iPhone growth
iPhone sales grew 5.5% y/y in the September quarter, exceeding the Street’s 3% expectation. Initial demand concerns coming from suppliers, carriers, and China were alleviated by stronger than expected sales in the quarter.
The positive performance in the September quarter was muted by guidance that implies iPhone growth will go from up 5.5% y/y in this last quarter to up 4% y/y in December.
What’s important for Apple investors is triangulating if and when Apple Intelligence will be a catalyst for iPhone, Mac, and iPad sales. There are two aspects to the topic:
The first is related to when Apple Intelligence features will be fully in place. Based on comments from Tim Cook on the earnings call, it suggests the AI offerings will have critical mass somewhere around the end of March next year. I define critical mass as when the offering is compelling enough to motivate people to upgrade their hardware. By the end of March, Apple Intelligence should have full ChatGPT functionality, which will make Siri more useful. Additionally, it should have more advanced writing tools, photo editing capabilities, and a better interface to prioritize and search through all current and incoming data. This will lay the groundwork for developers to embed AI into their apps, which should further unlock consumer value given the potential around agentic AI.
The second is when Apple will be allowed to turn these features on across the globe. As it stands, the features are only available in the US today and will be available in the UK, Australia, and Canada by the end of 2024. That means exiting this year only 45% of Apple’s active installed base will have access to the first wave of Apple Intelligence. So far, the company has given limited indication around when we can expect to see these features go live in Europe and China (would require a local LLM provider like Baidu).