Apple’s problems reach its core business: sales and profits of the iPhone group have fallen, iPhone sales fell by 10 percent. Insights into Apple’s AI strategy could appease investors – but the CEO remains tight-lipped.
The iPhone has been a success story for years. But now iPhone sales are declining.
Aly Song / Reuters
There has been bad news from Apple for months – and now sales of the core product are also falling. As Apple announced on Thursday, the company’s revenue from the iPhone between January and March was a good 10 percent less than in the same quarter last year.
However, the iPhone accounts for more than half of Apple’s consolidated sales. As a result, total sales fell by a good 4 percent to $90.7 billion; Profit also fell by 2 percent to $23.6 billion. Apple’s sales have now declined in five of the last six quarters.
In China, Apple is losing market share to Huawei
What is dragging down iPhone sales is primarily the declining business in China. The Middle Kingdom is the second largest sales market in the world for smartphones, and Apple has recently sold significantly fewer iPhones there (-8 percent). This can be explained, among other things, by the fact that Apple has got new competition: The Chinese cell phone manufacturer Huawei has been releasing high-priced smartphones again since last year and is already noticeably challenging Apple for market share. According to market research firm Counterpoint Research, Apple’s share of the smartphone business in China fell by 4 percent in the first three months of the year.
The geopolitical tensions between Washington and Beijing also play into this development. Chinese government officials, for example, have been banned from using iPhones since the end of last year. If the differences between the two major powers increase, the tech companies in both countries will increasingly feel the impact.
However, Apple’s CEO Tim Cook expressed little concern about developments in the Middle Kingdom in a call with investors on Thursday. “I don’t know how exactly each quarter and each week will go, but in the long term I have a very positive view of China.”
Another factor in declining iPhone sales is that customers are now waiting longer to upgrade to a new model. The technologies built into smartphones are so sophisticated that the differences between iPhones of the 13th, 14th and 15th generations are only small – for many customers too small to spend the equivalent of 1,500 francs or more on them. Apple also offers software updates for older devices longer than other manufacturers – usually seven years. This also makes switching to a newer device less urgent.
Customers browse the newly opened Apple flagship store in Shanghai, China, in March 2024. However, business for Apple in China is declining.
Cfoto / Imago
Apple made up for the declining sales of iPhones in the last quarter at least somewhat with a stronger services segment (+14 percent). More than 1 billion customers now pay for Apple’s music, television, video games, fitness and other offerings. The company now earns as much from this division as it does from selling Mac computers, iPads and accessories combined.
The iPhone is the mainstay of the Apple Group
Sales share of individual products, in %
Wearables and home devices
Apple is still not getting its hands on AI
But concerns beyond the iPhone are also weighing on business. With a view to the new key technology of generative AI, the impression that Apple has missed catching up with the competition cannot be shaken. Google and Microsoft in particular have been constantly bringing new AI products onto the market for months; Samsung has released a new AI phone. Apple’s strategy, on the other hand, remains unclear even 18 months after the launch of Chat-GPT.
According to media reports, Apple is apparently planning to license Google’s language models. The group is also reportedly considering collaboration with AI startups such as Open AI. This is surprising because Apple traditionally prefers its own software solutions and because Google’s Android mobile phone operating system is actually the biggest competitor to Apple’s iOS. The company is now recruiting AI specialists from the competition on a massive scale, the Financial Times recently reported. The suspicion arises that Apple has simply missed the AI trend and now wants to quickly fall back on the achievements of third parties.
In a phone call with investors, CEO Cook defended himself against this representation, but did not reveal any details about his own AI strategy. Despite several questions, Cook only referred to product announcements that were planned for the coming week and for the in-house developer conference at the beginning of June. “Both generative AI and AI in general offer great opportunities for all of our products,” said Cook. Apple is well positioned and he himself is “extremely optimistic”.
But investors don’t seem convinced so far. Since the beginning of the year, Apple’s shares have lost around 7 percent in value, while those of other tech companies are significantly up. The broad Nasdaq technology index has also risen 6 percent since January. Microsoft has now overtaken Apple as the most valuable company on the stock market and is continuing to expand its lead.
Apple is lagging behind in the stock market
Share price gains/losses since the beginning of the year for leading tech companies, in %
Many of the problems could be solved if Apple manages to bring a truly revolutionary iPhone to market in the coming months thanks to AI. The expectations of the announced new products are increasing. “The last three iPhones weren’t really exciting,” Hal Eddins of Capital Investment Companies told the Wall Street Journal. But an iPhone 16 with new AI functions will “hopefully go off like the fire department”.