Apple’s AI Headaches Could Lead to Lukewarm Revenue Growth

Apple is reportedly expected to report muted revenue growth this week amid AI hiccups and competition in China.

As Reuters reported Wednesday (Jan. 29), Apple and its competitors Samsung and Google have been counting on artificial intelligence (AI) features to boost smartphone sales. However, Apple’s latest iPhone lacked those features when it debuted, while some AI services have yet to debut in some regions.

The report notes that Apple’s AI issues were spotlighted earlier this month when news outlets such as the BBC began complaining that the company’s AI summary tool was generating inaccurate headlines. Apple later removed the feature from its operating system.

As part of that update, Apple has switched on Apple Intelligence by default on iPhones, iPads and Macs. Before that, users with devices that support the AI capabilities were prompted to activate it during setup, a process that involved downloading software.

“AI is the new technology innovation, the fact that Apple’s handsets are lagging behind on capabilities is a key reason why their competitive positioning has weakened and the company has lost market share,” Jane Hepburne Scott, investment manager at Aegon Asset Management, which owns shares in the tech giant, told Reuters.

Meanwhile, Apple has seen its share of the global smartphone market shrink to 23% for the closing quarter of 2024 due to pressure from rivals like Huawei and other Chinese smartphone makers. That figure had been at 25% a year earlier, Reuters said, citing IDC data.

That data also shows a sharper drop in China — Apple’s third-largest market — where the company’s market share declined by 10 percentage points, to 17%.

While the Chinese government has offered subsidies to smartphone purchasers to heighten domestic consumption, these subsidies are aimed at low- to mid-tier phones that sell for under $800, excluding high-end iPhones, Barclays analysts said in a note, per Reuters.

Apple has not been able to add AI features to iPhone 16s in China due to government restrictions that mandate generative AI operators to secure permission before they can launch a product. That’s left Apple trying to land partnerships with Chinese companies to roll out its AI feature.

Meanwhile, Apple has faced hurdles in another major smartphone market, with Indonesia banning the iPhone due to that nation’s content restrictions. Apple had proposed making a $1 billion investment in local manufacturing, but Indonesia’s government said that wasn’t enough to meet a regulation requiring 40% of all content in devices to be home-grown. However, reports this week suggest the two sides are close to reaching a deal.