With the launch of the Android manufacturers' AI smart phones over the past year, Apple's first AI iPhone, the iPhone 16, was recently released. However, the AI features supported by the iPhone 16 have not been fully implemented globally, but are gradually being introduced region by region. It is expected to be introduced in the China region by 2025.
"Apple AI will become the reason for users to change their phones." Last month, Apple CEO Cook said so. Now, can the iPhone 16 still drive Apple to welcome a "new iPhone moment"?
Several interviewees told the Securities Times that due to the incomplete language support for Apple's intelligence, it is expected that the iPhone 16 will be difficult to bring significant sales growth, and will be more about preventing Apple from declining. At the same time, due to factors such as Apple's intelligence not bringing "unique" functions, it is expected that Apple's intelligence will be difficult to bring a "new iPhone moment" for Apple. The challenges faced by Apple in its core markets are becoming greater and greater, and the era of maintaining high profit margins and a great reputation with ease has become history.
Restrictions on the implementation of intelligence
Apple Intelligence is a full AI suite launched by Apple at this year's June developer conference. Apple calls it a generative AI system based on personal scenarios, which can provide intelligent functions such as assistance, image creation, and more. Essentially, it is equivalent to the AI model used by Android phone manufacturers. Apple plans to empower it across all of its terminals, realizing the intelligent interconnection of the iOS closed-loop system.
Previously, it was widely predicted that this year's iPhone 16 would be Apple's first generation AI phone, and could start an iPhone replacement trend for Apple. Stimulated by this prospect, Apple concept stock on the A-shares market has risen significantly before the autumn new product launch event for Apple.
An AI phone, at the very least, needs to have the general AI functions supported by current AI phones, such as AI photo removal, AI document organization, summarization, the ability to take meeting minutes and automatically distinguish between different sounds. Currently, certain brand AI phones also have some proactive service functions, such as learning user habits, providing corresponding services at specific occasions, and enabling "one-click taxi" services.
AI phones must also be equipped with edge AI models, as well as the ability to access cloud-based large models, and due to the very large amount of data that AI models run, demands on phone transmission rates have also significantly increased. Therefore, AI phones have higher requirements in terms of memory, chips, storage, heat dissipation, and battery life compared to regular phones.
In comparison, the Apple iPhone 16 series has indeed been upgraded to an AI smartphone in terms of both hardware and software, making it Apple's first generation AI smartphone.
"With hardware upgrades such as chips, memory, and camera buttons, Apple has clearly prepared its devices for the future to meet the growing demand for Apple's intelligence, especially the need for large amounts of memory to process AI workloads for large language models. These have opened the door to Apple's intelligent-driven personalized and enhanced features." Canalys analyst Zhou Lexuan told Securities Times reporters.
Specifically, the iPhone 16 series has upgraded the A series chip to the A18 series chip, and the memory has been upgraded from 6GB to 8GB. The camera button also carries the newly added AI-driven visual intelligence features, supporting users to search for content and merchandise using images, displaying business information and ratings of photographed stores, and its cooling and battery life configurations have also been fully upgraded.
At the software level, Apple's AI smartphones mainly rely on Apple's intelligent empowerment. Apple revealed that Apple's intelligence will be released with iOS 18.1, iPadOS 18.1, and macOS Sequoia 15.1 next month and will be available on iPhone, iPad, Mac, and other platforms.
Although both software and hardware conditions are met, the iPhone 16 series cannot fully implement AI functions, and the issues lie in the activation of Apple's intelligence in different language versions.
According to official plans, Apple's intelligence will initially be available on iPhones and other devices in October, initially only supporting American English. In December, it will expand to localized English in Australia, Canada, New Zealand, South Africa, and the United Kingdom, and will support more languages such as Chinese, French, Japanese, and Spanish next year.
"The implementation of Apple's intelligence involves the learning, training, adaptation, and outputting of different regional user languages, as well as issues related to regional policies and regulations, and Apple's business cooperation with local companies, such as app adaptation and upgrading, cloud-based large model cooperation, etc." Omdia Chief Analyst Li Zegang told Securities Times reporters.
Apple's official customer service staff told reporters that the activation of Apple's intelligence in the iPhone 16 series is affected by the region, language, and user ID. Currently, only the iPhone 16 series purchased in the United States with the language mode set to American English and the ID set to a US region user ID can experience the Apple's intelligent features of the iPhone 16 series. "All three are indispensable, and the principles for activation in other regions in the future will be similar."
At the iPhone 16 series launch event, Apple explicitly emphasized the AI capabilities and privacy on the device. Apple attaches great importance to the future AI capabilities promised by its new iPhone series, said Tom Mainelli, Vice President of IDC.
The Apple China official website also states, "Apple intelligence is ready, and the release time of Apple intelligence depends on the approval of regulatory authorities."
"The era of the new iPhone" is difficult to come.
Regarding the impact of the future iPhone 16 on Apple's development, Nabila Popal, Research Director of IDC, told reporters that although this year's Apple smartphones have many highlights, the lack of complete language support in Apple intelligence makes it difficult for the new product to bring much growth. Its impact is more about preventing Apple's decline (otherwise the situation could be worse).
Counterpoint Research analysts predict that the impact of Apple intelligence on shipment and revenue growth will become more apparent in 2025 and beyond, as the launch of AI is phased in terms of features and regions. iPhone revenue is expected to remain stable in 2024.
"Although there are many exciting things, the delayed launch of the complete functionality of Apple intelligence feels like a missed opportunity, which may impact Apple iPhone sales in the short term," said Canalys analyst Zhou Lexuan. He believes that this launch event is the first step for Apple to establish the hardware foundation of AI, but the true differentiation of its AI will come when Apple releases software during the next WWDC period to drive differentiation from competitors.
Even many professionals believe that even if Apple intelligence is fully implemented in the future, it may not be able to reverse Apple's continued decline in sales.
According to the research report of Wade Bush analyst from the investment firm last month, there are more than 0.3 billion iPhones worldwide that have not been upgraded in over four years.
As we all know, iPhone is Apple's flagship product. In the second quarter of this year, iPhone contributed 46% of Apple's revenue, but it showed a year-on-year decline. In the first quarter of this year, Apple's iPhone revenue fell 10% year-on-year to $46 billion. In the second quarter, Apple dropped out of the top five in the Chinese smartphone market. Correspondingly, Apple's Greater China region has seen a continuous decline in revenue for four consecutive quarters.
According to Wang Kai, IDC's research manager in China, it may be difficult for Apple's AI technology to bring new "iPhone moments". On the one hand, the implementation of this feature in a short period of time is not possible on a large scale. On the other hand, Apple's intelligence has not brought the "people without me" feature in the Chinese market compared to its competitors, and it has significantly lagged behind in terms of launch progress. Therefore, the extent to which Apple's AI features will be recognized by consumers and whether they will bring actual improvements to various performance indicators still needs to be verified in subsequent NPS studies.
Mark Gurman, Apple's professional journalist at Bloomberg, said that the development of Apple's AI technology may not immediately reflect on sales, as consumers may have limited excitement about new features. However, with the advancement of technology and the increasing reliance of consumers on AI features, it may become a key factor driving iPhone sales in the long run.
Nabila Popal emphasizes the importance of Apple's AI technology in maintaining existing user base and attracting new users. She believes that the development of Apple's AI technology and market promotion strategy will to some extent affect the long-term sales performance of the iPhone. She believes that Apple's real growth may need to wait for further development of Apple's AI technology and increased market acceptance.
The era of high profit margins is over.
As a leader in the smartphone industry, Apple has long held a dominant position in the global high-end smartphone market since the release of the first-generation iPhone in 2007, with its gross margin ranking first in the industry for a long time. In 2023, Apple's iPhone and iPad products achieved a gross margin of 36.5%. In 2009, the gross margin was even higher at 57.7%.
Apple CEO Tim Cook has publicly discussed Apple's high profit margin situation, believing that higher-priced high-end products can bring greater value. The direct source of Apple's high profits is the high-price strategy. According to statistics, the average selling price of Apple's phones last year was $624, while the average selling price of Android phones was only $185.
Now, with increased R&D investment and accelerated innovation by Android manufacturers, as well as a collective impact on the high-end market, coupled with Apple's slowing innovation in recent years, the challenges faced by Apple in the smartphone market are gradually increasing.
According to the latest research from IDC NPS Tracker, Apple still holds the first position in the mobile phone market NPS (Net Promoter Score) in the first half of 2024. However, mainstream domestic mobile phone brands are challenging Apple by relying on fast technology iterations and constantly introducing new products. In the latest research, Huawei, vivo, Honor, and Xiaomi have all narrowed the NPS gap with Apple.
The above research shows that Apple is not without worries in the mobile phone market. Although the continued price reduction of the iPhone has driven a significant increase in sales, Apple's disadvantages in product competitiveness are being perceived by more consumers.
"Facing the Chinese market where AI smartphones have been popular for half a year, it may require more cautious judgment for the Apple Intelligence that arrived late to reverse Apple's declining product reputation. However, it can be confirmed that for Apple, the era of easily maintaining high profit margins and high NPS has become history. The fiercely competitive Chinese market requires Apple to invest more attention and respect." IDC China research manager Wang Kai said to reporters.
Canalys analyst Zhou Lexuan also told reporters that Apple is facing increasing challenges in its core markets. In China, Huawei's resurgence and active new product releases from domestic brands are challenging its position. Apple needs to make more efforts in product innovation and market strategy to maintain its competitiveness in the Chinese market. In the United States, the macroeconomic situation and fiscal constraints have weakened the discounts on the latest iPhone. "Apple is seeking growth in emerging markets such as India, Southeast Asia, and Latin America, to seize the expanding opportunities of the middle class and young population, which is consistent with its target audience".
According to local media reports in India on September 12, after the release of the iPhone 16, Apple's iPhone 14 and iPhone 15 have been significantly reduced in price in India, with discounts of up to nearly 10,000 rupees. The price of the iPhone 14 128GB version has also been reduced by about 10,000 rupees.
At the same time, Zhou Lexuan told reporters that Apple is also diversifying its production in India to reduce its dependence on China.
According to Canalys' 2023 data, India's production capacity has improved in the past year, and Apple plans to produce its Pro series products in India. However, most electronic components are still produced in other regions and assembled in India. In 2022, Apple produced nearly 15 million iPhones in India (about 6% of its total), and this number increased to 25 million in 2023 (about 12% of the total). It is expected that by the end of 2025, this proportion will reach 23%. This shift has also doubled India's iPhone exports, from 8.5 million units in 2022 to 20.5 million units in 2023.
Apple's marketing strategy of lowering prices in various regions has to some extent affected the profit margins of supply chain companies. In the first half of this year, the profit margins of A-share Apple industry chain companies generally declined compared to the same period last year.
Editor/Lambor