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Apple AAPL 0.04%increase; green up pointing triangle on Monday introduced a new generation of iPhones that put AI at the forefront of the device’s operating system, a test of consumer appetite for such tools.
The new tools—called “Apple Intelligence”—include an improved Siri voice assistant and a variety of text-generation and photo-editing capabilities, and they will be compatible with the new iPhone 16 and the iPhone 15 Pro. Apple announced most of the AI functions in June.
The company’s shares fell by more than 1% during the presentation, reflecting the market’s skepticism of AI-centric products.
Apple Chief Executive Tim Cook thanked an audience for attending the event at its Cupertino, Calif., headquarters, and said that the new iPhones will be the first “designed from the ground up for Apple Intelligence and its breakthrough capabilities.”
The iPhone 16 line has limited new hardware features outside of new camera capabilities and a new button that will let users slide their fingers to adjust features. Instead, Apple hopes users will be drawn to the new AI features.
“Apple Intelligence draws on the immense power of our silicon to run multiple generative models on the iPhone in your pocket,” said Apple software chief Craig Federighi.
Apple showed examples of the new capabilities to edit text for tone, such as proofreading a message to a boss on Slack or a review of a book. It also can help sift photos or make personalized slideshows using a simple prompt based on pictures or other content. It also offers personalized prioritization of emails and summaries of text messages.
Apple said Siri will have better language understanding and can comprehend even when someone stumbles over their words. Siri will also be able to pull up personal information, such as finding a recommendation for a TV show. Users will be able to use “visual intelligence,” a feature allowing users to take a picture of a dog and ask the breed.
A beta, or early version, of some of the Apple Intelligence features will be available next month. While it will only be available in English for now, Apple said next year it would be ready for Chinese, French, Japanese and Spanish.
The new iPhone line has a chip that Apple executives say will help power the new AI features, and Apple says it is faster than competing devices and even some high-end desktop PCs.
The base model iPhone 16 starts at $799 and the larger-size Plus 16 will be $899, while the Pro model starts at $999, and $1,199 for the larger size.
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As is typical for its fall event, the “Glowtime” presentation began with other new devices, such as a watch and new airpods, before showing the new iPhone 16 lineup.
The company unveiled a new design for the latest iteration for its smartwatch, the Apple Watch Series 10, which is thinner than previous versions, offers a bigger display and can alert users who may have sleep apnea.
New capabilities for swimmers help gauge water depth and temperature as well. The new watch will cost $399 or higher and will be available on Sept. 20.
Apple announced that an upgrade to its AirPods Pro 2 can make them capable of acting as an over-the-counter hearing aid, and the company said it would offer hearing tests based on findings in scientific research. The baseline model was also updated, and the AirPods 4 cost $129.
So far, consumers have yet to embrace AI capabilities as a primary reason to upgrade. Apple’s leading smartphone rival, Samsung 005930 -2.07%decrease; red down pointing triangle, has heavily promoted its latest devices’ AI capabilities. AI was only a minor selling point for carriers after the initial batch of sales, according to surveys BayStreet Research conducted at U.S. carrier stores.
Another recent survey showed that 7% of consumers had a very high inclination to buy a smartphone based on AI features, according to research firm Canalys.
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“AI hasn’t resonated yet with the masses,” said Cliff Maldonado, principal analyst at BayStreet Research, which studies the smartphone market.
Some investors expect Apple’s phone sales to surge regardless, as many iPhone consumers are due for an upgrade. Analysts, on average, expect iPhone revenue for its 2025 fiscal year, which ends next September, to grow nearly 5%, according to FactSet.
Demand for Apple’s AI-enabled phones will offer another test of market appetite for the technology. The company’s rivals have spent billions investing in models that can chat and interact with users in humanlike ways, write, and produce images and animations. Yet investors have grown wary of AI spending this year as many companies have yet to show a clear path to profitability.
In contrast to its rivals, Apple hasn’t poured giant piles of cash into its AI efforts. The company, instead, is hoping external partnerships with the most advanced AI players will help it participate in the market.
“Apple is doing partnerships instead of having to reinvent the wheel,” said Trip Miller, managing partner at Gullane Capital Partners, an Apple shareholder. “They’ve already got the platform and the user base that wants to consume this revolutionary technology.”
With Apple Intelligence, Apple is also joining up with AI startup OpenAI—which is helmed by Chief Executive Sam Altman—to embed ChatGPT, which it sees as the current leader in generative artificial intelligence. The iPhone maker plans to work with other AI developers. Apple is currently in talks to invest in OpenAI, The Wall Street Journal recently reported.
The company has yet to announce an AI partner in China, one of its largest markets and an area where sales have stagnated as it faced new competition from homegrown smartphone brands.
Apple’s last big iPhone hit was in 2021, when sales rose 39% compared with the prior year. Sales have fallen in the past two quarters compared with the same period a year earlier, and revenue fell by more than 2% in the 12 months that ended in September 2023, its most recent fiscal year.
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The 2021 sales cycle was propelled by promotions and upgrade subsidies from wireless carriers. Those companies helped pay for new, speedier 5G phones to land new users or retain existing ones after spending billions on new network infrastructure upgrades.
Carriers play a huge role in new phone purchases in the U.S., accounting for around three-quarters of all new iPhones sales in the country, according to Consumer Intelligence Research Partners. While deals for upgrades are still available, some iPhone customers have delayed upgrades in recent years, when new-generation iPhones had less-significant redesigns or feature additions.
“People are holding on to their phones for longer and longer periods,” said Michael Levin, co-founder of CIRP. “Apple is swimming upstream that way.”
Some analysts expect a stronger return to iPhone growth to happen in the following iPhone 17 generation, where a new thinner phone design is expected along with an updated camera design. More consumers might be willing to embrace AI features by then as well, analysts said.
Write to Aaron Tilley at aaron.tilley@wsj.com
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Appeared in the September 9, 2024, print edition as 'Apple Bets On AI To Spur iPhones'.
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