Apple's AI push could reinvigorate iPhone sales as customers look to upgrade

By Jeffrey Dastin and Aditya Soni

SAN FRANCISCO (Reuters) -Apple's developer conference on Monday was about more than infusing its software with the latest artificial intelligence technology, including from 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 come autumn 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," analyst Gil Luria of D.A. Davidson said.

Shares of Apple were 3.3% higher at a record in early trading on Tuesday, after closing nearly 2% lower on Monday.

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 ChatGPT's help too.

Some analysts voiced skepticism, predicting consumers would not 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.

UPGRADE TO AI

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 so it can process data privately on a user's device, depends on chips in Apple's newer smartphones.

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

"We estimate 15%+ 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.

(Reporting by Jeffrey Dastin in San Francisco; Additional reporting by Aditya Soni in Bangalore and Max Cherney in Cupertino; Editing by Jamie Freed)