TLDR
- Apple reported better-than-expected iPhone sales in Q3, with revenue growing 4.9%
- The company is betting on AI features to drive future iPhone upgrades
- Apple’s China sales declined 6.5%, wider than the expected 2.4% drop
- New AI features, dubbed “Apple Intelligence,” will require at least an iPhone 15 Pro
- Early versions of Apple Intelligence are available in developer beta, with more significant updates expected in future releases
Apple’s third-quarter earnings report revealed a mix of positive results and ongoing challenges, with the tech giant pinning its hopes on artificial intelligence (AI) to drive future iPhone upgrades. The company reported better-than-expected iPhone sales and overall revenue growth, but faced headwinds in the crucial Chinese market.
In the April-June period, Apple’s revenue grew by 4.9%, surpassing analyst estimates. iPhone sales declined by just 0.9%, compared to the 2.2% drop analysts had anticipated. Chief Financial Officer Luca Maestri noted that the iPhone 15 family has been performing better than the previous iPhone 14 cycle.
However, Apple’s performance in China, its third-largest market, remained a concern. Sales in the country declined by 6.5%, wider than the expected 2.4% drop. This decline comes despite Apple’s efforts to offer discounts of up to 2,300 yuan ($317) on selected models to compete with local rivals like Huawei.
Looking ahead, Apple is betting heavily on AI to drive future iPhone upgrades. The company unveiled a suite of AI products and services called “Apple Intelligence” at its developer conference in June. These features are expected to be part of what analysts consider the biggest software upgrade for the iPhone in years, slated for release this fall.
To fully utilize Apple Intelligence, users will need at least an iPhone 15 Pro. This requirement may push consumers to upgrade their devices, potentially driving a strong upgrade cycle for the iPhone 16 series, likely to be launched in September.
Early versions of Apple Intelligence are already available in the iOS 18 developer beta for iPhone 15 Pro and Pro Max users.
The update includes improvements to Siri, Apple’s virtual assistant, enhancing its language understanding and ability to handle follow-up questions. Other AI features are sprinkled throughout the operating system, including in the Mail app, where AI can summarize emails and highlight priority messages.
The Photos app now uses AI to understand more complex search requests, allowing users to find specific images using natural language queries. Writing tools powered by AI are also available across the system, offering proofreading, writing suggestions, and text summarization capabilities.
While these early features show promise, the most significant updates to Apple Intelligence are still to come. Future versions are expected to give Siri awareness of what’s on the user’s screen and the ability to take actions in apps on behalf of the user.
Apple’s AI push comes as the company faces increasing competition in the AI space. Rivals like Samsung have already introduced devices aimed at hosting AI chatbots, while tech giants Microsoft and Google are making substantial investments in AI technology.
The success of Apple’s AI strategy could have significant implications for the company’s future growth. As Tom Forte, managing director at Maxim Group, points out, “The ultimate story for Apple is that there will be an upgrade cycle for iPhones, which is still the most important product, half their revenue. The question is how quickly will that start?”
