High stakes for Apple’s AI push as it plays catch-up with rivals amid lacklustre sales

When Apple announced its new iPhone 16 range on Tuesday, chief executive Tim Cook was upbeat. The new devices may have only had what seemed to be incremental updates – updated chips, bigger screens, improved cameras – but it had one weapon that could still drive sales of the iPhone: artificial intelligence.
“It marks the beginning of an exciting new era,” Cook told attendees.
The features itself were no real surprise. Apple had announced Apple Intelligence, its generative AI solution that would be integrated into future versions of its software, in June at its world Wide Developer Conference. Real-world AI for real people.
People knew what to expect – a smarter Siri, tools to help users manage their inbox, edit photos and videos, or refine messages and documents – and they knew roughly when to expect it.
But this week’s Apple event in California showed what exactly they would be upgrading to, and how those AI features would work.
In the immediate aftermath, Apple’s stock fell 1 per cent. That in itself is nothing new; it is common for Apple’s stock to see a small decline following a new product announcement, and by the time the market closed on Monday, it had clawed its way back to close flat.
Apple is no stranger to falling victim to high expectations from both consumers and the market. It is getting harder to impress consumers as the hardware advances slow. Camera technology has improved to the point where it is rare to see someone at a family event taking photos on anything other than a smartphone. Incremental improvements in screen technology and faster chips are unlikely to prompt them to upgrade their devices for a newer, pricier model.
The excitement that once greeted new smartphone launches has all but vanished as consumers, conscious of costs, hang on to devices for longer and longer.
Apple, like many other smartphone makers, has leaned into this somewhat, talking up the durability of devices, continuing to support older devices long after the usual upgrade cycle has passed.
But for the market, the iPhone 16 was an opportunity to kick-start the upgrade cycle.
“There is a growing feeling that smartphone updates have become a bit boring,” said Ben Wood, senior analyst with CCS Insight. “Apple is not immune to this trend and is betting on software and AI to breathe new life into its most important product to reignite consumer interest and drive upgrade purchases.”
Apple is essentially playing catch-up with its main rivals. Samsung and Google have both not only unveiled their AI-powered smartphones, but they are currently available to buy with the generative AI features fully functional.
While the iPhone 16 will begin shipping on September 20th, Apple Intelligence won’t arrive to the phones until October. That will be in a beta software update pushed out to users in a few weeks, with other features following in the coming months. And it will initially only be available in US English, with plans for other languages later in the year.
“A beta release indicates a lot of the features are still being fine-tuned for release and not ready for prime time,” said eMarketer analyst Gadjo Sevilla. “The focus on security and privacy is a likely reason for feature delays.”
The tech giant had already indicated it would delay the AI’s introduction in the European Union due to the Digital Markets Act. It is still not clear when the issues between the two parties will be resolved. However, Apple Intelligence is coming to the UK, the first time that Apple has treated the UK differently when it comes to issues like this.
There is a lot riding on the success of Apple Intelligence. Apple has seen revenue from its iPhone sales fall in recent quarters, although it recovered somewhat in its most recent set of quarterly results, reported in August.
Sales in China have faltered too, as the company competes with cheaper alternatives from local manufacturers such as Huawei and Xiaomi. Huawei unveiled a trifolding phone on Monday, showing Apple that it still faced competition in the Chinese market. But elsewhere, people vented their frustration that Apple Intelligence either wasn’t available at launch or that it wouldn’t be localised for a few months.
Will consumers make the leap on a new phone that has yet to prove its full capabilities? Some analysts predicted the absence of AI features in the iPhone 16 was unlikely to have a big impact on near-term sales.
“Chinese consumers are not yet driven to upgrade by AI capabilities … However, in the long run, as domestic brands use AI as a key differentiator for their flagship products, it will negatively affect Apple,” said Toby Zhu, an analyst at technology market research firm Canalys.
Zhu said Apple needs to localise its offerings and swiftly establish an AI application and service ecosystem in China to remain competitive.
Apple’s powerful operating system remains a draw for Chinese consumers, according to Will Wong, an analyst at IDC.
“The key competitive advantage of Apple is its strong customer stickiness. Thus, the replacement needs of the users of the iPhone 11, 12, or 13 series could still support the sales of Apple in the absence of AI.”
“It’s still too early to say who will win,” Wong said.
Both Google and Samsung are already selling phones with their own generative AI features on their flagship phones. When the tech giant unveiled Apple Intelligence in June, it was somewhat of a relief to those who were betting that Apple could come up with something good.
“The iPhone 16 range is hugely important for Apple at a time when consumer demand for new smartphones is slowing. The range is the first to support Apple Intelligence across the board, which will be central to the next decade of the iPhone,” said CCS Insight’s Wood.
“The combination of Apple Intelligence and new camera features on the iPhone 16 will help spur upgrades from loyal Apple customers, particularly as Apple is positioning this latest update as being a future-proof purchase for customers wanting to get Apple Intelligence features as they roll out over the next few years.”
In other words, there are high hopes that the iPhone 16 will drive a strong upgrade cycle. Outside of the iPhone 16 and 16 Pro models, the iPhone 15 Pro is the only other device in the range capable of running the generative AI features.
While it may be behind its rivals, Apple is betting that its interpretation of generative AI, with its focus on privacy, will appeal to its customers, regardless of when it arrives on their devices. Research from CCS Insight highlighted an enthusiasm for the technology, but also noted a considerable number of consumers that were concerned about privacy and data security.
“The focus on privacy – running AI processes securely on-device while using Private Cloud Compute to offload heavy workloads to secure servers – highlights the benefits of Apple’s highly integrated ecosystem which could push adoption in enterprise applications,” said Emarketer’s Sevilla.
“New contextual features, like email auto-summaries could impact businesses and marketers relying on email campaigns to reach customers, effectively making Apple Intelligence a gatekeeper of user’s communications.”
Another advantage, Sevilla says, is in its install base of products, apps and services, and its understanding of how its customers use those products. That gives it an advantage over standalone AI apps and services, for which, he says, privacy is an afterthought.
“The upcoming iPhone cycle is crucial for Apple after multiple years of lacklustre sales, especially in China, regulatory scrutiny and a loss in market cap to Microsoft and Nvidia on the strength of their AI business,” said Anisha Bhatia, senior technology analyst at GlobalData. Apple will have to upsell its AI significantly.”