Apple’s AI Gamble: Will iPhone Sales Boom or Bust?
Apple’s recent unveiling of its ambitious Apple Intelligence platform has sent ripples through the tech world, with analysts divided on its potential impact on iPhone sales. While some predict a "supercycle" of unprecedented demand, others remain skeptical, pointing to technical limitations and the uncertain future of iPhones in key markets like China.
The Allure of AI:
In years past, iPhone upgrades primarily focused on hardware advancements. This year, however, the focus has shifted to how Apple’s hardware, particularly its custom chips, will power sophisticated artificial intelligence (AI) features. These features, while not all available at launch, promise to revolutionize the user experience, potentially driving a surge in iPhone sales.
"Regardless of whether Apple Intelligence is supported from day one, the new iPhones are future-proof," says Paolo Pescatore, analyst and founder of PP Insights. He, along with other optimists, believes this is the beginning of an iPhone supercycle, a period of sustained growth fueled by consumer demand. He notes that "Apple’s prowess in silicon, hardware, and services will all converge to bring Apple Intelligence to life."
The potential for AI to revitalize Siri, Apple’s virtual assistant, is a key driver of this optimism. Many believe Siri’s much-needed overhaul, driven by AI, could encourage users to re-engage with the voice assistant and unlock new possibilities.
The Skeptics’ Counterpoint:
However, not all analysts are convinced. Anand Joshi, an engineer and former tech executive who now serves as an analyst for TechInsights, acknowledges that technical limitations of older iPhone models could trigger upgrades. But he remains cautious, stating "there’s only a 50-50 chance of a supercycle." Joshi, along with many other skeptics, expresses concerns about the user experience of these AI features, questioning their real-world impact and the potential for them to be truly compelling.
"The biggest driver is going to be AI, but I am still skeptical of the user experience," Joshi notes.
Counterpoint Research senior analyst Varun Mishra echoes this sentiment, suggesting the launch of Apple Intelligence will lead to a "step-cycle", a series of smaller, incremental increases in iPhone revenue, rather than a full-blown supercycle. He attributes this to the staggered rollout of AI features over several months, arguing that these features are "generally ‘nice to have’ and not so compelling that a large section of users will upgrade their devices earlier than expected."
Mishra also casts doubt on the existence of pent-up demand for these AI features, a critical factor in previous supercycles. He concludes, "We also don’t see any pent-up demand, like the demand in previous supercycles, for GenAI features among consumers."
The China Conundrum:
Adding further complexity to the equation is the uncertain future of iPhones in China, one of Apple’s most crucial markets. Last year, Chinese officials ordered government agencies to stop using iPhones and other foreign-made electronics for work, a move that could have a long-term chilling effect on Apple’s brand in China, even though it directly impacts only a small percentage of the population.
As Apple’s AI features rely heavily on data sent and received from the cloud, questions arise about the operation of the company’s Private Compute Cloud in China, a key aspect of its AI strategy. Apple has not yet provided details on this.
However, Joshi remains optimistic about the long-term prospects for iPhone sales in China, stating "China will continue to buy the iPhone."
Ives, however, believes Apple needs to take a different approach in China, one that contradicts their usual full-stack strategy of tightly controlling the user experience. "Getting a Chinese partner will be key for Apple to enable AI in China," he suggests.
A Waiting Game:
While the debate continues, Apple’s move to integrate AI into its flagship product is undeniable. It represents a significant shift in the company’s strategy, moving beyond hardware upgrades and into a new realm of personalized and intelligent experiences.
Whether this gamble pays off and propels iPhone sales to new heights remains to be seen. The success of Apple Intelligence, and consequently the impact on iPhone sales, depends on multiple factors, including the development and effectiveness of the AI features, consumer adoption, and the evolving geopolitical landscape.
Time will tell if Apple’s AI-powered iPhones will truly usher in a new era for the company or mark a turning point in its relationship with its users.
