Apple’s AI push causes market stir
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Apple’s AI push causes market stir

Impact on iPhone sales debated, while Elon Musk says he would ban ChatGPT-equipped devices

Apple CEO Tim Cook attends the annual worldwide developer conference at the company’s headquarters in Cupertino, California on Monday. (Photo: Reuters)
Apple CEO Tim Cook attends the annual worldwide developer conference at the company’s headquarters in Cupertino, California on Monday. (Photo: Reuters)

Apple’s worldwide developer conference on Monday was about more than just infusing its software with the latest artificial intelligence technology, including ChatGPT.

It was also about selling more iPhones.

Facing choppy consumer spending and resurgent tech rivals, Apple has looked to AI as a way to invigorate its loyal fan base of more than 1 billion customers and to reverse a sales decline for its biggest-selling product.

The software, which requires at least an iPhone 15 Pro or Pro Max to operate, may encourage a cascade of new purchases, several analysts said. Some predicted the biggest upgrade cycle later this year since Apple’s release of the iPhone 12 in 2020, which drew consumers in part through 5G connectivity.

“What we saw today was more compelling than anything we’ve seen since,” said analyst Gil Luria of DA Davidson.

The company showcased what it called Apple Intelligence, its take on generative AI that can conjure text, images and other content on command.

Apple demonstrated how its AI could generate custom emojis, a cartoon to text friends or edits making an email sound more professional. Its digital aide Siri could prompt users if they wanted help from ChatGPT as well.

Billionaire Elon Musk is among those who was less than impressed. He said he would ban Apple devices at his companies if OpenAI is integrated into them at the operating system level.

“That is an unacceptable security violation,” said the CEO of the electric-vehicle maker Tesla and the rocket maker SpaceX and the owner of the social media company X.

“And visitors will have to check their Apple devices at the door, where they will be stored in a Faraday cage,” he said.

Apple and OpenAI did not immediately respond to Reuters requests for comment.

Apple said it had built AI with privacy “at the core” and it would use a combination of on-device processing and cloud computing to power those features.

“It’s patently absurd that Apple isn’t smart enough to make their own AI, yet is somehow capable of ensuring that OpenAI will protect your security & privacy!” Musk wrote in a post on X.

It was unlikely that anyone would follow Musk’s lead, said Ben Bajarin, CEO of the consulting firm Creative Strategies, adding that Apple was trying to educate people that private cloud was as secure as keeping data on a device.

“What (Apple) is trying to now add to the narrative is when (data) leaves and goes to the secure private cloud, it’s similarly taking that same user data anonymisation and firewalling of that information to you. Apple really never sees that,” he said.

Not all analysts believe consumers will race to Apple stores to get more AI on their phones.

“Perhaps there may be enough in the new and improved Siri-powered, intelligently Apple devices to stanch some of the device revenue that’s been hemorrhaging lately, but there isn’t enough to create a new band of followers,” said Forrester analyst Dipanjan Chatterjee.

Tejas Dessai of Global X added, “Investors clearly want a more comprehensive and ambitious strategy from Apple when it comes to AI.” The company’s stock fell 2% on the news.

Newer models only

Like them or not, Apple’s AI features won’t come to every iPhone.

The company said smartphone customers have to upgrade to the iPhone 15 Pro or Pro Max that Apple began selling in September 2023. The AI, built that so it can process data privately on a user’s device, depends on chips in Apple’s newer smartphones.

In the view of Wedbush Securities analyst Dan Ives, that represents a big opportunity. He estimated some 270 million iPhones had not been upgraded in four years.

“We estimate 15% or more of the Apple installed base will upgrade to iPhone 16 as Apple Intelligence is the killer app many have been waiting for,” Ives said.

The iPhone 16 release is expected sometime this autumn.

Gene Munster, a managing partner at Deepwater Asset Management, said another feather in Apple’s cap was its easy-to-use integration with ChatGPT. “They’re really taking the friction out of using AI,” he said.

Apple’s iPhone revenue for its fiscal year that ended in September 2023 was $200.6 billion, down from $205.5 billion the prior year, the company’s latest annual report showed.

Still, AI is just a part of Apple’s draw to consumers. They may primarily want a bigger iPhone display or better camera, but the AI updates would appeal to early adopters and stand apart for their ability to take actions in and across apps, said Martin Yang of Oppenheimer & Co.

“That action part will make Apple an immediate leader in consumer AI,” Yang said.

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