Apple’s AI Woes Weigh on iPhone Demand
As the tech giant prepares to release its quarterly earnings report, analysts predict a lackluster revenue growth, largely due to the slow adoption of artificial intelligence features and intense competition from Chinese smartphone makers.
The AI Gap
Apple’s latest iPhone 16 series, launched in September, failed to impress with its limited AI capabilities. Moreover, some of its AI services, including an enhanced Siri, are only expected to roll out later this year in select regions. This has put Apple at a disadvantage compared to its rivals, Google and Samsung, which have been aggressively incorporating AI into their devices.
A Setback for Apple’s Competitive Edge
The company’s struggles with AI were recently highlighted when it had to withdraw a news-summarizing AI tool due to inaccurate headlines, drawing criticism from reputable news outlets like the BBC. According to Jane Hepburne Scott, investment manager at Aegon Asset Management, “AI is the new technology innovation, and Apple’s lagging behind on capabilities is a key reason why their competitive positioning has weakened and the company has lost market share.”
Chinese Competition Takes a Toll
Under pressure from a resurgent Huawei and other Chinese smartphone makers, Apple’s global smartphone market share narrowed to 23% in the final three months of 2024, down from almost 25% a year earlier, according to IDC data. The decline was even more pronounced in China, where Apple’s share fell by 10 percentage points to 17%.
Subsidies and Market Dynamics
Although the Chinese government has been offering subsidies to boost domestic consumption, these incentives target low- to mid-tier phones priced below $800, excluding high-end iPhones. This has further eroded Apple’s market share in the region.
Impact on Apple Shares
Worries about iPhone demand have taken a toll on Apple shares, which have fallen 5% so far in January. Analysts expect the company to post revenue growth of 3.8% for the three months to December, a significant drop from the 6.1% growth in the previous quarter.
Segment-Wise Performance
Sales of iPhone are expected to rise 1.9% in the first quarter, weaker than the 5.5% increase in the previous quarter. Mac sales are expected to rise 2.3%, while iPad revenue is expected to increase by 4.2%. The services business, which has been a bright spot for Apple, is expected to post an increase of 12.9% in sales.
The Strong Dollar Effect
Like other companies with a large global presence, Apple is also set to be hit by a stronger dollar. The U.S. dollar strengthened by nearly 8% in the final three months of 2024, which could make it more difficult for Apple to report sales that are above consensus estimates, warns Tom Forte, senior consumer internet analyst at Maxim Group.
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