Analysis Report | Apple evaporated $177 billion at the beginning of the year! Will it be better this year?

According to Zhitong App, Apple's stock price has been declining at the beginning of the new year, with four consecutive days of decline in the first four trading days. The stock price has fallen by nearly 6% in the first trading week of this year, and the market value has evaporated by about $177 billion.

Apple is facing a series of challenges in the new year, including catching up with the artificial intelligence wave and dealing with various changes in the App Store. In addition, Apple's retail stores need to prepare for the next steps in response to the sales ban on Vision Pro and Apple Watch.

Initial Lineup

It is reported that Apple will launch its most anticipated new product in 2024. However, this year will also be the most challenging year for Apple.

It is estimated that the company is about to experience its fifth consecutive quarter of sales decline, marking the second consecutive holiday quarter of declining revenue. Wall Street has expressed great concern about Apple's sales this year, and if Apple's revenue in the Chinese market, which will be announced in a few weeks, is lower than expected, this concern may be further exacerbated.

In retrospect, Apple's performance guidance is usually quite accurate. However, in this fourth quarter earnings report, Apple implied not to expect a breakout performance.

According to Apple's CFO Luca Maestri, in October, when the holiday quarter, including the first full shipment of Phone 15 and Apple 15 Pro, was mentioned, it was expected that Apple's absolute revenue would increase year-on-year, and Apple's revenue would also grow after normalizing last year's supply disruptions.

This basically means that Apple believes (at least in October) that the sales of Apple in the first quarter of 2024 will only slightly increase compared to the same period last year, although the significant growth is expected when the new Apple 15 is released, as the Apple 14 Pro was partially affected by the pandemic a year ago.

Apple is also trying to indicate that despite the holiday season being one week shorter than last year, the revenue of the devices will still increase. Comparisons are not easy for Apple this year due to supply chain issues last year.

According to past patterns, when Apple is more confident in the growth of a certain product category, it usually states it directly. For example, when emphasizing that Mac sales will grow in the first quarter, the company stated that it is expected that "Mac's YoY performance will significantly accelerate".

Given the current situation, Apple's sales are worrying, especially in China, where government agencies prohibit the sale of non-Chinese-made devices in certain cases. However, Apple's biggest challenge this year is not that.

The Apple 16 series is unlikely to be a convincing upgrade to the existing models when it is launched in the fall. However, Apple's marketers will try to make the slightly larger screen product sound like the biggest innovation ever. Although the changes are minimal, there are still many users who are using Apple 12s and 13s waiting for an upgrade.In the beginning of 2024, Apple may face the following challenges:

• In the field of generative AI, the company is still lagging behind its competitors by several years. With Microsoft, Amazon, Samsung, and Google under Alphabet Inc. launching new hardware, software, and services centered around artificial intelligence, Apple may miss out on opportunities.

• The company's first new product category in nearly a decade, the Vision Pro wearable headphones, may not become a strong revenue driver for at least the next year or even longer. The iPad and Mac, two product categories that have performed poorly in recent quarters, need to regain their vitality.

• Antitrust regulatory agencies will continue to scrutinize the App Store. Due to the European Union's Digital Markets Act, the App Store will be forced to open up, and the same may happen in other regions.

Apple was late to the game in the field of generative AI, launching its corresponding tools only after ChatGPT had gained global popularity for nearly two years. Additionally, Apple was late to the game in improving Alexa, about a year after Amazon's announcement, and about a year and a half after Microsoft and Google's first launch of new services. Even for Apple, this is a significant mistake.

The company plans to announce its generative AI tools at the Worldwide Developers Conference in June and present them as part of iOS 18. The underlying work is being done on a large-scale language model called Ajax, which the company has been testing since early last year.

Apple is focusing on adding features such as automatic summarization and auto-completion to its core applications and productivity software like Pages and Keynote. Apple is also working on integrating AI into services like Apple Music, hoping to use this technology to better automate playlist creation. Additionally, Apple plans to make significant adjustments to its digital assistant Siri based on AI.

For developers, Apple is developing a new version of Xcode and other development tools that incorporate AI to assist with coding. The company is also developing an AI-based system to help AppleCare employees assist customers in troubleshooting.

However, it is worth noting that Apple's complete vision for generative AI will not be fully realized until at least 2025. Meanwhile, its biggest smartphone competitor, Samsung, will be launching the Galaxy S24 series later this month, which will feature brand-new AI capabilities.

In short, Apple is significantly behind in the field of artificial intelligence, which poses a major risk for a company that claims to be a top innovator in the consumer technology industry. In the coming months, Samsung will do its best to highlight Apple's shortcomings in the market.In terms of hardware, Apple still has a lot of work to do, including increasing sales of Apple Watch, AirPods, Mac, and iPad, as well as ensuring the success of Vision Pro. Additionally, the situation of Apple Watch is precarious due to its temporary withdrawal from the market during the patent dispute. Apple needs to improve the mid-range and low-end AirPods to resonate with consumers and help drive growth in this segment.

Last year, Apple completely overlooked new products such as the iPad and the 15-inch MacBook Air, which were not enough to sustain the momentum of Apple's notebooks since 2022. The redesigned iPad Pro may be considered too expensive by some users, but it is likely to be a major revenue driver. And if the M3 MacBook Air is marketed properly, it could become a hot-selling product.

The most noteworthy point is that the company's popular new products will hardly contribute to Apple's profits in the next few years. Wall Street may be concerned about the limited initial return on investment for the Vision Pro mixed reality headset. Consumers may be dissatisfied with the device's range of uses, perplexing design, and weight. Given the relatively small market size, developers may keep their distance.

Another major obstacle is the impact of regulations on the App Store, especially the European Digital Markets Act. In March of this year, Apple will need to split the profit-generating App Store into two versions: one for the European Union and another for other regions. Users living in the European Union will be able to install applications outside of the store, use external payment processors to pay for services, and better integrate first-party and third-party applications and features.

Over time, Apple may find itself facing another new challenge: in Europe, the growth of App Store revenue is slowing down, while new competitors that can utilize more of Apple's built-in technology are on the rise. The European Union is just the beginning, and it can be foreseen that other countries will follow suit to achieve the common goal of opening up the App Store everywhere someday.

Despite the challenges, Apple may still benefit from the continued appeal of its products to consumers. While Vision Pro may bring more trouble than benefits to the company, it is still a convincing piece of hardware; the new artificial intelligence features in iOS 18 will eventually set Apple apart in this game; and significant innovations in Apple Watch and AirPods may sell well during the holiday season.

Moreover, even if everything fails, Apple still has its core business to rely on: Apple and its annual revenue of $150 billion to $200 billion.

On the Bench

With the imminent release of Apple's Vision Pro, retail stores are in preparation mode. Although it was previously believed that Vision Pro would take a few more months to launch by 2024, as Apple Watch in early 2015 usually didn't hit the market until April of that year, recent thoughts seem to have changed.The device is currently being shipped in small quantities to warehouses across the United States, and will then be distributed to Apple retail stores. The company believes that by the end of January, there will be enough supply in the United States for the product to be launched in February. Apple is expected to announce news related to Vision Pro in about a week, shifting the focus from the Consumer Electronics Show (CES) held in Las Vegas this Tuesday.

Here are some other indications that the product is about to be launched:

• Two to four retail employees from Apple stores across the United States have flown to Apple's headquarters in Cupertino for secret training on the new product. Although Apple has not disclosed what this product is to its employees, it is highly likely to be Vision Pro. It is speculated that these employees will learn how to sell the device and teach others. They will also serve as guides to help customers try out the device and facilitate sales.

• On January 21st, all Apple stores in the United States will hold a rare three-hour meeting for employees. Retail staff believe that these meetings will involve training and discussions on sales procedures, with more training to follow in the coming days. Later that week and the following week, retail stores will receive new inventory shelves and replace backend devices.

• Last month, Luxshare Precision, the Chinese manufacturer that produces headphones for Apple, held a delivery ceremony, marking the imminent release of Vision Pro. In the past few weeks, Apple has applied for design patents for every hardware and software element of the device, indicating that it is about to be launched.

One remaining question about Vision Pro is whether Apple will offer online reservation services from the beginning. It is speculated that users will be able to pre-order Vision Pro on Apple.com, create an appointment time, and then go to the nearest Apple store to install the appropriate light seal, headband, and cushioning device. Apple may release a facial scanning app required for this process to online users at some point, so that users can purchase the product without having to go to the store. However, there may not be a proper pre-order service to have the product delivered to users' homes when it is initially launched.

Finally, although Apple stated that Vision Pro will not be launched in other countries until "later" in 2024, it is speculated that it will not be that late in reality. In addition, Apple is considering China, Canada, and the United Kingdom as the first markets to receive the headphones.

What's next for the Apple Watch Series 9 and Ultra 2 after the ban on sales?

The initial ban on the Apple Watch implemented by the US International Trade Commission (USITC) in the patent dispute seems to have been short-lived. After being removed from US Apple retail stores just before Christmas, the Apple Watch was relisted before the arrival of 2024. The federal court has temporarily blocked the USITC's order as Apple awaits the outcome of hearings with customs officials and other appeals.The current probation cannot change the initial ban on ITC, but the decisions of the US Customs and Border Protection and the federal court may allow the latest Apple Watch to permanently return to the market. So what will happen next?

On January 12th, the customs agency will decide whether to approve a software fix that Apple believes will no longer infringe on the patents of medical device manufacturer Masimo in relation to blood oxygen-related functions.

On January 15th, Apple will have a hearing with the appellate court, with the goal of completely overturning the ban.

Whether through repairs or presenting compelling arguments to the appropriate judge, Apple may be able to resolve the Apple Watch case before the end of this month. If Apple exhausts all legal avenues and possible repair solutions do not solve the problem, they may consider reaching a settlement instead of enduring months of pain from medical technology company Masimo.

The 2024 International Consumer Electronics Show (CES) will take place from January 9th to 12th, and it is not expected to have any major breakthroughs. The era of unveiling new Microsoft tablets or PalmPre at CES has passed, but there may still be many small products related to mixed reality headsets and artificial intelligence being released. Apple, Google, and other companies will also send engineers to this event to seek next-generation components and new partners.