AI Revolution or Hype? The iPhone 16’s Supercycle Dilemma Amidst Market Skepticism

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The Hype Around the Latest iPhone May Fall Short

Apple has recently unveiled its iPhone 16 and iPhone 16 Pro, branding it as the era of the "AI" iPhone, aimed at integrating advanced generative AI capabilities in a manner uniquely characteristic of Apple. However, there are forecasts by some market analysts suggesting these latest models could trigger a significant event for Apple's long-term success: the beginning of an iPhone "supercycle."

A "supercycle" refers to a prolonged phase of economic expansion within a cycle of growth and decline. In this context, the term is being used to describe a particular commodity. Observers of the technology sector are either convinced or hopeful that such a phase is about to begin for iPhone sales.

Dan Ives, a managing director at Wedbush Securities known for his optimistic outlook on Apple, conveyed to WIRED his conviction that this year will witness the highest ever sales of iPhones, surpassing the former peak of 231 million units sold in 2015, thus marking it as a supercycle.

Analysts from Morgan Stanley mentioned in a pre-event analysis for Apple's announcement today that they don't expect it to significantly impact the market, yet they believe Apple could outperform its usual seasonal trends.

"Analysts Erik Woodring, Maya Nueman, and Oluebube K Udochukwu believe that Apple Intelligence will stimulate increased interest and quicken the pace at which iPhones are replaced."

The iPhone, arguably the world's most significant technological device, experienced a downturn in sales for four consecutive quarters last year, only to see a rise during the holiday season. It's believed that around 1.5 billion individuals globally use iPhones, a figure that Apple has yet to verify, amidst a smartphone market that appears to be fully matured. The interval between phone upgrades has extended. In the United Kingdom, regulations mandate that Apple must provide security updates for iPhones for a minimum of five years. Furthermore, even minor improvements in the iPhone's ability to be repaired, largely influenced by strong Right to Repair movements in the United States, have resulted in users keeping their existing phones for a more extended period.

Ives mentioned that around 300 million iPhones haven't seen an upgrade in four years.

In the previous quarter, worldwide sales of iPhones decreased by 1 percent compared to the same quarter the previous year, yet Apple still succeeded in earning billions and surpassing expected revenues. The decline in iPhone sales was particularly noticeable in China, a crucial market for Apple, with a 6.5 percent decrease, which was considerably higher than the forecasted 2.4 percent drop. Additionally, Apple has fallen out of the ranking of the top five smartphone vendors in China.

Top-Tier Model

The latest iPhone 16 and 16 Pro versions, as well as select iPhone 15 models deemed sufficiently robust to handle new functionalities, are equipped with artificial intelligence features. Apple claims these capabilities are more intelligent and secure than the generative AI offerings from rival companies. (Notably, Apple has collaborated with OpenAI to incorporate some of these capabilities.)

The update introduces advanced photo-editing capabilities, custom emoji created by artificial intelligence, enhanced tools for composing emails and messages, and an improved Siri voice assistant that sounds more natural and offers better interpretation.

Analysts with a positive outlook believe that although certain functionalities won't be accessible until the following year, Apple's efforts to integrate artificial intelligence into the iPhone will still probably result in a surge in purchases. In contrast to previous years when enhancements to the iPhone's physical components were the main attraction, the current appeal lies in the way Apple's hardware, including its proprietary chips, will support sophisticated AI technology.

"Paolo Pescatore, an analyst and the creator of PP Insights, is confident that the latest iPhone models are designed to last into the future, even if they don't initially support Apple Intelligence. Pescatore, sharing a similar viewpoint with Ives, thinks this marks the beginning of a significant era for iPhone sales. He emphasizes that Apple's expertise in silicon, hardware, and services will come together to fully realize the potential of Apple Intelligence."

Pescatore points out that Siri was overdue for a significant update, and he thinks that iPhone users might now be open to trying Siri again.

Apple has yet to reply to questions regarding the company's prospects for increased iPhone sales.

Super Doubts

Several experts are skeptical about the excitement surrounding a potential supercycle. Anand Joshi, who has a background in engineering and has held executive roles in technology before becoming an analyst at TechInsights, thinks that the outdated technology in previous iPhone versions may drive people to purchase new models. However, he estimates that there's just an even chance of a supercycle happening.

"AI will be the primary force, though I have my doubts about the user interface," states Joshi.

Likewise, Varun Mishra, a senior analyst at Counterpoint Research, believes that iPhone is entering a phase of gradual revenue increases, which he describes as a "step-cycle", as opposed to a major surge or supercycle. This is attributed to Apple’s strategy of rolling out its AI capabilities in phases over a period of time.

"Mishra points out that the features provided by Apple Intelligence are mostly seen as added luxuries rather than essential upgrades, suggesting that they won’t drive significant numbers of users to update their devices sooner than planned. Furthermore, Mishra observes a lack of strong, accumulated interest in genAI capabilities among consumers, unlike the heightened demand seen in past supercycles."

The issue also arises as to whether these innovative iPhones, enhanced by artificial intelligence, will boost purchases in China, a key market for Apple in both sales and manufacturing aspects.

In autumn, The Wall Street Journal revealed that Chinese authorities had mandated employees at government institutions to cease utilizing their iPhones and any other internationally manufactured electronic devices for professional purposes. This directive doesn't impact the vast majority of people in China, yet it might lead to a gradual negative impact on Apple's reputation within the country. With Apple introducing advanced artificial intelligence capabilities that depend on processing data on the devices as well as exchanging data with the cloud, there's growing curiosity about the functionality of Apple's Private Compute Cloud in China. To date, Apple has not disclosed any information on how this system will be implemented.

Today, at the unveiling of the new iPhone, Apple announced its intention to broaden the scope of its artificial intelligence capabilities to encompass additional languages, such as Chinese, beginning in the upcoming year.

Joshi, affiliated with TechInsights, expresses skepticism regarding the significant effect of the Chinese government's strict measures on iPhone sales. He states, "The demand for iPhones in China will persist."

Ives believes that for Apple to thrive in that market, it will need to adopt a strategy that diverges from its usual approach of closely managing its technology and user experience. He suggests, "Securing a partnership with a Chinese company will be crucial for Apple's advancement in AI within China."

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