Apple is expected to see a big sales decline as investors await a generative AI-powered iPhone

Apple’s plan to add generative AI to its iPhones and revive sagging sales in the key Chinese market will be in the spotlight on Thursday, when the tech giant is expected to report its biggest quarterly revenue decline in more than a year.

Long considered a must-have stock on Wall Street, Apple shares have underperformed other major tech companies in recent months, falling more than 10 percent year-to-date as fears mount over the slow adoption of AI services and while the resurgent Huawei takes market share in China.

On average, analysts see iPhone sales, which account for about half of Apple’s revenue, falling 10.4 percent in the first three months of 2024, according to LSEG. That decline would be the steepest in more than three years.

Analysts estimate that Apple’s total revenue fell 5 percent in the second quarter, which includes January through March. That would be Apple’s biggest drop in revenue since the December 2022 quarter, when revenue fell 5.5 percent.

Earlier this year, Apple lost the crown of the world’s most valuable company to Microsoft, and its market value now stands at $2.68 trillion (roughly Rs. 2,23,68,017 crore) after its share price plunge in 2024.

Weak revenue and falling stock are putting pressure on Apple to refresh its flagship device after years without major improvements.

The company is in talks with OpenAI and Alphabet-owned Google to add genAI features to the iPhone, which could be unveiled at what is expected to be its biggest annual developer conference in June, Bloomberg News reported.

Analysts believe that such AI integration could boost demand for the next iPhone series, which is expected to be announced in the fall.

While executives from Microsoft, Alphabet, Meta Platforms and other big tech firms have discussed their AI strategies on quarterly conference calls in recent months, Apple CEO Tim Cook has discussed his plans for the emerging technology much less.

Adding AI features to the iPhone could also help Apple better compete with Huawei and Samsung Electronics, which reclaimed the title of the world’s top smartphone vendor from Apple earlier this year, driven by AI demand features in its Galaxy S24 smartphones.

“Replacement cycle headwinds and incremental generative AI features set Apple up well for a strong iPhone 16 cycle,” Bernstein analyst Tony Sacconaghi said this week, raising his rating on the company’s stock to “outperform” from “market perform.” .

“We believe the prevailing weakness in China is cyclical rather than structural, and note that historically Apple’s business in China has shown much higher volatility than Apple overall, given its very feature-sensitive installed base.” base.”

Thursday’s earnings will also be closely watched for updates on the company’s share buyback plan and the Vision Pro, Apple’s first major product in years, which hit shelves in February.

After the initial enthusiasm, there were signs that demand for the $3,500 device had slowed, with an analyst saying this month that Apple had pulled back its production forecasts for the mixed-reality headset.

The rest of the company’s hardware business is also reeling from weak demand, with iPad and Mac sales expected to fall 11.4% and 4.3%, respectively, in the March quarter.

Apple has signaled that it is sharpening its focus on devices that have also been hampered by a lack of major upgrades.

The company is hosting an event later this month that is expected to unveil a refreshed iPad lineup, and media reports say it plans to update every Mac model with faster, AI-focused M4 processors.

The services business — which includes money earned from the App Store and subscription services like Apple TV — is expected to remain a bright spot with revenue growth of 7.7 percent.

© Thomson Reuters 2024