(Bloomberg) -- Apple Inc., the world’s most valuable technology company, is under mounting pressure on many fronts.
Demand for the iPhone is only just recovering from a sluggish stretch, and rival Chinese brands have been making inroads. Apple’s business model is under attack from regulators on both sides of the Atlantic. And finding the all-important “next big thing” has proven elusive: Apple killed a much-anticipated car project earlier this year.
The iPhone maker also is still playing catch-up in artificial intelligence. Though the company is preparing to roll out a new suite of tools called Apple Intelligence, that software wasn’t ready to include in the phones that just hit stores. Tech peers, meanwhile, have already woven AI features into their software and devices.
Here are the challenges Apple is facing around the world:
1. Emerging from a smartphone slump
Apple’s latest iPhone lineup just went on sale Friday, and it reprsents a major test for the company: whether AI features that are still in development can coax conusmers into upgrading theit phones.
On the outside, the phone isn’t much different than its predecssors. The most visible change is a Camera Control button that lets you take photos and videos, but the basic look of the iPhone 16 resembles models dating back to the iPhone 12.
And that’s contributed to a broader problem: Consumers haven’t been upgrading their phones as often as they used to, and Apple lacks a sure-fire reason for them to change their ways. That’s contributed to one of the company’s longest sales slumps in decades. Revenue declined in five of the past seven quarters and, while a revival is underway, it’s a relatively muted one.
The hope is that Apple Intelligence spurs consumers to upgrade, but the software won’t be available until October. Even then, it will take the form of a beta version — something typically reserved for more adventurous users.
2. Proving its worth in AI
Ever since OpenAI’s ChatGPT exploded into the public consciousness in 2022, tech companies have been racing to add more features using generative artificial intelligence — the technology that can create elaborate text, images and videos based on simple prompts.
Apple was conspicuously absent from this frenzy, raising concerns that it was falling behind in a vital new area. Then the company made a splash with its unveiling of Apple Intelligence in June, showing off something it described as “AI for the rest of us.” The technology helps to summarize text, create original images and promises to retrieve the most relevant data. The rollout also includes a revamped version of Siri, the company’s once-pioneering digital assistant.
Apple is teaming up with OpenAI as well to integrate ChatGPT into its software. But many of those features won’t arrive for months, meaning Apple’s big chance to prove it can be a major player in AI won’t come until next year.
3. US antitrust suit
The US Justice Department and 16 attorneys general filed a suit in March alleging that Apple has imposed software and hardware limitations that make it harder for rivals to compete and for consumers to switch phones. The complaint highlights five examples of technologies in which it says Apple suppresses competition: super apps, cloud streaming game apps, messaging apps, smartwatches and digital wallets.
It’s worth noting that Apple is addressing some of these issues already. The company added support for cloud-based gaming services and is adopting the RCS cross-platform messaging standard. Apple argues that the lawsuit is “wrong on the facts and the law” and vowed to “vigorously defend against it.” But the legal battle is expected to take years.
4. European Union pressure
The region’s Digital Markets Act took effect in early March, posing a new threat to the company’s “walled garden” — the ecosystem that encourages users to buy other Apple products and services. As part of those changes, customers are able to download software from outside the App Store for the first time, a process known as side loading. Users can also tap alternative payment systems and more easily choose a new default web browser — addressing two frequent gripes of developers and regulators.
Apple has long fought such changes, arguing they’ll undermine the user experience and the security of its software. The company has agreed to take a smaller commission on app store purchases, but still added some additional fees that have drawn indignation from developers. The bigger danger for Apple is the splintering of a business model that generates tens of billions of dollars a year.
Separately, the EU on March 4 hit Apple with a €1.8 billion ($2 billion) penalty over an investigation into allegations that it hampered music-streaming rivals, including Spotify Technology SA. Apple also recently lost a fight over a $14.4 billion Irish tax bill.
5. China slowdown
Apple has been contending with a downturn in China since last year, and the problem isn’t going away. Sales from the country fell 6.5% to $14.7 billion last quarter, missing the $15.3 billion projection from Wall Street. Apple attributed much of the decrease to the impact of a strong dollar, and said the underlying business in China is actually healthier than before.
Still, homegrown Chinese brands such as Vivo have have been gaining ground. Perhaps more troubling, restrictions on the use of foreign technology at Chinese government offices spread over the past year. As geopolitical tensions with the US mount, Apple’s reliance on the country — as both a market and manufacturing hub — is looking more risky.
6. Finding the next big thing
Investors cheered after Bloomberg reported in February that Apple was winding down its car project. After all, it meant the company was no longer spending billions of dollars on a long-shot effort.
But the car’s demise ultimately leaves Apple without a big moneymaker on the horizon. As difficult as it was to build an electric vehicle, Apple could have charged $100,000 for such a product. Though profit margins would have likely been razor-thin at best, Apple could use a sales boost right now. Revenue decreased 3% in the last fiscal year, the company’s worst drop since 2016.
Abandoning the car also raises concerns that Apple is playing it safe, rather than fearlessly blazing a trail into new categories. In addition, the company recently scrapped an in-house effort to design and develop its own smartwatch displays.
It does still have some options, though. Apple has been exploring a push into personal robotics. The company has assigned several hundred people to work on a tabletop home device that combines an iPad-like display with a robotic limb.
7. Vision Pro’s niche status
Apple did enter a new product category in 2024, and that’s the mixed-reality market — an area the company calls “spatial computing.” The Vision Pro headset, which debuted Feb. 2, has wowed reviewers and attracted early adopters. But it remains a $3,500 product with a less-than-obvious raison d’etre. The goggles are too heavy to wear for long periods, and many software developers have held off on creating dedicated apps for them.
Chief Executive Officer Tim Cook’s original vision was to sell a pair of lightweight augmented reality spectacles that users could wear all day. The technology for such a device wasn’t ready yet, so Apple had to compromise with a bulkier headset that melds AR with virtual reality.
The challenge now will be making the Vision Pro lighter and cheaper, getting it closer to something that a typical consumer might buy. But that process will take years. In the meantime, Apple may try something less ambitious: It’s been considering developing smart glasses — a non-AR device that would resemble the popular Ray-Ban spectacles sold by Facebook owner Meta Platforms Inc.
8. Reviving the iPad
Apple is working to get consumers excited about tablets again after interest in the category waned. Overall sales of the devices fell last year to their lowest level since 2011, according to research firm IDC. That wasn’t just a problem for Apple, of course, but the company is the dominant seller of tablets, accounting for roughly 40% of shipments.
Some consumers have shifted to larger phones or just gone back to laptops, but it didn’t help that Apple failed to release a single new iPad model during the last calendar year. There’s never been a drought like that since Steve Jobs first unveiled the device in 2010.
The good news is, Apple just revamped the iPad lineup with new versions. An overhaul in May included the first redesigned iPad Pro since 2018. The new model is thinner, includes a crisper Ultra Retina XDR screen with OLED technology, and has a faster M4 chip that can handle AI tasks.
The long-awaited updates provided a payoff in Apple’s latest results. The Cupertino, California-based company reported $7.16 billion in revenue from tablets last quarter, up 24%. That beat the estimate of $6.6 billion.
9. Smartwatch legal fight
In a rare move, Apple had to stop selling versions of its watch with a blood-oxygen sensor at the start of the year — the result of a legal fight with medical device maker Masimo Corp. The watches are a central piece of the company’s wearables, home and accessories division, a business that generated more than 10% of revenue last year, or nearly $40 billion.
Though Apple was able to deactivate the feature and get its watches back on the market, it was an embarrassing legal setback for a company that rarely suffers them. And it doesn’t look like a resolution is coming soon. When the company unveiled its latest watch lineup in September, the blood-oxygen capability hadn’t been restored.
10. Talent drain
Executive turnover is a regular thing at Apple, and the company has a deep bench of managers. But the iPhone maker has lost some of its most distinguished leaders over the past year — especially in its design team. That includes Bart Andre, the company’s longest-serving senior industrial designer and one of the biggest holders of Apple patents, as well as Duncan Kerr, another veteran of that team. Top designers Colin Burns, Shota Aoyagi and Peter Russell-Clarke also left around the end of last year.
After years of departures, the team once led by the legendary Jony Ive — a group that helped define the Apple aesthetic — is nearly entirely gone. Ive’s successor as head of the department, Evans Hankey, left last year.
Longtime Apple Chief Financial Officer Luca Maestri also is stepping down. In that case, though, he has a well-seasoned deputy, Kevan Parekh, ready to step into the role.
--With assistance from Debby Wu.
©2024 Bloomberg L.P.
