December 2, 2024 4:14 am

Can Apple’s New AI-Powered iPhone 16 Reverse Its Sales Decline? Here’s What We Know So Far

New York — Apple made a bold promise when it launched the iPhone 16 last month, with CEO Tim Cook pledging that the device’s AI enhancements would “supercharge” user experience. This week, with the release of Apple’s third-quarter earnings report, the market received its first look at whether those artificial intelligence updates have started to influence iPhone sales.

The results, released on Thursday, showed iPhone revenue reached $46.2 billion for the quarter ending in September—a solid 5.5% increase compared to the same quarter last year. Analysts, who had set cautious expectations amid an industry-wide slump, were pleasantly surprised by the performance. These early sales figures capture only a brief period of iPhone 16 sales—just over two weeks, from the opening of preorders on September 13 through the end of the quarter on September 30. Official sales began on September 20, meaning that these early indicators offer a limited but important glimpse into consumer response to Apple’s latest flagship device.

For Apple, the stakes for the iPhone 16 are high. After four consecutive quarters of year-over-year revenue declines—driven in part by weak iPhone sales and broader economic uncertainty—the company is relying on this release to reinvigorate its growth. Over the past few years, Apple has faced difficulty in convincing users to upgrade as frequently as they once did. The addition of Apple Intelligence, a suite of artificial intelligence features, is the company’s answer to this challenge, with the hope that it will jump-start a new “supercycle” of upgrades and bring a fresh wave of interest from users.

While some of the growth seen this quarter can be attributed to sales of older iPhone models, the introduction of the iPhone 16 appears to have played a role in the revenue increase. In the same period last year, when the iPhone 15 was released, iPhone sales grew by only 2.8%. This year’s higher growth rate suggests that Apple Intelligence may be resonating with customers eager for new features.

Overall, Apple’s revenue rose by 6% year-over-year to $94.9 billion, slightly exceeding Wall Street’s projections. However, the company also reported a notable 35% decline in profits, underscoring the challenges it continues to face in sustaining profitability. This mixed performance was reflected in after-hours trading, where Apple’s shares fell by about 1%.

During Thursday’s earnings call, Cook underscored the early success of Apple Intelligence, noting that the adoption rate for iOS 18.1 was double that of the previous version, iOS 17.1. Cook suggested that this increase in adoption reflects consumer enthusiasm for AI-driven updates. Indeed, the iPhone 16’s initial release included just a handful of AI tools, such as advanced writing aids and features that enable users to record, transcribe, and summarize calls. This phased rollout is part of a larger plan, with additional Apple Intelligence features expected to arrive with iOS 18.2 in December.

This staggered release strategy, while adding intrigue, may also have tempered immediate demand for the iPhone 16, as some consumers may be waiting for the full AI experience before upgrading. Wall Street analysts have been closely monitoring this dynamic, with CFRA Research’s Angelo Zino noting that early indications of iPhone 16 demand, combined with the company’s fourth-quarter sales guidance, were key areas of interest.

In his remarks on Thursday, Cook also highlighted Apple Intelligence’s role in enhancing privacy—a long-held priority for the company—adding that the AI-powered tools are expected to boost the brand’s appeal as the holiday season approaches. Apple’s success in this quarter will be critical, as analysts have suggested that Apple has the potential to drive a “supercycle” of upgrades among the estimated 300 million iPhones globally that have not been replaced in over four years.

China remains another key area of focus for investors. Apple lowered its prices in China earlier this year in response to increasing competition from local brands, and the iPhone 16’s launch is viewed as an opportunity to regain momentum in this pivotal market. Third-quarter sales in China were flat year-over-year at approximately $15 billion, falling slightly below the $16.1 billion projected by analysts. Despite this, many analysts remain optimistic, pointing to the strength of Apple’s brand and its loyal user base.

With the holiday season fast approaching, Apple is banking on sustained demand for the iPhone 16 to drive strong fourth-quarter results. As Wedbush analyst Dan Ives recently noted, the upcoming quarter could be particularly strong for Apple, given the high number of users who haven’t upgraded in years. Meanwhile, Emarketer analyst Jacob Bourne commented that although the staggered rollout of Apple Intelligence may moderate the upgrade cycle’s momentum, the combination of steady services revenue growth and robust demand for the iPhone 16 sets Apple up for a strong showing in the months ahead.