Apple anticipates major sales decline amidst investor concerns over AI integration in iPhones

Apple is bracing for a quarterly revenue decline, marking its largest dip in over a year, while investors anticipate the company to incorporate generative artificial intelligence (AI) into its flagship iPhones, particularly in the Chinese market.

The tech giant, long hailed as a Wall Street favourite, has witnessed a 10 per cent drop in its shares this year, trailing behind other prominent tech giants.

Reuters reported that concerns loom over Apple's sluggish deployment of AI services, while Chinese competitor Huawei's resurgence further complicates the matter.

Analysts project a 10.4 per cent downturn in iPhone sales for the first quarter of 2024, a decline unseen in over three years.

This anticipated slump is put together against unusually high iPhone revenue figures from the previous year, attributed to pent-up demand following the COVID-19 pandemic.

Executives note that approximately $5 billion of the $51.3 billion in iPhone sales from a year ago were essentially recovering from disruptions in production due to pandemic-related lockdowns in China.

Despite this, Wall Street expects a decline in iPhone sales, contributing to an estimated 5 per cent decrease in total revenue for Apple's fiscal second quarter ending in March, the steepest drop since the same period in 2022.

Apple's loss of its title as the world's most valuable company to Microsoft, along with its 11.24 per cent share price decline this year, indicates the urgency for revitalisation.

To address this, Apple is reportedly in discussions with OpenAI and Google's parent company, Alphabet, to integrate genAI features into the upcoming iPhone series.

Bloomberg News reported that these features could be unveiled at Apple's highly anticipated annual developer conference in June.

Analysts posit that such integration could reignite demand and strengthen Apple's competitive stance against rivals like Huawei and Samsung, which have gained traction with AI-driven features in their smartphones.

Reuters cited Toni Sacconaghi, an analyst at Bernstein, who noted the potential for a robust iPhone 16 cycle propelled by AI features.

Sacconaghi upgraded Apple's shares, saying that the prevailing weakness in China may be more cyclical than structural.

Historically, Apple's China business has show signs of heightened volatility due to its feature-sensitive consumer base.

Apart from iPhone developments, investors are awaiting updates on Apple's stock buyback plan and the performance of Vision Pro, the company's mixed-reality headset launched in February.

However, recent reports suggest a slowdown in demand for the $3,500 device, prompting Apple to revise its production estimates.

The downturn extends beyond iPhones, affecting Apple's broader hardware business.

Analysts predict declines of 11.4 per cent and 4.3 per cent in iPad and Mac sales, respectively, for the March quarter.

Acknowledging the need for revival, Apple intends to unveil a revamped iPad lineup and update every Mac model with faster, AI-focused M4 processors.

On a brighter note, the services business, encompassing the App Store and subscription services like Apple TV, is expected to maintain its growth with a projected revenue increase of 7.7 per cent.

(With inputs from Reuters)