Part of Apple's AI presentation on Tuesday. Photo: Apple/X
Apple's developer conference on Monday was about more than just incorporating the latest artificial intelligence techniques, including ChatGPT, into its software.
It was also about selling more iPhones.
Faced with volatile consumer spending and a resurgence in tech companies, Apple has turned to AI as a way to reinvigorate its loyal fan base of more than 1 billion people and reverse declining sales of its best-selling products.
The software, which requires at least an iPhone 15 Pro or Pro Max to run, could spur a chain reaction of new purchases, according to several analysts, with some predicting the fall will see the biggest upgrade cycle since the launch of the iPhone 12 in 2020, which lured consumers with 5G connectivity and other features.
“What we saw today was more compelling than anything we've seen since then,” said DA Davidson analyst Gil Luria.
Apple shares closed down about 2% on Monday but rose 3.3% in early trading on Tuesday to a record high.
The company unveiled “Apple Intelligence,” its take on generative AI that can generate text, images and other content on command.
Apple showed how the AI can generate custom emojis and cartoons for text messages to friends, or the ability to edit emails to make them look more professional. The company's digital assistant, Siri, can also ask users if they need ChatGPT's assistance.
Some analysts were skeptical, predicting that consumers wouldn't flock to Apple stores to get AI into their phones.
“Perhaps Apple's new and improved Siri-enabled, intelligent devices will be enough to stem some of the recent steep decline in device sales, but not enough to generate a new following,” said Forrester analyst Dipanjan Chatterjee.
“Investors are clearly looking for a more comprehensive and ambitious strategy from Apple when it comes to AI,” added Tejas Desai of Global X. The company's shares fell 2% on the news.
Upgrade to AI
Like it or not, Apple's AI features won't be coming to every iPhone.
The company said smartphone customers would need to upgrade to the iPhone 15 Pro or Pro Max, which Apple starts selling in September 2023. Built to process data privately on users' devices, the AI relies on chips in Apple's new smartphones.
Wedbush Securities analyst Dan Ives sees this as a big opportunity, estimating that roughly 270 million iPhones haven't been upgraded in four years.
“We predict that more than 15% of Apple's installed base will upgrade to iPhone 16 because Apple Intelligence is the killer app that many have been waiting for,” Ives said.
The iPhone 16 is expected to be released this fall.
Gene Munster, managing partner at Deepwater Asset Management, said another win for Apple is its easy-to-use integration with ChatGPT. “They're really taking the friction out of using AI,” he said.
According to Apple's latest annual report, iPhone sales for the fiscal year ending September 2023 will be $200.6 billion, down from $205.5 billion a year earlier.
Still, AI is just one part of what Apple has to offer to draw consumers: While consumers may primarily want the iPhone's larger display and better cameras, the AI updates will attract early adopters and stand out for their ability to take actions within and across apps, said Martin Yang of Oppenheimer & Co.
“This action piece will make Apple an instant leader in consumer AI,” Yang said.
