5 big problems facing Apple this year

5 big problems facing Apple this year



CNN

Sales problems in China. Patent claims in the United States. Behind in generative AI. 2024 is just a few weeks away, and Apple’s year ahead is full of challenges.

The tech giant’s troubles affect many parts of its overall business. Last week, Microsoft replaced Apple as the most valuable publicly traded company after trailing the iPhone maker for the better part of a decade. Microsoft’s stock surge is largely due to its early and broad bets on generative artificial intelligence, an area where Apple remains mum.

But some analysts believe the company will be able to navigate its way through mined areas throughout the year.

“As Apple, which is still the world’s largest company by market value, I’m sure it will do everything in its power to minimize the impact of these problem areas,” ABI Research analyst David McQueen said. “It will still have an extremely loyal user base so its brand value and recognition and quality will not be compromised.”

Here’s a closer look at what’s in store for Apple:

ALY SONG/X01793/REUTERS

A woman looks at the new iPhone 15 Pro and the Huawei Mate 60 Pro as Apple’s new iPhone 15 is officially launched at an Apple store in Shanghai, China on September 22, 2023.

One of Apple’s biggest hurdles this year will be tapping into China, the world’s second-largest economy.

The company has made efforts to woo iPhone customers in the country after the launch of the highly successful Huawei Mate 60 Pro smartphone. In a surprise move, Apple recently offered temporary discounts on its iPhone and other products in China, slashing iPhone prices by nearly $70. (Macs and iPads are also heavily discounted). It’s normal for other sellers that carry Apple products to drop prices, but the company itself rarely offers discounts.

The move has raised eyebrows over how well the iPhone has performed in one of Apple’s most critical markets, which accounted for about 20% of the company’s sales last year. A recent Reuters report noted that iPhone sales in China fell 30% in the first week of the year amid pressure from rival Huawei.

Wedbush market research firm analyst Dan Ives called China both Apple’s biggest challenge and opportunity. Despite growing competition, he said China has “about 100 million iPhones in the window of opportunity to upgrade.”

Justin Sullivan/Getty Images

An attendee tests the new Apple Watch Ultra 2 during an Apple event on September 12, 2023 in Cupertino, California. Apple announced the latest versions of the iPhone 15 and other product improvements during the event.

One of Apple’s most popular products, the Apple Watch, is currently banned in the US because of one of the most important patent disputes in a while.

Last week, a US federal appeals court reinstated a ban on some of the more premium versions of the Apple Watch. Apple had requested the suspension of the ban while challenging the decision of the US International Trade Commission, which took effect last month. The ITC order prevented Apple from importing the Apple Watch Series 9, Apple Watch Ultra 2 and other newer models into the US because it infringed on medical company Masimo’s pulse oximeter patent.

Apple sold 49 million smartwatches in 2022, and approximately 26.7 million smartwatches in the first 9 months of 2023. While the ban will affect sales results, Jitesh Ubrani, research manager at market research firm IDC, said Apple’s reputation is also at stake.

“It’s not a good look,” he said. “There may be an impact on sales in the first quarter of next year, but at the end of the day, nobody wants to be caught infringing on patents.”

It’s unclear how long the dispute will last or whether Apple will settle the lawsuit.

Big tech companies, including Microsoft, Meta, Google and Samsung, continue to roll out generative AI features to their services, computers and smartphones. However, Apple is very quiet about this.

The company is rumored to introduce new AI-powered Siri features in the release of iOS 18 later this year. Some device generative AI features may be exclusive to iPhone 16 models, in part due to their custom chips.

But AI innovation in high-end smartphones is not entirely new. Google’s latest Pixel 8 series, launched in October 2023, already has many AI features, and the Samsung Galaxy S24 series, which launches later this month, includes real-time translation, generative AI-powered search, and updated AI-powered tools. photo editing features.

The push around artificial intelligence is part of a larger effort by smartphone makers to stand out in a crowded market and add excitement where innovation has stalled in recent years.

While consumers are unlikely to switch to other brands specifically for AI features, people will eventually expect Apple to offer similar or more advanced features.

This isn’t the first time Apple has fallen behind in emerging areas like 4G, 5G and foldable displays — none of which have led to significant setbacks.

McQueen said that Apple’s rivals, namely Samsung, would have bragging rights and “can point out this AI weakness,” as he questioned whether customers really know what they’re getting with in-device AI and why it deserves an upgrade.

Meanwhile, iPhone adoption remains strong. Market research firm IDC recently released data revealing that Apple overtook Samsung in smartphone shipments for the first time last quarter.

Ming Yeung/Getty Images

A customer buys a new iPhone 15 from a store in Milan, Italy on September 22, 2023.

Apple is under pressure to increase sales in other product categories. In November, Apple posted its fourth consecutive quarter of year-over-year sales declines, particularly as Mac and iPad sales struggled. iPhone revenues increased by 3% and reached 43.8 billion dollars.

However, Barclays downgraded Apple shares earlier this month, citing disappointing iPhone 15 sales in China and softening demand for the latest iPhone. The next-generation iPhone 16, which will be released later this year, is also expected to have only incremental improvements.

Apple is also facing problems with the upcoming launch of its Vision Pro headphones, which will be its riskiest product in years. The company will have to prove a device that combines both virtual reality and augmented reality, a technology that overlays virtual images over live video of the real world, is truly the future of computing. And it won’t be an easy sell: Innovative as it is, it’s still a $3,499 clunky computer you’re wearing on your face.

Nic Coury/AFP via Getty Images

Apple Inc. CEO Tim Cook speaks during the unveiling of the new Apple iPhone 15 at Apple Park on September 12, 2023 in Cupertino, California.

Several big tech companies, including Apple, which are considered dominant “gatekeepers” by the EU, will have to implement the new platform rules this year. This means Apple may have to give up exclusive control over how iOS apps are distributed, which could ultimately affect its revenue.

The new Digital Markets Act (DMA) passed in 2022 aims to strengthen competition in online services. Some of the most visible changes proposed for EU users involve apps, such as how you can install them and what can be pre-installed on devices.

One of the changes will require the prevailing operating systems to allow smaller, third-party app stores to exist, as well as the ability to install apps from anywhere outside of the official app store.

While Google allowed both on the Android platform, Apple maintained strict control over iPhone applications. Apple and other industry players argue that opening up their operating systems in this way could leave users vulnerable to the download of more malicious software.

Under the new rules, dominant app stores won’t be able to delist apps because they refuse to use the gatekeeper’s proprietary payment systems, a problem most recently highlighted by Apple’s antitrust case with Epic Games. Most of Apple’s app store revenue comes from the 30% discount it takes on in-app sales of digital goods and services through payment channels, so the provisions could directly affect the company’s business model.

This month, the US Supreme Court declined to hear an appeal by Apple and Epic in the case, upholding a lower court ruling that Apple had an illegal monopoly on app distribution. The decision not to hear the case also upheld an order requiring Apple to change some of its developer terms.

The company hasn’t shared many other details about how it plans to comply with the legislation, but the early March deadline is fast approaching.

CNN’s Brian Fung and Clare Duffy contributed to this report

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