To save the Chinese market, we can only look at iPhone 16

"The competitive environment there is the most competitive in the world. I have said it before, and it remains true now."

Cook made this statement while explaining the continued decline in revenue in the Greater China region in the latest financial report. On August 2nd Beijing time, Apple released its financial report for the third quarter of fiscal year 2024 (i.e., the second quarter of 2024), which ended on June 29, 2024. The revenue in the Greater China region was $14.7 billion, a year-on-year decrease of 7%, falling short of analysts' expectations of $15.3 billion.

What's worse, in the Chinese market, this is already the fourth consecutive quarter that Apple has experienced a year-on-year decline in revenue.

The expansion into emerging markets has slightly mitigated Apple's unfavorable situation in the Chinese market. For instance, Apple opened its first store in Malaysia and set quarterly revenue records in countries such as India, Indonesia, the Philippines, and Thailand. These efforts helped Apple achieve a revenue of $85.8 billion in the second quarter, a year-on-year increase of 5%, with a net profit of $21.4 billion, a year-on-year increase of 8%.Beyond the Chinese market, another focus for the public is undoubtedly the upcoming Apple Intelligence. At the earnings call, questions about Apple Intelligence were almost constant throughout.

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Apple CEO Tim Cook said straightforwardly: "We are very much looking forward to sharing these AI tools with our users and will continue to invest heavily in innovation to enrich our customers' lives."

On the eve of the earnings report, Apple gave an initial glimpse of some Apple Intelligence experiences in the developer beta version of iOS 18.1. The test features mainly revolve around writing tools, a new Siri, photo album, and the long-awaited call recording, without yet integrating the ChatGPT function.

However, it is worth noting that in the developer beta update push of iOS 18.1, Apple specifically reminded that trying out Apple Intelligence requires an upgrade to the iPhone 15 Pro/Pro Max, and it is temporarily not supported in the EU and China.

As for when it will be available, Cook said that Apple has been very constructively cooperating with the regulatory authorities in the aforementioned two regions, "Our goal is to act as quickly as possible. We must first understand the regulatory requirements before we can commit to what to do and then set a corresponding timetable."Regarding the issue of cooperation fees between Apple and OpenAI that has been of concern to the outside world, there have been persistent rumors that the two parties have been more involved in resource exchanges and neither has charged licensing fees. Cook did not make a clear statement this time, merely stating, "As for monetization models, I do not want to delve into the terms of business agreements because they are confidential for both parties."

However, Cook revealed that Apple's AI will start rolling out an American English version to users from the fall, and ChatGPT will also be integrated into the iPhone before the end of the year. By next year, Apple's AI is expected to introduce more features and expand to more languages and regions.

Under the potential wave of device replacement demand that Apple's AI is expected to create, Apple's CFO Luca Maestri provided a rather optimistic financial outlook, predicting that the total revenue for the third quarter will continue to grow year-over-year, with a growth rate similar to that of the second quarter.

In the second quarter, the iPhone, as Apple's core hardware product, became one of the few products with a year-over-year decline in revenue, with revenue of $39.3 billion, a slight decrease of 1%. Another business that saw a year-over-year decline in revenue was the wearables, home, and accessories segment, with revenue of $8.1 billion, a 2% decrease from the previous year.In terms of other products, Mac revenue reached $7 billion, a year-over-year increase of 3%. The services business brought in $24.2 billion, marking a 14% increase from the previous year. Thanks to the launch of the new iPad Pro and iPad Air, the iPad product line became the fastest-growing business of the quarter, with revenue reaching $7.2 billion, a 24% increase year-over-year.

The Greater China region, however, was the only area where Apple's revenue declined year-over-year in the second quarter, with revenue of $14.7 billion, a 7% decrease from the same period last year. In contrast, Apple's revenue in the Americas grew to $37.7 billion, a 6% increase; in Europe, it reached $21.9 billion, an 8% increase; in Japan, it was $5.1 billion, a 6% increase; and in the rest of Asia-Pacific, it was $6.4 billion, a 14% increase.

This marks the fourth consecutive quarter of declining revenue for Apple in the Chinese market. In the third quarter of last year, Apple's revenue in Greater China was $15.1 billion, a 2.6% decrease year-over-year; in the fourth quarter, it was $20.8 billion, a 13% decrease year-over-year; and in the first quarter of this year, it was $16.4 billion, an 8% decrease year-over-year.

Declining along with the revenue is the sales volume of iPhones in the Chinese market. Canalys data shows that in the second quarter of 2024, the mainland China smartphone market achieved further recovery after the previous quarter's turning point, with shipments growing by 10% year-over-year, returning to the 70 million unit level.

However, Apple's market share decreased by 2% year-over-year, dropping to the sixth place, leading to the rare occurrence of domestic smartphone manufacturers taking all the top five spots in the mainland China market for the first time in history.Canalys research analyst Zhong Xiaolei believes that "in recent years, Chinese manufacturers' firm implementation of high-end strategies, along with in-depth collaboration with local supply chain partners, has gradually achieved results in both software and hardware."

However, Apple's intelligence is expected to inject new growth momentum into the iPhone. Wedbush analyst Dan Ives predicts that starting from the iPhone 16, the Chinese market will once again achieve growth.

Some media have even reported that Apple has raised its shipment expectations for the iPhone 16 series in 2024 to 90 million units, a 10% increase compared to the same period for the iPhone 15 series.

The main driving force behind the increased expectations is Apple's confidence in Apple Intelligence. After all, to experience Apple's intelligence, there are certain hardware requirements for the phone, namely that the memory must be 8GB or more, which is why Apple's intelligence can currently only run on the iPhone 15 Pro/15 Pro Max. According to supply chain news, the iPhone 16 series is expected to come standard with 8GB of memory across the entire line.

But how much enthusiasm does Apple's intelligence bring to the iPhone replacement? Cook did not give a very affirmative answer, only saying "in terms of upgrade rates, it is difficult to predict in the medium term. I just want to say that with Apple Intelligence, we are very excited about the level of value we will provide to users. We believe this provides another reason for an impressive upgrade."Despite facing more intense competition in the Chinese market, Cook remains confident in its long-term opportunities. "I don't know how every stage of the Chinese market will develop, but we are very confident in the long-term prospects."

However, one fact that might slightly dampen Cook's confidence is that the iPhone 16 series released in the fall will not be able to experience Apple's intelligence for the time being.

According to Apple's phased rollout plan, only US users will be able to experience the iPhone 16 with Apple's intelligence this fall, while the Chinese region will have to wait until next year.

Faced with the reality of the iPhone continuously implementing price reductions and promotions, whether to buy now and enjoy it, or to wait until Apple's intelligence is officially pushed next year and then buy the iPhone 16 at a more affordable price, will undoubtedly trouble some Chinese users who are considering upgrading their phones.As early as June, when Apple's AI made its debut, Craig Federighi, Apple's Senior Vice President of Software Engineering, stated that the company was actively seeking ways to introduce "Apple Intelligence" to the Chinese market. "Although there is no specific timeline at the moment, this is definitely something we want to do."

Taking a cue from Samsung, one of the ways it has brought AI large models to the Chinese market is by collaborating with Chinese manufacturers. It has successively integrated Baidu's Wenxin large model and ByteDance's DouBao large model.

In March of this year, during Tim Cook's visit to China, there were also rumors that Apple was expected to collaborate with Baidu to introduce the latter's Wenxin large model into Apple devices such as the iPhone 16. To date, there has been no further news from either side.

In order to achieve the goal of providing functionality for everyone, Cook mentioned that Apple is taking action as quickly as possible. "We must first understand the regulatory requirements before we can commit to doing so and set a timeline. But we have had very constructive cooperation with regulators in the EU and China."The imperfections of Apple's intelligence are also one of the reasons that hinder Cook from promoting it to more regions as soon as possible. According to some users' experience with the iOS 18.1 developer beta, the AI performance it demonstrates has a significant gap compared to ChatGPT, Gemini, and others.

Mark Gurman, a Bloomberg technology journalist, even revealed that Apple's intelligence will be delayed until October, which means that the iPhone 16 unveiled in September will not come pre-installed with Apple Intelligence.

Gurman further explained that both Apple and developers need sufficient testing time to optimize Apple Intelligence. Even after Apple Intelligence goes live in October, users may not be able to experience all the AI features that Apple depicted at WWDC, such as a fully intelligent Siri experience, which may not be available until the first half of 2025.

This might also be the reason why Cook did not forget to remind during the earnings call that "we will continue to invest heavily in AI technology and commit to innovation to fully leverage its potential."Lagging behind the Android camp in AI large models, Apple's pace of innovation is also attracting more and more skepticism.

After the release of Apple's second-quarter financial report, Gurman commented that from a financial perspective, everything is fine with Apple Inc. However, the company's pace of innovation has significantly slowed down, and it may have missed the latest major new products, while canceling future growth sources such as internal screen technology and automobiles. In the Apple product roadmap for the next two to three years, I do not see any game-changing products.

Cook had planned three breakthrough areas for Apple's future—artificial intelligence, AR, and autonomous driving.

In addition to the ongoing catch-up in artificial intelligence, the automobile project related to autonomous driving has been officially halted by Apple.

At the end of February this year, Apple officially called a halt to the automobile project that had been in development for 10 years and had invested billions of dollars. The automobile was once considered the most mysterious and highly confidential project within Apple, and was even seen by Kuo Ming-chi as the key weapon that could push Apple's market value to increase by one trillion US dollars.However, facing the numerous challenges of implementing autonomous driving, Apple has made a choice amidst dilemmas, ultimately siding with the more urgent AIGC at present, in order to preserve its core hardware, the iPhone.

The mixed reality headset Vision Pro, since its release in February, has also encountered a slowdown in sales. Data from market tracking agency IDC shows that the sales volume of Vision Pro has not exceeded 100,000 units in a quarter.

After being released in more countries and regions such as China at the end of June, IDC estimates that the total sales volume of Apple's Vision Pro in 2024 will not exceed 500,000 units.

In the field of foldable screens, which has been heavily cultivated by the Android camp, there has recently been new news about Apple. Some media have revealed that Apple has internally completed the research and development of a foldable iPhone and is currently connecting with suppliers to prepare for mass production. Product testing is underway, and it is expected to be released as early as 2026.

In 2019, when Samsung's first foldable phone, the Galaxy Fold, was released, rumors began circulating online that Apple was also preparing a foldable iPhone. Over the past five years, not only have numerous render images of the foldable iPhone been leaked online, but also a lot of patent information involving Apple's foldable products has been disclosed.The ongoing rumors about the foldable iPhone, whether it can still be launched around 2026, is currently a new question that raises doubts.

Even if the foldable iPhone is launched on schedule by then, for Cook, how to prove to the outside world that Apple still has the ability to catch up and overtake will also be a significant challenge.