Most Frequently Asked Questions from Investors and My Thoughts About the Highly Anticipated WWDC 2024

Investors generally focus on the many AI services and features Apple will announce at WWDC 2024. Here are the questions I have been asked frequently by investors over the past few months.

1. How does the market view WWDC 2024?

The market expects Apple to redefine user behavior with on-device AI and drive hardware replacement demand. The continuous rise in Apple’s stock price over the past few weeks indicates a positive market sentiment toward WWDC 2024.

2. Can Apple’s hardware shipments return to growth after the launch of AI services?

The key is whether the AI services have “unique and sustainable competitive advantages.” Take the macOS desktop version of ChatGPT launched by OpenAI as an example. Although it was launched before the Windows desktop version, it is not unique (the features are almost the same as the web version), and the advantage is not sustainable (a Windows version will be available later this year). Therefore, the macOS desktop version of ChatGPT does not contribute to Apple’s hardware shipment growth.

3. Will the AI features of iOS 18 help drive iPhone replacement demand?

My latest supply chain surveys indicate that iPhone 16 shipments in 2H24 will decline by about 5% YoY (vs. iPhone 15 shipments in 2H23), meaning that Apple may currently believe that iOS 18 will have limited help in driving replacement demand. It remains to be seen whether Apple will change its shipment estimates based on market feedback after WWDC.

4. Can Apple’s services business benefit from introducing AI services?

On-device- AI is difficult to charge users for, while cloud-based AI or integrated cloud and on-device AI have better opportunities. Convincing existing users within the Apple ecosystem to pay for high-quality AI services is easier than expecting AI to drive hardware replacement.

5. What types of AI services might Apple release?

Services that could be released include:
1) Significant user experience improvements to Siri.
2) AI-enhanced applications (translation, search, photo editing, word processing, etc.).
3) Integration of chatbots such as ChatGPT to enhance internet search services and
4) In-app chatbots/AI (allowing AI to be used within apps without switching to a browser).

6. Can partnerships with companies like OpenAI significantly enhance Apple’s competitive advantage?

Many investors have high expectations for such potential partnerships, but it depends on the cooperation models and outputs. For example, the macOS desktop version of ChatGPT is a collaboration between Apple and OpenAI, but it doesn’t help Mac shipments.

The key is whether the AI services/features developed through the collaboration have “unique and sustainable competitive advantages.” It means that partners working with Apple must enter into some form of exclusive collaboration and allow Apple to have some control over the partner’s Large Language Model (LLM) development progress to ensure service quality and future upgrades. Otherwise, any AI services/features resulting from the collaboration can be easily imitated by competitors, making it challenging to maintain a competitive edge. However, for leading companies such as OpenAI, such terms of cooperation are currently difficult to accept. In addition, Apple needs to consider the risk that by collaborating more closely with companies like OpenAI, the AI services/features developed through the collaboration may not be available in certain markets (such as China).

From this analysis, it seems that Apple’s collaboration with companies like OpenAI is more likely to remain at the level of “AI wrappers” (Apple designs the user interface of the apps, while the actual inference relies on the AI models and computing power of its partner companies). Given Apple’s design capabilities, they can certainly deliver an excellent user experience for AI wrappers (e.g., well-designed interfaces, ease of use, etc.).

7. Is Apple developing its own LLM?

My latest survey indicates that Apple is developing its cloud-based and on-device LLMs. However, it is unlikely that Apple will announce development progress that significantly exceeds market expectations at WWDC 2024. Cloud-based LLMs require more time to train, and the development of on-device LLMs is currently limited by the iPhone 16’s 8GB of DRAM.

8. Summary of Apple’s AI strategy at WWDC 2024:

1) After WWDC, Apple will no longer be seen as a laggard in the AI industry.
2) AI will be ubiquitous in Apple’s main applications, showcasing Apple’s advantage in user interface design. Improvements to Siri will be one of the key highlights.
3) Collaborations with companies like OpenAI may focus mainly on AI wrapper models.
4) On-device LLMs are unlikely to exceed market expectations due to the iPhone 16’s 8GB DRAM limitation and,
5) Current estimates suggest that iPhone 16 shipments in 2H24 will be lower than iPhone 15 shipments in 2H23, and,
6) In the long term, Apple’s investments in AI are seen as positively contributing to hardware replacement demand and the service business, but in the short term, significant revenue and profit growth due to AI may take more work to achieve.