J.P. Morgan analyst Samik Chatterjee views Apple’s “presentation at WWDC to ‘tick all the boxes’ to convince investors that Apple is able to differentiate iPhone 16 (and future generations) with AI features relative to iPhone 15.” The analyst foresees a “significant acceleration” of the iPhone replacement cycle due to new AI features requiring the latest hardware.
Philip Elmer-DeWitt for Apple 3.0:
From a note to J.P.Morgan clients that landed on my desktop Tuesday:
[T]he watchpoint for WWDC will be whether AI-assisted features are made available across a gamut of native apps, and whether the AI-assisted features will be available with iOS 18 in early September with the device launches, serving to highlight whether Apple has successfully caught up with the rest of the industry, despite a perceived delay in relation to investments in AI…
Drawing parallels from 5G where the consumer hardware upgrade cycle preceded the recognition of material experience improvements, the current base case remains for a significant acceleration of the replacement cycle within the ~1.5 bn installed base of iPhones. The current iPhone volumes run-rate of about 220 mn on an installed base suggests a replacement rate of 15% relative to the peak iPhone replacement of 20% around the 5G cycle. The same replacement rate of about 20% on the 1.5 bn installed base would imply a peak volume cycle of ~300 mn units. However, the key pushbacks in relation to the materiality of the upgrade cycle are: 1) the 5G upgrade cycle coincided with the pandemic and inflection in demand for devices, and 2) the 5G upgrade cycle for Apple coincided with tailwinds in relation to market share in China for Apple from restrictions on Huawei.
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MacDailyNews Take: If Apple can differentiate iPhone AI enough, or at least marketing “iPhone AI” effectively enough, the upgrade cycle will be goosed. Ditto for AI in the Mac, iPad, and Apple Watch. Requiring newer hardware to run AI feature, if the features are compelling, will sell more Macs, iPads, and Apple Watches, too. WWDC and its attached AI-focused marketing will tell the tale.
The pressure is on Apple’s marketing team to really hit one out of the park when it comes to this year’s AI announcements, making Apple look like an AI innovator. — MacDailyNews, May 20, 2024
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I am an Old-Guy. I’ve been Apple-only since the Apple II. I worked 35 years as an independent Apple Tech Consultant. I look forward to whatever Apple will do with AI, and recognize it will be an Evolving feature.
That said, it is my belief that no Apple-only folks will go elsewhere if Apple’s AI intro fails to “wow” – we’ll just await the next version. Some will consider this as dumb. But to those of us with some experience in the matter, it is sage wisdom.
“It’s worth the wait, and always has been.” This will NOT make-or-break Apple.
Completely agree with @Steve Carl – eventually Apple will provide some useful AI features. But while it may not make-or-break Apple, its stock price will suffer in the short run. Analysts have put way too much weight on some glorious AI announcements coming out of Apple next week and, as a result, the stock has been surging from the 170/share level to around 196 now. If the most exciting thing Apple announces next week is its partnership with OpenAI and some opt-in ChatGPT capabilities, I expect the stock to go back to the 170 level. If I had more guts, I’d short AAPL at this point, because I don’t think Apple will announce much more than that.
I’ve been upgrading my iPhone every 2-3 years recently, and didn’t get a Pro model last time around. I expect that I will definitely upgrade this cycle, and will very likely get a Pro. I assume Apple will hold back certain functionality for Pro devices only, and that this will boost their average selling price.
But let’s hope that at the very least, they give Siri some new smarts. As it stands…it sucks. I can’t get her to navigate to a destination a few miles away half the time.
Siri is getting worse by the day for me leading up to WWDC. It doesn’t even reply half the time. Maybe it’s Apple’s way of making the changes seem more dramatic, though we won’t even get the update for another 4 months at least (if at all for iPhones older than the 15).
The notion that users will replace their iPhones at the 20% rate witnessed during the 5G replacement cycle is misplaced in my opinion. For one, at the time, the carriers had a vested interest in users adopting 5G, so they made customers attractive offers to upgrade. The telecoms have no such interested in moving their customers to AI-capable iPhones. Another difference is that AI doesn’t really require new hardware – especially if the most attractive AI features will be those provided by partner OpenAI via their ChatGPT servers. Anyone with an iPhone that has a neural engine and decent amount of RAM will be able to take advantage once they install iOS 18.