Apple’s AI Leap: A Strategy to Revitalize iPhone Upgrades Amid Sales Slump

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Lauren Goode

Apple's Latest AI Innovations Could Encourage iPhone Upgrades

The introduction of advanced AI features could be central to Apple's efforts to persuade consumers to update their iPhones.

Today, at its yearly developer gathering, the firm unveiled Apple Intelligence, a carefully chosen name for its latest series of AI capabilities. Unlike the more commonly named generative AI technologies, these features also rely on extensive datasets for training.

Apple's strategy involves enhancing its current applications, leveraging their reach and effect instead of creating a fresh chatbot or search engine designed to produce responses resembling those of a human. With the introduction of Apple Intelligence to iPhones, Macs, and iPads scheduled for later this year, the technology aims to transform drawings into pictures, organize photos and videos, modify emails, adjust the tone of communications, and enable Siri, the voice assistant, to access various apps for more cohesive replies.

However, there's a snag: Your older iPhone model won't be compatible.

Apple is restricting these artificial intelligence capabilities to its iPhone 15 Pro and Pro Max models, equipped with the A17 Pro chip; the iPad Pro and Air models that are powered by the M1 chip or newer; and a selection of Mac computers that operate with the M1 chip or its successors.

Apple has not provided specific reasons for restricting its advanced Apple Intelligence capabilities to its latest and highest-priced devices. However, professionals in the field speculate that the decision may stem from the belief that older, less capable processors could lead to a subpar AI experience, prompting Apple to avoid offering an underwhelming feature. (As of this report, Apple has not replied to WIRED's requests for comment.) Whether this decision is driven by technical constraints or is a tactic to distinguish their products, it could be Apple's most effective strategy to encourage consumers to purchase the newest iPhone models this autumn.

Dan Ives, a seasoned analyst at Wedbush Securities and an expert on Apple, recently shared on Twitter his belief that an iPhone enhanced with advanced language models and centered around innovative AI-based customization capabilities "is expected to alter Cupertino's growth curve—initiating an AI-fueled cycle of iPhone upgrades beginning with the iPhone 16."

Apple is introducing new AI capabilities concurrently with a downturn in iPhone sales. During the earnings report for the period from January to March, revealed in May, Apple experienced a 10 percent decrease in iPhone sales compared to the previous year, marking the most significant sales decline since the summer of 2020, a period affected by factory shutdowns. The company's revenue for the last quarter fell by 4 percent year-over-year, largely due to the decrease in iPhone sales. However, Apple's gross margin remained robust, primarily thanks to the expansion of its services sector.

Over the past few years, Apple's mobile devices have introduced numerous innovative features and capabilities. However, some of these advancements have become common or are not directly noticeable to users. Apple's custom chips for the iPhone and iPad are at the forefront of technology, appealing to either the most tech-savvy or affluent buyers. Yet, the mention of "CoreML on Apple silicon" doesn't resonate as much with those in the market for more affordably priced smartphones. Although each new iPhone model boasts progressively improved camera quality, competitors such as Samsung and Google offer similarly high-quality photo and video capabilities in their premium devices. This trend extends to other user convenience options like wireless charging.

Authored by Boone Ashworth

By Christopher Null

Authored by Julian Chokkattu

Authored by Boone Ashworth

Data from the secondary market confirms the trend: Sales of refurbished smartphones rose by almost 10 percent, reaching 309.4 million units in 2023, an increase from 282.6 million units in the previous year, as reported by the research company IDC. For many consumers, a decent phone meets their needs perfectly.

Apple is emphasizing data protection as a key feature of its generative AI offerings, highlighting that Apple Intelligence is deeply embedded within the iPhone, iPad, and Mac via on-device computation. According to Axios, Apple's AI capabilities are powered by its own custom-built large language models, avoiding dependence on external models or a mix of various LLMs. For situations where an iPhone lacks the necessary processing power to handle a user's request on the device itself, Apple Intelligence will transfer the request to a server equipped with Apple silicon, ensuring the user's privacy is safeguarded, according to the company.

This prompts the inquiry: If Apple intends to transfer some of the computing work to its cloud services, could not a previous model—such as the iPhone 14 Pro, which operates on an earlier version of the processor—benefit from the AI enhancement as well?

Michael Gartenberg, an analyst specializing in consumer technology at Flash Advisory & Research with a background at Apple, mentions that he's currently unable to confirm if Apple is misleading customers about the capabilities of their devices. However, he is aware that iPhones are capable of supporting ChatGPT and many of Google's AI functionalities. Thus, he speculates that Apple might be using this as a chance to suggest that the iPhone 13 no longer meets the necessary standards, according to his statement.

Gartenberg points out that the launch of Apple Intelligence might deter consumers from purchasing an iPhone until the forthcoming fall, interrupting the usual cycle of iPhone sales. He adds that this hinges on the assumption that consumers are actually interested in the generative AI capabilities, a premise that is questionable given that Pew survey findings indicate a slight tilt towards concern over excitement among Americans regarding generative AI.

Given that Apple Intelligence will initially be offered solely in US English, its introduction is not expected to immediately increase iPhone sales in other regions, such as China, which is a key market for Apple. To counteract this, Apple must undertake significant "futureproofing" measures, suggests Carolina Milanesi, the founder of Heart of Tech, a research company.

"She mentions that the sequence in which experiences are introduced to different countries plays a crucial role. For instance, the availability of AI-created Genmoji prior to text modification or other verbal functionalities could be a factor. Milanesi anticipates that a significant update phase is expected next year with the inclusion of additional languages," she explains. Particularly in China, Apple faces the challenge of not just enhancing language compatibility but also deciding on its approach to data management, according to her.

This September, Apple is introducing a fresh incentive for iPhone users to consider upgrading. Instead of solely focusing on enhancing the camera within the familiar design, Apple is set to emphasize how the latest iPhone represents a significant leap in intelligence. The company aims to present its newest iteration as a smarter device, equipped with a version of generative AI that's more appealing and practical compared to the current AI chat platforms, which are yet to find their footing.

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