market is expected to exceed 50%, with 0.15 billion units sold by 2027.

The research report of Guotou Securities indicates that large-scale AI models are developing rapidly and since the second half of 2023, various branded manufacturers have proactively launched consumer electronics terminal products integrated with AI functions. Large-scale AI models enable smart terminals such as mobile phones, PCs, and pads to provide more convenient, personalized and secure user experiences, improve terminal sales, and resonate with the recovery cycle of consumer electronics.

Central China Securities research report believes that the new generation of AI phones are expected to drive the recovery of the consumer electronics industry. The use of AI functions may first drive from the software end, but as the application of the software deepens, it will drive the improvement of hardware technology requirements, including the further improvement of PCB product materials, precision, and heat dissipation requirements. The terminal hardware is expected to become the entrance of AI. "Hardware + AI" promotes revolutionary changes in work and lifestyle. The innovative demands of the AI-driven smart phone market will promote the growth of consumer electronics components such as optical devices, RF components, connectors, and structural parts business.

Edited by Jeffrey