Apple is expected to announce lukewarm quarterly revenue growth on Thursday, as a slow rollout of artificial intelligence features and fierce Chinese competition have impacted iPhone demand during the crucial holiday shopping season.
The company and its competitors, Google and Samsung, have been relying on artificial intelligence to drive sales of their devices. However, Apple's latest iPhone 16 series lacks such features upon its launch in September, and some AI services, including an improved Siri, are expected to be released later this year in certain regions.
Challenges Facing Apple in AI and Its Impact on Sales Apple's (NASDAQ: AAPL) challenges with artificial intelligence were highlighted this month when it had to pull its AI news-summarizing tool due to inaccurate headlines, which drew criticism from the BBC and other news outlets.
Jean Hepburn Scott, an investment manager at Aegon Asset Management, which owns Apple shares, said, "Artificial intelligence is a new technological innovation, and the fact that Apple devices are lagging in capabilities is the primary reason for its weak competitive position and the company’s loss of market share."
Fierce Competition from Chinese Companies: Its Impact on Apple's Market Share Under pressure from Huawei, which has regained its strength, as well as other Chinese smartphone manufacturers, Apple has seen its share of the global smartphone market shrink to 23% in the fourth quarter of 2024, down from nearly 25% a year ago, according to data from IDC. The data showed that the decline was most pronounced in China – its third largest market – where Apple's share fell by 10 percentage points to 17%.
Chinese Government Subsidies and Their Impact on iPhone Sales Although the Chinese government has been providing subsidies to smartphone buyers to boost domestic consumption, these subsidies target low- to mid-range phones priced under $800, excluding premium iPhones, according to Barclays analysts in a note.
Slow Growth Forecasts for Apple: Revenue and Segment Analysis Concerns about iPhone demand have impacted Apple's shares this year, resulting in a 5% decline so far in January. Analysts expect the company to record revenue growth of 3.8% for the three months ending December, Apple's first fiscal quarter, according to data from LSEG. This is significantly lower than the growth of 6.1% the company recorded in the third quarter of September, which included only a few days of new iPhone sales.
Additionally, iPhone sales are likely to increase only by 1.9% in the first quarter, which is weaker than the 5.5% increase in the previous quarter. While Mac sales are expected to rise by 2.3%, slightly faster compared to the previous three months, iPad revenues are forecasted to increase by 4.2%, at a slower pace than the fourth quarter. Furthermore, the services segment, which has outpaced Apple device growth in recent years, is expected to see a sales increase of 12.9%.
External Pressures: How Does Dollar Strength Affect Apple's Global Profits? Like other companies with significant global presence, Apple is also set to be affected by the strength of the dollar. The US dollar rose approximately 8% in the last three months of 2024 amid expectations of trade tariffs from President Donald Trump.
In turn, Tom Fort, Chief Consumer Internet Analyst at Maxim Group, warned that as more than 50% of the sales come from outside the Americas, the strength of the US dollar against the euro and yen in the last quarter of December may make it difficult for Apple to report sales exceeding consensus estimates.
The Impact of Global Competition on Apple's Market Share According to recent forecasts, Apple is expected to face increasing competition from other global companies, including major Chinese smartphone manufacturers. Apple has seen a contraction in its market share in some key markets, reflecting the significant challenges it faces in maintaining its competitive position.
