Apple Anticipates Significant Sales Decline

Adding generative AI to its iPhones is a strategic move by Apple to rejuvenate sales, particularly in the vital Chinese market. The company's upcoming quarterly earnings report will likely shed light on its performance amid declining revenue, with analysts closely monitoring the impact of this new feature on sales figures.Apple's stock performance has lagged behind other major tech companies in recent months, with shares declining over 10 percent year-to-date. Concerns about the slow deployment of AI services and increased competition from Huawei in China have contributed to this downturn.

Analysts predict a 10.4 percent decrease in iPhone sales, a significant portion of Apple's revenue, for the first quarter of 2024.The projected drop in revenue would mark Apple's steepest decline in over three years. Analysts estimate a 5% decrease in total revenue for the second quarter, spanning January through March. This would represent Apple's largest revenue decline since the December quarter of 2022 when revenue fell by 5.5 percent. Despite losing the title of the world's most valuable company to Microsoft earlier this year, Apple's market value still stands at US$2.68 trillion, reflecting a decline in its share price in 2024.

The combination of weak revenue and falling shares has intensified pressure on Apple to introduce significant upgrades to its flagship device, which has seen few major updates in recent years.Apple's discussions with OpenAI and Google-owned Alphabet to incorporate genAI features for the iPhone have been widely reported, with expectations that these features could be unveiled at the company's upcoming annual developer conference in June. Analysts anticipate that integrating AI capabilities could fuel demand for the next iPhone series, which is anticipated to be announced in the fall.While tech giants like Microsoft, Alphabet, and Meta Platforms have been vocal about their AI strategies in recent earnings calls, Apple CEO Tim Cook has been relatively reserved on the topic.

However, incorporating AI features into iPhones could enhance Apple's competitive position against rivals like Huawei and Samsung Electronics.Samsung's Galaxy S24 smartphones, which boast AI capabilities, have contributed to its resurgence as the world's leading smartphone vendor, surpassing Apple earlier this year.Analyst Toni Sacconaghi from Bernstein believes that favorable replacement cycle dynamics and the addition of incremental generative AI features position Apple for a robust iPhone 16 cycle. Sacconaghi recently upgraded his rating on Apple's shares from "market-perform" to "outperform" based on these factors.

The anticipated earnings report on Thursday will also shed light on Apple's stock buyback plan and the performance of its latest product, the Vision Pro, which debuted in February as the company's first major release in years.While the Vision Pro initially generated excitement, recent indications suggest a slowdown in demand for the $3500 device. An analyst revealed this month that Apple has adjusted its production estimates for the mixed-reality headset, prompting investors to closely monitor its performance in the market.Apple's hardware business, including iPads and Macs, is experiencing a downturn in demand, with sales forecasted to decline by 11.4 percent and 4.3 percent, respectively, in the March quarter.

To address this, Apple is focusing on revitalizing these devices, which have suffered from a lack of significant upgrades.An event scheduled later this month is expected to introduce a revamped iPad lineup, along with reports suggesting updates to every Mac model featuring faster, AI-focused M4 processors.Despite the challenges in hardware sales, Apple's services business remains a bright spot, with revenue expected to grow by 7.7 percent. This segment includes earnings from the App Store and subscription services like Apple TV, which continue to perform well.