Apple’s biggest business is struggling
Investors’ increasing acceptance of this concept might potentially benefit the corporation as it prepares to enter the AI sector in the tech industry.
Apple has experienced a somewhat dismal year thus far. The federal government is endeavoring to dismantle the company’s closed-ecosystem for its App Store and, in a distinct case, contest the profitable payments Apple receives from Google annually to establish the popular search engine as the default on mobile devices, including the iPhone.
Apple is experiencing a decline in its presence in China, a region that has traditionally contributed approximately 19% of the company’s yearly revenue. Apple has recently witnessed a significant decline in iPhone sales in mainland China, mostly due to the growing dominance of Huawei Technologies, as indicated by data from three independent market research organizations. According to Counterpoint, Huawei experienced a significant increase of 70% in smartphone unit sales compared to the previous year’s March quarter, whilst Apple’s sales declined by 19%. IDC projected a relatively modest decline of 7% for Apple, but also estimating that Huawei’s unit sales more than doubled during the same period.
Typically, receiving a series of negative headlines would not bode well for Apple’s stock before its fiscal-second-quarter report, scheduled for Thursday afternoon. However, the shares have already experienced a significant decline, currently down almost 12% since the beginning of the year. This performance is the most inferior among megacap technology companies with a valuation over $1 trillion. Microsoft, Amazon, Nvidia, Meta Platforms, and Google parent Alphabet had collectively achieved a median increase of 23% in their value over the course of the year. Significantly, the decline has resulted in Apple’s price-to-earnings ratio being approximately 25 times projected profits, which is consistent with its average over the past five years and represents a decrease of more than 16% compared to last summer. During that time, the stock surged above 30 times due to excitement surrounding the company’s Vision Pro mixed-reality headset.
This should mitigate any adverse response to the anticipated underwhelming report. Analysts anticipate a 10% decline in iPhone revenue compared to the previous year, marking the most significant decrease for this crucial business division in over three years. It is anticipated that the revenue generated by all of Apple’s device segments will see a decrease compared to the previous year during the specified timeframe. This would mark the first occurrence of such a decline in at least ten years. Anticipated growth in service revenue is projected to increase by 11% compared to the previous year. Analysts have moderate expectations for the company’s future, anticipating that Apple’s total sales will increase by less than 2% compared to the same period last year in the June quarter.
Apple’s primary obstacle in the foreseeable future will be its enduring unwillingness to discuss any novel developments. The corporation has shown indications of its inclination towards generative artificial intelligence, but it is uncertain whether this will result in the development of novel software and services or an AI-enabled iPhone.
Apple is anticipated to present further details about its artificial intelligence (AI) strategy at its developers conference scheduled for June. While other major technology companies are prioritizing the development of generative AI services, Apple’s business model, which is centered around hardware, suggests that on-device AI could have a more significant influence on sales.
According to Bernstein analyst Toni Sacconaghi, if Apple’s revenues increased by 15% due to the OLED iPhone 10, this would result in a $30 billion boost in revenues.
The iPhone would benefit from assistance. Apple has been the dominant force in the high-end market for a considerable amount of time. However, the smartphone industry has reached a stage of maturity, when people are keeping their devices for extended periods of time. According to consensus predictions from Visible Alpha, analysts predict that the current iPhone 15 family is experiencing a third consecutive cycle of poor sales, with a projected 1% decrease in global iPhone unit sales for the current fiscal year. This follows a 4% reduction in sales last year and a meager 1% increase in fiscal 2022.
An AI-enabled iPhone has the potential to either reverse or maintain the current trend. Fortunately, Apple’s market worth is no longer dependent on the success of its new gadgets
