Problems with sales in China. US patent lawsuits. Delay in generative AI. We're only a few weeks into 2024, but the year is already fraught with problems for Apple.
The tech giant's barrage of challenges impacts many parts of its overall business. Last week, Microsoft took over from Apple as the most valuable publicly traded company, after trailing the iPhone maker for most of the last decade. Microsoft's stock rally is largely due to its early and wide-ranging bets on generative artificial intelligence, an area about which Apple hasn't made any major announcements.
Still, some analysts believe the company will be able to navigate through the minefields throughout the year.
“Being Apple, which is still the largest company in the world by market value, I'm sure it will do everything it can to minimize the impact of these problem areas,” said David McQueen, an analyst at ABI Research. “The company still has an extremely loyal user base so its brand value, recognition and quality are not compromised.”
A closer look at what Apple will face:
Problems in China
One of Apple's biggest hurdles this year will be approaching the market in China, the world's second-largest economy.
The company has struggled to attract customers to buy iPhones in the country following the launch of Huawei's highly successful Mate 60 Pro smartphone. In a surprising move, Apple recently offered temporary discounts on iPhones and other products in China, lowering prices by around R$350.00. Macs and iPads were also heavily discounted.
It's normal for other sellers who resell Apple products to reduce prices, but the company itself rarely offers discounts. The move raised questions about the iPhone's performance in one of Apple's most critical markets, which generated about 20% of the company's sales last year. A recent Reuters report noted that iPhone sales in China fell 30% in the first week of the year amid pressure from rival Huawei.
Dan Ives, an analyst at market research firm Wedbush, called China Apple's biggest challenge and biggest opportunity. Despite growing competition, he said China has about “100 million iPhones in the window of an upgrade opportunity.”
Battle for patents
One of Apple's most popular products, the Apple Watch, remains banned in the US, while one of the most important patent disputes in recent times continues to unfold.
Last week, a US federal appeals court reinstated a ban on some of the premium versions of the Apple Watch. Apple requested the ban be lifted while it appeals a US International Trade Commission ruling that took effect last month. That commission order prevented Apple from importing the Apple Watch Series 9, Apple Watch Ultra 2 and other newer models into the US because it violated medical company Masimo's pulse oximeter patent.
Apple sold 49 million smartwatches in 2022 and about 26.7 million in the first 9 months of 2023. While the ban will likely impact sales results, Jitesh Ubrani – research manager at market research firm IDC – said the Apple's reputation is also at stake.
“It’s not a good look,” he said. “There may be an impact on sales in the first quarter of next year, but at the end of the day, no one wants to get caught infringing patents.”
It's unclear how long the dispute will last or whether Apple will settle the lawsuit.
AI delay
Leading technology companies, including Microsoft, Meta, Google and Samsung, continue to implement generative AI capabilities in their services, computers and smartphones. However, Apple has been pretty quiet on the matter.
The company is rumored to introduce new AI-powered Siri features in the release of iOS 18 later this year. Some generative AI features on the device could also become exclusive to the iPhone 16 models, thanks in part to their custom chips.
But AI innovations in flagship smartphones are not entirely new. Google's latest Pixel 8 lineup, launching in October 2023, already has plenty of AI features, and Samsung's Galaxy S24 lineup, which hits stores later this month, includes several AI-powered tools like translation real-time, AI-powered generative search and updated photo editing capabilities.
The promotion of AI is part of a larger effort by smartphone manufacturers to differentiate themselves in a crowded market and spark enthusiasm as innovation has stagnated in recent years.
While consumers are unlikely to switch to other brands specifically because of AI capabilities, people end up expecting Apple to provide similar or more advanced features.
This isn't the first time that Apple has fallen behind in emerging areas such as 4G, 5G and foldable screens – even though none of these have caused significant setbacks for the brand.
McQueen said that while Apple's competitors, namely Samsung, have bragging rights and “are able to point out this AI weakness,” he questioned whether customers really know what they are getting with on-device AI and why It's worth an update.
At the same time, the demand for iPhones remains strong. Market research firm IDC recently released data that revealed that Apple surpassed Samsung in smartphone shipments last quarter for the first time.
Concern about revenue
Apple is under pressure to increase sales in its other product categories. In November, Apple reported year-over-year sales declines for the fourth consecutive quarter, struggling particularly with Mac and iPad sales. iPhone revenue, however, grew 3% to $43.8 billion.
Still, Barclays downgraded Apple shares earlier this month, citing disappointing sales of the iPhone 15 in China and decreased demand for the latest iPhone. The next-generation iPhone 16, launching later this year, is also expected to only have incremental updates.
Apple also faces challenges surrounding the upcoming launch of the Vision Pro headset, which will be its riskiest product launch in years. The company will have to prove that a device that combines virtual reality and augmented reality, a technology that overlays virtual images onto live video of the real world, is indeed the future of computing.
And it won't be an easy sell: While innovative, it's still a clunky $3,499 computer that you wear on your face.
Regulatory target
Several of the main technology companies considered by the European Union to be “monopolists”, including Apple, will have to implement new platform rules this year. This means Apple may have to give up sole control over how iOS apps are distributed, a move that could impact its revenue.
The new Digital Markets Law (DMA), approved in 2022, aims to reinforce competition in online services. Some of the most visible proposed changes to EU users involve how you can install apps and which apps can be pre-installed on devices.
One of the changes will require dominant operating systems to allow for smaller third-party app stores, as well as the ability to install apps from anywhere outside of the official app store.
While Google has allowed both on the Android platform, Apple has maintained tight control over iPhone apps. Apple and other industry players have argued that opening up operating systems in this way could leave users vulnerable to downloading more harmful apps.
Under the new rules, dominant app stores will not be able to delist apps for refusing to use the dominant systems' payment systems, an issue recently highlighted by Apple's antitrust case with Epic Games. Much of Apple's app store revenue comes from the 30% slice it receives through its payment channels from in-app sales of digital goods and services, so the provisions could directly affect the company's business model.
This month, the U.S. Supreme Court declined to hear an appeal by Apple and Epic in the case, leaving in place a lower court ruling finding that Apple illegally monopolized app distribution. The decision not to hear the case also effectively upheld an injunction that required Apple to modify some of its developer terms.
The company hasn't shared many other details about its plans to comply with the legislation, but the March deadline is approaching.
Source: CNN Brasil
Charles Grill is a tech-savvy writer with over 3 years of experience in the field. He writes on a variety of technology-related topics and has a strong focus on the latest advancements in the industry. He is connected with several online news websites and is currently contributing to a technology-focused platform.
