Apple faces scrutiny over iPhone sales, AI strategy in upcoming earnings call

Apple (NASDAQ:AAPL) prepares to issue its latest financial results next week as analysts continue to mull its declining iPhone sales in China and its generative artificial intelligence strategy.

“Apple’s weak iPhone shipments in China have become well known,” writes Wells Fargo equity analyst Aaron Rakers and others in an investors’ note.

Apple’s weekly iPhone sell-thru during the first quarter of 2024 declined by 20% year over year in China, according to Counterpoint Research. Apple had an estimated ship share of 15.5% during the quarter compared to 20% during the same quarter in 2023.

And on a global scale, iPhone shipments during the quarter totaled 50.1M units, which was a decline of 9.6% year over year, according to preliminary data from IDC.

Wells Fargo expects the smartphone replacement cycle to extend as updated iPhones only offer incremental upgrades, and consumers in markets such as China are shifting to phones with lower average selling prices.

Apple’s strategy of how to integrate generative AI functionality into its iPhone is one of the most important things to look for in the upcoming earnings call, according to Wells Fargo.

Apple has reportedly entered into talks with Google (GOOG)(GOOGL) to incorporate the Gemini AI engine into the iPhone.

“We think this would be a beneficial and natural partnership for Apple as Apple does not have the level of infrastructure (GPUs) required to train a LLM on par with ChatGPT/Gemini/Claude and would continue the two companies long-term partnership that has historically been based on search,” Rakers noted.

However, any potential unveiling of Apple’s new generative AI features will likely not occur until the WWDC event in June.

“The company has also been investing in AI for years, and I think those investments will make Apple a leader in AI, despite the current perception of it as a laggard,” said Seeking Alpha contributor and analyst Christopher Robb.

One area where Apple is likely to display consistent growth is in Services.

“We maintain our long-term thesis that Apple can increasingly derive more value from its massive installed base of more than 2.2B active devices via both increased services penetration (including continued build out of service offerings) and greater number of devices per user as it increases the value of its ecosystem,” Wells Fargo noted.

And despite declines in Apple’s iPhone sells, the Cupertino-based tech giant shipped 5.375M Macs during the first quarter of 2024, according to Gartner. This represented a year-over-year increase of 2.5%.

Apple plans to release its second-quarter fiscal year 2024 financial results post-market on Thursday, May 2. It will host a webcast to discuss the results at 5 p.m. EST. A consensus of analysts expect earnings per share of $1.51 on revenue of $90.61B.