A decade ago, lines to purchase Apple’s latest products stretched for blocks in Union Square, in San Francisco (USA), and in stores around the world. Excitement about Apple seemed unabated, with the company continually releasing essential gadgets. Today, however, Apple, once considered the most innovative and valuable company in the world, finds itself at an inflection point.
The company is struggling to reignite consumer enthusiasm for its products from the last decade. Recently, Apple reported its biggest quarterly revenue drop in over a year. The company’s sales in the quarter ended March 30 fell 4% compared to the previous year, to US$90.75 billion, while net profit fell 2%, to US$23.64 billion, according to information from Estadão.
In recent months, the company has failed to attract a wide audience with its expensive Vision Pro mixed reality glasses and has finally given up on its years-long attempt to develop a self-driving car. Meanwhile, overseas consumers, especially in China, are increasingly opting for smartphones from Huawei Technologies and Samsung, while existing customers remain loyal to the Apple products they already own.
John Ternus, Apple’s senior vice president of hardware engineering, said in an interview with The Washington Post in April: “We have hundreds of millions of products in use that are five years old or older. And that number continues to increase.”
To reverse this trend, Apple CEO Tim Cook is expected to tease new artificial intelligence (AI) features this week and reveal them at the company’s Worldwide Developers Conference, WWDC, in June. Analysts are hopeful that Apple will finally capitalize on the AI boom and unveil new must-have features in the next iPhone to re-energize customers and drive demand.
However, earlier this year, Apple was surpassed as the world’s most valuable company by Microsoft, which has become one of the powerful leaders in the AI boom through its investment in OpenAI, maker of ChatGPT. And last month, Apple laid off more than 600 employees after shutting down its self-driving car project, its biggest workforce reduction in years.
Meanwhile, the company is also facing increased scrutiny from regulators in the European Union, its No. 2 market by revenue, and an antitrust lawsuit from the U.S. Department of Justice, which alleges Apple is abusing its market power.
Bob O’Donnell, founder and chief analyst at TECHnalysis Research, asks: “Where’s the next big thing? Apple always seems to pull a rabbit out of its magic hat, but it seems like the options for doing so are getting fewer and fewer.”
Apple did not respond to a request for comment.
The iPhone remains Apple’s flagship product, and there are no signs of that changing anytime soon. But even Apple’s most popular product, which generated more than $200.6 billion in revenue for the company during its 2023 fiscal year that ended Sept. 30, is not immune to changing tastes.
On Thursday, the 2nd, Apple reported quarterly iPhone sales of US$45.9 billion, a drop of more than 10% compared to the previous year.
Part of this drop can be attributed to Apple’s performance abroad, where the iPhone has less influence on consumer preference than in the United States.
The company’s Greater China region, which encompasses mainland China, Hong Kong, Macau and Taiwan, has long been one of Apple’s most important growth zones. But growing pressure from a handful of local rivals – including Shenzhen-based Huawei, which overcame US sanctions with the aim of slowing its advance by the end of 2023 by producing a smartphone with a domestically-made processor – has sharply reduced the Apple’s market share in the region earlier this year.
Data from market research firm Counterpoint Research indicated that Apple’s sales in China fell nearly 20% in the first quarter of 2024, a change that senior research analyst Ivan Lam partially attributed to “Huawei’s comeback.”
The full scope of the company’s decline in China became clear on Thursday, when Apple reported an 8% drop in revenue compared with the previous year.
For years, iPhones have been a status symbol in China, but geopolitical tensions have caused some consumers to turn against American brands. The rise of Chinese smartphone brands has been applauded recently by patriotic shoppers in China, with the news becoming a trending topic on Chinese social media platform Weibo.
“I switched from ‘fruit’ to Huawei, and I don’t regret it,” wrote a Chinese buyer on Weibo, using a nickname for Apple. “Huawei is very good to use. I will never buy the ‘apple’ one again out of vanity. Go Huawei! Strength national products!”
The iPhone could soon “return to growth again in China,” said Wedbush Securities analyst Daniel Ives, due to “a cycle of pent-up demand with an AI-driven iPhone 16 model on the horizon.” But Apple’s stature in China could also be affected by geopolitical factors, including possible retaliation from Beijing if TikTok is forced to close in the United States after Congress recently passed legislation to force the company’s sale.
Apple is also facing regulatory challenges that could force it to rethink the design of existing and future products and services.
Some of Apple’s popular smartwatch models, two of which were temporarily banned at the end of 2023, also face an uncertain future. Apple Watch Series 9 and Watch Ultra 2 devices sold in the United States inform their owners that a built-in blood oxygen monitoring app is “no longer available” when they try to use it, due to a patent infringement dispute with the medical technology company Masimo. This legal dispute is ongoing, and a trial may not occur until 2025.
The European Union this year unveiled a landmark anti-monopoly law, the Digital Markets Act, that forced the company to allow third-party app stores on iPhones for the first time. Apple generates about $85 billion in annual revenue from its services business, which includes the App Store, where it earns fees for app purchases.
Apple has tried to maintain control over its platform in the European Union by saying it will charge fees for purchases from third-party app stores, in a move that has angered some developers and also angered EU authorities. Just weeks after the DMA came into force, the European Commission announced that it had opened an antitrust investigation against Apple, with the company facing fines of up to 10% of its global revenue.
At the time, Apple said it was confident it was complying with the DMA.
Then, in March, the Justice Department launched an antitrust investigation into Apple. Prosecutors have accused Apple of abusing its market power to keep app developers and consumers in its ecosystem — allegations similar to those being investigated in the European Union. If the court rules in favor of prosecutors, it could order changes to Apple’s business structure.
“We allege that Apple has maintained monopoly power in the smartphone market not only by being ahead of the competition on the merits, but by violating federal antitrust law,” Attorney General Merrick Garland said in a statement. “If left unchallenged, Apple will only continue to strengthen its smartphone monopoly.”
Apple spokesman Fred Sainz said at the time that the lawsuit is “wrong on the facts and the law” and that the company “will vigorously defend itself against it.”
Meanwhile, Apple’s attempts to grow beyond its few core products have met with limited success. The Vision Pro mixed reality glasses were released this year and received criticism on two counts. Experts acknowledged the sophistication of Apple’s hardware but lamented the limited feature set and app ecosystem.
Since then, the nearly $3,500 glasses have struggled to find customers outside of the mixed reality and Apple fan communities. And although the product has only been available in recent months, many believe it won’t become popular anytime soon.
“I don’t think there’s any hope that it’s the next big thing,” said O’Donnell, an analyst at TECHnalysis Research. “It’s very expensive and the value you get for the vast majority of people is short-lived.”
Then, shortly after the launch of the Vision Pro, Apple halted one of its most ambitious projects: building a self-driving car.
For nearly a decade, rumors have swirled about Apple and its highly secretive self-driving car project, dubbed “Project Titan.” Although the company was far behind its competitors — including Tesla, Waymo and Cruise, which had deployed vehicles to the public in California and other markets across the United States — industry observers took Apple’s push into self-driving technology as a vote confidence in the potential of automated driving. This also gave investors hope for a new fundamental technology from the company.
Apple has never publicly acknowledged the project, but there were signs last year that it was being quietly tested: Public data from California showed the company tested 67 cars with more than 450,000 miles between December 2022 and November 2023, an increase of more than three times compared to the previous year. Meanwhile, its golden SUVs – equipped with large, square sensors – could be seen around Apple’s headquarters in Cupertino.
But then, in February, the project was officially scrapped: the company abandoned the project, ending a long chapter of speculation about what the company was planning to do with the cars. Instead, Apple has turned its focus to generative AI projects, giving industry watchers hope that the company is finally ready to join the AI bull cycle.
“We remain very optimistic about our opportunity in generative AI,” Cook said on a conference call with investors, adding that Apple is making “significant investments” that it plans to share with customers soon.
“We believe in the transformative power and promise of AI and believe we have advantages that will differentiate us in this new era,” said Cook.
For now, however, the shape of the company’s AI ambitions remains unclear. And Apple is late to the party, while rivals Microsoft, Amazon and Meta spend billions of dollars to support AI infrastructure. Apple’s first wave of devices that emphasize AI could launch as early as next week, when the company is expected to unveil a long-awaited slate of new iPads.
Not everyone is losing hope. Carolina Milanesi, president and chief analyst at Creative Strategies, said that despite the bleak earnings outlook for the near future, Apple “always seems to be able to get out of these situations.”
“The fact that they have so many different revenue streams is what allows them to not feel the pressure in the same way that a one-trick pony would,” she said.
